Firm says some sectors won't recover until 2022
Arcadis has significantly downgraded its tender price forecast for 2020 because of the coronavirus pandemic.
The consultant had previously predicted that price growth would sit at 1% this year but this has now been revised to zero.
Arcadis said that despite potential recovery in the public sector and infrastructure markets, especially those related to HS2, which was given the go-ahead to start main civils yesterday, it will take many private sector markets – including housebuilding and commercial development – until at least 2022 to return to growth.
Simon Rawlinson, head of strategic research at Arcadis, said the forecast had been based on a realistic but positive scenario and that there were many potential outcomes.
He said: "The outlook assumes that the economy will keep going into 2021, the construction pipeline will be sustained and the supply chain will hold its nerve.
"Regrettably, if the market does fall away, there will be very few clients who are able to benefit from any downturn, so it is vital that – even in the midst of the crisis – we look at how the industry can implement resiliency measures that will put it on the best possible footing for recovery.”
The consultant said past recessions indicated that construction activity responds more rapidly and tends to overshoot shocks in the wider economy, so the effects in the sector could last for longer than in other areas.
But Arcadis said that once social distancing restrictions are lifted, work on all construction sites could theoretically start quite quickly, providing problems around sourcing labour and materials can be overcome as the market restarts.
It said the resilience of supply chains would also continue to be one of the major risks.
The report said: "The industry will need to look ahead to business recovery and act now to secure ongoing supply.
"Looking ahead, strong relationships with suppliers will be integral to re-establishing work programmes and clearing backlogs as efficiently as possible, whilst also preparing for post covid-19 opportunities."
The firm has written an eight-point plan including tactical scenario planning, rescheduling or de-scoping of work and reviewing relevant contract clauses to help mitigate short-term risk.
Arcadis' eight-point recovery plan
Secure supply in the short term
- Tactical scenario planning. Assess levels of inventory, capacity of available resources, and deliverability of goods needed to respond to immediate requirements. Develop and analyse scenarios that account for demand uncertainty and potential supply chain constraints.
- Secure essential resources. Compile schedules of essential resources, materials, and products required for business continuity. Beware of the less obvious risks further down the supply chains. Plan to mitigate price spikes in the event of a capacity contraction.
- Mitigate operational and programme risks. Plan action to manage residual risks that cannot be eliminated. Based on a risk assessment, discuss rescheduling or de-scoping of work with the client and project team. Review relevant contract clauses (insurance, payment, force majeure and frustration). Consider if any changes can be made that will support business continuity, for example extensions of time and revised payment terms, or even direct financial support for critical suppliers.
Accelerate the recovery
- Accelerate supplier management. When the crisis subsides, active leadership and strong supplier relationships will be essential to re-establish work programmes and to clear backlogs as quickly and efficiently as possible. Clear, reliable demand signals, advanced orders, capability development, and improved payment terms are all levers to consider.
- Refresh business continuity management plans. Review and update the pre-existing business continuity plans for readiness to accommodate future shocks. Include tools such as home working infrastructure and emergency command and control structures. Consider the maturity of a business continuity approach when selecting new suppliers.
Prepare for a post covid-19 world
- Embed resilience. Consider the various options for embedding future resilience, such as redundancy (increased stocks, spare capacity, and supply competition), resistance (automation, so shocks no longer have an impact), and improved recovery (rapid response protocols). Commercial mechanisms can also be used to increase reliability, for example via improved payment terms which reduce suppliers’ cashflow exposure.
- Strategic supply chain mapping. Implement a whole-system approach to create strategic supply chain maps for critical programmes and spend categories. The maps can be used dynamically to identify possible points of failure in the event of future shocks and enable strategic category management. These steps will allow buying organisations to be more informed about barriers to innovation, efficiency, and competition in their supply chains.
- Digitise supply chain management. The implementation of smart forecasting and analytics will enable more effective decision making. Cloud-based systems using advanced analytics to manage strategic supply chains will enable organisations to evaluate the effectiveness of existing resilience measures, identifying additional mitigation steps where needed.
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