John Burnett has spent 25 years at Probuild working as a senior project manager. With a specialisation in retail projects he has worked alongside many notable clients including Tiffany & Co and Myer.
Following the Premier’s announcement of Stage 4 restrictions on the 3rd August, we watch with apprehension as details are further clarified and we try to understand how the Commercial Construction Industry can continue to operate. Critically, is it financially viable or practical to operate under these “Pilot-light “settings?
Focusing on the Commercial Building Industry, the Business Victoria web site (Friday 7th August) identified the key changes being adopted for “large scale construction sites”. The definition of a large-scale site is one of more than three storeys, has an area larger than 1500m2, any office or retail fit-out or industrial large format or retail use. Additional restrictions apply to workers visiting multiple sites.
During Stage 4 restrictions, large commercial construction projects are only allowed a maximum of 25% of their workforce on site. All personnel contribute towards the 25%; except for staff specifically dedicated to the oversight of COVID safe functions in the workplace. Baseline workforce is the average daily number of personnel on-site across the project lifecycle, as derived from the project’s written resourcing plan as of July 2020. There appears to be a lack of a clear framework so I am sure it will be open to interpretation to some degree. The resourcing plan and calculation are subject to audit, although it is unclear how this will be adequately monitored and enforced.
As we have seen this week, some commercial contractors have decided to close selected sites and others are pushing ahead under these new restrictions. Depending on the project and at what phase the works are at, there will be some ‘winners’ in the early project phase and others disadvantaged at their peak workforce phase. In some cases, on larger format sites, we are seeing contractors focus on a particular stage and using their resource allowance to complete the next Separable Portion and sacrificing other areas of the site, for when the restrictions are eased.
Operating at 25% over the six-week period equates to 75% loss of production with “on costs” continuing at almost full rate. In an industry always reliant on negotiating, it would be expected various commercial arrangements or concessions would need to be considered with the supporting suppliers and subcontractors to contain the costs. With all struggling, there will be no winners and costs will continue to mount as the weeks roll on.
Further sundry control measures are also in place with the new Stage 4 settings, prohibiting car-pooling and sharing accommodation with anyone working at another high-risk workplace. Limitations are placed on the movement between multiple sites.
Other control measures remain in place; with the High-Risk Safe Plans following the density restrictions of no more than one worker per four square metres in an enclosed space. Likewise, enhanced PPE, an increase in cleaning hygiene measures, split starting times and breaks, temperature monitoring and reduction in capacities are in place to move the workforce vertically, however, all these measures come at a cost.
As stated in The Guardian last week, it has been reported that Victorian builders’ revenue could take a hit of $450m daily from sweeping new restrictions on construction in the State, placing construction companies under continued financial stress and in some cases may force some companies to close their doors, as their cash reserves start to evaporate.
As we have seen since commencement of this pandemic the real impact started to bite in early March, as the life line of the commercial building industry started to evaporate with the retraction of tenderers from the market in certain sectors. Others may fair better, with their choice of regular clients, in particular sectors of State or Federal works. Due to the winds of economic uncertainty starting to blow, tenders were withdrawn from the market in certain sectors or deferred until some later time. Some projects well into the tender process have pushed on with some appointments being made in the last four months. With the Stage 4 restrictions now in place, it is expected this pipeline of future works will be further delayed, placing commercial contractors under further financial stress.
Since early February the industry has faced a variety of commercial headwinds and increased costs as a result of this pandemic; with impacts on supply chains also affecting programs. As the industry started to mitigate the effects to keep projects moving, the question on everyone’s lips is, who will be picking up the tab or how will the costs be shared equitably. With no one wanting to take the first move, it will be interesting to see how this is resolved.
How liquidated damages will be treated or imposed will present some interesting negotiations and outcomes. Unless common-sense and reasonableness can be applied, the resolution of these costs may be a protected affair for those on both sides of the fence.
With the reduction in manning levels, programs will enviably be extended, increasing the preliminary costs for the head contractor and for subcontractors. It would be expected site teams would once again be reviewed (as occurred at the start of the pandemic); with some key personnel working from home to support the project remotely. The key will be having the correct settings, whilst retaining the full team until the Stage 4 restrictions are retracted. Maintaining effective and efficient settings will still come at a high cost for the head contactor.
Time will tell how the subcontractors will be impacted by these setting and whether it is feasible to work under these restrictions. With reduced manning levels, subcontract supervision costs will be spread over a smaller base, leading to increased costs for most trades. This will depend on the workload the subcontractor has as a result of the pandemic anyway, and how they have been navigating the servicing of multiply site.
Subcontractors being permitted to visit only three sites per week poses real issues. If you take specialist subcontractors like concrete pump operators, fire spray contractors, shear stud contractors and scaffolders, just to name a few, they may normally service different projects each day of the week. With the new setting and assuming they follow the new restrictions, program impacts will no doubt be felt across the industry. At the time of writing this article, we understand clarifications have now been released to identify these Speciality Contractors, which will ease these pressures. Refer to the Business Victoria website for further details.
Moving to another critical element in the process of building is the support provided by the consultants. As we experienced during the early stages of the COVID- 19, consultants continued to support the industry in various forms. At around July, many of us noticed confidence levels starting to wane, with consultants’ HR departments considering the risks involved and cracks starting to appear in their ability to support the industry. Now moving into Stage 4 restrictions it will critical for consultants to continue to still support the on-site inspections and verification process in order to keep production moving.
With the Stage Four restrictions now in place, the industry heads further into unknown territory. The “pilot light settings” place further financial hardships on the industry in order to operate at the 25% setting.
With already increased preliminary costs, trade-related costs and project delays seen over the first six months since COVID, job losses have been inevitable. As we head into further unchartered waters, after Stage 4 restrictions, will the industry be able to reset once again to ‘normal’ COVID conditions or will the outcome be prolonged? Unfortunately, the lack of economic certainty weighing on the supply chain of major parts of the industry may result in delays before we see the industry gain strength and start to rebuild.
Whilst construction has not suffered as much as many other industries, it is critical that the Stage 4 restrictions work and do not extend, so we can move to the next phase of consolidation.
We need to keep positive and ensure we are well placed ready for “Re-ignition” from the “pilot-light setting” in place.