Construction & Real Estate: What Does the Future Hold?
April 30th 2020: The COVID-19 situation continues, but the UK Government is hinting that we are slowly bringing the virus under control. As we began to look beyond lockdown, Decipher brought together a rare mix of speakers to discuss what might be next for the future of construction and real estate.
As always, none of this should be taken as legal advice or be relied upon. We have endeavoured to ensure the content is as accurate as possible at the time of writing, but cannot take liability for any errors or omissions.
Our panellists included:
- Paul Gibbons, CEO Decipher Consulting
- Ayo Allu, Director of Design & Technical Innovation, Clarion Housing Group
- Andrew Singer QC, Kings Chambers
- Tom Francis, Director, Decipher Consulting
- Mark McGreevy, COO, Sisk Group
The event was moderated by Annie Clift.
Read the review below, or you can watch the entire thing here:
We began by asking Tom Francis – what will the effect be, going forward, particularly from a programming and planning perspective? Tom notes that for the future of construction, much will depend upon the site. Each site will have its own challenges and issues. If a civils project, covering a larger area, it may be easier to manage than a building where trades work together in confined areas. The latest advice from CLC and HMG for construction is here.
Something to consider is also whether design will keep pace with the works on-site? It is more important than ever to update the details of the programme regularly, ideally weekly. Recording the status of the works is key at regular intervals, perhaps using video or a similar tool. Recording productivity as a result of social distancing is going to be a real challenge for contractors.
Mark from Sisk described some of the practical steps on-site including the use of technology to keep records as up to date as possible. Drones, cameras, laser scanning and increased frequency of recording are among the measures in place. The firm now has increased surveyors monitoring output and providing an ability to check productivity against a baseline. Another point of importance to the firm is checking whether it’s more economical to keep sites open or simply close.
The Client Perspective
From a client’s perspective, this has been an interesting stress test.
At a micro-level, Ayo’s firm is aiming to support and meet obligations to contractors and consultants where possible. This is potentially the time to take measures to ensure projects move forward. Ayo questioned whether there might be more attention paid to reserve levels by all stakeholders in the supply chain.
At a macro-level, the industry should now look at planning an exit and how things might look in future months and years. Can we look at, for example, strategic partnerships or how businesses can work together to make a concerted effort to ramp up again post-COVID? Looking ahead is critical, and now is the time to start planning.
Health and Safety is a big issue – because work hasn’t stopped. There is no bar on construction work, but there has been a bar introduced on working too close together – ie social distancing.
Force Majeure has been spoken about a lot; could the issues of COVID-19 be classed as Force Majeure?
It may well be, but under JCT only time is allowed and no money. The NEC doesn’t define Force Majeure but the relevant clause allows money and time. Once again, records will be critical to success should you need to recover a loss. You should also be sure to pay attention to the mechanisms in your contract that will be needed to avoid a dispute or costly error.
Andrew hasn’t yet seen any disputes come through. But if a recession arrives then issues around payment and access to sites or termination may arise. Andrew suspects this will likely depend on the extent of any possible economic downturn.
Is a Force Majeure claim likely to be successful? Although the government haven’t forced the closure of sites, the resultant effect of COVID-19 may give rise to a claim caused by Force Majeure. The success of such a claim is likely to be reliant upon good records of the effects resulting from the Force Majeure event.
Going forward, it is likely that a COVID clause will appear in new contracts. Contracts will be amended to reduce and remove risks from contracts. We will then need to assess how risks are handled and how those risks are addressed and defined / who bears the burden. There may well be changes in legislation also which could constitute some potential risks.
What Has Changed for Clients?
Once the impact became clear, all manner of expectations for clients have had to be adjusted. Quality should continue, as a result of standards, but sales, demand, productivity has all changed. Working with partners to re-assess delivery dates, etc has been a core challenge for clients.
From a design perspective, much is likely to change for developers. For example, outdoor space: many properties don’t have outdoor space of their own. Should we now ensure people have access to outdoor space? Another consideration from a design perspective, how will home working be accommodated? This is relevant for all members of a household, whether at school or at work.
What Will Future Projects Look Like?
Our expectations on productivity, programme and cost all need to be adjusted. A detailed assessment will be needed, to address the new normal. Health and safety, already a key feature of UK construction, is now even more important.
More broadly, the types of building we create may also change. Ayo suspects there will be an inevitable lean towards risk aversion to avoid future shocks and minimise risks. There will likely be an increased emphasis on healthcare and support for the NHS.
HMG have stepped in, but it’s a huge challenge for any country. The common reaction has been confusion and lack of clarity across all sites and locations. The Irish Govt contract sees much of the risk passed down to contractors, so Govt has stepped in to help with cost risk on state projects.
Broadly, measures are similar across sites to ensure social distancing is in place. Social distancing has rapidly become the new normal. Risk assessing and re-writing method statements, reviewing financial forecasts has been a big feature of the business for a contractor. Understanding and reviewing the impact on the supply chain is crucial. Products are being held up in ports around the world. While projects are continuing, there are a number of challenges lying ahead.
Additionally, there are areas in which Mark anticipates there may be increased demand. Certain issues that have to be addressed include pharma and housing to tackle homelessness.
Back To Work
How do we address going back to work? As a firm, Sisk is now running a lot more technology. Meetings take place virtually. Site visits and tours are being done virtually. Additionally, prelims are going to change. Set up and overhead costs will be affected as more facilities will be needed and potentially more people required.
Good communication is key – don’t sit in a silo without engaging with clients and supply chain. Now is the time to have good clear conversations with all stakeholders in the chain.
Future Legal Issues
Getting paid is going to be an ongoing challenge. So, putting in payment notices is key. If you have a claim or likely to be on the receiving end of a claim, then the issues that arise are no different from those found normally in a claim. The challenge now is that every single aspect of every project has been affected.
The holy grail in construction is cooperation. But if someone doesn’t want to play ball then no amount of good contract writing will help. The key now is to be astute, work hard to move things forward and work together to try and minimise the risks of disputes.
There’s a feeling that we were already in an area of risk, as a result of the various political changes that happened in recent years. However, COVID-19 has pushed us into a new area of heightened economic pressure. People’s future ability to spend, in terms of infrastructure and real estate has the potential to ripple through the entire industry and the country or world as a whole.
True joint ventures could hold the key to kick-starting the industry. Investors may need to understand the potential, but we need to partner more closely across the industry and harness technology as much as possible. There is also a real opportunity for the government to look at using the chance to develop skills and technology to improve construction for the future.
Did we learn any lessons from the last recession? Mark hopes for better preparation than in the 2008 / 2009 recession. We need to ensure we retain our focus on investment in technology and R&D, and training and development of staff resources.
As others on the panel note, investment from the state is important. In order to secure the future of the construction industry, investment in social infrastructure is crucial. While money is cheap, now is a good time for state to invest and manage the potential drop in other areas.
A few key points run through the session:
- As always, managing and keeping good, structured records features heavily.
- Pay close attention to any requirements for payment notices and required notifications of delay or change to the project.
- Now is the time to plan for how work will take place in future, addressing issues such as social distancing and managing programmes and costs.
- Harness technology where possible, whether for recording or managing projects under the new and emerging rules.
- Ideally, work to cooperate with all parties in a construction project and work to minimise conflict or dispute.
- Where possible, take opportunities to invest in training and development in order to remain strong during a possible downturn.
Thank you to all the speakers and attendees who joined us. We look forward to working with you and supporting you in future.