by Andrew Skudder, CEO of CCS
The construction sector is expected to play a major role in South Africa’s economic recovery post the Covid-19 pandemic. In addition, South Africa’s hard lockdown measures have compelled the construction industry to think more strategically about the adoption of technology, especially as it relates to communication and collaboration.
This is according to a survey conducted by construction software company, Construction Computer Software (CCS), amongst its clients, stakeholders and industry partners to establish how they have been affected by the lockdown and what measures they are putting in place to manage the current situation.
Some 70% of respondents said all their projects have been affected by disruptions or delays due to the Covid-19 pandemic and 52% of respondents from companies with a revenue of more than R1bn indicated that 100% of their projects have been delayed or disrupted.
Not surprisingly, these disruptions and delays are as a result of the lockdown measures enforced by government, as well as shortages of materials, plant and equipment and PPE.
CCS CEO, Andrew Skudder, says while respondents expect all construction sectors to be affected by the pandemic in the short-term, the building sector is expected to be the most affected.
“The building sector is primarily funded by private sector clients, who are expected to cut back on investments due to the anticipated economic decline as a result of the COVID-19 pandemic. Residential and retail investment is likely to be most affected due to significant job losses, growing consumer financial stress and a lack of confidence following the COVID-19 enforced lockdowns.”
He adds that infrastructure spending, including civil and roads, is expected to be less affected as this tends to be government funded. “Respondents suggest that government is likely to accelerate its infrastructure spend programme in a bid to accelerate economic recovery and absorb unemployed labour into the employment market as quickly as possible. Mining is expected to be least affected.”
Seventy nine percent (79%) of respondents said private clients would be the most affected. Business and consumer confidence have been negatively affected by the COVID-19 pandemic and lockdowns, which is expected to result in a 6.1% decline in GDP in 2020. This supports the view that the building sector will be most affected as it is primarily funded by private clients.
State Owned Enterprises, such as Eskom and SANRAL, are expected to be least affected. Eskom, in particular, is an essential service provider and has significant build programmes underway, which have not been affected by the lockdown.
In addition, water authorities such as Rand Water, which is an extension of National Government, are also expected to be less affected as they too provide essential services, with infrastructure requiring ongoing maintenance and upgrading.
Skudder says 77% of respondents indicated that on more than 20% of their projects, clients have invoked force majeure clauses on their projects. “Smaller companies seem to have been less affected with 67% of companies with less than R100m revenue having more than 20% of their projects affected”.
“This compares to 89% of R100m to R500m, 79% of R500m to R1bn and 80% of R1bn-plus revenue companies. Companies with a revenue of between R100m and R1bn seem to have had the highest level of force majeure being invoked, with 57% of R100m to R500m companies having 81% to 100% of their projects being affected, compared to just 20% for companies with revenue of less than R1bn.”
So, what is the industry doing to manage the challenges presented by the pandemic?
Skudder says a few major themes emerged in the survey. “One was the increased need to keep the channels of communication open, especially with employees, but also with clients and other stakeholders on projects. It is undoubtedly healthier for businesses if people feel informed in times of great uncertainty.
Cost management is another obvious theme, with companies implementing measures to manage costs and ensure liquidity stretches for as long as possible. Interestingly organisations have been terminating rental of plants and negotiating insurance premiums.”
He says the construction industry is highly commercially driven, with stringent contracts in place that regulate the relationship between contractors and their clients.
“Various steps need to be taken by construction companies to ensure they position themselves for recovery and for the commercial entitlement they will need to establish as a result of the crisis,” he adds.
He points to a new industry guide introduced by the UK government’s Construction Leadership Council COVID-19 Task Force, which offers practical advice to help contractors avoid expensive and long-running disputes over the effects of the pandemic on projects.
“Some respondents indicated they would be submitting contractual notices to their clients and sub-contractors to protect themselves, especially in respect of releasing themselves from retention payments. Also, with force majeure coming into play, many respondents will be submitting extension of time and cost claims. Extension of time is probably most critical to ensure they don’t hit time-barring later on in the contract,” notes Skudder.
When it comes to future proofing their businesses, respondents are looking to ways to innovate or do things differently. “One of the respondents is focusing on offering non-core services such as plumbing and electrical work, while another has reassessed the company’s existing business model, which was solely based on its ability to deliver a physical service, and adopting a more product-based e-commerce model.”
In addition, respondents have not stopped tendering for work. “There are still tenders out there and companies are actively trying to build their pipelines for post-Covid-19. This is positive, because the industry expects to witness a significant ramp up of activity in the construction industry in coming months.
“The construction industry is an important driver of general economic activity and one way to absorb thousands of unemployed people quite easily. Government really needs to accelerate infrastructure development especially in the energy sector where renewable energy can rapidly come on stream and absorb labour. It also has a trickle-down effect for the manufacturing sector in terms of increased demand for construction materials” notes Skudder.
How is the industry embracing technology?
Skudder says one of the major insights to emerge from the survey is that there are no boundaries with technology. “While the construction industry has been notoriously slow to adopt technology, the pandemic has compelled it to embrace digitisation to facilitate remote operations.”
This is aligned with a report by McKinsey & Company, which notes that – globally – the industry is shifting to remote ways of working. It cites the example of designers and engineers relying even more heavily on digital collaboration tools such as building-information modelling (BIM) and engineers and contractors are using 4D and 5D simulation to re-plan projects and optimise schedules.
Respondents in the survey indicated that the pandemic has made them more aware of the role technology has to play – during the crisis, but also into the future. Much of the technology being used relates to communication and collaboration, such as Microsoft teams and Zoom for managing meetings.
Skudder says this heightened awareness has prompted CCS to accelerate investigating the viability of introducing one of RIB Software’s collaboration products to the South African market. “There is now a higher propensity for construction industry players to invest in technology for their teams and we expect communication and collaboration platforms to become the norm.
“There are still several constraints in the industry and I think these are around a lack of knowledge and awareness and – to some extent a mindset – that they are construction companies, so they have to be on-site. But, even on-site, processes can be digitally enabled.”
What technology should the construction industry be investing in?
Firstly, the industry should be investigating cloud-based solutions. “When you are locked out of your office and you can’t get to your server, it’s problematic to maintain it. Cloud based solutions are hosted by somebody else and can be accessed 24/7, no matter where you are,” says Skudder.
Secondly, construction companies need to create a common data environment (CDE), where all the company’s data is in a central repository and can be accessed whenever it is needed.
Skudder says construction companies that have digital financial management, payroll and estimating solutions in place should be exploring how to make the best out of these investments. “Those who haven’t digitised enough downstream on site should be looking for site-based solutions that allow people to continue working and accessing data on-site rather than relying on files in an office.”
He concludes by reiterating that the construction industry will be critical to the country’s post-pandemic recovery. “By effectively using the forced pandemic downtime to reflect on their business models and operating processes and ramp up their digital responses, construction companies and related businesses can emerge from the crisis stronger and more resilient.”