COVID-19 Industry Impact Newsletter – 3rd of June 2020
Last week we reached out to everyone with a call to arms to help supply data for our next newsletter. We’re grateful for the more than 200 builders who shared their thoughts within the first 24 hours.
The respondents were not only generous with their time, but also with the level of detail they were willing to go into with their insights. It’s a real joy to see how our industry is banding together to help eachother out in these times.
We’ll share the results over two newsletters, with this sendout focussing on industry confidence and the government’s plan to use construction as a lever to stimulate the economy.
What we’re seeing
Section 1: Industry Confidence
Question: Over the next 12 months, for your business do you think things will…
As we saw in our analysis of COVID-19 impacts by state and sector, fortunes in the industry are mixed with some bearing the brunt more than others. Confidence is split, though a greater share still expect improvement in conditions compared to those who foresee a deterioration.
We’ve asked this question before as part of our annual industry survey. Here is how it looks when compared to the same question being asked in 2018 and 2019.
Commentary:
- A ten fold increase in people thinking that business conditions will deteriorate in the next 12 months re-enforces the anecdotal evidence we’re hearing; the initial panic has subsided, but much of the industry feels the toughest times are yet to come.
Commentary:
- Industry confidence is down particularly in Queensland. The increase in competition on Queensland panels we showed in our last newsletter could be a contributing factor to this result.
Section 2: Government stimulus:
Question: Is your organisation well placed to benefit from government stimulus in the construction industry?
Question: What impact do you think the government stimulus for construction will have on your organisation over the next 12 months?
Commentary:
- A third of those who responded to the survey believe that the stimulus will not effect / have a negative effect on their business.
- Expectations around business confidence were linked to builders’ views on the stimulus; 55% of responders who said at the start of the survey they expect business conditions to deteriorate, believe that the stimulus will have no effect / a negative effect on business.
Commentary:
- Responders in states like NSW (link) and VIC (link) who have started announcing details around planned stimulus policy have the highest confidence that their business will benefit from the packages.
Below is a split of what impact businesses think the stimulus packages will have based by the value of contracts they typically work on.
Commentary:
- We can see that builders who typically work on larger contracts are more confident that they will benefit from the stimulus.
- Conversely, builders who work on smaller contracts are more likely to say that the stimulus will have a negative effect on their business.
What we’re hearing:
As the above data suggests, the government’s plan to use construction as a lever to stimulate the economy has been met with mixed opinions. We gave our responders the option of writing down why they answered the question in a particular way – this has given us the chance to provide deeper insight into the way the industry is feeling.
Many feel the stimulus is geared towards tier one or two builders:
- Many of our respondents wrote to us fearing the lion’s share of the stimulus packages will go to the larger builders.
- One responder claimed that “a lot of projects are in large bundles for the multi-national builders”
- Another responded “The stimulus package will most likely only help the Tier 1 and larger contractors, not the mid tier”
- One responder was hopeful that this stimulus would trickle down to the tier 3 and 4 builders, but expected that to be at least 12 to 18 months away.
- These sentiments could be based on experience, as this is somewhat like what we saw with the Building the Education Revolution (BER) stimulus in the wake of the GFC.
- $16 billion worth of stimulus work was released quickly to the market. The lion’s share of the school packages were awarded to the nation’s largest builders, due in part to the government’s desire to deliver the stimulus to the market quickly via packages of a hundred schools at once.
- In some instances, this resulted in unnecessary levels of additional project management and wastage of funds.
Some feel that the construction stimulus won’t be in the fields they typically operate in.
- One person noted that policy amendments such as the first home buyers scheme will benefit project builders but not those who work on more bespoke / commercial works.
- One noted that they believe the majority of the funds would head to regional areas where their business doesn’t have the subbie contacts required to put in a competitive quote.
- A concern was also shared that these packages will attract their regular subbies to infrastructure works, leaving them at risk in their current tenders / and future awarded tenders
Some worry the stimulus could exacerbate the problem of under-pricing:
- One responder told us: “You still need to win the work, potentially of all the contractors that can complete those projects, there will be a few that will do it for nothing, making it difficult for the majority to win the work.”
- Another responder stipulated that all the stimulus work will have a lot of businesses flocking to it – thus increasing the competitiveness in price required to win it.
Those who are ready / willing to adapt are confident in what the future has to bring.
- A lot of responders wrote that they are confident their business will benefit, as they have gone through all the necessary procedures to complete government work in the past.
- One person wrote “We are restructuring our company to be able to undertake more government work.”
- Quite a few responders also were confident as they had won a lot of education jobs in the past. With education likely to be the lynchpin of many policy announcements, these builders are confident they’ll be able to take advantage of the upcoming packages.
