What Will Change in Indian Construction Industry Post Lockdown?

May 3, 2020

According to various developments and news as on date the lock-down due to the COVID-19 outbreak is being extended till the end of May in many areas, and the situation is expected to normalize with removal of lock-down in another month only with significant betterment of the COVID-19 outbreak situation. As per the current context this implies a two months’ complete stoppage of the projects without accounting the time for reinstatement to fully operational mode, which may not be less than another thirty days.

Situation on the Face

The realistic image is going to be a bit different as demand of situation will vary largely. According to a recent excerpt of Kris Gopalakrishnan, the co-founder of IT giant Infosys, to the media that over a million of IT employees will continue to work from home even after this coronavirus-inflicted lock-down situation returns to normalcy, clearly indicates a strong reduction in the demand of commercial buildings. The question mark is big for residential projects of all statures where the ultimate buyer is the common people and the demand is bound to see a valley, with considerable reduction in flow of money to the common people’s pocket.

Fund flow from Government or big private clients is expected to change. The new priorities will be healthcare, disaster management and other dependent sectors rather than commercial or residential buildings. Infrastructure projects are expected to see boom according to a recent announcement of the Central Transport Minister.

Contractors executing projects that are currently midway will definitely seek for clarity on fund availability from clients, and projects of non-priority sectors are feared to have extended timeline, or trimmed set of features, or even the both to the worst due to reduction or redirection of fund.

Time lost for the ongoing projects

Considering the direct stoppage of works due to lock-down till end of May and subsequent time for reinstatement it is estimated that projects can be in a state of full operation mode not before last week of June, provided the Corona outbreak comes within control by then. This implies almost three important months are gone, that’s too when there are no other hindrances like monsoon or temperature issues and the progress is usually high!

For ongoing projects even if the clients guarantee the fund availability, difficulty in execution is still unavoidable for the contractors. Let us take an example of a project of 24 months’ original contract duration in which already one year has passed before lock-down and thus having 12 more months to complete will now have three months less in hand to execute those works. There is a strong chance that clients will approve time extension for the time lost without imposing any penalty because of lock-down and re-mobilization time required post the situation, being the same not attributable to the contractors. But there is a huge doubt about the extra cost incurred for the extension. It is not definite yet that to whom it will be attributed – the contractor or the client organization, or the Government, if the case may be. Clarity on this will attract lot of time-taking debates. Definitely most of the contractors will ask for reimbursement but the fortune of such claims are in doubt at least today.

What are the choices of a contractor?

The contractors will have two choices at this point. They may go ahead as per the original schedule and put the best efforts to complete the balance works within the extended period of time, claiming the extra overheads incurred this way. The second option is to reschedule the balance job to complete in no additional time and not to incur any additional indirect cost. This is smarter option at the present context as it will save the contractors from the risk of losing margin and to avoid cutting back the softest target of cost parameters– the employees.

Delving in to the action points

For the example case given above (a 24-months project where 12 months has on the day of Janta Curfew of 22nd March 2020) the balance work earlier scheduled for 12 months is now to be executed in 9 months only, leading to a 25% crashing of the schedule, leaving aside all other delays. Easier said than done!

First of all, to complete the balance works of any existing project within the original budgeted overhead will direct to rescheduling of the balance job, by crashing the duration of critical activities. The master construction schedule will have to be revised accordingly. More resources will have to be arranged within a shorter period. Increasing mechanization can be a resort here.

Planning team and Project Managers are definitely going to have longer hours of brainstorming as resource calculation would have to be now minute-detailed. Rapid purchase may not be possible in this changed scenario. Each and every material, be it majors like cement, reinforcement steel, structural steel or even minor ones e.g. binding wire, flooring pigments or wire nails – the quantity take-out for the balance works should be faster than ever and most accurate. Clients’ support is a must for all their deliverables for this.

In addition to fighting with the unprecedented situation the project teams will have to brainstorm about the impending monsoon also and strategize reserve storage of materials like sand or coarse aggregates, clay bricks which are not available during monsoon. Preparation of infrastructure pavements to be planned immediately to avoid any additional damage.

This is important as there are chances of many deterrents in the supply chain. Production units are not really expected to run at their full pace immediately. Manufacturers may start production in specific lots on availability of orders only and there can be issues with transportation within states. Determining accurate material requirement and appropriate requirement-phasing will enable the procurement and logistic managers to plan for bulk ordering, look for smooth transportation and get the materials on-board within the shortest possible time. This was not at all the case earlier and ad-hoc requirement would have created no major difference.

In this revised perspective sites will need to have lot of additional safety measures. No wonder that Sanitizers, liquid soaps, mask and hand gloves for staff and workmen are going to be included in the daily shopping list of projects. Daily sanitation of workplace and camps will be essential. In labour camps quarantine rooms are to be set up and proper mechanism should be in place for separating the workers rejoining sites from the existing groups as much as possible in the workplace as well. Definitely tough to implement in construction sites but effort to be put being it a call of time.

Starting from accommodation in the labour camps to the work environment at project sites everything is expected to be revised. Regular health monitoring of workmen and staff will now be a part of the regular activities of the site administration and safety departments. For individuals working at sites and site offices setting up touch-less hand-washing stations will be necessary.

Workmen availability should not be a major problem once the projects are permitted to resume, reason being the major a huge workforce majority of workforce will be now reluctant to move outside the country. Usually every year lakhs of Indian workers use to go to middle-east countries like Qatar, Malaysia, Maldives, UAE and other countries. This traffic is expected to come to almost a standstill now and the Indian companies will get at least a part of them which are obviously better skillful than the usual available workers.

There are other positive things also. Projects will be bound to look for maximum utilization of all the available resources as procurement process and supply chain is going to have restrictions. This will ultimately increase the profitability by curbing the wastage of resources. Housekeeping and general cleanliness will be improved leading to reduction in instances of safety-failures. Material rates may be re-negotiated with suppliers as less retail demand will be there in this changed situation. Meetings will be now mostly arranged over video or tele-conferences leading to cost savings.

Expectation from the Government

The initial pace of fund flow to the projects till streamlining of the situation is the key. Government of the country and state has to play a big role here. For direct Govt projects, clearing the outstanding money and pumping in fund in form of material advances, additional mobilization advances or partly release of security deposit replaced by bank guarantees will definitely help the work-resumption to jumpstart. For big private projects Govt may utilize the banks or non-banking financial companies (NBFC) to provide loans at a lower rate to boost up the fund flow. To serve the purpose to the maximum these should be provided in phases with a constant monitoring on the utilization of the previous phases.

Apart from these direct initial fund support to the projects some indirect measures can also boost the projects. Slashing of GST percentages on building materials, reduction of stamp duty, subsidies or special packages for the end-customers may be useful in this regard. The recent news of proposed supports from banks in this crisis situation is surely a silver-lining for the industry.

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