Throughout Covid-19, Paragon has prioritised communication with its supply chain and stakeholders in order to retain a clear view of what is happening to influence project costs. The following is a summary of some of the factors affecting current market conditions.
Live Projects and Committed Projects Not Yet on Site:
There is the likelihood of upward cost pressures due to the impact of social distancing measures, material availability and non-recoverable costs of delay. This in turn may mean potential programme slippage without pro-active project management to minimise delays. The combined effects of these impacts could result in an increased risk of supply chain insolvencies, coupled with contractual and commercial tension as contractors seek to minimise losses. It is therefore of utmost importance that all parties communicate and collaboratively work together to reduce risks and avoid supply chain failure.
Current trading conditions will result in a market re-assessment with regard to initiating projects. However, there is opportunity. Pressure on input costs against the need to secure work will likely result in tender price reduction (current forecasts suggest a 10% reduction over the next 12-18 months), dependant on project risk profile, complexity and the procurement route.
In addition, our industry must still consider that Brexit is still happening! There is potential for increased tariffs on materials that will need to be considered and planned for as we progress through 2020. While the EMEA materials market maybe volatile, this may be offset by the emergence of cheaper materials from the Chinese market recovering from Covid-19 before Western economies. Also maybe a move to pre-manufactured domestic solutions to reduce site labour requirements and exposure to worldwide logistical challenges, thus increasing on-site productivity.
It will be absolutely critical that during a time of pressure to win work, contractor selection is carefully assessed with a forensic approach and due diligence to the cash reserves, balance sheets and reliability of contractor supply chains.
Key considerations for project resilience:
Managing risk via diligent cost and project management will reduce exposure to factors influencing the market and provide successful project outcomes.