The hidden costs of COVID-19

Having spoken with our regular contractors, it seems that whilst there is a pressure to price competitively, any significant project cost increases are yet to be passed on to customers, but they may still come!

All contractors must consider compliance with COVID-19 guidance set by organisations like the Construction Leadership Council in their Site Operating Procedures. Additional costs for enhanced PPE and equipment such as temperature readers, site notices, additional welfare units and toilet provisions, as well as work restrictions required to maintain safe working practices, must be accounted for. Further difficulties are also being seen off site, with supporting activities like manufacturing and administration experiencing staffing problems causing supply chain disruptions. Darron Owen

Contracts that include working in confined spaces are taking longer to deliver, due to social distancing rules, with staggered working for the various trades, night shifts and weekend working being considered. One contractor we work with is insisting on method statements being prepared when two people or more must undertake a task together, such as plasterboard installation to ceilings.

During the previous lockdown (from mid-March 2020), supply chain issues caused longer lead times for materials such as plasterboard and roof finishes, due to partial or full closure of manufacturing facilities. This problem doesn’t appear to be as significant in the current lockdown, although we have been advised of some delays and further issues like extended supply dates and restrictions on the number of people allowed to collect materials.

Contractors are looking for projects to undertake works in unoccupied properties, where space is available and social distancing is easier. With an increased current demand for industrial units with associated office space from businesses that have thrived during COVID, including the distribution and logistics sectors, work is available, but competition has increased.

In some cases, contractors are having to meet increased project costs, as contracts don’t identify pandemics as an event that entitles them to recover costs for delays. However, we are finding most clients to be fair when accepting project delays, agreeing that claims for costs will not be forthcoming from either party to the contract (although there are cases of contractors seeking to recover overheads where the client has instructed the contractors to stop or change their method of working).

But this is likely to change, with new contracts being drafted to incorporate the pandemic as an item that parties to the contract are aware of and should plan procedures for. It may therefore prove difficult going forward for a contractor to use “force majeure” where it was aware of COVID-19 at the point of agreeing the contract.

Initial estimates have seen a weekly cost increase of up to £2.5k, if all COVID ‘systems’ are required for over the project’s duration, considering the increased cost of the project duration itself, which can be increased by approximately 30%. In most circumstances, these costs are balanced by the effects of the current economic recession, with optimistic predictions that the economy will rebound to pre-COVID rates during the 2021. The Building Cost Information Service of the RICS shows only a slight increase in project costs over the last 12 months and 0.5% since March last year, albeit based on provisional forecasts (with regional and sector variations) that could change as situations evolve and contractors’ costs are assessed.

Whilst it is getting more and more difficult for contractors to deliver projects on time and within the budget, the full impact of the current lockdown is yet to be realised and could include extended contract programmes, due to revised and restricted working practices and delays associated with material availability and possibly increased project costs and associated claims.

If you are interested on discussing these topics further or have a property that has been affected? Please contact Darron Owen on darron.owen@tridentbc.com or on 07720 822778.

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