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Project challenges in the Covid era

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Hydrocarbon Engineering,


Inconsistent and changing government guidelines following lockdown have affected engineering and construction projects due to productivity losses, disrupted supply chains and resource constraints, causing substantial financial losses and unemployment.

The owners face the challenge of project completion in an unpredictable environment under enhanced health and safety protocols, without compromising project performance or economics. The contractors have to deliver the work adhering to the project requirements with the uncertainty of recovering costs and making profits. The workers who are already in the high-risk category of contracting the virus due to their relatively lower standard of living find themselves more vulnerable in returning to work to sustain their livelihood. The challenges faced by the various project elements are discussed below.

Preservation of construction and site remobilisation

The immediate concern for an ongoing project during lockdown is the preservation of the facilities. The owner has to be mindful of the associated cost, irrespective of whether the contract allows for it or not. Remobilisation and staffing plans should consider as a minimum prescreening, health clearances, preventive measures and medical, including updated training for all personnel. Productivity will be impacted for several weeks; schedule mitigations and workforce deployment optimisation to meet project needs will have to be applied.

Procurement

Local and international travel restrictions that were enforced to prevent the spread of infection and overloading of health care systems have disrupted supply chains. Procurement from alternative costlier sources, incurring increased logistics costs or accepting lesser specifications to meet the schedule will need to be weighed against safety and project delays, with early involvement of risk managers in the decision-making process. All stakeholders have been perusing their contracts to make or defend claims and many of the unresolved claims will escalate into disputes.

Insurance and warranty

In an article by the Daily Journal1, it was reported that the insurance industry carries a surplus of US$800 billion dollars against an expected business interruptions claims to the tune of US$485 billion through the end of the year. Even with an increase in claim up to 65%, the surplus can pay out all the claims; but given the unprecedented nature of these claims and erosion of the normal surplus, the cost of insurance in a world that feels riskier is expected to be higher in the next few years. Another area of owner concern will be the warranty of long lead items; vendor negotiations must consider extension of warranty at no additional cost.

Construction, scheduling and project control

The assumptions and conditions that formed the basis of the original base line execution strategy would have changed. The project control will need to analyse all factors for optimal deployment of resources, when work recommences. Social distancing, frequent cleansing and losing labourers to pandemic will affect scheduling and productivity. Any acceleration will further drive up the costs. Project goals will need to be achieved with the limitation in interactions and access to critical data posed by working remotely and virtual meetings. With remote working and unconnected office equipment and tools, project controls will need to list out, collect, organise, store and synchronise all project data and plan for any inadvertent incomplete or missing data. Working remotely also involves engaging different styles of communication and collaboration.

Labour

As in the case of the 1918 flu, the pandemic has disrupted the demand and supply. In addition to the highly contagious nature of the disease, it poses the risk of an economic crisis, the consequences of which, for infrastructure projects will be labor shortages and wage increases. The laid off skilled workers may not wait for industry recovery; some are likely to move into sectors where jobs are available under the new normal and others may opt for jobs in the government sectors with assured funding. Many are unlikely to return when there is a revival in the construction sector and this poses the risk of deployment of unskilled workers delivering substandard workmanship and costlier projects. To retain critical workers, especially those possessing futuristic attributes beyond the customary skills, it is important for the employers to instill confidence that the company will be there for them in these difficult times.

While the labour loss from quarantine will have economic consequences, closing down of countries or supply hubs that are badly affected may lead to prolonged recession. In countries already fraught with shortage of skilled labourers, losing labour may prompt prioritising of projects or the project elements. To the owner, it may also mean deployment of costlier imported labour or use of innovative methods to achieve project completion. To cite an example, OEMs are adopting online commissioning supervision of specialised equipment utilising available local labour, in trying to overcome the travel restrictions.

Financial risks

The original cash flow projections and NPV calculations of most ongoing projects have taken a beating. Cash flow restrictions associated with project delays, suspensions or termination in addition to contracting challenges and supply-chain bottlenecks, have affected all parties. While owners are worried about the delayed return on investment, contractors are concerned about recovering their costs. The impossibility of predicting which economy will open up and when have compelled project stakeholders exposed to the high-risk scenario to reassess the risks associated with the projects in progress.

Connected processes and digitalisation

In the last couple of years, technology has had an unprecedented impact on the industry. However, many companies still work on independent, unintegrated software and this is probably the apt time for them to think of fully integrated ERP systems, that encompass planning, design, procurement, construction, project finance control, operations and maintenance to achieve largescale, business value objectives. A priority area for all stakeholders will be the implementation of digitalisation and digital solutions to improve real time data accessibility and visibility across all strata of project management. The current situation will most likely accelerate the recent trend of increased importance in areas like modular and prefabricated construction, block chain, data analytics, augmented reality, artificial intelligence, drones, robotics, cloud and mobile technology, etc., to achieve the conflicting objectives of faster and safer delivery of sustainable projects at lesser costs.

Even before Covid-19, the construction industry was losing heavily on poor project performance and delayed completions; it will require thinking out of the box, connected jobsites and adoption of proactive and innovative measures to improve post-pandemic project performance.

Reference

  1. https://www.uphelp.org/sites/default/files/attachments/wallace_firm.pdf

Author: Ajith Muralidharan

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/23102020/project-challenges-in-the-covid-era/

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