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COVID-19 [November] update: its impact on construction projects

COVID-19 continues to impact construction projects in the UK and the wider economy. Read on for the latest industry insights.

Autumn is here. Leaves are falling from the trees. And, as most experts predicted, a second, tougher wave of COVID-19 is hitting the country. During the pandemic crisis back in April, the UK recorded around 5,000 daily cases of coronavirus infection. At the end of October, the number of daily cases approaches the 25,000 figure. Daily deaths have also steadily increased since the end of September.

National lockdown as a result of second wave of COVID-19

As a result, Prime Minister Boris Johnson announced on Saturday 31st October that a new lockdown will be imposed in England from Thursday 5th November. As Boris Johnson put it, the national lockdown aims to prevent a ‘medical and moral disaster’ for the NHS. With the current rate of infection, the government estimated that the NHS will run out of capacity within weeks.

Under the new lockdown, some of the main restrictions include:

  • Staying home unless there is a specific reason to leave
  • People can leave home for exercise, medical reason, food and other essential shopping or providing care to vulnerable people
  • Pubs, bars, restaurants and non-essential retail across the nation will close
  • Leisure and entertainment venues, including gyms, will also close
  • Schools, universities and colleges will remain open.

Aviation sector amongst most impacted by COVID-19

Although the construction and manufacturing industries are still allowed to work, COVID-19 continues to impact them. One of the most impacted sectors is clearly aviation. The Airports Council International Europe (ACI Europe) recently published data showing that almost 200 airports in Europe and the UK could face insolvency soon. With a 73% reduction in air traffic from September last year, many clients in this sector are reviewing their construction programmes and putting many projects on hold.

An estimated £1bn of capital investment in airports has already been put on hold in the UK alone. Large projects like the £500M expansion of Birmingham Airport and the £500M expansion of London City Airport were paused earlier in the year. In October, the Civil Aviation Authority (CAA) rejected Heathrow’s request for an additional £1.7bn to cover the impact of the pandemic.

Construction projects in rail sector also impacted by COVID-19

Coronavirus has also hit the rail sector. In fact, The House of Lords is putting increasing pressure for the government to produce ‘some initial thoughts’ on the COVID-19’s impact on rail travel demand. In a recent Crossrail project meeting, concerns were raised about the project’s Stations Recovery Plan. As a result, Crossrail will recalculate the cost of completing work at its Central London stations, following the disruption caused by the pandemic.

Monthly expenditure reports reveal that TfL has been spending almost £1M a month on COVID-19 measures. Between April and August, TfL paid a total of £4.39M on ‘COVID-19 planning’. From this, TfL paid an astonishing £2.7M within two weeks of July to purchase disposable masks, face-covering and other personal protective equipment. On the positive side, Bentley has recently awarded Network Rail’s use of technology during the lockdown in major projects.

TfL has also recently revealed the impact of the pandemic on some of its major projects. For example, there has been a 64-day construction delay to the Northern line extension project. The Bank Station upgrade will now cost £701m – £88m more than its original £623m budget. The cost of new assets and operating facilities for HS2 also increased to £80m, instead of the £11m previously allocated.

Construction firms reveal the hit due to the pandemic

Major contractors’ balance sheets also reflect the impact of COVID-19 on construction. Galliford Try reported a pre-tax loss of £59.7M in the financial year to 30 June 2020. Kier, on the other hand, reported a pre-tax loss of £225M for the same period. Costain recorded a loss of £92.3M for the first half of this year, whilst Amey recorded a £217M loss.

According to an analysis by insolvency specialists Begbies Traynor, almost 4,500 construction businesses fell into significant financial distress in the third quarter of 2020. The government measures in response to COVID-19 have limited the number of County Court Judgements (CCJs) against indebted companies. Julie Palmer, partner at Begbies Traynor, warned of worse to come by the end of October:

‘With so many businesses limping along, there could be a flood of insolvencies when the courts do get back to anywhere near normal capacity and attempt to clear the backlog of pending cases. This in itself, combined with the end of the furlough scheme and other government support measures, is likely to have a material impact on the UK business failure rate.’

Hope on the horizon with infrastructure set to grow in 2021

Not everything is bad news though. Market research carried out by Arcadis and published at the end of October suggests infrastructure will grow in the UK by 30% during 2021. Although there is still uncertainty with Brexit and the second wave of COVID-19, the confidence for infrastructure growth in 2021 comes from cyclical investment programmes, including the water sector’s AMP7, Network Rail’s CP6 and Highways England’s RIS2 getting fully underway. The report says: ‘As often happens in recessionary times, the public sector is expected to step up and become a key source of demand to help keep the construction sector going – until the private sector kicks in again.’

For now, we can just wait and see how the second wave of coronavirus develops and continue to do our best to support the government’s efforts to stop the spread.

How has COVID-19 impacted your construction projects? Let us know in the comments below.

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