Arcadis warns of post-coronavirus supply chain risks

Aaron Morby 3 years ago

Construction consultant Arcadis has played out optimistic and pessimistic case scenarios for construction for this year and next.

The firm said that supply chain capacity is likely to be biggest risk to industry post-coronavirus.

Looking ahead, strong relationships with suppliers will be integral to re-establishing work programmes and clearing backlogs as efficiently as possible, while also preparing for post-coronavirus opportunities.

Its optimistic view assumes markets will be periodically disrupted throughout this year, despite the economy becoming more adept at managing the scale and severity of lockdowns.

Its pessimistic case assumes that disruption will extend well into 2021 with significant collateral damage to global and domestic economies.

Post COVID-19 growth scenarios

Optimistic case

  • COVID-19 outbreaks recur during 2020.
  • Progress on sites is disrupted periodically during 2020.
  • Governments develop testing and social distancing infrastructure to reduce need for lockdown.
  • Industry capacity mostly retained through successful government support programmes.
  • Contracts apply a flexible risk-sharing approach to COVID-19 disruption.
  • Social distancing reduces the productivity of many sectors, including construction.
  • The price of construction work is determined in competition.
  • Investment-led public-sector recovery programme procured during 2020 in anticipation of 2021 start.

Pessimistic case

  • Outlook for COVID-19 control does not improve as quickly as hoped.
  • Strategies to reduce the need for lockdown are less effective than hoped and disruption re-occurs.
  • Productivity falls further due to multiple sources of disruption.
  • Contracts are not adapted to respond to COVID-19 disruption.
  • Industry capacity is lost as a result of widespread industry consolidation.
  • The price of work is undertaken on an open-book basis due to the extent of ‘unpriceable unknowns’.
  • Government cancels programmes.

In the most optimistic scenario, Arcadis is forecasting zero tender price inflation this year as both inflationary and deflation pressures cancel themselves out.

Simon Rawlinson, head of strategic research at Arcadis, said: “Plotting the potential course of this crisis is not easy

“Our forecast is based on a realistic but positive scenario, but there are of course many potential outcomes.”

Tender price inflation forecast

Regional London Infrastructure
2020 0% 0% 0%
2021 2% 0% 2%
2022 3% 2% 5%
2023 7% 5% 7%

He said that workload looked likely to increase in infrastructure related to programmes like HS2, but residential and commercial spend could take longer to recover.

Similarly, a loss of access to migrant workers in some markets could offset the capacity gains resulting from a slowdown in others.

“In our view, the most important counters to deflation in the immediate future will be the impact of social distancing on productivity, and problems of sourcing labour and materials as the market restarts.

“However, there are some additional non-inflationary factors, such as recently outlined Building Safety proposals and upgraded Part B and L proposals, which can be expected to increase the costs of some buildings.”

Arcadis’ outlook assumes that the economy will keep going into 2021, the construction pipeline will be sustained, and the supply chain will hold its nerve.

Rawlinson added: “If the market does fall away, there will be very few clients who are able to benefit from any downturn, so it is vital that – even in the midst of the crisis – we look at how the industry can implement resiliency measures that will put it on the best possible footing for recovery.”

Latest news

Green light for £135m Leeds twin tower resi scheme

Construction to start in New Year on 500 build-to-rent apartments
38 mins ago

Plans in for £40m surf park at former Kent colliery

Seahive surf lagoon and health resort will be built near Deal
7 hours ago

Crushed demolition worker vows to return to industry

Shannon Brasier hoping to return to construction following horror accident
7 hours ago

Mount Anvil to start 900-home North London estate rebuild

Planning approval paves way for Barnsbury Estate rebuild in Islington
7 hours ago

Green light for major laboratory campus in Cambridge

Developer BioMed to tender first building on 600,000 sq ft lab complex in the New Year
8 hours ago

Belfast firm signs the biggest work deal yet under Project Gigabit

Fibrus to hook-up rural Cumbria to lightning-fast broadband under £108m deal
7 hours ago

McLaren wins Leeds logistics park contract

Work to start imminently on warehouse complex for Firethorn Trust
1 day ago

Work restarts on £683m waste power plant after site death

Construction suspended for a week of investigations following fatality
1 day ago

Demolition starts on £135m Wigan Galleries scheme

Contractor BCEGI starts work on project to redevelop Wigan town centre
1 day ago

Amey CEO to step down following private equity buyout

Amanda Fisher to leave once business is transferred to new owners
1 day ago

New body set up to vet plant operator card schemes

Contractor trades bodies unite to tackle competency concerns over plant operator skills cards
1 day ago

Kier leads switch to hybrid battery generators

Battery units work alongside smaller generators cutting run times by nearly 60%
1 day ago

Plans in for first Leeds co-living scheme

Watkin Jones submits plan to convert old Direct Line HQ into 230 studio flats
1 day ago

Demolition worker crushed by excavator

Court hears 20-year-old woman was left with "life changing injuries"
2 days ago

Government pays £700m for 50% stake in Sizewell C

New body, Great British Nuclear, will be set up to develop pipeline of nuclear projects
2 days ago

Costain wins Heathrow Airport asset renewal deal

Firm takes early contractor involvement role in Terminal 2 baggage handling upgrade
2 days ago

Worker killed on £683m waste power plant site

Fatal collision involving heavy goods vehicle on giant north London site
3 days ago

HS2 JV shifts four Wembley Stadiums of earth in record time

EKFB team digs and hauls 15 million cu m of muck in 20 months
2 days ago

Milestone wins £300m Wiltshire highways upkeep

Ringway will hand over to Milestone in March next year
2 days ago

Low-risk business model helps Renew post record results

Renew reveals latest acquisition with £15.6m purchase of water specialist Enisca
2 days ago

London Albert Embankment hotel towers approved

Two separate hotels rising to 26 and 29 storeys approved
2 days ago

Keltbray names new director of strategic engineering

Tim Lohmann takes up newly-formed role to drive innovative engineering solutions
2 days ago

Go-ahead for £200m lithium refinery on Teesside

Work to start next year on Europe's first lithium hydroxide processing plant
3 days ago

HS2 agency workers paid the wrong wages

Payroll software problems leave workers out of pocket
3 days ago

Electric car whizz joins O’Rourke

Contractor looking to learn tech lessons from other sectors
3 days ago

Electrical contractors still confident despite staff shortages

Order books healthy but worries grow over margins
3 days ago

BAM to deliver £44m Yeovil College campus build

BAM will submit a planning application next month to start work later next year
3 days ago

Bouygues starts London 700-home council estate rebuild

Developer Linkcity seals financial close on Old Kent Road Tustin Estate job
3 days ago

Construction’s “Leading Lights” recognised

Full details of latest winners of Considerate Constructor Scheme's latest awards
3 days ago

ISG wins £600m Hertfordshire Hollywood film studio job

Holywood studio Sunset awards pre-construction contract for 90-acre studio complex in Broxbourne
6 days ago

Contractor services