The pandemic’s impact on risk in the construction industry
One of the side effects of the pandemic for the construction industry was the loss of productivity. Combine that with the scarcity of materials, the danger of being ‘pinged’ and the head scratching that’s gone on over if/where a claim lies in relation to the impact of Covid-19 (and ultimately, who pays for it), it’s been a bit of a confusing period.
Reviewing construction in the pandemic
While in the UK, construction was largely told to keep going throughout the lockdown periods, it was something of a non-starter. Factory closures meant, and continue to mean, that there’s a shortage of materials (exacerbated by the domestic boom in DIY projects to keep furloughed minds at bay).
The impracticalities (and dangers) of implementing a two-metre social distancing rule between colleagues on building sites rendered it virtually impossible. That’s before you even get to the rising project costs linked to the inflated prices of materials and additional PPE. The attitude of government has largely been to see which contractors could simply absorb the costs and encourage people to get on with it.
Developing contracts and precedents
Now that we all seek to return to a degree of newly vaccinated normality, we are starting to see plans and patterns emerging.
The industry has not yet decided how it’s going to handle the fallout from the pandemic, or how it will address the potential for further pandemics in the future. There are some instances where an entitlement for an extension of time and direct costs (such as PPE) are being awarded to contractors, for example.
Meanwhile, before March 2020 you would never have seen a pandemic mentioned in a contract. Now we are beginning to see clauses appear, and it will be interesting to see what tenderers will be asked to sign up for in the future.
What are contractors going to be asked to sign up for?
All of this contributes to one glaring and growing issue in the construction industry: risk.
The risk is getting bigger and bigger, especially for contractors. If 50% of the price of a construction contract is labour and management (productivity), it is a cost that contractors have now completely lost control of.
There’s also a production deficit when it comes to materials, making it harder to price for work and estimate how long a project will take. Recent news has included cement rationing – added to a list of product shortages including timber, steel, roof tiles, bricks and imported products.
Risk has been an increasingly disproportionate challenge for contractors. We developed our claims funding initiative as a method of trying to redress the balance, at least in part. However, as with so much project management, it all comes back to the contract. With the events of the last 18 months there is an increasing need to develop contracts that are mutually understood, fair and reasonable. This is the benchmark against which claims are most likely to be won, but more importantly, it’s the foundation on which a project has the best chance of success for all involved.
If you would like support with contract management and other consultancy services, contact Tungsten Capital.