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Published 16 June 2020
The first tentative steps are now being taken to ease the lockdown restrictions imposed on the nation as a consequence of the COVID-19 pandemic and thoughts are turning to how we can return to “normal”. The construction sector is no exception but finds itself in a slightly different position to many businesses as sites were never required to close (provided that work could carry on “safely”). Nevertheless the impact of COVID-19 has wreaked havoc on the finances of the construction sector and the viability of current and future projects.
The Construction Leadership Council (CLC) has taken the lead, working with the government, and produced Site Operating Procedures (now in its fourth version) providing guidance to construction companies on how to continue to operate safely and in compliance with Public Health England guidance.
Continuing this work, the CLC has now launched “Roadmap to Recovery: An Industry Recovery Plan for the UK Construction Sector” which aims to drive the recovery of the construction and built environment sectors, and through them the wider UK economy. The Plan breaks the industry down into four separate sectors: infrastructure; construction; housing; and RMI (repair maintenance and improvement). Each sub-sector is to have its own sectoral recovery plans with the CLC setting an overarching co-ordinated industry strategy. Lead groups are identified for each sub-sector to continue the CLC’s task force approach.
The Roadmap sets out three stages: Restart, Reset and Reinvent. Although time-scales are set for each phase, they are not to be regarded as sequential. Indeed some actions have already been achieved such as the delay in implementation of the reverse charge VAT which would otherwise have required construction companies to find additional cash when cash-flow was already being squeezed. The CLC anticipates that recovery from COVID-19 will be gradual; lost output taking two years to recover.
The work that needs to be done should not be under-estimated. The effects of the pandemic have badly hit both cash-flow and work-flow. The rush to close sites at the beginning of the pandemic obviously resulted in a loss of turnover. Shutting down and then re-opening sites incurred costs and at a time when payments were disrupted. Although the majority of sites are now open again, sites are unlikely to return to 100% productivity while the 2m social distancing rule remains in place. Many construction companies, typically operating on slim margins, will not survive.
The government’s financial support measures, although welcome, are not necessarily the panacea. Companies are struggling to take advantage of the government’s Coronavirus Business Interruption Loan Scheme. The process of applying for business loans has been slow and difficult, if not impossible. For example, a bank may want to know when work will resume or future projects will start; an inability to provide such details can lead to the loan application being rejected. Even where money is advanced, it will increase the level of debt, storing up problems for the future. The position is only going to get worse. Credit facilities and invoice financing are being tightening or removed adding to the financial difficulties.
The government schemes to support firms and self-employed workers have been a lifeline to the industry, paying the wages of nearly 1.5m construction workers. By the end of May 2020, £4.6 billion had been paid out to construction workers on the furlough and self-employment schemes. But what happens when these schemes come to an end – have they simply delayed the problems? Similarly the ability to defer tax will also increase debt obligations in the future potentially creating a ticking time bomb for the industry.
As money started to dry up through the supply chains, 35 construction companies fell into administration in May 2020, up from 9 in April 2020. Another 65 companies were involved in some form of Creditors Voluntary Arrangement/insolvency process. Increasing numbers of insolvencies are a cause for concern for the industry as insolvency has a ripple effect.
The CLC’s Roadmap to Recovery, even if only partially successful, could lead to dramatic changes in the sector and real progress towards achieving net zero; modernisation through digital and manufacturing technologies; better, safer buildings; and the “levelling-up” of the economy. Could the COVID-19 pandemic turn out to be the catalyst to radical change and a new way of working in the construction industry?
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