Impact of COVID-19 on

Construction Projects
How the construction industry can
prepare for the next normal

Internal Audit, Risk, Business & Technology Consulting

Background
After spreading tremors that threaten public health across the globe, COVID-19 has dealt a severe blow to the global
economy. Major economies worldwide have implemented confinement measures, including border closures, travel
restrictions and lockdowns to restrict the spread of virus. This has disrupted the lives of most people, businesses
operating across industries, financial markets and supply chains. Anecdotal evidence suggests that these impacts will be
amplified going forward, although the pandemic’s exact magnitude is still under speculation. Much like other business
sectors, the construction industry is facing the impact of the pandemic. The critical questions for the industry are:
1. How does COVID-19 impact the future of the construction sector?
2. Are owners and contractors prepared for the next steps to deal with the aftermath of this pandemic?

Challenges for the Construction Sector

Amid COVID-19, the construction industry has been
hit hard and is currently being challenged by many
obstacles related to contractual obligations, availability
of resources, health and safety measures, and project
delays or cancellations. Construction sites in many
countries have been suspended, and sites that are still
functional are facing challenges due to operational
restrictions. The World Health Organization (WHO)
declared the COVID-19 outbreak a pandemic on
March 11, 2020. From a logical perspective, many
may assume that COVID-19 can be classified as a force
majeure event. However, the declaration of a pandemic
by WHO without a force majeure clause reference will
not automatically trigger a force majeure and may lead to
disputes between parties. It is important to evaluate
contract provisions to determine whether COVID-19
can be classified as a force majeure event. If there is no
such provision in the contract then a discussion needs
to take place between the owner and the contractor to
evaluate contractual provisions related to project delays,
termination notice requirements, change order requests,
entitlement for time extension, cost escalation,
availability of resources, and health and safety measures
and to develop a project approach for potential impacts
arising due to the pandemic. Therefore, as the situation
continues to evolve, it is critical for companies to
navigate through the changes in order to prepare for
future projects and manage them effectively.
For the majority of companies, the bigger challenge
currently is how to stay afloat amid such uncertain
circumstances. Recent industry trends suggest that in
the foreseeable future, more construction projects are
expected to be cancelled or put on hold due to fund
diversion toward healthcare, financial management,
and rising deficits.

From a risk management perspective, companies should consider the following:

What events entitle a time extension due to COVID-19? What is the cost impact from this delay?

What are the consequential damages from either suspending the project or terminating it?

What measures can be undertaken by owners and contractors to cope with disruption in the project
supply chain and logistics?

How can compliance with statutory health and safety guidelines for workers at project sites and labor
camps be ensured?

How should project cash flows be planned in order to maintain project timelines?

Which technologies can companies adopt to monitor and control the projects in order to reduce manual
dependency?

How do we optimize asset utilization at project sites and its associated costs?

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 Impact on the MENA Region
Industry experts believe that the current situation will
test the resilience of the construction sector in the
Middle East and North Africa (MENA) region which was
already facing significant challenges due to low margins
and increased competition. The economic disruption
caused by COVID-19, coupled with the collapse in oil
prices, means that the situation is going to become even
more challenging in 2020. A report by the International
Monetary Fund anticipates a reduction of 2.8% in the
region’s GDP for 2020. This could have a direct impact
on the construction industry.

10

6
Real GDP percentage change

4
2019
2
2020
0
2021
-2

-4

-6

-8
USA Europe Middle East and Latin America Rest of Asia Sub-Saharan
-10 Central Asia and Caribbean Africa

For April 2020, contract awards for construction projects
across the MENA region declined by about 37%
compared to in April 2019. In addition, the value of new
contracts awarded for building and real estate projects
across the MENA region was about 36% lower in the
first four months of 2020, compared to the same period
in 2019. The Gulf Cooperation Council’s construction
and transport sectors have seen the largest number of
project cancellations compared to oil and gas, power,
water, and industrial projects, although the volume of
active projects in the construction and transport sectors
is far greater than in other sectors. Moreover, nearly 5%
of construction projects in the MENA region have been
canceled or put on hold as a result of reduced spending
plans due to COVID-19.2

250 30000

Value of projects impacted ($M)

25000
200
Number of projects

20000
150
15000
100
10000

50
5000

0 0
Chemical Industrial Oil Gas Power Water Transport Construction

Number of projects Value of projects impacted ($M)

1
Latest World Economic Outlook Growth Projections, International Monetary Fund, World Economic Outlook, April 2020
2
Keeping construction moving through COVID-19, MEED Projects, 02 June 2020

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In order to gain deeper insights on the impact of The participants responded to a structured
COVID-19 on the Middle Eastern market, Protiviti’s questionnaire, and the responses were analyzed. The
Capital Projects consulting team conducted a risk top four risks based on the survey results are identified
assessment survey to understand the key risks currently below:
faced by the sector. 31%
26%
58%
COVID-19 Impact 58% 23%
23%
on Middle Eastern 46%
42%
Market: Reported 85% 77% 46%
58% 42% 31%
by Construction
Industry
Supply chain Payment Workforce Suspended or
Professionals
3
disruption delays shortage canceled projects

The Way Forward

COVID-19 has forced the construction industry to rethink its operating model. As countries emerge from
lockdown in a phased manner, construction projects are bouncing back and owners and contractors are gearing
up to recover lost time. However, in order to deal with the impact of COVID-19, organizations will have to plan
for a clear strategy and implementation road map to drive the change and evaluate the overall progress of their
projects. Organizations can adapt short-term to medium-term steps to minimize disruption and assist recovery.
In the long term, they can take steps to focus on sustainable operations, as highlighted below:

TODAY
• Project Impact Assessment
• Contractual Entitlement
• Workforce Protection

• Cash Flow Improvement

SHORT-TERM STEPS
• Risk Management
• Asset Optimization

• Operational Restructuring
MID-TERM STEPS
• Technology Adoption
• Supply Chain Optimization

LONG -TERM STEPS

GOAL

3 Protiviti capital projects survey

protiviti.com Impact of COVID-19 on Construction Projects 4

 Short-term steps
Project Impact Assessment
• Cost: COVID-19 cost impact should be tracked
separately by assessing the damages and
performance barriers.
• Schedule: Reforecast schedules to account for
disruptions and obtain buy-in from the stakeholders
on the updated schedules.
Workforce Protection
• Ensure social distancing at project sites and
labor camps, maintaining hygiene and providing
PPEs and other healthcare benefits.
• Update HSE (Health, Safety and Environment)
policies and procedures to comply with statutory
guidelines.
Contractual Entitlements
• Evaluate contract provisions to determine whether
COVID-19 can be classified as a force majeure
event.
• Review and identify contract clauses to understand
what provisions and relief entitlements are eligible
for claim based on the current pandemic.
Mid-term steps
Cash Flow Improvement
• Identify opportunities to improve cash flow by
prioritizing high-value projects.
• Review capital and corporate budgets to explore cost
optimization opportunities.
Asset Optimization
• Conduct an asset lifecycle analysis.
• Conduct a detailed review of equipment utilization
and its associated cost.
• Identify redundancy and reduce cost by exploring
options like buy versus lease.
Risk Management
• Review current risk appetite and update risk rating
criteria accordingly.
• Conduct COVID-19 risk assessment for projects to
identify new emerging risks and their impact.
protiviti.com
• Resources: Evaluate current availability of
resources.
• Material and Logistics: Evaluate impact on lead
times of critical materials and shipments.
• Quality: Assess the impact on quality due to lack of
skilled resources.
• Display social distancing posters at sites to create
awareness.
• Conduct spot HSE checks and surprise audits.
• Encourage support staff (back office) to work
remotely from home.
• If a force majeure provision is not included, then a
discussion needs to take place between the owner
and the contractor to develop the project approach
for the current pandemic, including reevaluating the
contracting strategy and renegotiation of contracts.
• Explore possibilities for delay in award of non-critical
items, renegotiate tender or prices, reduce third-
party dependency, focus on value engineering, etc.
• Consider options of sale or lease of redundant assets
to increase liquidity.
• Explore options for using systems like integrated
asset management, fleet management, Maximo and
e-fuel to track the position, usage and maintenance
of assets.
• Revisit the internal audit plan in order to prioritize
organizational objectives and protect the
organization from new and emerging risks.
Impact of COVID-19 on Construction Projects 5
 Long-term steps

Operational Restructuring

• Review the existing business operating model and
analyze organizational capability to explore;
outsourcing opportunities.
• Revamp the existing operating model to suit new
requirements.
• Explore opportunities for business process
improvement.
• Update organizational governance documents like
delegation of authority and policy and procedures,
manuals, etc.

Supply Chain Optimization

• Undertake scenario planning to assess immediate
and future material requirements based on current
project status.
• Identify alternative suppliers for critical packages to
avoid overdependence on existing vendors.
• Establish a team to revisit supply chain strategy
and explore reconfiguration opportunities in
regional and global supply chain flows.
• Develop local vendors and conduct periodic
screening of vendors to monitor their financial
health.

Technology Adoption

• Identify functions which require technology to
reduce manual intervention such as automated
workflows, share points and meeting platforms.
• Develop a technology implementation roadmap to
prepare the organization for transformation.
• Use technologies like Building Information Modeling
(BIM) for design, improved project coordination and
cost optimization.
• Use drones for progress monitoring and inspections.
• Utilize historic data to improve forecasts which
might help in reducing costs.

How can Protiviti help?

Protiviti’s Capital Projects practice uses a proven individualized approach to help clients face the future with
confidence by realizing the maximum potential of their capital programs and projects regardless of size, type,
or industry. Our customized approaches and tools can help you manage and control your programs and projects
during uncertainty to minimize risk, deliver maximum performance, guarantee compliance and
ensure project success.

protiviti.com Impact of COVID-19 on Construction Projects 6

About Protiviti
Protiviti (www.Protiviti.com) is a global consulting firm that delivers deep expertise, objective insights, a tailored
approach and unparalleled collaboration to help leaders confidently face the future. Protiviti and our independent and
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Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

Contact Us
Varun Kharbanda Harish V Adnan Zakariya
Managing Director Managing Director Managing Director
Email: varun.kharbanda@protivitiglobal.me Email: harish.v@protivitiglobal.me Email: adnan.zakariya@protivitiglobal.me

ACKNOWLEDGMENTS
Ankur Agrawal, Arnav Garg, Sameer Airani and Sudeep Johri contributed to this publication.

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