Lock-downs and quarantines may be the tip of the iceberg for construction
Markets appeared to have steadied the day after Black Monday had wiped £120bn off the value of major UK companies, the worst day for the FTSE 100 since 2008. But nervousness remains as everyone tries to second guess the impact of the coronavirus crisis on the global economy.
UK businesses are grappling with a fast-changing situation. A snapshot from this week reveals that there are 110,000 cases of Covid-19 in 110 countries, with the World Health Organisation saying it is close to becoming a pandemic – although it can still be contained.
As Italy went into complete lock-down this week – closing all schools and universities, cancelling sporting events and restricting the movement of 60 million people until the start of April – travel advice from the UK government was updated. Now only essential trips to Italy are advised and those returning must self-isolate for 14 days, symptoms or not. This announcement was followed by the news that BA has cancelled all flights to and from the country so, even if you wanted to get into the eighth-largest economy in the world, you probably would not be able to do so.
Back in the UK, the prime minister said that the government’s phased action plan was unlikely to remain in the “contain” phase for much longer and may be stepped up to delay the spread of the virus in about two weeks. As part of this, the government is considering a change in health advice, which would mean anyone with a minor cough or cold will be asked to stay at home. What impact this will have on businesses we do not know, but many are bracing themselves for a significant slowdown in the economy.
The real concern is that jittery markets and increasingly strict measures to control contagion will bring the global economy to its knees
Talking to consultants in construction, those with businesses in South East Asia say that they have experienced the virus’ first wave and have therefore gone through the necessary steps of ensuring that staff can work from home. Agile working is of course routine among consultants and so relatively easy to roll out across a business.
No, the real concern is that jittery markets and increasingly strict measures to control contagion will bring the global economy to its knees. Anecdotally we are hearing that the post-general election uplift has been short-lived: clients are still tendering work but they are only taking projects to a certain stage rather than signing off the full build.
Getting overseas materials and products to site is another concern. Latest statistics show that 17% of all construction materials come from China. This week, Steve Watts at QS firm Alinea outlined the delays and added costs that current projects are experiencing as components from China have to be sourced elsewhere.
His advice in the face of so many uncertainties – including potential labour shortages if workers have to be quarantined – is to focus on what businesses can practically do: checking contracts, updating risk mitigation plans, sourcing materials with extra due diligence and keeping tabs on progress payments.
First steps include postponing deadlines for payment of VAT, PAYE deductions and National Insurance
Those firms that have been quick to react with business continuity plans will be looking for something more, some real financial support from the government. Today’s Budget – the first in 16 months – is expected to promise record infrastructure spending but many are also hoping there will be short-term measures, some of which could ease cashflow pressures for SME companies. Suggested first steps include postponing deadlines for payment of VAT, PAYE deductions and National Insurance – all of which would help healthy companies to survive any short-term shocks.
But there may be even more that the government has to do to avoid permanent damage to the economy. The former chancellor Philip Hammond this week suggested that, if schools had to shut, companies could be incentivised to introduce shift patterns so that parents could still work, with the added costs shouldered by the state. He then harked back to the three-day week in the 1970s as a “productivity miracle” when industry cut working hours by two-fifths but output remained high.
The comparison with today’s crisis may alarm rather than reassure but still, Hammond’s point that the chancellor will need to support the supply side of the economy as much as the demand side is one that the construction industry would no doubt back.
Chloë McCulloch is the editor of Building