Honestly, you could not make this up. For an industry that was decimated during the recession, then to be hit by Brexit, only to be hit again by a pandemic…it’s the ultimate horror story. As we move into the next recession, while unexpected and projected to be far worse than the last, the difference this time is construction is in a much stronger place then it was in 2008. Companies have healthier balance sheets, there is pent up demand for housing, infrastructure and still a requirement for offices albeit in a modified way.
The first phase of the Government’s plan allowed construction back to work on Monday 18 May, great news for the industry giving contractors, developers, subcontractors and suppliers a much-needed boost. However, this does not mean the pain is over, according to the recent CIF survey, 71% of construction professionals are very concerned about the impact of the pandemic. Only 1% have been spared any impact. Projected revenues are difficult to project, but 93% are certain that this pandemic will have an impact. 52% of those surveyed expect the results to be dire. One fifth (20%), expect the pandemic to hit their bottom line by 40% with the majority (32%), expecting this figure to be in and around 30% – almost a third. The projections for recovery are anywhere from 12 months to 48 months.
As the industry remobilises to re-open sites, it would be prudent for all in the sector to take time to review their contracts to assess now and going forward the COVID-19 implications on force majeure clauses. It would also be advisable to check all credit facilities that you may require to address cashflow issues, whether this is obtaining additional credit lines (even in the short-term) from your bank, for suppliers credit insurance, invoice discounting, supplier guarantees and for contractors and subcontractors additional bonding facilities.
During the last downturn many well know surety providers moved to reduce their exposure or exited the Irish market altogether, fortunately this time around this is not the case. The surety market is more committed now to construction than ever, there is not a shortage of suppliers or supply as recently indicated in an article in one of the main construction magazines in the UK. Nonetheless the surety world along with the rest of the world has changed, what does this mean; it means relationships in this area will be key, a much more rigorous assessment of financials and on-going projects at either renewal of facilities or application for a new facility, even once off bond requirements will be rigorously tested.
In the time of COVID-19 the phrase “Cash is King” will be a key criterion of assessing the financial strength of any company looking to obtain bonds or bonding facilities. The reflection of a company’s financial strength will be in its cash flow management, financial reporting (monthly management accounts), management team and ongoing management of contracts in order to control profitability.
The impact COVID-19 has had on the industry has been painful and means a new way of working, social distancing on site being the most difficult aspect. All new measures that have to be taken into account, supply chain, operations (less workers on site at any one time), legal and financial implications and subcontractors’ availability are going to add to cost and delay of completions.
The industry has been through many tough times and come out the other side stronger and leaner and while we are not completely sure of the ramifications to the industry of the lockdown and new ways of working this will take some time to flush out, there is no doubt that the construction sector as a whole will prevail.
MD, Surety Bonds.