Impact of COVID-19 on the engineering and construction industry

COVID-19 has turned into a global crisis, evolving at high speed and scale. No industry is immune to this crisis and engineering and construction is no exception. Engineering and construction companies must act now to preserve the integrity of their operations and protect their people.

Analysts forecast a particular struggle in the commercial and industrial sectors as businesses in these sectors are most at risk from the economic downturn and their immediate priorities will likely be on business continuity rather than investing in new premises.

The residential sector will also contend as economic activity weakens and unemployment rises, despite low interest rates and direct government support. There is a high risk that a large proportion of early stage projects in these sectors might be cancelled or pushed back.

Governments and public authorities are expected to focus on advancing spending on infrastructure projects to reinvigorate the industry. The success of government efforts to spend heavily is likely to be constrained, depending in part on their current financial position and debt.

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The forecast for global construction growth in 2020 has been revised from 3.1 percent down to 0.5 percent.1 But the crisis might also represent an unprecedented opportunity - even a necessity - to solve some of the industry’s historical challenges and to prepare for a more digital future.



COVID-19 is putting the value chain under considerable pressure

COVID-19 is putting pressures of a different nature and magnitude on each part of the engineering and construction value chain.

Impact of the COVID-19 crisis on the E&C operating model (Accenture Research)

Based on our analysis, engineering and construction companies can implement a range of potential solutions leveraging technology and digital to respond to the current challenges (now) and strengthen their operating model for the next phase:

Potential digital solutions to face current challenges

1. Fit for purpose: Manage cash imperative and revisit operating models

Cash is king— now more than ever. Cash reserves are vital to crack the code of digitization and prepare for the future. Engineering and construction companies should revisit their operating models, rethink functional structures and leverage automation to reach new levels of profitability.

2. Smart operations: Adopt new and safe ways of working

1. Enable remote working when possible

HR and IT organizations should prepare for large-scale remote collaboration with liquid architecture, virtual workplace and digital applications.

2. Secure workers on construction sites

Construction companies must implement measures to minimize the spread of COVID-19, whilst ensuring previous health and safety measures continue to be followed.

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3. Resilient supply chain: Invest to mitigate risk and to differentiate

The construction supply chain is highly impacted, generating project slippage and/or extra costs. Enhanced focus on worker safety and increased cost pressure could accelerate the move to offsite construction methods. The efficiency and controlled environment of factory production can help in leveraging labor costs and in optimizing project schedules. To increase competitiveness, engineering and construction companies should improve the balance between site work, office engineer and factory assembly.

4. Growth to the new normal: Manage projects and contracts with agility

With project complexity and risks continuing to increase and additional pressure due to work method changes and supply chain disruption, the compression of costs is likely to translate into project margin slippage and occasionally corporate failures. Engineering and construction companies need to find innovative ways of absorbing these impacts. The path forward is to understand the impact of the COVID-19 crisis on each project, review and adjust project planning, predict slippages in costs and time, and communicate (and negotiate) new milestones with all stakeholders.

5. Precision pivot: Reinvent new business models

Engineering and construction companies need to reinvent themselves, shifting from a race to the bottom to a focus on the value created. They can only do it by reinventing their relationships with the ecosystem, developing new business models to mitigate risk and shifting to collaborative engagements rewarding risk and long-term partnerships.

The COVID-19 crisis will accelerate transformation

A large share of solutions, like Building Information Modelling and integrated project management platforms to name a few, were already identified as digital building blocks for the construction industry.

There’s been a paradigm shift in many areas that is leading engineering and construction companies to do many things differently than they did in the past.

Companies who fast-track their digital adoption by augmenting workers and engineers with digital collaboration capabilities, automating low value-added activities and sharing data for rational and insight-driven decision making, and who reinvent their relationship with third parties - clients, suppliers, subcontractors - will be strengthened and ready to succeed in a post-COVID-19 world.

This is the time to shift from a frantic race to the lowest price to competition on total value created.

Sources:

1 Global Construction Outlook to 2024 (COVID-19 Impact), Globaldata. Available on this link.

Disclaimer:

This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.

Engineering & Construction: How to Outmaneuver Uncertainty and Emerge Stronger

Listen to the How to Outmaneuver Uncertainty and Emerge Stronger webinar with Accenture, Autodesk and ENCORD (European Network of Construction Companies for Research & Development). We discuss what actions Engineering & Construction companies can take to face the global crisis precipitated by COVID 19.

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