Oct 13, 2020

Pandemic hits South and South-East Asian construction sector

Asia
COVID19
GlobalData
reports
Bizclik Editor
3 min
Region’s construction industry expected to contract by 8.5 percent in 2020, with residential and commercial sectors worst affected
Region’s construction industry expected to contract by 8.5 percent in 2020, with residential and commercial sectors worst affected...

Stringent lockdowns and social distancing norms due to the COVID-19 pandemic have severely disrupted the construction industry across South and South-East Asia, according to a GlobalData report.

The region’s construction industry is expected to contract by 8.5 percent in 2020, though if a widespread second wave of infections is avoided, output will rise sharply in 2021 because of the low base effect, and as well as the underlying potential for growth in the region due to the increasing middle class population, and the accompanying investment in housing and infrastructure, the report states.

This slump in output is reflected in the unprecedented sharp contraction in the second quarter in countries such as Singapore (59.3 percent), India (50.3 percent), Malaysia (44.5 percent), and the Philippines (33.5 percent).

However, the report points out that industrial construction could benefit directly from the COVID-19 crisis in the medium to long-term period, as industrialised countries seek to diversify their supply chain away from China. As a result, South and South-East Asia provide attractive alternatives, with low labour costs, as well as a large captive market in the form of the expanding middle class population.

“Infrastructure is expected to be a key growth driver in 2021 and beyond as governments across the region look at investments in infrastructure to stimulate the economy and create jobs," says Dhananjay Sharma, Construction Analyst at GlobalData.

"This would be aided by in Chinese investments in Belt and Road Initiative (BRI) projects in the South and South-East Asia region, which will support infrastructure growth in Pakistan, Bangladesh as well as ASEAN members including Myanmar, Vietnam, Malaysia and Indonesia. Increasing investments in renewable energy projects and in 5G infrastructure would also support growth over the medium to long-term.” 

While the residential market was weak in several countries in the region even prior to the COVID-19 outbreak, the pandemic and subsequent lockdowns have worsened the situation, the report says. It warns that the sector will continue to struggle as economic activity weakens, remittances decline, and unemployment rises. Unsold inventories will put further pressure as developers will hold off or cancel projects in the short-term, it adds.

Furthermore, the commercial sector is also expected to be severely affected by the virus outbreak, with investments in the commercial market expected to be cancelled or pushed back, reflecting the collapse in the travel and tourism industry.

“The industrial sector is expected to suffer in the short-term, affected by the temporary shutdown of the production units of various companies across the region. This will affect the investments as companies could cut back on their expansion plans. However, in the long-term, the industrial construction segment is likely to benefit from the US-China trade war as well as the move to diversify supply chain from China following the disruption in early 2020,” Sharma concludes.

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Jun 20, 2021

Contractor issues head disputes list in 2020: Arcadis report

construction
contractors
Disputes
surveys
Dominic Ellis
2 min
The average value of disputes globally rose to $54.26 million in 2020 - but the numbers were much the same as 2019, according to an Arcadis report

The average value of disputes globally rose from $30.7 million in 2019 to $54.26 million in 2020, while the length of disputes fell from 15 months in 2019 to 13.4 months, according to an Arcadis report.

The data, featured in Arcadis' 11th annual report, illustrates industry-wide ripple effects of the COVID-19 pandemic although interestingly the overall volume of disputes stayed relatively the same in 2020 as in 2019.

While trends in the value and length of disputes varied from region to region, all regions surveyed saw an increase in "mega disputes" related to bigger capital programs and private projects. Notably, more than 60% of survey respondents encountered project impacts due to COVID-19.

Owners, contractors, or subcontractors failing to understand and/or comply with their contractual obligations became the leading cause of construction disputes in 2020 (jumping from 3rd place in 2019), followed by owner-directed changes and third-party or force-majeure changes as the second and third-leading causes, respectively.

Highlights from the report include:

  • Proper contract administration was a theme across the globe for the successful and early resolution of disputes
  • Most disputes were settled through party-to-party negotiation, and a willingness to compromise played a key role in early resolution
  • Among regions surveyed, the buildings (education, healthcare, retail/commercial, government) sector saw the most disputes
  • In North America, construction dispute value rose from $18.8 million in 2019 to $37.9 million in 2020, while the length of disputes shortened from 17.6 to 14.2 months.

While cost and length have changed since 2019, risk management was still seen as the most effective claims avoidance tactic, while owner/contractor willingness to compromise was once again the top-ranked factor for the mitigation/early resolution of disputes.

"COVID-19 irrevocably changed every industry," said Roy Cooper, head of contract solutions for Arcadis North America. "Construction disputes experts will have to continue to adapt, even post-pandemic, as workforce expectations, climate events and government infrastructure funding change how projects are designed and contracted in the future."

The research presented in the report was compiled by Arcadis based on survey responses, global construction disputes the team handled in 2020 and contributions from industry experts.

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