- The COVID-19 crisis has created significant challenges for businesses across the built environment sector
- It’s important to act now to strengthen your financial position, reach out to key clients, identify at-risk projects, and communicate a clear vision to your staff.
Despite the undoubted impact on operations, engineering firms are relatively well-placed to weather the crisis. Our 2020 Built Environment Industry Pulse Check found they tend to be larger and more diversified than other disciplines, with a high level of exposure to sectors likely to see continued or growing investment, such as infrastructure (71% of engineering firms) and healthcare (41%). However, 27% of engineering firms said that negotiating contract risk is a challenge – an issue likely to come into greater focus in the current climate of uncertainty.
- Project cancellations in highly impacted industries such as hospitality, retail, oil and gas
- Project delays due to supply chain issues affecting construction equipment and materials
- Counterparty risk from clients in impacted industries
- Safety issues affecting on-site work that cannot be done remotely
- Concentration risk for smaller and specialist firms highly reliant on a few key sectors or clients.
The impact on architects may be significant. An Australian Institute of Architects survey conducted at the end of March found that 89% of firms had seen projects cancelled or put on hold. In the United States, the Architecture Billings Index (ABI) recorded its largest ever monthly fall in March, dropping 37%. Our 2020 Built Environment Industry Pulse Check also found that architecture firms tended to be smaller and more specialised than businesses in other disciplines, with less diversified revenue streams and tighter margins.
- Project cancellations and delays
- Concentration risk for firms with key clients in highly impacted industries
- Contract and pricing risk on projects where scope has changed
- Tight margins and limited working capital.
3. Surveyors, urban planners and certifiers
While they can be highly affected by cyclical changes in demand, our 2020 Pulse Check found that surveyors were more positive about their ability to respond to political and macroeconomic changes than any other built environment discipline. Many are also focused on driving efficiency through technology (83%) and managing a positive team culture (58%) – attributes that are likely to prove valuable in the current crisis. Nonetheless, surveyors may also be exposed to smaller residential and commercial projects which might’ve been heavily impacted by COVID-19, making it important to take action now.
- Significantly reduced pipeline from smaller commercial and small or multi-dwelling residential developments. The level of new dwellings is expected to decline materially over the next 12 months
- Project cancellations and delays
- Bad debts, particularly from small businesses, individual clients and businesses in highly impacted industries
- Safety issues affecting on-site work that cannot be done remotely.
4. Responding to the challenge
While the precise steps you need to take will depend on your individual business situation, here are some key priorities for every built environment firm during the current crisis.
- Actively monitor working capital
- Consider whether to accelerate progress payments where possible
- Review debtors and actively contact at-risk clients. There could be an increase in requests for changes to payment terms, so it’s important to be proactive in seeking a solution (e.g. instalment payments for outstanding invoices)
- Review costs
- Monitor your project pipeline and assess the probability of delays and cancellations
- Proactively contact current and potential clients in resilient sectors like government, infrastructure and healthcare
- Seek to diversify revenue to reduce counterparty risk
- Re-assess contract terms to manage and minimise risk.
People and culture
- Check in regularly with staff working remotely
- Ensure support mechanisms are in place for staff facing personal challenges
- Clearly communicate the challenges facing the business and the steps you are taking to address them
- Set a clear vision and direction for the business over the short and medium term.
How Macquarie can help
The Macquarie Built Environment team is here to help you with personalised support, delivered by industry specialists.
To find out more, contact your Macquarie Relationship Manager, call 1800 442 370, or visit macquarie.com.au/business-banking/built-environment-industry.html