Construction Firms Face Bankruptcy Because of Coronavirus Pandemic

Construction Firms Face Bankruptcy Because of Coronavirus Pandemic

The construction industry has undergone a challenging period since the government announced Covid-19 lockdown measures on 23 March. Financial pressures remain an existential threat to some companies, which could yet face bankruptcy, and construction workers continue to balance risking their safety with the financial implications of staying at home.

With six weeks passed since lockdown measures were introduced, we investigate how the construction industry is faring in the wake of the coronavirus, and what the implications of the pandemic could mean for its survival. 

Financial Pressure

The coronavirus pandemic has still plunged construction activity to its lowest level in 11 years, the recent construction Purchasing Managers’ Index (PMI) revealed. 

Around three quarters of on-site residential projects have reportedly halted because of the coronavirus pandemic, and there are legitimate concerns that local homebuilding firms risk going bankrupt.

Worrying statistics from the Federation of Master Builders (FMB) reveal that 31% of small to medium-sized (SME) housebuilders have new homes standing empty due to customers pulling out or delaying purchases.

This equates to, on average, seven homes per company standing empty with a cost of £629 per month in empty homes council tax.

Moreover, the FMB reports that these SME firms are not receiving financial support from the government. Not one of the FMB’s SME members has been able to acquire a loan from their bank via the Coronavirus Business Interruption Loan Scheme (CBILS), and only 3% have received a cash grant via Small Business Rates Relief from their local authority.

In a bid to help those falling through the cracks, chancellor Rishi Sunak has launched the Bounce Back Loans scheme, which will be 100% state-backed, and begin this week, offering firms loans up to £50,000 within days of applying. This will run alongside the CBILS.

It is vital that these schemes work for SME workers because for many not working simply isn’t an option. 

As trade union Unite assistant general secretary Gail Cartmail explained: “There are financial pressures bearing down on workers to go back to work as more than 50% of all construction workers are self-employed.”

For major housebuilders, the situation is more encouraging. Redrow, Taylor Wimpey, Persimmon and Vistry Group will reopen construction sites within the next week, and building activity is set to resume as builders’ merchants and DIY stores also reopen their doors. 

What is ‘Essential’ Construction?

When the UK entered lockdown, the government instructed general construction work to continue where possible providing social distancing was maintained. 

Some construction firms closed their sites, others allowed their contracted projects to continue, while Scotland closed all non-essential construction (defined as projects supporting crucial work during the coronavirus pandemic) on 7 April. 

(MORE: How is the Covid-19 Pandemic Affecting Building Projects?)

As reports multiplied indicating social distancing was “almost impossible” to maintain on build sites, construction groups urged the UK government to follow the Scottish government’s example and close non-essential sites. 

Brian Berry, chief executive of the FMB, said: “It is almost impossible to follow Public Health England’s social distancing advice on many sites, and it would therefore be safer to close them”.

The UK government’s desire to keep Britain building is understandable because it serves a vital economic purpose. But the lack of clarity has caused problems, namely for construction workers in the line of duty. 

Among the construction workers still going to build sites, some have reportedly faced abuse, either online or face-to-face, for continuing to do their jobs. The Construction Industry Coronavirus Forum on Thursday reported an increasing number of tradespeople being intimidated and verbally abused by the public.

Earlier this month, it was reported that industry leaders wrote a letter to construction minister Nadim Zahawi calling for the government to deem construction workers as essential staff. And in the absence of this distinction, some construction firms have allegedly told staff to say they are essential workers when confronted by members of the public. 

Ultimately, self build and renovation work in England is being interpreted as acceptable under current regulations as long as sites are safe. Therefore it is up to construction firms or self-employed workers whether they continue to work on building sites.

Ensuring Construction Workers’ Safety

Keeping construction workers protected from Covid-19 has been a foremost concern since lockdown was implemented. 

When images circulated on social media in March showing workers packed on London Tubes, it illustrated the difficulty in establishing construction workers’ safety. These images and subsequent reports of social distancing being unachievable were central in calls for non-essential construction work to cease.

Since then, the Construction Leadership Council (CLC) has been updating its guidance on site operating procedures, with its most recent iteration stating, “When construction workers working closely together cannot be avoided, this should be limited to less than 15 minutes and workers should be side by side rather than face to face.”

Last week there was some welcome news for these workers. Health secretary Matt Hancock confirmed that construction workers in England showing symptoms of Covid-19 would be eligible for official government testing from 29 April (while the government last week announced that essential workers and members of their households could be tested for the coronavirus, construction workers were not initially included).

The Department of Health and Social Care has since updated its eligibility guidance, stating “anyone who goes into work because they cannot work from home (for example, construction workers) and has symptoms” can be tested.

Site workers showing symptoms can refer themselves for individual test appointments or request home-testing kits, while construction firms can also apply by email to arrange testing for employees. 

If you are working on an operational building site then be sure to follow government guidelines for tradespeople working in homes, and ensure you adhere to hygiene and safety measures. 

Ultimately, the Covid-19 situation remains as perilous for the construction sector as it does for the rest of us. There are positive signs emerging from major homebuilders, but times could be hard for many months to come.

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