Construction industry faces up to huge Covid-19 upheaval

The construction industry has been hit hard by Covid-19, which has thrown up or exacerbated a whole range of risks threatening productivity, supply chains and even future viability. With many of the issues linked to social distancing and lockdowns, experts discuss some of the key risks to watch and the need for a proactive, inclusive and dynamic risk management response. According to Peter Rudd, team leader of international construction at Aon, there are several big Covid-19 risks facing the construction industry that all, ultimately, threaten delays. “At this stage, there look to be potential supply chain issues, challenges with labour and with the general safety of the workforce. The overriding risk for clients/projects is the impact these issues will have on project schedules,” he said Darren Mullan, chair of the Institute of Risk Management’s (IRM) regional group for the Kingdom of Saudi Arabia Bahrain, and past chair of its infrastructure special interest group, said the key risks are lack of productivity, supply chain disruption and sustainability. “Whether construction projects have been able to continue during the current Covid-19 crisis, or intend to recommence at some stage in the future, productivity will be affected for some time,” said Mr Mullan, who is currently head of risk and compliance at the National Shipping Company for the Kingdoms of Saudi Arabia and Bahrain. “A second key risk will be the obvious disruption caused to the supply of construction equipment, plant and materials, especially as more and more of the construction supply chain is global,” he added. “The third, and arguably most difficult to understand, risk is the impact on the longer-term sustainability of the construction sector, across contractors, engineering consultants, employers etc,” continued Mr Mullan. Mark Peterson, managing director of professional services at Aon, flagged specific professional indemnity (PI) risks facing designers thrown up by the pandemic. “From a designer’s perspective, the difficulty in collaboration between colleagues when everyone is working from home creates significant issues. Diligence of oversight and peer review seem more crucial now than ever when considering PI risk,” he said. “From a constructor’s viewpoint, the risks are much more significant in areas other than PI. Disrupted supply chains, stop-work orders, sick employees and the difficulty in completing work while complying with social distancing requirements, are all indeed difficult issues,” Mr Peterson continued. He added that disjointed communicating between designers and constructors raises the risk of miscommunication and design-related errors. Matia Cazzaniga, global head of engineering lines and construction at Zurich, stressed that many of the key risks facing large construction companies relate to social distancing and other restrictions. He said problems are particularly acute because large construction sites have progressively become much more like complex industrial sites, with numerous interactions between different contractors and suppliers. This sees hundreds, or in some cases thousands, of workers active in limited spaces and/or lodged in temporary camps. Therefore, construction firms have clearly been, and will continue to be, hit hard by social distancing measures. Mr Cazzaniga said construction companies have already begun to “rethink a work environment that will generally be different from anything we could have ever imagined in terms of social distancing and individual protection devices”. He added: “Several construction sites zones, from storage/delivery to working areas and from dormitories to canteens, will have to adhere to more restrictive rules, with additional challenges deriving from the temporary nature of construction installations.” Mr Cazzaniga said this will most likely result in substantial additional costs, which will be a problem for construction companies that already operate in some of the most challenging market conditions with low margins. He said that in addition to short-term effects from Covid-19 – including work stoppage costs, standby charges, renegotiation of turnkey contracts and project delays/cancellation – it is likely there will be long-term consequences for employee health and safety, as well as legal issues associated with the outbreak. These legal issues will arise from decisions to keep a construction site open, programme design, duty to warn, contract administration and suspension or termination of services, according to law firm Kennedys. In addition, the outbreak will have repercussions for ongoing and future disputes, it added. “The decision to close a site or implement restrictions will normally be led by the contractor, which has a statutory duty to manage health and safety during the works. However, the contractor will often liaise with the client’s health and safety adviser – the principal designer. Hence, professionals (such as architects and engineers) who have taken on the principal designer role will become directly involved in the decision as to whether to close a site. “Where sites are subsequently shut down… for being unsafe, the principal designer could be criticised for the immediate and unplanned disruption and delay. Conversely, if an overly cautious approach is adopted, then the principal designer could later be criticised for advising on an unnecessary shutdown,” Kennedys said. It added that there may also be claims because consultants are unable to carry out their contractual obligations to meet design milestones or comply with a programme. This could be a result of staff shortages, site problems, delays with the planning process or other designers providing late information, it explained. There are also likely to be issues arising from a failure to warn clients of delays, and cost overruns as a result of Covid-19, the law firm said. It also predicted a rise in claims against contract administrators, which are often architects and quantity surveyors. Meanwhile, suspension and/or termination may be an attractive way out of an appointment if the impacts of Covid-19 are significant, added Kennedys. “But there may be potential claims against professionals for halting their services without agreement by the client or wrongful termination or suspension where consultants have failed to carefully review existing appointments before terminating,” the law firm warned. In addition, the crisis “unquestionably presents a variety of challenges to the effective and fair resolution of ongoing and future disputes”, it said. So how should risk managers react to help their firms deal with these unprecedented risks and threats? The IRM’s Mr Mullan said the key is “proactive, inclusive and dynamic risk management”, adding: “The earlier you can identify the risks, the more time you give the yourself to develop and implement the right response.” Clearly much risk comes from the fact that many construction sites have been mothballed under lockdowns (which is covered in depth on page 12). To mitigate this risk, companies need to ensure they do not prejudice their position in terms of the wider coverage offered under their construction all-risk policies, said Aon’s Mr Rudd. “They need to be following best practice in terms of project shutdown procedures and keep their insurers informed of any developments/changes at site that occur as a result of the Covid-19 situation,” he added. Mr Cazzaniga also gave advice for risk managers. “Construction site management, modular construction/prefabricated technologies and vendor/sub-contractor selection will become central for risk managers and project managers from the earliest stage of any bid for new contracts. Requirements applicable to key suppliers and the level of reliability of all workers being onsite during construction phases are key in order to ensure projects can be completed and the quality and timing of contractual obligations can be met,” he said. Mr Cazzaniga added that risk transfer solutions should not be considered as the only viable solution to these new challenges, but are one of the tools available to risk managers to manage and control these risks. Mr Peterson said, from a PI perspective, special consideration must be given to the following areas during the crisis: Collaboration between professionals Oversight of work undertaken by others and adhering to quality assurance and quality control procedures Ensuring resources are not being under- or over-utilised Maintaining good records and correspondence on all projects, paying attention to circumstances surrounding any delay because of a supply chain impact.

Construction industry faces up to huge Covid-19 upheaval

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