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Covid-19 recovery plan for the UK construction sector

11/06/2020

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United Kingdom

As the CLC lays out its roadmap for reviving construction activity post-lockdown, Fieldfisher construction specialists Sarah Shafiq and Dan Preston outline the industry's predicament and its response to the new support framework.

  The UK construction industry has been severely affected by the Covid-19 outbreak.

While construction work was permitted to continue in England during the lockdown (unlike in Scotland, where all non-essential sites were ordered to close), construction projects have faced difficulties securing labour and materials, and disruption to supply chains.

There have also been major inefficiencies resulting from compliance with government guidance on social distancing and the Construction Leadership Council's (CLC) Site Operating Procedures, limiting the number of workers permitted on site at any one time. 

At some sites, work has been unable to continue at all because of a lack of appropriate measures to control the spread of Covid-19, and protect the safety of workers and the wider public.

As one of the largest industries in the UK, the construction sector employs an estimated 3.1 million workers and exports billions of pounds-worth of products and services every year.

By GDP measurement, the industry contributed 8.6% (£413 billion) to the UK economy in 2018 – nearly four times the combined annual output of the aerospace and automotive industries (£107 billion in 2018).

The ONS has reported construction activity fell by 2.6% overall in Q1 2020, and by 5.9% in March, as a consequence of the pandemic outbreak. The Construction Products Association estimates that construction output will shrink by 25% in 2020.

Restored and increased construction activity will help significantly in driving the national economic recovery, however it is expected to take the industry at least two years to recover lost ground. 

To help support the restoration, on 1 June 2020, the CLC published its "Roadmap to Recovery" for a post-Covid-19 revival of the sector.

 
Restart, reset and reinvent

The roadmap sets out a three-phase recovery plan over a two-year period, summarised as: restart, reset and reinvent.

The CLC emphasises that for the recovery plan to work, it is vital to ensure collaboration across the supply chain.

 
Restart

The first (restart) phase (0-3 months) involves three main measures:

1. Increase output 

Projects and programmes should be increased to the highest possible level, while adhering closely to government guidance on preventing the spread of Covid-19.
 
Test, track and trace services for construction workers should help keep sites running, as this allows companies to monitor workforce availability and potential infection rates.
 
Employers and contractors are already working hard to ensure their projects comply with the CLC's SOPs, as a minimum; so far, in the majority of cases, parties have indicated their willingness to cooperate fully.
 
The CLC also recommends extending planning expiry dates, so permissions are not lost due to Covid-19 disruption, and ensuring the planning system continues to operate and facilitate development.
 
2. Maximise employment 

A key element of the plan is its emphasis on skills and people. The CLC recommends exploring a Talent Retention Scheme for workers in the sector to avoid the risk of losing skilled staff to other industries.
 
Training new apprentices is equally vital to ensure the future success of the construction sector.
 
In response to government plans to taper its Coronavirus Job Retention Scheme (CJRS), the CLC has called on the government to provide more flexible support during a phased return to work from July to December 2020. This will reduce cash flow pressures on firms, as labourers make up high fixed costs across the industry.
 
3. Minimise disruption 

One of the consequences of the government's lockdown is an anticipated rise in contractual disputes in the supply chain, as many construction projects were halted at extremely short notice without the parties' anticipation.
 
Disputes damage relationships, cost money, and fracture supply chains. The CLC has urged public sector clients to support contractors to restart and enhance the level of site activity by considering extensions of time or increased budgets to cover unavoidable delays.
 
Collaborative efforts will help minimise output lost due to the outbreak. It is therefore important for employers, contractors and supply chains to understand the difficulties caused by Covid-19 and work together to overcome them.
 
The CLC has also called on the public and private sectors to consider adopting a new Conflict Avoidance Pledge, launched by the Royal Institution of Chartered Surveyors (RICS) on 30 April 2020, to avoid disputes and to seek adjudication through the most cost-effective process.
 
Prompt payments will also help with cash flow, and avoid a negative 'domino-effect'.
 

Reset

The three main measures of the next (reset) phase (3-12 months) are:

1. Drive demand 

To stimulate demand, the CLC says government interventions are needed to support firms, from large contractors to independent SMEs, house builders to merchants and manufacturers.
 
The CLC has asked the government to further delay the implementation of Reverse Charge VAT rules for 12 months until 1 October 2021 (it has since been delayed until March 2021).
 
The rules make payment of VAT the responsibility of the customer, rather than the supplier, to combat VAT fraud in supply chains. Delaying the implementation of the new rules is anticipated to reduce cash flow pressure, and the risk of unsustainable levels of debt.
 
While new build housing and commercial and leisure space may be slow to recover, development of infrastructure projects is expected to continue.
 
CLC measures include requiring public bodies to publish revised pipelines of infrastructure projects, and asking the government to accelerate development of business cases for civil projects and expedite procurement and construction of projects to boost the industry.
 
There is likely to be (at least in the short term) significant demand for interior contractors as thousands of companies reconfigure working areas to comply with infection control guidelines.
 
Finally, increased public sector investment in regeneration projects will help support towns and generate employment to level up the UK economy.
 
Following the Grenfell tragedy in 2017, building safety is at the forefront of the industry's mind. The CLC has called for an acceleration of the existing ACM cladding remediation programme and the government has promised to provide a £1 billion non-ACM Building Safety Fund to support these efforts.
 
2. Increase productivity 

The construction industry is encouraged to integrate new technologies into projects and programmes to compensate for the loss of productivity.
 
For instance, businesses and their supply chains should be able to share data and information more easily, in a safe and efficient manner, to ensure the delivery of high-quality, zero carbon and sustainable outputs.
 
Innovation programmes, such as the UKRI Transforming Construction Challenge and Construction Innovation Hub should also be used to help deliver projects and ensure safe working and building safety.
 
3. Strengthen capability in the supply chain 

It is essential that the construction industry maintains investment in training and retraining workers to ensure increased levels of sustainable employment.
 
The CLC has urged the industry to adopt more collaborative business models, such as a more flexible and fairer contractual and payment terms, to respond to Covid-19.
 

Reinvent

The final (reinvent) phase (12-24 months) is less prescriptive in its provisions.

It focuses on transforming the industry through adopting digital and manufacturing technologies (with efficiencies estimated to be worth £7-15 billion per year), which will also reduce dependence on labour.

The CLC has reiterated the importance of embedding net zero carbon 2030-2050 targets in new infrastructure and housing developments, including improving the energy and heat performance of buildings.
 
Industry response

The Confederation of British Industries (CBI) has thrown its weight behind the CLC's recovery plan.
Commenting on the plan, the CBI's policy director, Matthew Fell, said:

A major programme of investment in infrastructure and housing is needed to help the UK economy build back better from the coronavirus pandemic and accelerate action on our long-term challenges of climate change and regional growth.

But to deliver this, it will be essential that the construction industry is in good financial health, ready to mobilise as one. Investing in long-term project pipelines, improving procurement in the public and private sectors, and committing to collaborate rather than litigate, can all help the sector step up at this time of need.”

The plan has also been met with quiet optimism by construction businesses. While the industry has had many false dawns, and quickly fallen back into bad practices, there is a feeling that this could be a watershed moment.

If the industry fails to embrace the opportunity for more collaboration and partnerships now, it never will. Burying heads in the sand and simply returning to business as usual is not an option.

If you have any questions or concerns about your projects in light of the coronavirus outbreak, Fieldfisher's construction and projects team would be happy to discuss your specific circumstances with you.
 
 

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