COVID-19: Infrastructure and construction sector - (some) observations

I thought I'd provide a snapshot of my observations from engaging with participants in the infrastructure and construction sectors on COVID-19 issues over the last few weeks. 

Impacts vary across the economy, so this may be similar or not to what people are seeing in the sectors and communities in which they operate. It may also differ to other experiences in the same sectors. These are just my observations - Allens has a comprehensive set of resources available at COVID-19 Resources and experts who can advise on a broad range of issues arising out of the current crisis.

To provide some structure to this snapshot, I've drawn inspiration from the US Navy Seals, Aesop, David Bowie and Spider-Man.

1. Slow is smooth. Smooth is fast. – US Navy Seals

The first wave of engagement was largely around taking stock. What does COVID9-19 mean for us? What are my rights? Lots of discussions about Force Majeure, Change in Law, Change in Policy, Frustration and the like. This was an important step – it gave people a basis to assess their potential exposure, reduced anxiety and provided a basis to decide what steps might be taken. 

As construction sites remain in operation (albeit with more shifts and fewer people per shift), the impact is still being assessed in terms of supply chain and productivity impacts. So it's largely about likely impacts and potential claims at this stage.   

2. The goose that lays the golden egg – Aesop

The second wave of engagement tended to be around second order effects. For example, perhaps the contract doesn't provide relief, but if some assistance or relief is not provided the supplier is likely to become insolvent. That's not good for a purchaser who is relying on that supply over the longer term. Or perhaps a contractor is entitled to an extension of time, but time is more important than cost to the owner, so the owner would prefer to pay the contractor to accelerate to overcome the delay than to provide an extension of time in accordance with the contract.

Lots of discussions about mitigation. Practical steps in relation to supply chains, ensuring the works is appropriately managed (weather tight; long lead-time items; etc).

Given the uncertainty, moratoriums are also an option. Providing everyone with the breathing space they need to focus on operational issues while maintaining their rights (which may be exercised differently or not at all when a fuller picture and a better understanding of the second order effects is available).

3. Tomorrow belongs to those who can hear it - David Bowie

As part of the second wave of engagement, people also started to look at whether this crisis is likely to lead to structural change in the industry. For example, will people increasing work from home reducing the demand for office space and therefore the pipeline of office building developments? 

People were keen to learn from other sectors and to understand the impact of changes in one part of the economy on another. How will capital market volatility impact project funding? What impact will the FIRB changes have on project timelines? Will the current stock market volatility impact counterparty credit (or identity)?

There is also concern about the sustainability of the industry (given the imbalance in the risk/reward equation for contractors and their inability to absorb events such as this one). A theme we've been exploring in our Propelling City Growth Campaign. 

4. With great power comes great responsibility – Spider-Man

Finally, we've seen the industry actively lobbying government. 

First, to keep the industry going through the crisis and make necessary changes to mitigate impacts (such as 24 hour work days, allowing extra shifts with fewer people on each shift). 

If those who are able to work for home do so and sufficiently flatten the curve, perhaps the significant economic and mental health impacts of standing down the construction workforce can be avoid. 

Second, if work sites are shut down (which many feel is inevitable) then governments will need to take responsibility for supporting the industry to ensure it remains viable in the longer term. The industry is a significant employer and has a key role to play in providing the stimulus the economy will need to reboot as we climb out of this crisis.

Some key principles to remember as we work through this period are keep talking, watch and listen, tune in to how others are feeling and consider 'how can I help?