Supply chain capacity likely to be biggest risk to industry post Covid-19, warns Arcadis

Arcadis has predicted that despite the potential for recovery in public sector investment and infrastructure related to programmes like HS2, it will take many private sector markets - including housebuilding and commercial development – until at least 2022 to return to growth as a result of the impacts of the COVID-19 pandemic.

With many forecasts expecting one of the deepest economic downturns on record, and in the midst of unprecedented market challenges, Arcadis has significantly downgraded its tender price forecast for the year 2020 to 0%. 

The analysis comes courtesy of Arcadis’ latest Spring Market View; Into the Unknown. This quarterly analysis of the UK construction market looks across sectors and regions to deliver a tender price forecast to inform clients about what is going on in UK construction, helping financial decision making for projects and programmes.

The report points out that the Covid-19 crisis is different to previous economic crises in that it has most deeply affected consumer-facing industries like hospitality, which should eventually bounce-back. 

However, says the report, past recessions indicate that construction activity responds more rapidly and tends to overshoot shocks in the wider economy, so the effects for the construction sector could last for longer.

Despite this, Arcadis believes that once social distancing restrictions are lifted, work on all construction sites could theoretically start quite quickly, providing that problems around sourcing labour and materials can be overcome as the market restarts. 

However, as the exit strategy from lockdown has not yet been defined, and the full impact on demand is yet to be assessed,  the forecast is necessarily subject to a high level of uncertainty.

As the industry moves towards recovery, the resilience of supply chains will continue to be one of the major risks. In its report, Arcadis has emphasised that the industry will need to look ahead to business recovery and act now to secure ongoing supply. 

Recommended measures in an eight-point plan include tactical scenario planning, rescheduling or de-scoping of work and reviewing relevant contract clauses to help mitigate short term risk. 

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.

Simon Rawlinson, head of strategic research at Arcadis, said: “Plotting the potential course of this crisis is not easy. Our forecast is based on a realistic but positive scenario, but there are of course many potential outcomes. 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.”