The first session was kicked off with an introduction to the survey that EIC conducted in May amongst its member construction companies, assessing the challenges that arise in different areas of the world.
EIC/TCA Webinar on Impact of Covid-19
EIC and its Turkish Member Federation TCA held a webinar on 28 May 2020 for European international contractors to exchange views and experiences with regard to the manifold challenges that arise from the Covid-19 pandemic. EIC conducted a survey amongst its members to assess the main challenges that companies are dealing with. The results of the survey built the foundation of the discussion rounds. The webinar was structured in two sessions: Analysing the Present, Looking into the future. These are the results.
Session 1: Analysing the Present
The construction industry is globally affected by the Covid-19 pandemic as it turned from a health crisis into an economic cataclysm. A 54% of respondents to the EIC Survey reported that projects are impacted strongly or very strongly.
The early adoption of protective hygine measures has helped to soften the blow in some countries. In New Zealand – part or the Oceanian market – projects are impacted less (60% “medium”) than in Asian markets (50% “very strong”). Some markets, however, are also less impacted (57% “medium”) due to a lack of measures, like in Brazil. This might have long term implications for economic recovery.
The major cause for economic disruption and impeded construction delivery are: quarantines (47%), followed by construction material delays (25%), less current demand (18%) and actual Covid-19 sick leave (11%).
The crisis responses from contractors depend on regional provisions. Investment freeze might have more long term impacts on infrastructure development compared to temporary site closure, quarantines or short-term working conditions.
With only very few exceptions, employers around the world are reluctant to grant contractors financial compensation under the Force Majeure clause arising in connection with the pandemic. Contractors face slower delivery and higher production costs, while dealing with a difficult working environment. A Memorandum by FIDIC highlights that financial compensation to contractors under the FIDIC standard forms is limited to situations where the pandemic leads to an introduction of new laws or a modification of existing laws.
The U.K. Government has published non-statutory guidance for contracting authorities to make amendments to existing contractual provisions in order to help on construction contracts impacted by Covid-19. The Government of the Czech Republic has published a decree on how contracting authorities should deal with financial claims based on more difficult execution conditions. The Austrian Society for Construction Technology (‘öbv’) has published non-binding guidelines for the construction parties in Austria regulating the determination of additional costs and time extension of the construction period for ÖNORM contracts concluded before 15 March 2020, also establishing rules for the tendering of new projects. In Switzerland, the Swiss Rail Company has agreed with the Swiss construction federation on a framework for dealing with financial claims.
Session 2: Looking into the Future
The second session of the webinar was dedicated to a tentative outlook. Contractors were asked to assess how long they expect recovery phases for their business to be and what assistance may be needed to deal with delays and dwindling financing.
If the implemented measures are effective and a cure or vaccine can be developed in 2020, survey results indicate that economic consequences will most like be overcome by 2022.
More than 80% of respondents stated that the crisis will only last up to 2 years. The fastest recoveries are expected in the regions of Oceania, South and North America as well as Asia. The regions which might suffer the longest are the African and middle Eastern Markets. This might vary strongly among different countries due to different approaches to infrastructure development, but the economic spill over effects to other economic sectors such as agriculture and resource extraction might lead to long term backlashes, also in the construction sector.
All respondents indicated that construction delivery will become more difficult in the future, with about 50% stating that the main cause is no or less demand for infrastructure.
There is a consensus that the crisis has made the interconnectedness and interdependency of markets visible. The interruption of international supply chains might reinforce a trend towards regionalisation of supply chains and closer collaboration between European suppliers and contractors.
At a time of de-risking and de-leveraging of infrastructure investments, on the one hand, and limited resources of Multilateral Development Banks to step in, on the other hand, there is a growing concern that the infrastructure funding gap will be widening over the next years. Currently, MDBs are forced to provide liquidity for PPPs with volume risk to ensure their future viability. Public creditors will make more public money available to allow for debt forgiveness for developing countries. There is a need to draw on additional funds from European and national institutions, for instance Export Credit Agencies (ECAs). Contractors share the concern that the internal processes of the MDBs and the EU are very burdensome and time-consuming. In the current crisis it is important for clients and suppliers that the MDBs fast-track approval processes to maintain a significant pipeline of projects.
The shift towards more sustainable energy and energy efficiency alongside lower economic demand due to the pandemic results in decreased investments in oil and gas. There is a decrease of projects tendered in regions where clients depend on the oil price, such as the Middle East and North Africa. In Latin America, there are currently many PPP projects on the market that were awarded to Chinese consortia prepared to take great risks.
EIC keeps pushing for a purely European financing approach, similar to the ones in the U.S., China, Japan or Korea. As suggested by a group of experts, it would be helpful to launch a European Climate and Sustainable Development Bank.