With the current global environment’s impact on construction unlikely to be fully realized until at least Q3 this year, construction contractors need not only to prioritize risk management, but should explore ways to make the most of new technologies and business processes to capitalize on the market changes that will emerge as a result of COVID-19.
Due to the impact of the coronavirus crisis on the construction industry, more than 80 percent of CFOs are re-evaluating budgets, according to a recent PwC report, as well as encouraging organizations to call for transparency from vendors and contractors. These changes that have arisen in the wake of the coronavirus crisis give contractors the opportunity to outpace larger competitors that are finding it difficult to adapt to the new normal. According to a recent IFS study, the construction industry is already a forerunner for innovative, challenger companies with respondents from this industry three times as likely to think that they could dislodge the market leader in their industry than discrete manufacturers.
As well as challenging the industry, construction teams need to think differently about how they design and build projects in a post-pandemic world — risk management will be paramount. On top of factoring the risk of fires and floods into projects, contractors will now have to prepare for the risk of global pandemics too.
Challengers Are Ready to Pounce
Incumbent construction market leaders are defined more by the success of multiple projects and the ability to ensure high project revenue and margins than any enduring intellectual property or superiority in distribution.
PwC research shows that 71 percent of contractors are concerned with the financial ramifications of the pandemic, including its impact on operations, future periods of liquidity and capital resources — with 64 percent fearing a global recession. Particularly large companies involved in major projects will struggle to adapt quickly. That means, with the right investments in process and technology, construction challengers are in pole position to move up the ranks by offering enhanced project delivery performance leading to faster, high quality delivery at a more competitive price.
This could mean transitioning toward adopting fast-paced modular, offsite or pre-fabricated project delivery techniques while streamlining and automating project and subcontractor management stages at the back end. In addition, these challengers can drive revenue from other sources such as maintenance and facilities management or even operations contracting. In some instances, there may be revenue potential in licensing of proprietary designs used in projects.
Pinpoint Risk and See It as a Strategic and Financial Opportunity
But perhaps one of the most significant areas where progressive contractors can add real value at present and post-pandemic is by actively managing risk to prevent surprises and delays. Unprecedented events such as COVID-19 can be mitigated with the right strategy and tools. However, what contractors, engineering companies, clients and asset owners must determine is how they can design and build assets around these risks. Will a 5% rise in construction costs make a structure more resistant to wildfires such as the devastating examples recently witnessed in Australia and California? If so, how does that pay for itself over the life of the asset when it comes to replacement and repair cost or insurance premiums?
Will rising waters as a result of global warming put the project at risk of flooding during its lifecycle? Government bodies such as the U.S. Army Corps of Engineers and the UK Parliament have been providing risk management guidance on the issue of global warming for years. How will site plans and designs evolve to accommodate the consequences of climate change, including more extreme rainfall occurrences and rising sea levels? Contractors need to have the tools to help project owners identify and prepare around these risks.
Safety Grows in Value
The coronavirus pandemic will have wide-ranging implications for construction, far beyond the work safety requirements many are currently concentrating on. Contractors should help project owners evaluate the desirability of materials including the ASHRAE Position Document on Airborne and Infectious Diseases.
It may prove cost-effective for many institutional environments to practice some of the air purification techniques such as those used in hospital settings, or perhaps other building technologies including ultraviolet air and surface treatment which are more desirable for a given project. Either way, contractors need to be able to consult effectively with their clients depending on risks that are identified, monetized and amortized over the useful lifecycle of that asset they are building.
Full Lifecycle Support – A Force to Be Reckoned With
Project owners and engineering firms should welcome new, dependable and high-margin revenue sources, including facilities and maintenance contracting or even operations and maintenance contracts. Some of these contracts can be best supported with a facilities or field service management approach — when a contractor is merely dispatching technicians for service calls or for break-fix repair, for instance. These advanced practitioners will be required to engage in collaborative asset lifecycle management processes with their project and asset owner as they will share responsibility for the design, operation and maintenance phases of the asset.
IFS research found a lot of contractors have already built out maintenance and facilities management capabilities. As project and asset owners discover ways to navigate in an uncertain future and contractors source repetitive annual revenue streams, now is the time for more contractors to progress in this direction.
Flexible Software is a Must-have
Contractors must have the agility to design, construct and service assets over the entire asset lifecycle. This is why they require software that can support project-centric construction projects, as well as facilities and service management contracts to maintain and refurbish the assets after they are move on to the owner or operator.
Service and facilities management software can accommodate a variety of asset management contracts, which include service level agreements, repair and replacement of asset components, modification and refurbishment projects, planned and predictive maintenance and the use of subcontractors to carry out field-based work.
For companies that need to manufacture modules, assemblies or components to support the offsite construction model, the right software can act as a powerful tool to support engineer-to-order fabrication for offsite construction, delivering lean improvements and allowing contractors to enhance productivity.
In addition, the growing shift towards offsite and modular construction may necessitate the contractor to manage a production facility and be able to manage shipping, logistics and inventory control processes. Ultimately, it is essential that the next generation of contractors are agile, hybrid businesses that are construction contractors, manufacturers and service businesses.
Seize the Moment and Gain Market Share
The current global environment has presented challenger construction contractors with an opportunity to go toe to toe with incumbent market leaders and raise their profiles. Those that effectively manage risk, adapt their operations to take advantage of emerging openings brought about by the present state of the industry — all while striving for better productivity and margins and greater revenue streams — are the contractors that will prosper in the post-pandemic construction arena.
Kenny Ingram is vice president of engineering, construction and infrastructure at IFS.