Return to July 2020 Update
- 3.a) Current situation
- 3.b) Remote work; Work from home (WFH)
- 3.c) Site procedures
- 3.d) Supply chain
- 3.e) Workspace re-entry
- 3.f) Financials; cashflow / Contracts/ Litigations
May is characterized with a change of outlook; the industry came to terms with the situation and focusing on solving problems arising on daily basis. The discussion about the procedures of shifting workflows has the highest representation among publications and webinars (51.8%) allowing us to develop 5 subcategories. In June the interest in Procedures of shifting workflows has increased from 41.2% in May to 45.1%. The challenges reported in May are aggravated in June as the economies restart. Specifically, the issues with cash and working capital, and contracting with follow-up lawsuits are standing out in June prompting us to add a new subcategory of Financials; cashflow / Contracts/ Litigations. In July this category had the highest interest with representation of 31% in selected references, though the interest decreased from 45.1% in June to 31% in July in line with the overall communication decrease. This category is of the highest interest to AEC, taking the first place three times in the past 4 months. All subcategories show decrease of interest in comparison to the June data.
The AEC industry continues to be cautiously optimistic in July no matter the economic difficulties and oscillations triggered by the pandemic; project cancellations and delays  (though countless projects are continuing as planned ), job losses/gains, reopening issues, issues of safety guidelines (jobsite closures due to COVID-19 guidance violations and reported positive cases ), cashflow issues and backlogs diminishing, potential litigations. The economic impact of the pandemic is substantially lesser than in industries such as retail and transportation, and July is showing recovery.
The July construction employment changed little (+20,000), following job gains of 619,000 in May and June combined. However, employment in the industry remains 444,000 below its February level.  Construction costs decrease for the first time in 10 years; a 1.01% quarterly reduction from Q1, as “trade contractor competition has increased in many areas to secure backlog due to uncertainty they have about future opportunities,"- Attilio Rivetti, the Turner vice president.  Nearly 40% of contractors expect profit margins to shrink over the next 6 months, with nearly 9% expecting a sharp hit to margins.
Associated Builders and Contractors reported that its Construction Backlog Indicator (CBI) rose to 8.1 months in June, an increase of 0.2 months from May’s reading. CBI is down approximately 8% from its June 2019 level.  Furthermore, AEC proposal activity at lowest level in a decade (AEC advisory services firm PSMJ Resources reported a near-record-low of its Net Plus/Minus Index (NPMI) of -22% for proposal activity in the latest quarter, substantially down from 17% in the first quarter). Worst-performing submarkets are: restaurants (-73%); hotels/motels (-67%); office buildings (-58%); retail (lease) (-57%); materials manufacturing (-50%); petroleum facilities (-48%); sports facilities (- 46%); higher education facilities (-45%) and mining (-38%). The AEC industry is likely to experience an uneven recovery for at least the next several months. 
Construction Dive’s survey showed that 75% of readers expect the impacts of COVID-19 to last another year or more, with 19% anticipating disruptions for at least another 18 months. Contractors’ concerns include poor direction and leadership from government entities, the possibility of infected construction workers shutting down jobsites and people continuing to flaunt PPE and social distancing requirements; the continued availability of financing and demand for construction projects overall; carry staff in the interim, and then would have trouble rehiring them when projects do start back up; and risks to specific types of construction (such as high-rise buildings). 
In this situation, cost containment is the top priority.  Associated Builders and Contractors' Chief Economist Anirban Basu said that as a result of the COVID-19 pandemic, "the average construction firm leader is more concerned about demand for their services than any other consideration, including skilled worker shortages."  “Revenues are down for most, with 38% citing revenue decreases of greater than 10%. Still, 15% have seen revenues grow.” For example, Skanska reports a profit plummet of 69% in Q2 , while Tutor Perini reports 13% Q2 revenue growth due to essential civil projects . COVID-19 is putting pressures of a different nature and magnitude on each part of the engineering and construction value chain. This is the time to shift from a frantic race to the lowest price to competition on total value created. The forecast for global construction growth in 2020 has been revised from 3.1% down to 0.5%. 
Nick DeNichilo, President and CEO at Mott MacDonald: “We had to make tough decisions and take aggressive actions: preserving cash is the key, reduce unnecessary overhead, keep utilization high, institute temporary reductions in hours/salaries with higher grade staff taking deepest cuts (restored July 1), emphasized monthly review and short-term forecasting and kept a keen eye on backlog (pipeline of authorized work); stayed aggressive with technology, marketing, and business development, and retained our staff and continued to recruit for the right people and roles.”  “Cash is king— now more than ever.” Cash reserves are vital to crack the code of digitization and prepare for the future. Engineering and construction companies should revisit their operating models, rethink functional structures and leverage automation to reach new levels of profitability.  “Trust is the new currency.” 
Remote work and workspace re-entry continue to discussed in July but less than in June – it seems that the strategies for workspace re-entry are being gradually implemented and the community has embraced WFH, though 100% WFH for AEC is not sustainable in the long run “for culture and talent development, nor is it a replacement for the speed of trust and collaboration that's built through face-to-face work. Collaborative work moves forward at the speed of trust that is built into our relationships.” 
The future workplace will embrace hybrid reality. “Perhaps 60% of our company could work remotely” in a post pandemic environment . AEC practitioners report benefits of remote work : work/life balance improvement; flexibility in timing of work (valuable to staff but boundaries are important); remote meeting technologies have reduced travel costs and resulted in greater inclusion; remote training continues to be very effective; lower carbon footprint; reduction in office space and overhead cost; and collaborative tools have increased the quality of on-line deliverables.
Long-term challenges: the office environment is critical to maintain corporate culture (especially for new staff); strong leaders are necessary for remote working (difficult to find); wellbeing focus is essential (staff can become disenfranchised quickly); personal social interaction and teambuilding is limited (compared to the office environment); trust is developed much more effectively working face to face; and remote work is not appropriate for all staff .
One way to handle employee experience in a remote environment is to tailor the approach to individuals or segments of people. McKinsey & Co.’s research shows that experiences vary widely. That is also true for the hybrid work environment, with some employees back in the office and others remaining at home.  Work relationships are changing as well. 
Remote work allows us to work from anywhere (Maybe from a beach? – Barbados suggests. ) Google (and other tech companies) are letting their employees to WFH until July 2021.  “Prior to COVID- 19, several tech companies had already started to discuss the idea of moving to a more distributed workforce that encouraged remote working. New tax laws, rising rents, and an increasing demand to attract and retain top talent were all factors that had CFO’s questioning their Bay Area leases. We are now seeing companies like Twitter and Facebook announce that they are considering a future where working from home becomes a long-term part of the company culture. Facebook, for example, recently announced that it will be setting up new offices in Atlanta, Dallas, and Denver and is estimating that over the course of the next decade, half of the company could be working remotely full time. While the decentralized approach of hub-and-spoke model isn’t necessarily new, the pandemic has acted as a catalyst for companies to rethink their space and operational needs.” 
The challenges reported in June (paragraphs above) continue in July. In previous months construction companies have implemented measures to minimize the spread of COVID-19, whilst ensuring previous H&S measures continue to be followed. Contractors report self-certification and self-policing on site according to H&S official guidelines from OSHA and CDC (in the US). Some states in the US enacted temporary 6-monthlong standards  given the fluctuating governmental guidance and restrictions.
Site inspections  and closures are reported in July due to COVID-19 jobsite violations : “We’re going to shut down construction sites where people aren’t working safely. Because these folks, if they’re exposed to the coronavirus, they’re bringing it back to their community. They often live in the more crowded housing in the county.”  Reports of positive COVID-19 cases on construction sites is growing. 
COVID-19 is putting pressures of a different nature and magnitude on each part of the engineering and construction value chain.  “Someone working from home can’t put pipes in the ground or one brick on top of another or supervise a construction site. So, we had to very quickly undertake some risk assessments on what sort of work we could conduct safely from within our sites while still maintaining social distancing. That meant that almost overnight 40% of our sites had to shut, either because the nature of the work they were doing meant that social distancing was impossible or, in other situations, our supply chain wasn't able to support this because [providers] had shut down.” 
“We also had to adapt to new protocols, such as only one worker per 500 square feet of building, as well as social distancing and mask requirements. We created site- and office-specific signage with QR codes to link all employees, including subcontractors, to our daily prescreening form about symptoms and exposure, which needed to be completed prior to entering the jobsite or office. These forms were automatically filed in a jobsite- specific folder on our project management software and flagged for management as necessary, which helped immensely from an administrative perspective.
We also implemented safety, hygiene and cleaning procedures in accordance with the CDC and state regulations. maintain the highest standards of safety. We’ve put a greater emphasis on hygiene on jobsites, including adding additional handwashing stations and ensuring all port-a-potties include hand sanitizer. While our construction trade workers already wore personal protective equipment prior to the COVID-19 outbreak, adding a required mask was causing safety glasses to fog. We evaluated different safety glasses until we identified one that worked for most employees, as well as a variety of different face coverings to ensure people are as comfortable as possible. In addition, we’re taking steps to minimize interaction and exposure, such as having digital staff meetings and limiting visitors in the offices and on jobsites.” 
To the June list of contact tracing technologies, in July we add WakeCap ; hard-hat devices that track the location of workers in order to improve efficiency and safety, but the wearable system might be applied to recreate the affected worker's interactions with others as well. 
Digital technologies were crucial for site reopenings. “We were not entirely unfamiliar with remote working anyway. There have always been people in port-a-cabins on building sites collaborating with colleagues at a desk back in the office. But from the point of view of people in roles such as IT, HR accounts and so on, the shift to home working was a radical change. Our site managers, our site foremen, site agents, our engineers, they have been remarkable. They've taken to the likes of Sharepoint and Skype for Business and things like that and just accepted the fact that this is how we communicate now with our support teams and have embraced it really enthusiastically.” 
Offsite and prefabrication methods have potential to address some of the challenges such as supply chain issues.  Recent study showed that increased productivity could add $5.4B annually to US, Canadian construction industries . The researchers suggest that construction (in North America) has lost productivity during the last 40 years and by increasing direct-work time (“wrench time”; craftsmen efficiency) by just 36 seconds per hour, the sector could gain billions of dollars. “If the country's contractors are to make more money, they need to optimize processes.” 
These results provide a rationale for investment in methods that can increase efficiency and effectiveness like lean construction's Last Planner system, location-based scheduling and integrated project delivery.  “Although there is a degree of uncertainty, this shows what a society could earn by simply spending one percentage point more time on value-adding work on construction sites. But the vast majority of sites can be optimized even more." 
The reported challenges in the previous month remain in July. So do the strategies to mitigate challenges and create resilient supply chain. “The construction supply chain is impacted, generating project slippage and/or extra costs.” As stated in the June report, companies should invest to mitigate risk and to differentiate supply chain.  Although reports show that the construction material prices have risen 2.3% in June (after the rise of 0.5% in May; and lumber price soared 50% since April) ; Gilbane Building Co. reports of stabilization signs in both price and building materials : “While we continue to communicate regularly with representatives from all related markets, there appears to be no significant supply risk at this time. Of note, both the primary and fabricated metals industries reported decreased production in June, possibly signifying efforts to reduce inventories.” “The prices will likely go down into Q3 and Q4. I think a lot of people within our industry did think that there would be a shortage of materials and that would necessitate higher prices," he told Construction Dive. "But I think what's ultimately going to happen is actually the opposite."
“COVID-19, the possibility that the pandemic will have a long tail, changing views of China, and the importance of resilience in weathering crisis have moved supply chains from a back-office issue to one under constant discussion in the front office.”  Alan Jope, CEO, Unilever: “We realized after the event that we had followed our multistakeholder model. Week one was all about our employees. We secured everyone’s jobs and income for three months. The next week, we started thinking about our community response. We donated products, got into a big partnership for handwashing, and made €500 million available as working capital to pay small suppliers early. And after we had taken care of people and the community, that’s when we thought fundamentally about the business, about the fact that we make things and collect cash for them. That’s when we secured supply lines and built extra resilience into our supply chain.” 
Dan Bartel, CPO, Schneider Electric: “Being agile, flexible and creative in solving problems — these are skills that our teams have honed while working with suppliers on various sustainability and social responsibility topics, and of course those kinds of skills were really important to navigating through the current crisis." 
A diversified supply chain means sourcing domestically and globally. Nada Sanders Supply Chain Management Professor, Northeastern University: "Globally means more than just location. It should look like a stock portfolio,". It may be more expensive, but it balances out the risk of losing supplies, and also adds potentially shorter delivery times. A survey by PwC found more U.S. CFOs plan to change their supply chain range, because of the current pandemic, and about one- third of those surveyed said supply chain issues are one of the top-three concerns. However, cost containment is still their top priority. 
Tony Kratovil, VP of Manufacturing Industry Go-To-Market at Salesforce suggests following strategies for resilient supply chain: embrace business digitization to solve immediate operational challenges and improve supply chain resiliency; better leverage sales team input to warn of future sudden shifts in demand; improve agility, collaboration, and transparency across the business and value chain.
Manufacturers are rapidly accelerating digital initiatives: today’s fast paced initiatives will have lasting impact across the supply chain: redefined engagement (enable your workforce to sell virtually); virtual servicing (transform service with virtual experiences); digital commerce (bring your sales channel online with self-serve ordering); cross-functional collaboration (remove silos and enhance visibility across stakeholders); data-driven business agility (enable agility at scale with faster, smarter decision -making).
Strategies: Stabilize → repoen → renew: Stabilize: deploy employee collaboration tools for remote and/or safe working; develop an agile dashboard for supply chain health; strengthen service desk and leverage case management for operational issues; create a 360 view of suppliers e.g., for collaboration, transparency; digital community and commerce for common questions and transactions. Reopen: Intelligent control tower capabilities for supply and demand and logistics; digitize additional processes” NPI, quality tracking; Online sourcing strategy with risk scoring and onboarding to grow diverse supply options; more flexible, accurate forecasting and S&OP input from sales and partners; ready digital commerce for more complex orders and inventory/ ATP visibility. Renew: increase usage of AI for guided analytics and planning; increase emphasis on digital manufacturing e.g., IoT/predictive maintenance; If-Then contingency analytics in business strategy; focus on subscription and service-based business initiatives. 
The discussion about big data and AI technologies brought attention to the supply chain of data: where it is produced, stored and used.  Tech startup competition seeks solutions to jobsite problems; including Supply chain management allowing for easier and streamlined acquisition of materials.  BlackRock calls out OEMs, industrial suppliers for inadequate climate disclosure – the majority of emissions are produced in supply chains.  Improve supply chain resilience to manage climate change risks. 
Up to 90% of global workforce is still working remotely (e.g., in the US reports are 90% of companies, ; anecdotal evidence indicates the U.K. is currently between 5% to 10% office occupancy while some reports suggest up to 50% of Dutch offices have reopened; U.K. numbers will rise to 40% re- occupancy in the fall.) 
Workspace is changing dramatically. After the pandemic, “we won’t step back in time, simply “returning” to our former offices. Instead, we will be moving forward to a new place. It might look similar in many ways, but it’s going to be modified in strategic ways, incorporating new practices, new protocols, and new technologies.” 
WFH indefinitely is not sustainable, and hybrid solutions are being imagined, developed, and start to be implemented as the economies reopen. For example Gensler’s experts worked in April/May with their clients to create a “bridge” phase until the knowledge about the virus increases. To get prepared for that “bridge,” they suggested that building owners and managers could take several short-term actions, such as rethinking meeting spaces, implementing building-wide cleaning protocols, focusing on indoor air quality, and updating safety measures. Since then, Gensler released a series of concrete recommendations in our “Back to the Office” guide , which outlines return strategies for the workplace and helps frame our conversations with clients.
At the moment, the experts are working with office building landlords and tenants on workspace re-entry. Issues of health and wellness are driving these conversations. They’re looking at returning between 20% to 80% of their people to the office, gradually increasing the percentage as time passes and we gain more confidence in the safety of the work environment. That means some of their people will be working from home, while others are sitting in a new “de-densified” office with employees spaced farther apart.” 
Return to workplace should maximize physical distancing, minimize direct interaction, reduced workstation density, track actual utilization; ensure safe and sanitary workspace.  The 6-feet rule will guide architects in a post-COVID world . The future hybrid workspace reality includes integrated digital collaboration tools, next-level conferencing, sensors, AR/VR and other smart technologies. 
Construction Dive’s survey showed that 75% of readers expect the impacts of COVID-19 to last another year or more, with 19% anticipating disruptions for at least another 18 months. Just over 12% of readers expect the crisis to continue for another two years or longer.  In this situation, cost containment is the top priority. Associated Builders and Contractors' Chief Economist Anirban Basu said that as a result of the COVID-19 pandemic, "the average construction firm leader is more concerned about demand for their services than any other consideration, including skilled worker shortages."  In parallel construction costs declined slightly for the first time in a decade. (The Turner Building Cost Index, which measures costs in the U.S. nonresidential building construction market, fell to a value of 1177 in the second quarter of 2020, a 1.01% quarterly reduction from the first quarter. This is the first time the index from Turner Construction Co. has reduced in value since 2010). 
Nick DeNichilo, President and CEO at Mott MacDonald: “We had to make tough decisions and take aggressive actions: preserving cash is the key, reduce unnecessary overhead, keep utilization high, institute temporary reductions in hours/salaries with higher grade staff taking deepest cuts (restored July 1), emphasized monthly review and short-term forecasting and kept a keen eye on backlog (pipeline of authorized work); stayed aggressive with technology, marketing, and business development, and retained our staff and continued to recruit for the right people and roles.”  “Cash is king— now more than ever.” Cash reserves are vital to crack the code of digitization and prepare for the future. Engineering and construction companies should revisit their operating models, rethink functional structures and leverage automation to reach new levels of profitability. 
Small and midsize construction companies in the US have been the leading recipients of loans through the Small Business Administration Paycheck Protection Program (PPP), borrowing $44.9 billion or over 13% of total funds ($521.5B).  This potentially forgivable loan might help companies to survive.
The new $1.5T infrastructure bill approved in July to rebuild the nation’s crumbling infrastructure, pouring hundreds of billions of dollars into projects to fix roads and bridges, upgrade transit systems, expand interstate railways and dredge harbors, ports and channels  is a great opportunity for construction companies; though the companies should think funding, special conditions, strong partnerships, and delivery methods before applying for an infrastructure project.  “Civil construction doesn’t change a whole lot,” said Paul Pedini, vice president of operations for Skanska USA Civil in New England, based out of Waltham, Massachusetts. “Our work is blessedly less susceptible to the ups and downs of the economy and that which has been created by COVID-19 just because of the nature of the work. It’s one of those things we’re extremely thankful for right now.”
Furthermore, COVID-19 will have lasting impact on construction contracts . In June report we provided more detailed information about different contract types and how to define “excusable delay”. According to Alston & Bird Law Firm more than ever, it will be incumbent upon owners, developers and contractors to clearly and transparently document COVID-19-related impacts and be capable of tying those impacts to the COVID-19 pandemic itself, rather than another cause that was within a party's control, such as poor performance, excessive rework or otherwise deficient performance. It will be essential that stakeholders have accurate schedules before and after the impacts of the COVID-19 pandemic to isolate the real impact. If a contract allows for monetary relief due to a force majeure event, contractors must clearly document and isolate additional cost caused by the COVID-19 pandemic; otherwise, owners will resist absorbing costs if the contractor may have incurred those costs because of a competing cause. Peering into the crystal ball, it will be those stakeholders that effectively use project controls and tracking tools to effectively establish project status and impacts, including scheduling and cost accounting, that will be able to avoid protracted disputes and either avoid claims or resolve them in a way that ensures successful project closeout. Likewise, nimble stakeholders capable of deploying all the strategies available in the project playbook — including strategic use of suspension, deceleration/ acceleration, supplemental forces and the like — will ensure project success in a construction industry set during the COVID-19 pandemic.” 
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 “Google Is Letting Employees Work From Home Until Next July,” Bloomberg.com, Jul. 27, 2020.
 M. Bobman, C. Levett, and F. Gibase, “What 10 Million Square Feet of Data Tells Us About Social Distancing in the Workplace | Dialogue Blog | Research & Insight,” Gensler. (accessed Aug. 13, 2020).
 “The 6-Feet Rule Will Guide Architects in a Post-Covid World,” Bloomberg.com, Jul. 17, 2020.