Three steps to mitigate the impact of COVID-19
There are three major actions that can be taken to respond to the unfolding COVID-19 situation. Companies should understand the supply chain, create an action plan and develop a cohesive business continuity plan in order to mitigate the impact of COVID-19 on the construction sector.
Step one – Understanding and mapping the supply chain
In order to understand and plan for materials dependency risk, companies should map the critical path of their programme to identify and understand the territorial origins of raw materials and goods and finished products, drilling into the component level as necessary.
Previous infectious outbreaks, such as severe acute respiratory syndrome (SARS), have demonstrated the effort required to trace through the supply chain and identify interdependencies. Early planning is essential, and companies should also engage with their supply chain to understand their action plans to address travel restrictions on professional services and labour.
Step two – Create, and be prepared to implement, an immediate action plan
Once critical dependencies and risks are understood, companies should be prepared to take a range of actions quickly and decisively. Action owners should be determined from the outset.
The immediate steps they take will depend on the life cycle of their project or programme, and the nature of their workforce.
Step three – Develop a COVID-19 business continuity plan (BCP)
Once the risks of COVID-19 are understood and an initial action plan is in place, the potential delays and commercial impacts to the industry’s programmes or projects can be modelled, and set up for continual re-assessment and mitigation.
The formation of a BCP will give companies the basis to agree bespoke actions to respond rapidly to any changes in government, health and regulatory advice.
All parts of our industry’s supply chains will need to be engaged – professional designers, product designers, manufacturers, suppliers, installers, and transporters. Team collaboration will put our industry in the best position to manage the unfolding uncertainty.
Testing the coverage of a BCP
Signs of stress/insolvency
During this time of uncertainty, companies should maintain close relationships with critical suppliers, watching for signs of distress such as profit warnings, churn in key management, aggressive valuations and late tax returns or other filings.
Testing site resilience
The potential for restrictions or even lock downs on travel movements will put pressure of emergency preparedness planning. Companies should consider whether their supply chain’s plans are resilient and fully tested, and understand how sites and premises will respond to closure and remote working arrangements.
Contract small print
The most commonly used contracts could allow contractors to claim additional time (e.g. JCT contract) or additional time and money (e.g. NEC contract). Further to this, parties might argue that unexpected events relating to COVID-19 amount to force majeure, exempting them from some contractual obligations.
Companies should also:
- Check contract clauses carefully, including epidemic/pandemic wording into any new contracts
- Examine any obligations in leases and construction contracts
- Check obligations to the workforce
- Aim to follow contract provisions to the letter – e.g. explore rights to terminate
Re-negotiating contracts for projects in flight may not be practical or desirable. However, companies should, as a minimum, review all existing contracts for any exposure to risk. A contract health check should include scenario testing of the baseline cost, scope, risk and schedule to give a clear picture of what the client has already paid for, and, based on an updated risk management profile, what their future commitments and liabilities are.
Contracts still in the negotiation phase should be equally reassessed. Where potential liabilities are discovered, these sections should be re-negotiated if required. Insurances should also be checked to ensure policies are in place to recoup any potential losses.
Please contact us for further information on any of the issues raised in this article.
Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.