This is Steve Ducker, editor of Demolition & Recycling International, and I’m speaking to James Howard, who has been giving some thought to demolition in the time of Coronavirus – and the steps the industry can take to be in the best possible place if and when normal service resumes.
Welcome, James, you have been in and around the demolition and wider construction industry in Britain for quite a few years now, though I should emphasise that you are speaking here in a personal capacity. How do you sum up the current state of business across the sector?
Confidence is obviously a big issue given the level of uncertainty. Let’s not forget that 2020 was predicted to be a tough year for many with commentators predicting an increase in the level of business failures.
No doubt, an erosion of profit margins over the past few years has weakened the ability of some to withstand sudden shock events such as this, so overall I suspect the resilience isn’t as good as many would like it to be.
But I don’t want to talk down confidence. We have some exceptional people with a demonstrable capacity to innovate, find solutions and adapt to change and recognising that strength we need to harness that to ensure we are recovery ready.
There has been some intervention from the UK government in the shape of the Job Retention Scheme and the payment of 80% of salaries to furloughed workers. How do you view the impact of that so far?
The political declaration of intent to “support good business” and “not leave anyone behind” was very powerful.
But the two things business needs right now are liquidity and confidence. The unprecedented stimulus announced by the Chancellor addresses the issue of liquidity but there is still a lot of uncertainty.
In my opinion, that uncertainty is compounded by the complexity of the contractual landscape that exists in our co-dependent supply chains.
In terms of the furlough scheme specifically, anything that averts the human tragedy of unemployment and enables business to retain skills they will need to be recovery ready is good.
I welcome the more recent guidance that has come out in the past few days providing clarity and it appears the scheme is more expansive in its intent, but it’s not a long-term solution.
We are around a month on from the first British Coronavirus case, and we are in the third week since the government announced the restrictions that have effectively closed numerous construction and demolition sites. What sort of a picture do you see emerging if the industry does not reopen for three months, six months even?
My understanding is that the sector isn’t completely on lockdown.
I know there are strong opinions on both sides of the debate in relation to whether sites should close or remain open. After a lot of deliberation, I’m coming down in favour of staying open and harnessing the ability we have so we can find solutions.
But that is on the basis that we comply with government guidance, are sensitive and respectful to the individual concerns and circumstances of workers and of course balance the additional increased costs of working against the benefits of carrying on regardless.
In terms of the landscape in the next three to six months, I worry about the potential of an increase in contract disputes. It’s the elephant in the room that no one is really talking about right now.
At some point people will be looking at the cost of delay, disruption and additional increased costs of working and who pays.
The concern from people I’m speaking to is that the current spirit of unity and common purpose to save lives, protect our National Health Service and flatten the curve of uncertainty will quickly evaporate if we allow commercial disputes to arise.
And the longer that goes on, and the more uncertain things become, the worse the outlook for the industry is?
You would imagine that the longer the period of uncertainty and financial risk, the more damaging this crisis will be.
I broadly welcome the government-backed interruption loan scheme, but I suspect lots of companies haven’t yet applied and for those that have, lenders will find it difficult to have confidence in the financial forecasts given the level of uncertainty. This will likely impact the level of acceptance and increase the cost of borrowing.
At the moment I suspect that many business owner, directors and shareholders are eroding cash reserves, increasing debt on a week by week basis, to see if any greater certainty emerges before making the difficult decision to borrow against assets.
What changes would you advocate and how can they be achieved?
The formation of a task force set up to specifically look at COVID-19 and the impact on the construction sector is good. I know they are inviting ideas. I’ve submitted mine and I encourage others to do the same.
However, I think we have a moment in time now for all stakeholders to demonstrate their commitment to corporate and social responsibility values by considering a voluntary code of conduct with three key commitments to:
- Set aside liquidated and general damages, arising from delay or disruption caused by COVID-19
- Guarantee a fair and reasonable entitlement to an extension of time
- Cap the additional increased cost of working that any company can reasonably be expected to incur before being allowed to be released from its’ contractual obligations, without detriment.
I think there is an enlightened self-interest in exploring this and I appreciate it will be a difficult sell to a lot of people. However, image the goodwill that could be harnessed and the potential for innovation and collaboration if everyone continues to pull together and find solutions to the challenges that ahead.
And what can, or should, the industry do?
In these unprecedented times, we need some radical more expansive thinking. I would encourage people to get involved in the discussions and share their fears and ideas.
I know from my own experience that the task force I mentioned earlier are serious about listening because I’ve already had a response from the CEO of the Construction Industry Council thanking me for my input and asking permission to share my thoughts with his colleagues.
If anyone wants to discuss any ideas they may have, before more formally sharing them with industry bodies or the task force, then by all means connect with me on Linkedin and I’m happy to be a sounding board.