The COVID-19 outbreak has been declared a public health emergency of international concern by the World Health Organization. As the international response continues to develop, we know that infrastructure project owners and contractors are beginning to face potentially significant challenges which they need to contend with rapidly.
The interconnectedness, complexity and global nature of the construction industry’s supply chains and workforce affect the cost and schedule of infrastructure projects. Any slowdown across infrastructure investments due to, for example, uncertainty of demand or access to financing could have an impact on project start dates or stall construction progress, with potential longer-term economic repercussions for host countries.
Action can be taken now to plan for risks to delivering infrastructure projects. Organisations can take the following five actions to mitigate negative results:
- Identify critical suppliers. It’s important to have visibility over the project’s third-party supply chain and access to that party’s data to properly assess the likelihood of supply delays. Focusing on the most critical materials, equipment, products and tier 1 suppliers should help you prioritise and expose key vulnerabilities. Once those susceptible factors are identified, you must determine how reliant they are on the regions affected.
- Consider legal and financial implications. Is the potential disruption likely to qualify as a force majeure event or be seen as something that should have been planned for? Will there be legal implications if a company isn’t able to deliver against a contract? What will be the impact of supply chain disruption on margins, cash flow, loan repayments and terms? Conduct scenario planning to understand the financial implications. For example, the cost of materials may increase due to premiums paid for expedited freight or to buy up supply to maintain capacity.
- Communicate. Disruption brings the risk of reputational damage. A clear strategy for transparent communication with all stakeholders, including employees and every party along the supply chain, will be critical. Also bear in mind that effective communication can boost reputations, morale and trust among all stakeholders.
- Conduct scenario analysis. An epidemic such as COVID-19 brings specific challenges. Some are obvious, such as how restrictions on the movement of people will impact productivity. But there are wider implications and, perhaps, less obvious concerns. For example, changes to demand/use and other consumer behaviours will place extra pressure on revenues. Scenario planning for a range of issues is critical. Consider how alternative delivery methods or other steps may allow projects to be be completed on time and on budget, even if they are delayed at some stages. Also, explore how the use of advanced controls, technology and analytics, along with alternative construction sequencing, can accelerate capital projects while ensuring more efficient use of resources and better decision-making.
- Create a contingency plan. Review project controls, risk management and governance processes to make sure they are robust enough to provide early warnings of any cost, time or contractual issues arising from the possible scenarios.
Our experience helping companies, governments, regulators, NGOs and international organisations around the world respond to high-profile health crises has made it clear that the response window for a crisis such as COVID-19 is measured in months, while recovery is measured in years. Those projects that are well prepared are likely to recover more quickly.