Meeting the challenge of ‘new normal’

Not a single think tank that ever professed to having a ‘2020’ vision saw this one coming. 

The second quarter of 2020 delivered a hitherto unimaginable fall in UK construction activity of 35 per cent It rose 17.6 per cent in July from a desperately low base, still leaving this summer’s construction activity a dismal 12.8 per cent lower than a year earlier. 

In a 2020 Building Engineering Business Survey, almost two thirds of businesses reported reduced turnover in Q2 compared with Q1 – the sharpest drop since the quarterly survey began. However, this fall in turnover was not as large as businesses had predicted in April, when almost three-quarters of respondents predicted a fall in turnover during Q2.

“The sharp downturn in turnover in Q2 was widespread across industry,” said ECA’s CEO Steve Bratt. 

He added, “The picture that is now emerging is one of a resilient sector that braced for impact in the spring and is so far weathering the storm whilst remaining cautiously optimistic about the future”. 

2020 has been wretched for the UK economy and much of society, including many of those in our sector. However, in some ways, engineering services overall has benefitted – due to its major presence in both construction and wider facilities management.

Lifeblood of the economy

Engineering services businesses are vital to the operation of the wider economy because, even if new construction declines, repair, maintenance and improvement (RMI) in existing assets continues. The majority of contractors have shown enormous resilience in 2020, having continued to trade where clients have allowed them to and ensuring that building and RMI continued to operate throughout the crisis. 

Before the pandemic, the construction sector contributed £117 billion to the UK economy, or 6 per cent of total economic output. There were 2.4 million jobs in the sector, or 7 per cent of the UK total. Being a resilient, ingenious and adaptable enabler of wider economic output has also brought the sector serious attention at the political top table. 

Business Secretary Alok Sharma’s open letter of 31^st March thanked the contributions of a construction industry that – lest we forget – was originally being pilloried by the press on safety grounds. The industry went on to serve not just its clients but to help the economy and society to cope with the crisis. 

Before the pandemic, the construction sector contributed £117 billion to the UK economy

It established clear guidance on how to work safely in a COVID-19 world. Many contractors were already digitally enabled for remote mobile working and quickly adapted to new (and changing) construction Site Operating Procedures to help ensure safety and performance throughout the pandemic. Generally, there was relief at being able to regain some level of productivity during the summer, and secure business continuity and as many jobs as possible.

Beyond grants and furlough 

It’s fair to say that the Government was also agile and highly responsive with the financial systems it put in place for businesses of all sizes. The job retention scheme, the self-employment support scheme and a number of other key grant, lending and compliance changes, plus the suspension of evictions and debtor enforcement significantly reduced the initial burden of trading in a pandemic.

But in Q4 the mainstay government interventions will ebb away, even if some new ones may emerge. From here, contractors may have to navigate their way through local lock downs and factor-in COVID-19 as part of UK ‘normal’ within their productivity and pricing structures.

2020 has taught us that a key test of resilience is having the management and business skills required to diversify risk

Pre-COVID contracts will come to an end and old habits of elongated payment cycles and sub-economic tendering may emerge as contractors fight for survival. Alongside this is the continuing Brexit uncertainty, and the prospect of removal of VAT from cash-flow in April 2021.

The quarterly business survey also suggests that the use of agency workers and subcontractors continues to fall, in line with a downward trend observed throughout late 2019 and 2020 amidst growing uncertainty around Brexit. 

It shows that although 9 per cent of businesses indicate more use of agency workers and subcontractors than in the previous quarter, 30 per cent said they were using fewer. ECA is a keen advocate of direct employment as route to sustainable recruitment, training and competence in an industry prone to fragmentation and disaggregation. 

2020 has taught us that a key test of resilience is having the management and business skills required to diversify risk, access the very best real time information available and make agile decisions to safeguard the business.