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Article:

The BDO 2020 Construction Survey Report Preview

30 October 2020

James MacQueen , Advisory Partner, Construction and Real Estate Sector National Leader |

BDO is happy to announce the much-anticipated release of the 2020 Construction Survey Report, an annual survey of the construction sector conducted by our team of specialist construction industry advisers. The third of its kind, this year’s report is in two parts, revealing the sector’s state of affairs before and after the first nationwide Alert Level 4 lockdown prompted by the spread of the novel coronavirus.

Before the full report is launched, we want to preview and discuss the key insights from our survey participants—and therefore the sector’s—current narrative. The sector, not unlike many others, was heavily impacted by the shifts in economy and work caused by COVID-19, and we hope this report will be used as a tool to highlight the challenges the sector must overcome to recover from the pandemic’s initial impacts, as well as to hone in on the opportunities for survival and growth.

The participants, as revealed by their responses, are confident in their ability to deliver well-built projects, and the insights gained from the report should set the tone for the sector to finish the year off strongly and help businesses head into the new year with a refocused vigour.

The full results of the survey will be released in November. Until then, here’s what to expect.
 

Pre-COVID Snapshot: A Financially Strong Sector

Prior to the first lockdown, many of our survey participants reported that they were in the strongest financial position they had been in for many years after experiencing substantial growth during the previous financial year. Pre-COVID forward work pipelines had improved, 92% reported having adequate bonding capacity (a significant jump from 53% in 2019), and balance sheet resilience was up across the board.

This pre-COVID-19 financial strength will be a useful benchmark from which individual businesses can measure their eventual recovery.

Key areas that have improved:

  • Performance bond capacities
  • Cashflow and ability to pay creditors
  • Retentions Regime compliance
  • Focus on non-price attributes
     

The Impact of COVID-19 on the Construction Sector

COVID-19 and the subsequent lockdowns made immediate and profound impacts on the sector’s financial stability and its ability to do work. 69% of respondents reported that previously confirmed work was delayed or cancelled due to COVID-19, which naturally translated into loss of potential profit.

90% of our survey participants reported that they applied for the wage subsidy and found it essential to business survival, especially at the height of lockdown. Due to the lack of forward work and the loss of profit, however, 25% plan to reduce staff numbers, and 58% cancelled or delayed salary increases. This is unfortunate, as results from previous years’ reports persistently identified finding quality staff as one of the sector’s main challenges.
 

What are the industry’s current key concerns?

Forward work, procurement, and gross margin issues are on the horizon, all of which are fuelling the dreaded “race to the bottom”. Although it’s not a novel issue within the sector, the risk of a race to the bottom has certainly been exacerbated by concern for the lack of forward work expressed by 81% of our participants.

There are anecdotal reports of “low-ball bidding” as new work becomes scarcer and competition increases where the lowest price wins. Essentially, businesses are scrambling to secure new work to keep their employees occupied and are pricing low as a result. However, it will be difficult for those businesses to remain profitable if they continue to take on work at small margins, not to mention that the margin-cutting actions of a few will force others to do likewise. We discuss this in further detail in the report.
 

Strategies for Survival and Growth Post-COVID

Focus on greater efficiencies, whether on-site or in-office, were put forward by the participants as one of their initial strategies to mitigate COVID-19’s impacts. There is huge opportunity here for the industry to better use current technologies and software, particularly in areas like Building Information Modelling (BIM). The need to survive and grow post-COVID should encourage the identification of these improvements and their speedy implementation.

Reassuringly, the sector’s participants are very alert to their needs and have a good sense of what is required, putting forward strategies for sector-wide improvement, such as:

  • taking on a better, more collaborative approach to focus on the best project outcomes,
  • ensuring more equitable transfer of risk,
  • increased weighting on non-price attributes for tendered work or negotiation, and so on.

Our survey participants expressed confidence in their businesses, teams, and abilities to deliver well-built projects, and these will no doubt be put to the test as we collectively work towards improving the sector’s profitability and sustainability.

Download your copy of the construction survey report today!