As with most sectors, it is hard to know how much the construction costs will be affected by the pandemic and land within the next six months or a year from now. The construction sector is highly volatile and unpredicted because it is affected by multiple factors all at ones. The industry costs are susceptible to weather, supply chain, natural conditions, and even client-contractor relationship.
In this article, we have discussed ten ways in which costing in the construction sector will be and is impacted in the days to come. The current global pandemic is unlike anything we have seen before; that is why most contractors could not protect themselves from the current business environment.
10 Biggest Impacts on Construction Costs During COVID-19
We are several months into the pandemic, and the whole world is trying to adjust to the new normal as the pandemic continues to spread across the globe, with a continuous rise in cases and deaths. Here is everything you need to know about the changing dynamics of the construction industry and how it is affecting the costs.
Effects Increasing the Costs
Effect #1
Materials are essential when it comes to construction and are considered the building blocks of the industry. The global economy is moving towards high-tech sectors and new infrastructure styles, which will result in an increase in demand for inputs like cobalt, lithium, etc. Thus pricing of construction commodities is slowly shifting.
Also, as China is drawing nearly half of the world’s supply of commodities, including steel, aluminium, cement, and concrete supplies, the global prices are sure to rise with the demand. Hence, make sure to contact construction claims consultants in Dubai to help you negotiate terms with clients on current projects.
Effect #2
There is a boost in the Gulf region’s economy and the UAE despite the pandemic, and its primary driver is residential and commercial construction. An increase in construction activities has increased demand for supplies, impacting the prices of certain commodities like lumber, concrete, and gypsum.
Therefore, do consider revising your contractual details for the ongoing projects to incorporate up-rise in construction costs.
Effect #3
The Administration in the UAE and the other Gulf States have imposed restrictive trade measures and travel bans against most countries. This travel restriction and closing of borders have led to the imposition of quotas and new tariffs on imports of aluminum, steel, etc. Therefore, be ready to face an increase in construction costs due to the limited availability of materials and an increase in imports’ costs.
Effect #4
Due to the quarantine and self-isolation orders, a lot of employees and professional workers are advised to stay at home during the current pandemic. Due to the current situation, most older and more experienced workers are thinking about retiring and staying at home instead of exposing themselves to the virus.
In such cases, if you want to retain the expertise of these older employees, then you might want to give them incentives in the form of bonus pay, or other perks like medical insurance, travel allowances, increase in a paycheck, etc. This will further add to the costs during financially restrictive conditions.
Effect #5
To keep construction sites clean and secure, contractors face an increase in costs for providing personal protection gear and other safety measures to their workers. In order to open up and resume business, state regulations have made it mandatory for employers to provide a secure and healthy working environment for their employees.
As per state laws, the contractors need to provide safety tools like sanitization stations, washing hand facilities, and more restrooms to maintain social distancing. This is necessary for official compliance inspection and avoids getting your business shut down by the authorities. All these measures further add to the cost.
Effect #6
Governments all around the world are facing negative economic consequences and health crises, which guarantee an increase in tax in the days to come. Governments will try to reclaim their financing shortfalls through a rise in income, property, and sales tax, which the contractors have to bear.
We can also expect to see a hike in licensing and permitting fees, which will further add to the costs. But you don’t have to bear all these costs yourself! Consider hiring a construction claims consultant in Dubai to help you revise your contracts, so all the parties (contractor and clients) share this increase in costs and taxes.
Effect #7
As most of the firms have declared bankruptcies, it means there will be a shortage in the construction supply chain. As a result, contractors will have cutthroat biddings in the days to come that will determine their survival. In the long term, there will be fewer firms in the construction sector, but the jobs will have to be pickier and depend on each project’s profit margin.
Effects Helping Decrease the Costs
Effect #8
One of the effects of the pandemic in the global world helping decrease the costs is the low international price for crude oil. The low price for crude oil is currently keeping the costs down in the construction sector due to the widespread use of gasoline and fuel.
Effect #9
Another factor decreasing the costs in construction is quarantine orders for elderly and more experienced workers. As your older laborers are advised to stay home, they may be thinking about retiring; hence, it opens new opportunities for hiring young workers. Instead of paying old workers incentives and a huge paycheck, you can hire new and young talent as a replacement at a lower wage scale.
This will help you get a new team and cut costs in these financially troubled times.
Effect #10
Another effect lowering construction costs is the automation of processes and technology. We are moving towards more customization of laser cutting tools and robotics to increase productivity at construction, thus decreasing the costs. This Modular Construction is also side-lining the need for more workers altogether.
Final Thoughts!
This pandemic has brought the construction industry some good news and bad news, the latter being more significant. We cannot be too sure about the full impact of the COVID-19 on the sector, but we do know that businesses ready to face and incorporate these challenges will turn out profitable, and some will entirely shut down.
You might be interested previous blog post on a guide
to file a mechanics lien amidst Covid19.
However, as discussed above, there are effects of the pandemic that is helping companies reduce costs. So, don’t lose hope and be prepared to improve your profit margins when the opportunity presents itself!