Summary: Problem stated during the starting of Pandemic Situation due to Outburst of Novel Corona Virus in the Civil Engineering and Construction (CE & C) sectors. Then this situation gets resolved and afterward challenges and opportunities in the CE & C domain.
Overview:
Novel Corona Virus or COVID-19, reported in India on January 30th, 2020 in Kerala and since then the planet is still experiencing a pandemic circumstances due to Outburst of this virus. Civil and Infrastructure sectors are mostly affected due to this pandemic. Cyclical recessions are quite natural happenings in Civil Engineering and construction (CE & C) companies, but the pace and force with which COVID-19 has smacked is quite exceptional. Ongoing projects are being delayed or abolished, supply chains are under risk. Health issue for the employee and subcontractor manual labour is a common concern during this period, and there are practical challenges around social distancing on construction sites. Companies that have had to furlough workers might find the future availability and skills of those workers uncertain. And because many construction and contracting companies operate without substantial capital reserves, the impact of the lockdowns could force some to restructure debt, seek new sources of capital or risk insolvency.
It could get worse before it gets better. Latest COVID-19 CFO Pulse Survey found that 81% of CFOs are considering cost reductions in response to the crisis, and 60% say they are planning to defer or cancel investments, particularly in areas such as facilities and capex, operations, and workforce.
It is an extraordinarily difficult time, but swift yet thoughtful action can help CE & C leadership teams manage the immediate crisis, stabilise supply chains and reinforce their companies’ financial position to emerge from the crisis with a more solid foundation.
Manage the Immediate Crisis:
For most CE & C companies, financial stability is the top priority. Achieving or maintaining stability amid so much uncertainty clearly requires reviewing capital and corporate cost budgets as well as options for raising funds, including government stabilisation or stimulus packages.
Yet the lack of clarity regarding the CE & C marketplace, supply chains and the wider economy makes any cost-containment or other finance decision extremely challenging. There’s no perfect answer to this uncertainty, but a robust scenario analysis — using models that estimate financial needs and opportunities, based on a wide range of scenarios for COVID-19’s duration and impact — can help companies navigate it.
These models require the most accurate data available, typically detailed at a project level due to the bespoke nature of and contractual arrangements for each project. Many CE & C companies that haven’t already started using advanced data analytics may therefore want to consider doing so. These tools will prove their worth in helping navigate this crisis — and will continue to create value after it’s over, by supporting better-informed decision-making.
By keeping workforce safe, engaged and skilled is another challenge. CE & C company may face limits on how many employees can work from home: many workers simply must be on the job site. Beyond providing them with appropriate protective gear, you can take additional steps to help them stay safe, such as staggering shifts, mandating safe distances between workers, and banning visitors.
Stabilize Supply Chain:
COVID-19 has had profound economic consequences, and some of the vendors and subcontractors may not survive. Others may not be able to fulfil contracts right now. Overseas suppliers may be especially prone to delays. For many CE & C companies, it is an extraordinary challenge to obtain visibility into and manage the behaviours of their disparate supply chains at site level.
To find vulnerabilities in the supply chain and choose how to respond, you need to maximise visibility. Reach out to the suppliers, gather data and build a dashboard that continues to update and refine over time. Based on what the dashboard reveals, consider the legal and financial implications, as well as their impact on margins, cash flow, loan repayments and terms. Make sure that project controls, risk management and governance processes can handle all the supply chain changes as per under consideration.
For critical suppliers whose long-term prospects are sound, offering contractual flexibility and technical support, including help in tapping government funding as part of recovery and stimulus programmes all over the world. Yet owners also must be ready to pivot to new suppliers as needed.
Reinforce the Company’s Financial Position:
Many CE & C companies are facing a financial shock, with an especially significant impact on their cash flow. In the short term, they should conduct an extensive project-by-project forecast and source government financial support. In addition, management teams should consider contractual terms, the recoverability of receivables in a site shutdown, and the inevitable inefficiencies created by remote working and on-site distancing restrictions. In the medium term, many organisations will need to renegotiate lending arrangements and raise new equity.
To develop and execute a financial strategy that will help a company be among that elite group, it is definite that finance team has information and forecasts that are as accurate as possible, supported by top-notch analytics.
Looking Ahead:
When the pandemic ends, CE & C companies will face a new world. The marketplace will change, as some national governments will be eager to invest in infrastructure to jump-start their recovery, and others may face new resource limitations. Portfolios will also change, with both public- and private-sector project owners placing a new emphasis on sustainability and resilience.
Cities will need to serve more residents who work from home — likely leading to greater investments in telecom and smart city initiatives. Among the many potential private-sector shifts on the horizon, commercial real estate may undergo a prolonged downturn, while the growth of data centres may accelerate further. The competitive landscape will change too, as stronger players acquire weaker ones, and still others emerge from bankruptcy with clean balance sheets and a ravenous appetite for projects.
It is a formula for continued uncertainty: any company’s client base, competitors and project book may differ dramatically from their pre-COVID reality, but it is impossible to foresee exactly how. Yet companies that emerge from this crisis with solid finances, a resilient supply chain, skilled workers and the capacity to gather and analyse the data that decision-makers need, will be well-placed to pivot and seize new opportunities. Those organisations will be market leaders no matter how the post-COVID world evolves.
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