Minister says construction is an ‘ecosystem’ – the whole supply chain needs to be operational and working collaboratively
- According to new data from the British Property Federation (BPF), in London the number of build-to-rent homes in planning is currently 37,299 - 10% less than the 41,322 planned at the same point last year. Build-to-rent development has been one of the biggest drivers of recent growth in the London housing market. Although the slowdown is partly due to planning changes, it is thought that the pandemic will also exacerbate the long-running shortfall in the delivery of new homes in London and slow down development. However, elsewhere in the country the number of build-to-rent homes in planning has increased by 41%.
- Construction chiefs are putting pressure on the Government to designate construction workers as ‘essential workers’. They have argued that the designation will legitimise travel to work and reassure the public that they have permission to leave their homes and go to work. A number of firms have resorted to providing workers with letters explaining they are required to work if they are questioned.
- A recent industry conference call with the Minister for Business and Industry Nadhim Zahawi has provided some insight to the challenges being faced by the supply chain. The message given was that construction is an ecosystem and, in order to support the Government’s response to COVID-19, the whole supply chain needs to be operational and working collaboratively. It was reiterated that resorting to entrenched contractual positions would be extremely damaging to the industry and would have a significant impact on its ability to meet future infrastructure needs.
- Notice to proceed orders have been issued by the Department for Transport to the four main works civils contractors (MWCC) behind Phase One of HS2, providing an immediate boost to the industry. To date, contracts between HS2 Ltd and the MWCC have focused on undertaking scheme design and site preparation. The issuing of Notice to Proceed marks the point in the MWCC contracts where work transitions from scheme design and preparatory work, to full detailed design and construction of the railway between London and the West Midlands. According to HS2, an estimated 400,000 supply chain contract opportunities for UK businesses will be created during Phase One.
- The RIBA’s Future Trends Survey revealed that architects’ confidence in future workloads dropped steeply by 33 points to -11 in March. This was the steepest fall in confidence since the sentiment survey was launched in January 2009. RIBA’s executive director for professional services, Adrian Dobson, said:
“Many practices reported a sudden loss of revenue as the UK went into lockdown, construction sites began to close and new enquiries dropped off. New work was becoming sparse, advice to business from government was sporadic and uncertainty grew.”Adrian Dobson, RIBA
He advised practices to prepare for a potentially rough ride in the short term, but encouraged practices to plan for the future so they were ready to respond when business activity picked up.
- The latest Federation of Master Builders (FMB) survey revealed that 65% of small to medium-sized construction firms won’t last more than two months without cash grants from the Government. Faced with relentless overheads, supply chain blockages, site closures and difficulty accessing Government financial support schemes, smaller builders face a grim future without urgent help. Just 4% of builders who have applied for the Coronavirus Business Interruption Loan Scheme have been successful. 86% are still waiting to hear from their bank, with 44% waiting more than 10 days.
- The NLA’s annual tall building survey shows a 140% year-on-year increase in the number of tall buildings (those over 19 storeys) that were added to London’s skyline. 2019 saw a record number of 60 tall building completions but this record is unlikely to be broken for the next few years as a result of the pandemic. The pipeline of buildings in pre-planning, planning and construction currently stands at 525 - a 3% drop on the 541 in 2018. However, this number is likely to fall in the immediate term as COVID-19 restrictions impact the 2020 pipeline.
- Heeding the Government’s advice to keep the UK economy moving, most major contractors appear to be re-opening sites and resuming work – albeit on a reduced activity basis and in compliance with the new Site Operating Procedures (SOP). Contractors are keen to retain cashflow and keep staff working but have taken measures to reduce risk. Beard, which is operating on more than 90% of its sites, is implementing SOP guidance and has taken steps such as lengthening the working day and re-sequencing work to allow different workers to be on site at different times, reducing human contact. Operational capacity has been reduced to around 50% as a result. Mark Beard, chairman of Beard said:
“We respect other firms’ decision to close sites, but the government has given the industry a clear steer that it wants construction work to continue where possible. We are putting in every possible measure to follow this steer and continue to operate as many sites as we can.”Mark Beard, Beard
- Mace’s COO Mark Castle has said that the number of operatives on their central London sites is currently at 10-15% of pre-COVID-19 levels but that Mace wants to get this up to 50% over the next four weeks if possible. Reduced workforce on site inevitably means lower levels of productivity and output so discussions are being held with clients regarding the programme and cost impacts that will flow. Mark Castle noted that one of the key concerns contractors have at the moment is how efficient and productive they can be whilst complying with operational and PHE guidelines. He said:
“On-site productivity post COVID-19 will be extremely challenging. This will inevitably get reflected in contractor’s programmes and tenders. We as an industry will need to think differently about how we deliver projects and re-set the dial accordingly. This pandemic will drive industry to think more laterally around off-site, innovation, and working procedures and protocols on site.”Mark Castle, Mace
- Several main contractors are considering the possibility of buying up parts of their supply chain in order to keep schemes running. Some anticipate that suppliers will start to struggle in the coming weeks and so contractors are considering whether they can prop them up or buy stakes in such firms in order to keep them afloat and prevent potential collapse. Contractors are concerned that sites will be unable to restart because trade contractors and materials will not be there.
- Last week the Competition and Markets Authority (CMA) said it will allow firms to work together to support the fight against coronavirus, but any coordination between competing businesses would have to be, “undertaken solely to address concerns arising from the current crisis and not go further or last longer than what is necessary”. However, the CMA warned that it would not tolerate conduct which opportunistically seeks to exploit the crisis and would take enforcement action to prevent consumer detriment.
- Bouygues plans to re-open sites at a reduced capacity this week. After a three-week shutdown period in which safe working practices were reviewed, the firm now intends a phased opening of sites at a reduced capacity to ensure its workforce can adhere to site operating procedures and PHE guidance. In its statement, Bouygues referred to recent Government sentiment about the vital role that construction plays in supporting the UK economy, stating that after collaborating with staff, clients and supply chain, it believed that work could continue safely.
COMMODITIES & MATERIALS
- The Builders Merchant Federation (BMF) has published ‘Branch Operating Guidelines’ to help builders merchants operate safely during COVID-19 restrictions. Incorporating PHE advice, the guidelines set out precautions to follow in offices, at trade counters for customer and supplier deliveries and at collection. The guidelines say that two-metre social distancing is a necessity between builders’ merchant staff, customers and suppliers as well as on detailed cleaning regimes. The new operating model centres around trade customers using call and collect, click and collect and pre-arranged orders, with no public access into branches.
- Construction News reported that plasterboard, bricks and mortar are some of the materials that are currently in short supply. Distribution is also experiencing difficulties as some distributors are only supplying ‘essential projects’, which is affecting the flow of materials to site. Although drawing on existing stock has alleviated some short-term supply pressure, there could be issues in the medium to long-term unless manufacturers start producing again now. Others materials and products included CN’s ‘Top 11 choke points’ list are less of a concern but are still subject to potentially longer lead times.
- Brent crude prices hit a 21-year low after an unprecedented collapse in the value of US oil that saw costs fall into negative territory. Brent crude fell below $20 a barrel at one stage on Tuesday morning – a drop of more than 20% - as concerns grew that global storage space was running very low. Demand has also collapsed due to coronavirus disruption resulting in a massive supply glut.
- The UK employment rate hit a record high in the three months to February 2020, before the effects of the lockdown started to hit the economy. Official figures showed 76.6% of people aged 16 to 64 were in paid work, up from 76.4% in the previous quarter. Unemployment was estimated at 4%, up slightly on the last quarter. Pay in February 2020 continued to grow faster than inflation, but its rate of growth has slowed since the middle of 2019. The estimated growth for pay excluding bonuses in the three-month period was 2.9%, painting a robust picture for the UK labour market before coronavirus restrictions were put in place.
- Ben Broadbent, deputy BoE governor, said earlier this week that a 35% contraction in Britain’s economy in Q2 2020 predicted by the Office for Budget Responsibility did not look unrealistic and warned that escaping the downturn might not be easy. He said:
“We will have to think about whether behavioural responses of people mean that even if the government-imposed lockdown is lifted, demand may remain weak in some areas just out of people’s natural caution”Ben Broadbent
- An ONS poll of 5,300 businesses found that one quarter of UK companies have temporarily closed because of the COVID-19 lockdown. The majority (55%) of those still operating have reported lower turnover then normal. Whilst the standard economic indicators showing the extent of the damage caused by the lockdown will not be available for another month, both the IMF and the OBR forecast that the UK faces the deepest recession since the 1920s as a result of lockdown measures.
- India has tightened foreign investment rules in an attempt to block “opportunistic takeovers” by entities sharing a land border with India. The Ministry of Commerce is concerned that Chinese buyers could use the pandemic to buy weakened Indian companies and so have said that government approval will be required before investing in an Indian company. Such worries are not confined to India. EU trade chiefs are also urging tougher defences against foreign takeovers of the bloc’s “strategic assets”.
- China’s economy shrank by 6.8% year-on-year in Q1 2020. The country has experienced uninterrupted year-on-year output growth since the 1976. Mao Shengyong, spokesperson at the statistics bureau, pointed to “short-term economic costs” but downplayed the long-term impact of coronavirus. She said that the fundamentals of China’s long-term progress have not changed because of a short-term shock.
- The IMF (International Monetary Fund) issued its latest economic forecasts stating the current crisis will see output loss dwarfing the financial crisis of 2008, with the UK to see a decline of 6.5% in output and the Eurozone a 7.5% decline. Much depending on the pandemic fading in the second half of 2020, all forecasts remain heavily caveated.