Six months into the COVID-19 pandemic, Canadians have been heavily impacted by the economic damage it has inflicted to its construction industry. A look at the domestic damage to the industry must, by definition, require a wider perspective into how the international picture will continue to affect future construction projects well into 2021.
Although the Conference Board of Canada estimates the nation’s economy contracted by 4.3 per cent in 2020, the forecast for 2021 appears more hopeful. The road to any recovery, however, will need to address a loss of nearly 1.1 million more jobs for 2020 than the nation employed in 2019. With global demand largely halted, exports are forecast to contract by 14.3 per cent by year-end 2020. As a result of all this uncertainty, investors have hesitated to fund new projects and the conference board expects an 11.3 per cent drop in Canadian private sector investment this year.
The impact on the Canadian construction industry has, as a result, seen a marked slowdown as the spread of the virus has caused serious damage to the industry’s supply chain, which is largely based on products and materials purchased abroad. As the country attempts to reopen, the “new normal” for the construction world will include emphasizing the need to design and build future projects while recognizing that many thousands of the subcontractors, suppliers and manufacturers will not survive into the post-pandemic era.
What will this mean for Canada’s design and construction industry? No longer can architects and engineers assume that products and supplies they traditionally incorporated into their plans will be available in the post-COVID-19 era. In many cases, sources for these products will be unavailable. They will need to validate the financial wherewithal of all product manufacturers\suppliers and ensure if they can deliver wares without putting a project schedule in jeopardy.
As stated in a recent NY Times article, “When it comes to obtaining building materials, real estate developers often buy globally, not locally. But as the coronavirus spreads across the world, bringing countries to a standstill, the lack of access to overseas supplies is sending jitters through the construction industry. Delayed so far at large-scale residential and commercial projects have been goods like marble, tile, paving stones, furniture, lighting equipment and elevators — and even models of buildings themselves.”
Subcontractors, vendors and truckers will need to be subjected to additional levels of due diligence to determine if they are still insurable, remain bondable and financially stable enough to perform without default during a project.
Both owners and design\construction team members will need to:
- Pay enhanced attention to the increased need for ensuring flexibility for deliveries from domestic and foreign product sources. Freight costs and additional staffing to ensure critical delivery dates will raise project costs.
- Pre-emptively reach out to key suppliers to determine their actual ability to deliver materials to meet project workflows and schedules.
- Plan for increased prices in materials that will, in turn, lead to increased project budgets including the possibility of change orders and additional purchase orders to reflect continuing fluctuations of market pricing.
- Diversify suppliers and widen the number who are based in North America. The post-COVID era will see many manufacturers and suppliers repatriate their operations from overseas to North America. As this happens over the next two years, product costs will rise, but the reliability of the supply chain will get stronger with each passing year.
- Track each product digitally as it moves forward through the design\fabrication\delivery process so that project managers can rely on timely delivery to a project site for installation.
- Provide for multiple delivery\drop off points (for storage or final preparation prior to installation) before actual delivery.
- Address the special needs of owners building large scale projects and lock in manufacturing dates from critical providers by paying a premium to ensure that no other project gains priority at the factory ahead of the delivery of these essential products or materials.
Over time, these “new normal” elements of supply chain delivery will become standardized. Until then, it will be of the utmost importance that all players in the Canadian construction world recognize that, for the short term, asserting greater control and accountability over the supply chain for their projects will help avoid major surprises and adverse impacts to their project budgets and schedules.
Barry LePatner, Esq., is the founder of LePatner & Associates LLP, and the CEO of Insights+ LLC. For more information visit https://lepatner.com/.
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To listen to National Managing Editor Vince Versace’s interview with Barry LePatner check out the Friday, July 24 episode of The Construction Record podcast.