15Th April 2020 Construction Update 780 Px External Overview Header

BEIS Tells Manufacturing to Keep Supply Chains Moving

14Th April 2020 Construction Update 780 Px External Overview

CONSTRUCTION

  • The latest ONS data revealed that construction output fell by 1.7% in February - the largest monthly fall since October last year when it fell 2.4%. The decline in All Work was driven by a 3.4% fall in New Work, which more than offset the 1.7% growth in Repair and Maintenance. Adverse weather in February (which was the wettest February since records began in 1862) would have impacted the monthly output figure. Output growth is expected to fall further in March and April as the effects of COVID-19 take their toll.
Uk Construction Output
  • The CLC has issued version 3 of the Site Operating Procedures (SOP). Version 3 of SOP retains the guidance that contractors are required to ensure a 2m distance between workers "where possible", but provides a useful risk management table called ‘Hierarchy of Controls’ which sets out how construction sites should manage the risk of COVID-19 spread by maintaining a regime of personal hygiene and social distancing. The third version outlines ‘special circumstances’ where closer than 2 metres working may be essential to deliver a project.
  • The Scottish Government has said work on construction sites should stop immediately for non-essential projects until further notice. New guidance makes it clear that work on site should only be carried out if it is supporting work crucial to dealing with the coronavirus pandemic and can comply with protocols on social distancing, safety and welfare during the COVID-19 outbreak. Essential projects include:
    • Projects to create or repurpose facilities which will be used directly in COVID-19 activities (eg testing, containment, treatment, research etc)
    • Projects to create or repurpose facilities which will be used to accommodate key workers or free-up space in facilities to be used directly in COVID-19 related activities
    • Projects to create or repurpose facilities and infrastructure critical to the national response to COVID-19 (eg food production, distribution and digital communication)
    • Projects which are considered essential public services or which will provide wider resilience and capacity across the system
  • The Cabinet Office has issued guidance to public authorities to keep paying contractors that are ‘at risk’ if projects have been stopped by the coronavirus lockdown. The guidance, which has been issued to ensure supplier cash flow is maintained, says:

"The contracting authority should continue to pay suppliers at risk due to covid-19 on a continuity and retention basis until at least the end of June 2020."

The guidance note also said continued payment would help protect jobs and ensure suppliers are better able to cope with the current crisis and to fulfil contractual obligations once the coronavirus crisis is over.

  • The UK Government has refined its guidance to construction companies operating in England. The guidance reaffirms that sites do not have to close even if they cannot maintain adequate social distancing and advises that maintaining social distancing on construction sites is merely something to strive for. A strong emphasis is placed on frequent hand-washing, keeping staff 2m apart where possible and minimising skin-to-skin and face-to-face contact. The updated guidance says:

"Construction work plays an important role in ensuring public safety and the provision of public services. It can continue if done in accordance with the social distancing guidelines wherever possible.

Where it is not possible to follow the social distancing guidelines in full in relation to a particular activity, you should consider whether that activity needs to continue for the site to continue to operate, and, if so, take all the mitigating actions possible to reduce the risk of transmission."

The Construction Leadership Council (CLC) said that it was preparing a revised version of its Site Operating Procedures in light of the new guidelines from Government.

  • The Department for Business, Energy & Industrial Strategy (BEIS) issued a letter last week to those working in manufacturing and industry in the UK, asking for the industry to keep supply chains moving and key workers mobile. The letter noted that every business had a role to play in combatting COVID-19 and said it was vital to ensure that servicing, parts and raw materials are available. The letter also confirmed that:

"Manufacturing is a critical part of our economy and I would like to be clear that there is no restriction on manufacturing continuing under the current rules."

  • The Construction Leadership Council (CLC) has issued a statement outlining their concerns about the management of payment in the supply chain and the risk that clients and firms will seek to invoke contractual clauses to the detriment of others. Whilst the CLC urges all construction businesses to pay in accordance with agreed contractual terms, they say that firms should not threaten to invoke penalty or other contractual clauses when the priority should be for all firms and clients to sustain the industry and do the right thing. The CLC’s full statement can be found here. CLC co-chair Andy Mitchell said:

"Every business, large and small, has a critical role in the making sure that cash continues to flow throughout the industry....[however] there are number of businesses that have chosen to unilaterally delay payment or extend credit terms. We do not believe this is acceptable or appropriate – particularly at this time of great stress."

  • Although new rules allowing for planning approval to be given by virtual committees have been welcomed by stakeholders, there are reports emerging of significant variations in local authorities’ ability to take advantage of the change in law. A small number of councils have found themselves unprepared for remote working and have been unable to hold pre-app meetings remotely or validate new applications. There have been reports that some councils do not have the equipment or officer capacity as some have switched planning staff to more urgent pandemic-related roles.


CONTRACTOR NEWS

  • Analysis by estate agent Savills has revealed that work on 80% of housebuilding sites has stopped. Work on sites with capacity for 193,000 homes had stopped in England, equivalent to 79% of “net additional” housing supply. The equivalent analysis for Scotland and Wales showed sites with capacity for 18,992 and 8,558 units respectively had halted.
  • A statement released by Taylor Wimpey said that the housebuilder will advance payments to the supply chain for future work to be carried out. Their ‘Pay it Forward’ scheme (capped at £5m initially) will help support the self-employed before Government assistance becomes available in June. Eligible suppliers will receive interest-free forward payments of £600 a month for the next three months. The company will also continue to pay for work done and will process invoices quickly. It added it will attempt to pay the smallest and most liquidity-challenged sub-contractors earlier.
  • Several main contractors such as Kier, Sir Robert McAlpine (SRM) and Vinci have been awarded contracts to build temporary hospitals for COVID-19 patients. SRM and Vinci have been tasked with transforming the Manchester Central Convention Centre into a temporary hospital which is expected to receive up to 750 patients from the North West. The JV was awarded the job through the Government's ProCure22 framework for England, which has been extended to accommodate the creation of temporary hospitals during the outbreak. Meanwhile Kier is turning a former Swansea film studio into a field hospital. The contractor is also working on hospitals in Glasgow and Bristol.
  • Mace has begun a progressive re-opening of some of its suspended construction sites after the Government and the CLC urged construction sites to keep working if at all possible. Mace chief executive Mark Reynolds said social distancing restrictions are likely to be in place for many months and that construction must find a way to work safely and support the UK’s economic recovery. He said:

"Guidance from the prime minister and his cabinet has been clear that construction is a vital element of the UK economy that will be critical in our recovery from this crisis – and that where we can open sites in accordance with the Construction Leadership Council’s Standard Operating Procedures, we should do so as soon as possible."

  • The English Cities Fund (a JV between Morgan Sindall, Legal & General and Homes England) has been announced as the development partner for the £2.5bn Salford Crescent masterplan. The JV will lead on the creation of a new 240-acre district in Salford over the next 10 to 15 years which, developers say, has the potential to create 3,000 new homes as well as 2m sq ft of commercial and education space. The plan is focused on attracting the health automation and robotics industries.


COMMODITIES & MATERIALS

  • OPEC and its allies signed a deal to cut nearly 10% of global Brent crude supplies to prop up a market where demand has fallen by as much as a third. Brent crude prices initially rose sharply, recovering from an 18-year low of nearly $20 a barrel, but soon reversed some of their gains before settling above $30 a barrel on Monday. Analysts believe the cuts are still not big enough to avoid a huge global stock build in the second quarter of the year and doubt the pact will be enough to boost prices much further in the short term.
  • Supply cuts are thought to be affecting about a fifth of the global mining industry, helping to offset lower demand due to the coronavirus pandemic. According to UBSM, approximately 15% of the world’s copper mines are now offline or are operating at reduced capacity. Reduced supply could help stop industrial metals falling to the levels seen during the 2008 financial crisis where, for example, copper sank below $3,000 per tonne (it is currently trading close to $4,500 per tonne).


UK ECONOMY

  • According to the ONS, UK GDP fell 0.1% in February 2020 compared to the previous month. This was worse than a 0.1% expansion expected by economists polled by Reuters. Construction was the worst-performing sector with a 1.7% contraction as storms and heavy rain hampered work. Output in the services sector flatlined whilst manufacturing expanded by 0.5%. The figures show that the much talked about ‘Boris bounce’ hasn’t really materialised.
  • According to the National Institute of Economic and Social Research (NIESR), an economic research centre, the UK economy could shrink by 5% in the first quarter, and if the lockdown continues, by between 15 and 25% in the second quarter of 2020. Dr Kemar Whyte, senior economist at NIESR said:

"The UK economy is now almost certain to experience a major contraction in the second quarter of the year. The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate. Nonetheless, instant and significant recovery remain a distinct possibility if the spread of the virus comes to halt quickly."

  • Brexit negotiations are set to resume this week as the UK and EU discuss their future relationship. The goal is to fix dates for rounds of virtual negotiations on the future partnership. So far contact between the two sides has been limited to seeking clarification on proposals rather than negotiating. Despite growing pressure on the UK government to request an extension, ministers insist the UK will not countenance a further delay to the Brexit process.
  • The finances of major ferry operators providing crossings between continental Europe and UK ports are being squeezed amid the coronavirus pandemic. Operators, who bring significant volumes of freight into the country, are cutting back the number of crossings due to a slump in passenger numbers. Firms are increasingly opting to idle vessels rather than run them at a loss, which may jeopardise supply lines that are the “lifeblood” of Britain.


GLOBAL ECONOMY

  • European ports and warehouses face a logjam of containers filled with manufactured goods that set off from Asia prior to COVID-19 reaching their destinations. Swathes of Europe still have restrictions on movement and business activity meaning that demand has dried up. A large proportion of cargo arriving in Europe will no longer be wanted which could cause weeks’ worth of inventory to pile up at ports and cause overflowing at warehouses if buyers are unwilling or unable to receive previously ordered cargoes. Three-quarters of goods enter the EU by sea, while 30% of trade within the bloc goes by vessels, so any hold-ups at maritime terminals could rapidly ripple through the distribution network.
  • Chinese exports fell only 6.6% in March 2020 compared to the same month one year ago - smaller than the expected 14% plunge. Imports eased a modest 0.9% compared with expectations for a 9.5% drop. Oxford Economics said that that:

"Looking ahead, production constraints should no longer be an issue as economic life in China returns."

However, it added that exports were expected to fall more substantially due to weak global demand from some of China’s biggest export markets.

  • Finance ministers from Eurozone countries have agreed on an emergency rescue package in response to the coronavirus pandemic. Ministers have agreed a €500bn package of palliative economic measures but questions over how to pay for an economic recovery plan for the bloc were left unresolved. Core elements of the package include revised pandemic credit lines from the European Stability Mechanism, a boost to the lending capacity of the European Investment Bank, and a new €100bn unemployment insurance scheme.
  • Some European countries such as Austria, Spain and Italy have begun to lift certain lockdown restrictions. Spain has ended its “two-week extreme economic hibernation period”, allowing some factories and construction sites to open, whilst Italy, which recorded its lowest number of COVID-19 related fatalities in the past three weeks on Sunday, said a small number of businesses will be allowed to open again from Tuesday.

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