Impact of Coronavirus (Covid-19) Pandemic on the Construction Engineering Industry

COVID-19 pandemic has highly impacted the construction engineering industry, resulting in a 9% decline in the revenues, estimated for year 2020, according to Coherent Market Insights (CMI). The construction engineering industry is expected to be valued around US$ 12,380.0 billion in 2020 from 13,600.0 billion in 2019. Countries such as the U.S., China, India, and UK which are major markets for construction industry, were locked down as a measure to combat the pandemic which halted all the ongoing construction projects. Amidst challenging environment in the construction industry owing to regulatory restraints under the Environment Laws and Real Estate Act, 2016, COVID-19 has added fuel, further hampering the market growth.

COVID-19 pandemic situation has increased legal issues in the construction industry. The uncertainty for applicability of force majeure and termination clauses in current situation has created legal complications as a part of the existing treaties between buyers and suppliers. This has invoked termination clause, by buyers, for the delayed projects. While, suppliers have invoke force majeure clause as a measure to mitigate the liability. Further, in the Q1 and Q2 of the 2020, lockdown across major countries including China (lockdown eased from 8 April), Italy (lockdown eased from 4 May), and India (lockdown eased from 8 June) led to supply chain bottlenecks of construction materials resulting in the delay of ongoing construction projects. Moreover, the demand-supply gap has also led to increased material costs. According to Coherent Market Insight’s analysis, around 33% of the U.S. building materials is imported from China. Factories shutdown in China in the Quarter 1 (2020) has impacted construction activity in the U.S. The scenario is no different on the demand side, as the privately commissioned projects have been delayed, and future spending has been reduced. Construction engineering companies such as Matrix Service., Saipe, WorleyParsons, and TechnipFMC catering to the oil and gas and chemical industry are struggling due to the compounding effect of declining oil prices. These companies are expected to take long tenure to recover, than the rest of the construction engineering companies.

However, construction companies with government contracts are less exposed to suspension of projects due to COVID-19. Governments are increasingly focusing on enhancing their healthcare infrastructure and are planning construction of new healthcare facilities. The construction of hospitals and healthcare facilities to accommodate increasing patients has created business opportunities in the industry.

Examples:

• In February 2020, China built a facility in Wuhan to treat patients infected with coronavirus in just 10 days
• March 2020, CIMC Modular Building Systems (CIMC-MBS) set up temporary quarantine facilities at Junior Police Call Permanent Activity Center and integrated youth training camp at Pak Heung in Hong Kong. After the pandemic of COVID-19 ends, the 120 modules of this project will be relocated to other places as public transitional housing
• In March 2020, Moscow authorities announced construction of hospital of worth US$ 115 Million to cope with expected rise in cases

Labour issues have further added fuel to the existing challenges of the construction industry. If the construction sites and activities are ceased for longer duration, construction firms may face insolvency by the end of next financial year i.e. March 2022. To avoid such a scenario, government of various countries need to have direct intervention providing immediate support to the industry in the form of bailout packages, tax breaks, and tax reductions.

As of June, 2020, construction activities have started at sub-optimal level across majority of emerging and developed countries, adding momentum to the business. For instance,

• In May 2020, Government of India resumed construction of key projects including the construction of 4 new All India Institute of Medical Sciences (AIIMS)
• In March 2020, China resumed construction of 89% of key construction projects, as per the National Development and Reform Commission (NDRC)
• The construction businesses in the Pennsylvania state, U.S. are permitted to resume operations on May 1, 2020, as per the Governor of Pennsylvania state in the U.S.