coronavirus risk assessment...face financial repercussions from cancelled orders due to delays....

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Coronavirus Risk AssessmentConstruction, Engineering & RealEstate

1-888-878-9429

[email protected]

procurementiq.com

1-888-878-9429 [email protected] procurementiq.com

01

Residential Building Construction

Transmission Line Construction

The price of construction materials has been volatile due to lagging supply chains and demand disruptions largely

stemming from China. Volatile construction materials prices pose a moderate financial risk to residential

building construction firms. In addition, clogged shipping lanes have made it difficult to actually get the products

delivered.

Construction firms purchase power and electrical cables to replace and construct new transmission lines used for

energy distribution. Because transmission cables are largely purchased from China, the industry faces supply

shortages and price volatility. Transmission line contractors are likely to adapt by looking to other

producers.

Real Estate Sales & Brokerage

To minimize the impact of the coronavirus on the domestic economy, the US Federal Reserve has lowered

interest rates. Lower borrowing costs result in greater demand for real estate services. Many buyers delay

purchasing property when interest rates and property values are rising. This mandate will bolster property

purchases.

Engineering Services

Engineering service providers offer consulting services to mining companies. China is a leading consumer of crude oil and natural gas resources, and the country is

expected to reduce oil consumption as COVID-19 disrupts manufacturing operations. This trend will

mildly hinder demand for mining in the short term, and subsequently, engineering services. However, demand from mining accounts for a small portion of demand

for engineering services, keeping risk low.

Commercial Building Construction

Commercial building contractors strongly rely on Chinese producers to manufacture low cost construction materials,

including steel products (e.g. beams, rebar), plaster, aluminum, PVC pipes, copper wiring and pipes, cement, paints, HVAC equipment and electrical equipment. China

has struggled to limit the impact of COVID-19 (coronavirus) on local construction activity. Due to

sluggish local construction activity and a steady output of steel, construction material inventory has increased.

Consequently, producers expect a big price swing as a result, which poses a moderate financial risk to

commercial building construction firms.

Risk Level Key

Medium

High

Low

Industry Risk Analysis

Consumer buyers can postpone home purchases

and home remodeling activity. Fewer

construction material supplies and inflated

pricing will deter consumers from taking on

remodeling projects immediately in favor of a

better pricing environment in the future.

Supply ChainRisk Analysis

2nd Tier Suppliers 1st Tier Suppliers Vendor Key Buyers

Steel Producers

Sluggish demand for steel in China as a result of the

outbreak has hurt steel producers in China, as they

did not slow production over the course of the

COVID-19 outbreak. This oversupply has led to strict

controls on output. In addition, producers have

had to hold large inventories due to travel

restrictions.

Construction Material

Wholesalers

An acceleration in the spread of the coronavirus poses a moderate risk to

the construction materials wholesale market. A

medium level of risk stems from the virus’ negative

impact on the construction materials manufacturing markets. Facing supply

chain disruptions, wholesalers have been

scrambling to source from alternative countries that do not rely Chinese goods

in their supply chain.

Construction Firms

Consumer Groups

Businesses

While a number of businesses are expected

to delay construction projects, the recent drop in interest rates will offset the

rising costs of construction materials.

The escalation of the COVID-19 outbreak poses a

moderate risk to the construction sector due to

the sector’s high dependence on low-cost Chinese manufactured

construction materials. A shutdown in China’s

manufacturing plants has limited the amount of construction materials

available, which has increased prices.

Construction firms also face financial

repercussions from cancelled orders due to

delays.


02

Copper Producers

China is a major exporter and consumer of copper

pipes, wires and components used in

construction and manufacturing. The

shutdown in China’s key manufacturing and

industrial regions as a result of the coronavirus

has led to a sharp decline in demand for and output of copper. This trend will

disrupt supply chains and create price uncertainty for

construction firms.

Utility buyers are facing longer lead times for

copper wiring and piping used in distribution.

Delayed orders of will negatively impact

operations and the entities’ ability to keep up with

preventative maintenance projects.

Utilities

03

Mitigating Supply Chain Risk

Related Market NewsThe World Cement Association expects the Chinese government to implement stimulus measures to boost spending on infrastructure and assist manufacturers in bringing production to normal levels.

Steel production in China has surged at a time when the Chinese housing market is weakening. Last time this happened, the Chinese government altered production levels, which led to higher prices.

Since January, the price of copper, which is set in the commodities market, has dived more than 12.0% due to the shutdown in manufacturing and construction.

Best Practices for Construction, Engineering & Real EstateConstruction material purchase agreements are made on a per project basis, which makes it easy to switch suppliers. Many high-rise contractors and industrial building contractors will look to procure steel materials (e.g. steel beams and rebar) from countries other than China to minimize the impact on their supply chain.

The Fed’s rate cut is a net positive for future housing demand and residential building construction, as it offers a small offset for rising construction material costs.

Chinese President Xi Jinping has called on manufacturers to start producing in efforts to protect the Chinese economy. Considering the affect the coronavirus is having on Chinese producers, construction material wholesalers could set themselves up for future discounts by negotiating partial shipments with suppliers and downstream buyers to maintain the purchasing relationship.


03


VendorRisk Mitigation

Company-Wide Best Practices

Designate a company director as the coronavirus “point person”: In an effort to mitigate risk across an organization, companies should consider selecting a single person (ideally a human resource professional, someone in the legal department or a workplace health professional) to be involved in all personnel decisions related to the coronavirus.

Develop risk-appropriate contingency plans: Companies should ask themselves: “How do we quantify our direct and indirect risk exposure to market disruptions stemming from the escalation of the coronavirus outbreak?” Companies should map out what inputs are core to their business and also have a high-risk exposure to economic disruptions stemming from further outbreak of COVID-19 and develop subsequent contingency plans based around these high-risk inputs.

Ensure contingency plans are consistent with existing employment and health laws: In the United States, employers may consider sharing the Equal Employment Opportunity Commission’s (EEOC) Pandemic Preparedness in the Workplace amongst their employees. These guidelines specifically warn that testing an employee’s temperature may be unlawful and considered a medical examination under the Americans with Disabilities Act (ADA) unless such action is clearly advised by proper health authorities or where the employer can show the employee poses a direct threat to the health and safety of other employees.

Develop contingency plans to manage technology risk: These risks include, but are not limited to, the capacity to enable a large number of employees to work remotely, an increase in online traffic to web-powered platforms and a rise in cybersecurity threats/attacks.

Clear and consistent internal and external messaging: Communication and messaging is one of the most important considerations for organizations to consider. As evidenced by the subsequent backlash to the Chinese government’s response to the outbreak and their mixed messaging on the evolving severity of the outbreak, companies too have their personal brands and reputations on the line as they draft contingency plans.

Best Practices Checklist

04


05

VendorRisk Mitigation

Day-to-Day Best Practices

Best Practices Checklist

Implement more frequent and stricter office cleanliness requirements: Employers can provide N-95 face masks, sanitizers, increase the rate of office cleaning and publish informational reminders for washing their hands and best practices for preventing the spread of germs.

Consider shifting employee responsibilities in a defined business continuity plan: Management teams should consider the reallocation of responsibilities between employees and/or establish new procedures for remote employees in the event travel restrictions are implemented.

Develop policies for clear communication with customers: It is important to develop procedures for communication with customers and understand the overall impact on the firm’s ability to service customers. Firms should determine how customers will be notified about any restrictions to market services.

Consider implementing split team arrangements: Split team arrangements refer to when personnel and employees are split into two or more teams (e.g. Team 1 and Team 2) that are deployed with different work schedules or at different work sites to prevent the spread of the virus.

Implement flexible working arrangements: Organizations should consider allowing employees to work from home in order to prevent contamination.

Carry out testing measures in “high-risk” work environments: The EEOC’s Pandemic Preparedness in the Workplace warns that testing an employee’s temperature may be considered a medical examination under the Americans with Disabilities Act of 1990 (ADA) unless clearly advised by proper health authorities or where the employer demonstrates the employee poses a direct threat to other employees based on objective medical evidence.

Implement internal controls to prevent human-to-human transmission: Companies should consider catering lunches and meals to minimize employee’s exposure to crowded areas like the food centers, supermarkets and restaurants.

Restrict employees from returning to work if they have recently visited a high-risk area: Many employers have adopted a 14-day or longer work-from-home policy for any employee that has recently returned from China or another country with high risk of contracting the virus.

coronavirus risk assessment...face financial repercussions from cancelled orders due to delays....

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