COVID-19 and the construction sector

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Expert Opinion
May 20, 2020

What are the immediate effects on the construction sector?

The construction sector has been in the news frequently over recent weeks, with much of the coverage being negative, especially in London where the continuation of major urban projects has been criticised.

Much of this criticism is focused on the workforce continuing to use public transport and the inability of those on site to maintain a safe distance from one another. The perception is that there has been a lack of leadership concerning official guidance from government on the issue of whether to close construction sites.

Some main contractors have stopped all work on site and many procurement processes have been shelved. The knock-on effects are biting already, with a number of SME’s / specialist subcontractors having failed, or are laying off staff. The supply chain for the industry has also been severely adversely impacted. For example Redrow has suspended all work on site due a lack of supplies.

Within the sector a large proportion of the workforce is self employed sub-contractors and this has led to uncertainty over how they will be recompensed, if at all.

Most of our Construction and civil Engineering clients’ staff, who are able to, are now working from home. The head office functions are all attempting to continue working on a business as usual basis through the utilisation of technology such as Microsoft Teams, Skype and Zoom. However, some clients have ceased working on all projects

How could this change in the near future?

There is uncertainty across the entire economy, but for the construction and civil engineering sector it throws up the question of whether large scale infrastructure projects will be put on hold,  HS2, for example.

Self-employed subcontractors, as long as they meet the government eligibility requirements, will be able to claim 80% of their net profit from the 2019 tax return. This should help smaller players in the market.

Hopefully some clarity about infection rates and how long lock down will last for, will start to provide some idea of how long sites will be closed for.

Construction and Civil Engineering is heavily dependent upon labour. Technological innovation is happening within the sector, but major developments, in terms of working practices, aren’t going to be developed and implemented in the short term. However, starting to work on future-proofing through innovation now will help to alleviate future issues.

As with all businesses across the economy right now, cashflow is vital, and for many businesses it is critical for survival. Those making robust and optimised R&D claims will benefit from this support to their cashflow, but it remains to be seen how this situation plays out across the sector. Especially as profit margins for main contractors have been in the region of 1-2%.

Last updated: 5th April 2020