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