3. Procedures of shifting workflows

Return to September 2020 Update

Length:28 min read; 6468 words. Includes the following 6 subcategories:

• 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

Note: The following paragraphs summarize the category of Procedures of shifting workflows observed in September. More information about the specific category from September (and previous months) can be found in the downloaded report(s).The number in square brackets (e.g., [X]) refers to a reference where the reader can find more information about a specific statement.  The references can be found in the References list below, Systematized References page or in the downloaded report.

May was 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 allowing us to develop 5 subcategories. In June the interest in this category has increased. 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 line with the overall communication decrease. All subcategories show decrease of interest in comparison to the June data. In August and September, the category had again the highest interest with 44.3% and 31.2% representation in selected references, respectively. This category has taken the number one position for the fifth time in the past 6 months and we expect it to remain of the highest interest in the following months, due to challenges contractors are facing.

a) Current situation

Construction companies are reassessing the remainder of 2020 and looking ahead to 2021 as they settle in to deal with COVID-19 for the long haul by 1) Bringing new business in; 2) Entering the "airlock zone" (“airlock zones” are at the firm’s headquarters, where clients can come in for face-to-face meetings, with dedicated exterior entrances); 3) Engaging multiple suppliers; 4) Staying disciplined with bids; 5) Reading the fine print (read through contracts with a fine-tooth comb and trigger force majeure clauses where they can); 6) Cutting costs; 7) Seeing the silver lining (e.g., focus on business fundamentals, the client not only the project); 8) Doing more with less. [115]

The September data indicate that construction has rebounded from the negative effects of the coronavirus pandemic more than any other U.S. industry (construction’s essential status helped the industry maintain momentum during governmental shutdowns and enabled faster rebound). According to Dodge Data & Analytics nonresidential building starts rose 16%, while nonbuilding construction (which includes infrastructure projects) jumped by 40% in August. By the end of July, the industry recovered 59% of the jobs it had lost, according to New York City-based accounting firm Marcum. In even more good news, backlog rebounded to eight months in August, according to Associated Builders and Contractors (ABC). [116] Nevertheless, The U.S. contractors see 2020's challenges continuing [117] and they are worried about 2021: “We’re optimistic, but overall we’re seeing a shortage of opportunities in September and October, with November and December usually being slower anyway. The definition of construction is that cash is king; and right now, cash flow doesn’t look that great in 2021.”[115] They are worried about less retail and office construction; increased competition from larger firms; continued pessimism related to new starts and planned expansions; schedule impacts due to health concerns and social distancing requirements, and rising unemployment. In a Construction Dive’s survey 86% of respondents said they will continue to utilize social distancing and PPE to protect workers from COVID-19. When it came to winter months potentially slowing work, most were not concerned that early 2021 would be an outlier. [117]

The survey by the AGC and Autodesk conducted in August has found that 60% of contractors had future projects canceled or delayed due to COVID-19 (nearly doubled the amount from June); 33% of firms said projects already in progress had been halted due to the pandemic; and that the pandemic has exacerbated the industry's persistent labor shortage, with 44% of firms that tried to recall laid-off or furloughed workers saying that some staff have refused to return to work, citing a preference for unemployment benefits, virus concerns or family responsibilities. [118] There is also a growing demand for big-data IT professionals in construction – difficult to find for construction as the AEC needs to compete with the tech industry for the experts. [202] The challenges also come amid perceptions of inaction on the part of lawmakers to address the mounting issues facing the construction industry. Art Daniel, president and COO of Ceder Hill, Texas-based AR Daniel Construction Services: “We're just burning that backlog off… There's a growing sense that we're doing fine now, but we have some concerns about what's out there… The bottom hasn’t dropped out yet.” [118] Despite the challenges, financing is available for the right projects, although many owners, investors and developers are still playing the “wait and see” game. Many owners have to account for increased costs due to COVID-19 safety inspections and supply chain delays, which are adding to the delayed appetite for new projects. [159] Construction spending has increased sharply in August, and continues to increase in September. The U.S. construction employment increased as well, but construction starts and backlogs have dropped in September. [223] ABC’s contractor optimism increased in September with regard to staffing levels, sales expectations and profit/ margin expectations. [223]

Architectural Billing Index (ABI) score of 47 for September means that the majority of firms still saw a decline in their firm billings, things have taken a more encouraging turn from the last three months where the recovery had all but stalled. Architectural firms reported an increase in the number of inquiries into new projects for the second month in a row, and also reported a relatively modest decrease in the value of new signed design contracts, which looks likely to turn positive again soon. And firms reported a modest uptick in the length of their backlogs as well, which grew to 5.4 months in September, after plummeting from 6.3 months in December 2019 to just 5.0 months in March. Firms reported that they expect their revenue to decrease by an average of 1.9% from the third quarter to the fourth quarter of 2020, with firms located in the Northeast, and small firms with annual revenue of less than $250,000, expecting larger losses, of 5.6% and 5.5%, respectively. Firms with a commercial/industrial specialization expect just a slightly larger loss than average, of 3.1%, while firms with a multifamily residential specialization, on the other hand, anticipate that their revenue will increase by 2.9% in the fourth quarter. On average, firms expect that their revenue will decrease by 5.5% from 2020 to 2021, again with firms located in the Northeast, and small firms, expecting larger losses; 9.7% and 7.8%, respectively. Firms with a multifamily residential specialization project their revenue to be essentially flat, while firms with an institutional specialization expect losses of 7.4%, and those with a commercial/industrial specialization expect losses of 5.6%. [224]

While U.S. companies expect a slowdown before the election and then a pace pickup no matter who wins [117], EU construction production has increased 2.4% in August compared to July, and is now at its 97% of the February level [119]. Euroconstruct has combined figures from its 19 European member nations, resulting in a forecast of an average 9% decline by the end of 2020. The UK is predicted to be the market hardest hit by the coronavirus pandemic, with the 2020 decline across the Euroconstruct nations averaging just 7% when the UK’s figures are excluded. The report shows that markets in the Nordic countries are remaining stable, with the total market in 2021 (bar Sweden and Finland) expected to return to around the level of 2019. The Netherlands, the UK and Spain are expected to be the slowest to recover, while Euroconstruct’s figures show Poland currently seeming ‘crisis-resistant’, with constant growth anticipated between now and 2022. Other countries expecting to see construction output figures in 2022 ahead of those of 2019 are Norway, Belgium, Italy and Portugal. [225] CapEx is under pressure at European rental companies. The survey, conducted by Lectura in collaboration with the European Rental Association (ERA) and the Committee for European Construction Equipment (CECE) showed that 64% of rental companies saw some level of decline in business activity, 28% reported no impact. Of those who have been impacted, 19% have seen a 30-50% drop in activity. In contrast, 8% of respondents have enjoyed an increase. Almost half of rental respondents said short-term rental was the most affected business segment, while 19% suggested long-term rental had been hardest hit. The large majority (77%) of rental respondents have not had to sell any part of their fleet to improve liquidity. [226] ERA has issued the 2020 and 2021 forecasts: the hardest hit countries this year will be Italy and the UK - both suffering -16.3% drops - followed by France, down -14.4%, and Spain at -14.1%. The UK is forecast to make a +4.6% recovery in 2021, while Italy will rebound by +7.1%. Similarly, Spain is predicted to grow by +5.2% and France by +8.4% in 2021. That means these countries will have markets in 2021 still significantly smaller than in 2019. Germany is a positive exception because not only was the impact of the pandemic on these year’s rental revenues expected to be relatively modest - down 4.8% - but it is forecast to see market growth of 5.7% in 2021. Other countries that are expected to have fared relatively well in 2020 are Sweden (-4.2%), Finland (-5.1%), Poland (-5.2%) and the Netherlands (-5.3%). Poland and the Netherlands in particular are also forecast to see a 3.8% rise in rental revenues in 2021, though they will remain below 2019 figures. [218]

Asia Pacific is fighting to recover from COVID-19 – with China as its powerhouse that resumed construction on just under 90% of key projects (infrastructure investment and real estate development growing 7% YOY in April, after 1% growth in March and a 16.3% contraction in January and February). The rest of Northeast Asia is seeing expansion of construction output curtailed to 1.1% in 2020, down from a prediction of 4.2% growth earlier this year. According to data from The World Bank, growth in the APAC region is projected to fall to 0.5% in 2020, the lowest rate since 1967. China’s growth is expected to slow to 1% this year, but then rebound to 6.9% in 2021 as activity gradually normalizes and lockdowns are lifted around the world. Economic activity in the rest of East Asia and Pacific is forecast to contract by 1.2% in 2020 before rebounding to 5.4% growth in 2021. “Led by the recovery in China, [construction in Northeast Asia] is expected to grow by 5.7% in 2021, and an annual average growth rate of 4.2% over 2021-2024, as government focuses more on new age infrastructure, including 5G networks and data centers.” Prior to the outbreak of Covid-19, the region was expected to regain some of its growth momentum in 2020 to post an expansion of 6%. With growing disruption in the area, however, the industry is now expected to contract by 4.3%. Besides India, there were signs of weakness in Malaysia, Vietnam and Thailand, particularly in the real estate segment. The Australian construction industry is expected to contract by 5.7% in 2020, due to the twin challenges of Covid-19 and drastically low oil prices. However, the Australian government is pushing ahead with infrastructure investment. TopHotelNews reports the hotel project pipeline across APAC remains full with 2,476 new hotels to open in the APAC region in the coming years. Fitch Solutions report painted an optimistic picture for the future. “We remain positive on the outlook of China’s construction sector, which is the world’s largest in terms of nominal value; growth will be driven by government efforts to invest in infrastructure, both in the transport and energy sectors, to improve connectivity between cities and to reduce pollution.” [69]

b) Remote work; Work from home (WFH)

In September 2020 up to 98% of the workforce in different U.S. organizations and companies are still working from home. [2][139][194] For example, nearly 90% of AECOM’s employees have continued to work remotely throughout the pandemic and could continue to do so even after it is over. [227] In comparison, in Europe up to 90% of the workforce in specific companies is back in the office. AEC companies are reporting that the WFH productivity remained on the same level as in the workplace, and the AEC community is heavily investing in technologies supporting WFH. [139][228][194] Together Microsoft Teams, Zoom, Google Meet and Cisco Webex now have well over 300M users. [163]

JLL research shows that the COVID-19 pandemic has upended work and office life, becoming a powerful catalyst for workplace change. 58% of the employees have missed their office substantially during lockdown. Three imperatives for post-pandemic offices include 1) WFH: from surviving to thriving; 2) rethinking the office as a social hub;and 3) providing highly personalized and human experiences. Since remote working is here to stay, offices will find a new “raison d’être”. The pandemic has rapidly accelerated workplace transformation. Commercial real estate experts suggest that in the future individual work will be done at home and the office will enable people to collaborate and flourish both personally and professionally. [46][169] No matter the hybrid solutions specific to each organization, WFH is here to stay; projected 12 – 100% of workforce will WFH post-pandemic. We are still in a wait & see mode with occupants’ reluctance to return to the office there are not many options to re-purpose. The long term includes a return to some form of prior normal, though with more flexibility of WFH policies. Companies will need to create space for employees who may be remote but still coming in from time to time. Almost like a Business Lounge at an Airport or Hotel that is branded to the company- variety of seating, rooms, and plenty of access to technology where someone can meet or work alone. If the office is the place where collaboration is meant to thrive, the space and design must support it. [46] With the majority of survey respondents expressing that they prefer to work in the office 2 to 3 days per week, and the minority reporting they would like to work in the office full-time (or not at all), the new work environment will be different from the one we left 6 months ago. Hybrid teams will work across geographies and time zones, synchronously and asynchronously, connected through a variety of technology tools that will enable virtual interactions, support simultaneous virtual and in-person engagement, and foster interpersonal relationships beyond the office. [191][47] To succeed in our next normal, companies must prioritize well-being and connection. [36] Procurement professionals can avoid passivity while working remotely by sparking internal communication, protecting supplier relationships, not forgetting about negotiations (because remote negotiations benefit sellers), and by conquering the relevance challenge. [229]

The benefits of working remotely and/or having a more distributed workforce have been known for a while: improved life/work balance, greater autonomy, reduced commuter traffic and associated CO2 emissions, and a reduced office footprint are a few of those perks. [230] WFH has offered the opportunity to enhance workflows, implement new technologies and virtual tools, and discover new ways of connecting with our colleagues. [189] In contrast, remote work has major drawbacks: 1) Tech empowerment emerges as a significant booster of productivity (employees who felt tech-ready to work remotely were three times more productive than those who did not feel properly equipped: 65% of workers with the right equipment felt more productive at home, compared to only 21% of those without); 2) Quality of the home environment was crucial in people’s ability to function remotely (the lack of a professional environment was felt by 1 in 3 employees and was the second most important reason for missing the office; 1 in 5 missed an ergonomic workstation; productivity reached higher levels among people with access to an inspiring home environment (59%), a peaceful atmosphere (50%) or somewhere easy to focus (53%); by contrast, productivity was considerably lower among employees who found it difficult to concentrate at home (40%)). When asked what they enjoyed most about WFH: 49% cited less or no commute; 45% more flexible hours; 31% greater work-life balance; 20% performance based on results or output, rather than physical presence in the office or the hours they work.  In the future, companies will need to help their employees create more effective home-working environments; for example, through financing an ergonomic workstation or a double screen. Companies will also need to consider providing access to alternative places of work. This may include co-working spaces or satellite locations near where employees live. Not only will this ease the burden of the daily commute, but it will also offer them a change of scene and a vital anchor in an increasingly digital world. This will be key to helping re-establish the boundaries between employees’ personal and professional lives, which is a common challenge for home-workers as indicated by 29% of employees surveyed. [169] 10 tips for more successful WFH: 1) Create a dedicated work space; 2) Get a good internet connection; 3) Lay out guidelines for other people in your space; 4) Determine your most productive hours; 5) Set a morning routine and follow it; 6) Plan your day as you would in the office; 7) Schedule breaks and take them fully; 8) Minimize all forms of distractions; 9) Dress for the job even if you’re telecommuting; and 10) Use the right apps to manage your work. [231]

Architects and designers imagine 2020 next work environments – new workstations and WFH spaces [47][232][233]; and back-garden offices for WFH. [234]

c) Site procedures

The interest in this subcategory has been at the lowest level since we started this research project (2.8% in September vs. 7% in August), meaning the industry has fully adapted to the challenges on construction sites. The contractors continue to worry about schedule impacts due to health concerns and social distancing requirements, and labor shortage on construction sites (though overall the unemployment is still high). The companies have implemented various governmental requirements for PPE, worker screening, site/tool sanitation and other measures with flexibility and patience. Research published in August is showing that the pandemic workday is 48 minutes longer and has more meetings [164], while COVID-19 protocols led to a 7% financial loss on construction projects. [165] In a Construction Dive’s survey 86% of respondents said they will continue to utilize social distancing and PPE to protect workers from COVID-19. Only 12% were not concerned about the rest of 2020 in regards to coronavirus. When it came to winter months potentially slowing work, most were not concerned; only 17% indicated they would be implementing more staggered work shifts and 13% said they would add additional workdays to make up for shorter days. [117]

Some states like Michigan started fining construction-related businesses for COVID-19 violations. The citations can be issued because of the following violations: failure to maintain social distancing when possible; failure to require face coverings when social distancing cannot be maintained; not having a COVID-19 preparedness and response plan; failure to designate a COVID-19 workplace supervisor; not training employees on COVID-19; failure to maintain/retain records of daily health screenings. Overall employers should follow CDC guidelines because OSHA has 6 months from the first exposure to a hazard to issue a citation. [166] Contractors are utilizing innovative approaches to slow COVID-19 spread on jobsite (previous reports list numerous technologies). An example published in September is a $40,000 Opti-Clean cubes from Xtreme Cubes Corp. used by Nevada contractors SR Construction and W.A. Richardson Builders. The cubes come with a patented solution that sprays a dry mist on workers or other people walking through the cubes at a normal pace. The spray is a medical-grade hypochlorous (HOCL) solution, a dry mist that was used in a nursing home with confirmed COVID-19 cases to test its ability to kill the virus. HOCL is listed by the CDC as a disinfectant for use against the coronavirus. It has been approved by the FDA and USDA for use as a nonrinse sanitizing solution, algicide, disinfectant and sanitizer. “Integrating the cubes was relatively simple as we have significant space on the jobsites where they are deployed, as well as the power to run them. We were able to provide all the documentation and literature on the product to quell any concerns about the solution. It takes just about three minutes for 30 workers to walk through it safely.”[235] Lendlease unveiled restroom pod for vertical jobsites. A new restroom pod outfitted with hot, running water and a flushing toilet that is designed to be lifted into place on vertical construction sites helps save time and increase productivity, while promoting dignity and respect for workers on site. The units, which provide better hygiene for workers particularly during COVID-19, are already on jobsites in San Francisco, New York and Chicago. [24]

NIOSH, a part of CDC informed the construction industry that N95 masks protect from hazards such as sand, silica dust or the coronavirus but the employers and workers should be careful about growing number of counterfeit respirators. Signs that a respirator may be counterfeit include: no markings; NIOSH spelled incorrectly; the presence of decorative fabric or other decorative add-ons such as sequins; claims approved for children; and ear loops instead of headbands. [19] Beyond COVID-19 compliance the wildfires and hazardous smoke have been shutting down construction sites on the West Coast, and hurricanes on Florida jobsites. [104] In California, employers must provide N95 respirators for voluntary use by outdoor workers when AQI is 151 or greater, and must require workers to wear them when AQI exceeds 500, but there is no requirement to stop work for elevated AQI levels.[32] New regulations are required; e.g., contractors could be liable for wildfire smoke impacts on workers' health, although neither EPA nor OSHA has mandates on when outdoor work should cease due to hazardous air quality. [33]

This summer saw an uptick in the number of racist incidents on U.S. and Canadian jobsites reported to construction company management and local law enforcement authorities. [236]

(More information about digital technologies is in the Adoption of (new) technologies section.)

d) Supply chain

Supply chain omnichannel operations are becoming increasingly important to weather the pandemic – inventory visibility and smart management are the key. [237][238] Supply chains must adjust planning, expectations to cope with unreliable demand. This includes high levels of cooperation between OEMs and suppliers, as well as public and private sectors, including governments, academic institutions, industry and philanthropic organizations are required. Furthermore, putting people first is a paramount. [214] Shippers reported greater impacts from the coronavirus pandemic compared to third party logistics (3PLs) in key logistics functions; such as higher levels of difficulty with labor, procurement of crucial supplies, driver shortages and operational equipment shortages. One of the pandemic’s results will be more outsourcing of logistics service, though total expenditure on outsourcing to be down YoY for the whole of 2020. Supply chains are likely to embrace more horizontal collaboration to preserve capital and concentrate on critical competencies, while flexibility and agile technology tools that provide shared visibility will attract shippers, going forward. [157] There are more reported examples of successful collaborations in the current pandemic (e.g., Coca-Cola and Land O'Lakes collaborating to reduce empty miles) [213]. Companies are coming together to fight for our green future, such as Walmart, Schneider Electric team up to help suppliers transition to renewable energy [210]. Companies (such as Timberland) continue to pledge sustainable material sourcing and circularity by 2030. [239] Gartner suggests that 51% of supply chain companies is expected to increase circular economy focus. Supply chain professionals should engage with product design to highlight constraints and opportunities for end of life materials management. [211] Besides monitoring the performance of the supplier, their public persona and reputation should be observed as well. [240]

Countless new distribution centers and warehouses are opening to support increased e-commerce. [241] (Amazon to add 1,000 warehouses in suburban US.[242]) Online sales were up 55% YoY in July 2020, and total 2020 online sales are expected to eclipse all of 2019 by October. To address that increase and COVID-19 guidelines about social distancing many warehouses are enlisting the services of robots. Those that started with robotics application pre-pandemic are now expanding its fleet. [243] To shorten last-mile delivery and get products to consumers faster and cost-effectively, some retailers are converting their retail stores into mini distribution hubs, while some mall owners are transforming underutilized malls into local fulfillment and distribution centers. [244] In September major carriers (Amazon Prime Air) [245] and retailers (Walmart) [246] are getting clearance for testing drone deliveries with Pentagon offering a list of secure (non-Chinese-made) drones [247]. C.H. Robinson has released a freight procurement tool, Procure IQ, meant to help large truckload shippers decide whether they should use the annual bidding process or other options on particular lanes. [248]

According to The Institute for Supply Management (ISM), raw material and commodities prices are increasing, signaling a shift in pricing power into the hands of suppliers rather than buyers, ISM's Prices Index was 59.5% in August, up from 53.2% in July. Resources including aluminum, copper, freight, packaging and some types of steel are up in price. "No industry reported a decrease in input prices." The increased prices come as manufacturing activity grows, although manufacturing has not yet returned to pre-pandemic levels. [249] Gilbane also reports that all building material costs are increasing in August (except Furniture is decreasing and Glass is stable). [250]

FedEx opened Foreign Trade Zone in El Paso, Texas, as trade war and pandemic increase shipper interest [251]. Airfreight volume fell nearly 14% year over year (YoY) in July, while freight capacity fell 31% YoY in July. According to International Air Transport Association (IATA) belly capacity for international cargo was down 70% in July compared to the same month last year while freighter capacity was up nearly 29%. As global economies begin to show improvement, "one of our biggest challenges remains accommodating demand with severely reduced capacity," IATA Director General and CEO Alexandre de Juniac said in a statement. "If borders remain closed, travel curtailed and passenger fleets grounded, the ability of air cargo to keep the global economy moving will be challenged." Airfreight rates expected to stay elevated through peak due to loss of belly capacity. [252] Trucking capacity tightens – carriers will not add additional trucks until COVID-19 is better controlled. Truckstop.com officials also said spot rates were at levels last seen around Christmas 2018. Spot loads were up 4.3% week over week, while truck numbers dropped 2.8%. Consumer spending (that can be erratic in pandemic) will drive trucking capacity and rates. For now, trucks are still needed, and that is driving spot rates up. An August reading within the Logistics Managers' Index, a survey by the Council of Supply Chain Management Professionals, came in at 31.5 in August. The council's Transportation Capacity Index was down from the June reading of 42.8. A reading above 50 indicates expansion. According to Truckstop.com, there are roughly 98 times more loads available than there are trucks on Truckstop.com [253]. Spot rates up 30% as shippers fight for trucking space [254]. Administrative and maintenance service is falling behind in the age of precision scheduled railroading (PSR) – pandemic demand drop exacerbated the trends. Since the pandemic decimated rail freight volumes, the Class I railroads furloughed thousands of workers and stored equipment. Now, instead of cutting existing staff and equipment, they are in the position to choose whether and where to build capacity back. [71] Auto suppliers restart with leaner inventories and aggressive cost-cutting. [255] Transpacific rates more than double, capacity constraints create 'nightmare' for shippers - ships are completely booked through September and are fairly full through October. [256]

Supply chain and distribution of vaccines are greatly discussed, with Moderna’s vaccine having an edge over Pfizer/BioNTech due to less stringent cold chain requirements. [10]

e) Workspace re-entry

After being compelled to invest in remote work tools and experiencing the benefits of this new work model, many companies are rethinking the workplace environment evaluating new hybrid models with a unique set of challenges around effective collaboration, security, information management and the technology infrastructure. [174] The emerging hybrid workplace model raises important questions and concerns including developers who feel threatened by a potential drop in demand for corporate office real estate and tenants who recognize the financial opportunity to optimize their spaces. It is not about downsizing, but rather, it’s about rightsizing the workplace to meet new needs and functions as an increasingly community-centric hub of connectivity. For example, physical changes to de-densify and reconfigure the workplace will directly impact circulation and changes will need to be considered in the programming phase; previously calculated 30% of the total area for circulation should increase 35 to 40% as corridors become multi-functional and can double as collaboration spaces. Designers will also need to rethink large, communal cafeterias to create smaller community-based kitchens throughout the office that will offer more comfortable and safer places for people to gather and eat. [230]

To enter a hybrid reality, one approach towards adapting the workplace should not focus on maximum occupancy planning, but instead, on understanding and valuing preference, experience, and connection to inspire people as they come back together. [230] Offices will find a new purpose. [163] JLL research has found that most of WFH employees missed human interaction the most (community, culture, inspiration, collaboration, teamwork, impromptu conversation, and leadership vision) [162]; and the offices to be critical to anchor corporate culture. Flexibility and empowerment will become the new imperatives - offices will give people invaluable structure and will have to incorporate human touches. [169] The physical office may take many forms, such as a hub and spoke model, or a blend of co- working spaces and home offices. Regardless of the form, central to this new work environment will be its focus on the individual, designed through a truly human-centric approach, which is empowering, inclusive and equitable. [191][47] Experts suggest that the return to the office is needed to rebuild equity - we are all having separate and unique experiences at home, limited by personal circumstances, and this is only exacerbating our differences. The future hybrid-reality workplace can continue to evolve and respond to people’s needs by increasingly focusing on equity and inclusion efforts to strengthen company culture, to form new virtual and physical connections, and to ensure everyone feels welcomed and set up for success both working from home and back in the office. [189]

In the short term, occupancy is primarily managed through reduced capacity, increased cleaning protocols, PPE available at the office, and close adherence to official protocols (such as CDC’s guidelines). [46] Smart building operation strategies for COVID-19 return to work includes monitoring and analysis of real-time and historical occupancy, lobby traffic patterns, HVAC fresh air occupancy automation, occupancy-based cleaning, contactless access control, occupancy & IAQ digital display. [122] As stated above, mid-longer term, tenants must evaluate the purpose of their office (for many it is where collaboration, mentorship, and culture can be built). In this instance- many clients will look to use more of their square footage for shared spaces instead of dedicated workstations/offices; “We vs. Me space”[257].[46] New smart building technology described in previous reports (and in the Adoption of (new) technologies section) such as space management systems and reservation apps already available to make more data driven decisions around office space. Wellbeing with focus on both physical and psychological comfort will become even more important. Many companies are going to embrace some sort of flexibility and may make WFH a more formal workstyle for employees; spaces and technologies will create an intentional balance/inclusion for both in-office and remote employees. The future office will support hyper collaboration; encourage serendipity and creativity; break physical barriers with the leadership and favor managerial proximity; and become a social hub, where employees can share a common sense of purpose and live memorable moments, together and with their clients. Individual work will be mostly done at home. As hub-and-spoke models become more popular with tenants, we will likely see an uptick in demand for flexible spaces to accommodate smaller, distributed populations of employees. Landlords should consider building out and furnishing vacant spaces that meet new guidelines for risk mitigation of COVID-19. They can act as an owner/operator of the spaces or hire a third party to manage it. Many companies will not have the capital to construct spaces and will seek to add those costs to their leases, rather than spend dollars up front. As well, if a landlord invests in ‘healthy workplace’ strategies that increase the physical and psychological wellbeing, then they will be ahead of their competitors.

Overall we are all still in a wait & see mode but real estate owners should have already developed feasible business strategies.[46] How much of this workplace change will stick when a vaccine arrives? Examples from countries where the virus is under control draw a picture of an “optional office”, which people attend, but less frequently. In Germany, for example, 74% of office workers now go to their place of work, but only half of them are there 5 days a week, according to surveys by Morgan Stanley. The exact balance will depend on the industry and city. In places with easy commutes more workers will go to the office; megacities with long, expensive journeys may see fewer. [163] The future vision of the post-COVID workplace is actually taking shape. Workplace resilience will require greater organizational intelligence, multidisciplinary planning, effective change management, and strategic design. [230] David Schwarz (HUSH [258]) suggest that offices need revolution, not just adaptation – pandemic provided an opportunity to rethink everything. Even tech companies that announced indefinite WFH continue to invest in workplaces. Future workplace foster qualitative, interactive, multi-sensory experiences that put collaboration and culture at the center. Companies must lean into the creation of new digital experiences, platforms, and campaigns that bridge the divide between on-campus amenities and at-home parallel. If a company can create digital spaces for their employees and teams to connect around wellness, learning, and physical activity, they will successfully capture their employees’ attention and maintain their cultural offering within their own brand ecosystem. [162]

f) Financials; cashflow / Contracts/ Litigations

Zero-based category management and zero-based budgeting are back in vogue as companies search for ways to cut spending and forecast demand in unpredictable times. Together, they mean a company takes every line item in every category and justifies its existence. It’s "building from the bottom up, the true category demand and specifications as opposed to relying on historical patterns," said Samir Khushalani, partner at McKinsey & Co. [184] In September the owners, investors and developers continue to play wait-and-see game, although the financing is available for the right projects. Traditional banks are lending on construction projects, but also maintaining a tight risk profile by looking for trusted existing clients to bring them low-risk projects with lower than average loan-to-cost ratios. Moderate growth in the construction lending space is expected - nothing near as aggressive as previously projected. Many owners have to account for increased costs due to COVID-19 safety inspections and supply chain delays, which are adding to the delayed appetite for new projects. Financial institutions are being rightfully cautious in heavily impacted asset types and markets; for example, regions that are dependent on tourism are unlikely to see new hotel construction lending. Similarly, banks are not interested in Class A office in major metros where the majority of the workforce are increasingly remote. But key secondary and tertiary markets, areas heavy in industrial/ warehousing and distribution activity, opportunities for redevelopment and multifamily projects are welcome by lenders across the board. Alternative lenders and capital sources are stepping in where traditional lending sources are selective. The diversity of funding sources in the construction lending space only continues to diversify, and opportunistic investors and lenders alike are active right now despite the pandemic. [159][259] 

With rates as low as 2%, factoring  arrangements can help general contractors finance new projects, especially as COVID-19 puts a pinch on traditional lending. When factoring, general contractors should protect themselves: 1) Keep lines of communications open with the subcontractor and verify they have a valid agreement with the factor; 2) Notify the factor that the invoices are subject to the terms and conditions of the subcontract and that payment will be withheld if the subcontractor does not perform; 3) Send notice to the factor that payment remitted to addresses outside of the jurisdiction listed in the subcontract does not constitute consent to change the jurisdiction; 4) Notify the factor that the right to rescind or stop payment if the subcontractor is terminated or declared in default – and potentially also to offset payments to the subcontractor if they are in default on another project – is still in effect. [260] U.S. contractors should be careful to follow the guidelines for the payroll tax deferral program. [261][262] Many banks not yet accepting PPP forgiveness applications – “The sooner contractors are able to submit for forgiveness, the sooner they will be able to contemplate the ramifications on their financial statements and tax returns.” [263] One Florida contractor was arrested for PPP fraud, and could face 30 years in prison. [264] Mortgage deals plummet as lenders play safe. [265] To reduce stress over pay apps, general contractors should: 1) schedule a meeting with your accounts payable team; 2) review your lien waiver process; 3) communicate with his/her supply chain; 4) consider electronic payment; and 5) explore technology solutions to help with the process. [266]

Modular construction financing issues: 1) Because the structure is being built in a factory at the same time that site work is going on, the owner typically cannot secure a loan with real estate because “it’s not real estate until it’s bolted to the foundation.” Major financial institutions are regulated by underwriting rules, which include ratios for what is allowed as far as offsite stored materials, and modular projects far exceed those.; 2) Upfront money is needed for every single material used.; 3) Preferred contracting method [with] the modular supplier is as a subcontractor, not as a modular manufacturer only – to include transportation, setting of the modules at the site and touch-ups to the interior of the units. [267]

Just as the rise of the gig economy has prompted questions and court cases about what it means to be an employee or self-employed, the increased popularity of WFH puts pressure on laws which were constructed around the assumption that people would work in an office. No one has yet thought through how firms should go about monitoring contractual working time in a world where nobody physically clocks in, nor about the extent to which firms may surveil workers at home. Battles over employers’ responsibilities to their WFH workers are not far away. For example, should a business pay for a worker’s internet connection or their heating in the dead of winter? Can firms monitor remote workers to assess their productivity? Who is liable if employees injure themselves at home? Any sense that white-collar workers are getting perks will create simmering resentment in the rest of the workforce. [163] Governments and firms must seize the moment. The pandemic offers a rare opportunity to rewire the world of work. [268]

To prepare for potential defect claims, the general contractors should (besides producing a quality product): 1) Review construction documents; 2) Document and organize; and 3) Make sure to have good insurance. [269]

Previous August Category Summary

References