Altus Group

Roger Boothe

Managing infrastructure project delivery risks in the new environment requires an appreciation of current developments. The delivery of these projects need to consider the changing risk landscape and how to approach it. Some governments have been planning– or are otherwise in – phases of reopening the economy. Whether it be to address another potential wave, or to be better prepared for future similar events, risks mitigants in infrastructure project delivery need to be considered and are likely here to stay.

Design, Construction, and Operations Considerations

Will technical output specifications for infrastructure projects begin to shift ‘pandemic prevention and control risks’ to designers?

It isn’t hard to imagine the built environment reshaping in order to sustain the spread of future viruses. Technologies are already advancing to facilitate more hands-free interaction with this infrastructure. This use of voice activated, automated, or personal cell phone control technology will become more of the norm when interacting with built infrastructure (elevators, doors, restrooms, temperature controls, and fare collection equipment).

Other design solutions may include more screening areas, longer trains and transit platforms, and better air movement within spaces. Owners also need to help determine how prescriptive these design considerations need to be, or can simply transfer the ‘pandemic prevention and control risks’ to designers.

What are some of the construction-related risks (COVID-19 or similar) to be considered?

The risks and impacts of managing projects on construction sites are asset type dependent. Risks for construction workers are more material in confined spaces, whereas the risk may only be on select types of activities on long linear highway projects. However, on major transit projects with tunnels and underground stations, there would be more of an impairment to progress and efficiency.

A number of these site related risks may not require costly mitigation measures assuming there is no outbreak on site. These risks can likely be addressed at the local site-level by enhancing health and safety training, toolbox talks, cleaning of equipment and tools, placement of hand sanitizers, and additional Personal Protective Equipment (PPE) where physical distancing activities cannot be achieved.

A more material risk may arise from supply chain disruptions. As the economy reopens, updated protocols will be required at facilities to ensure worker safety and productivity. In addition, if material is sourced outside of the region, timely supply of pre-fabricated material may be impacted by the pandemic response from that local government. Contractors need to consider what contractual protections they have and document the issues they face as early as possible.

What risks would infrastructure owners, or asset maintainers and operators need to consider?

This depends on the infrastructure asset class and whether the asset is already designed with features to address COVID-like diseases. On a smaller scale, maintenance of vertical infrastructure will likely require more frequent cleaning of restrooms, elevators, and doors.

A bigger question is whether a society being more receptive to the work-from-home model will see ripple effects to travel patterns. How could such changes impact transportation? Would more, longer trains at a higher frequency run to avoid overcrowding, thereby leading to higher maintenance and operation costs? Would people return to personal single occupancy vehicles to avoid crowded transit hubs, and add a greater burden on aging roadways? Authorities and operators, particularly those with fixed priced maintenance contracts, will have to monitor this travel data closely during recovery.

Pricing and Scheduling Considerations

Addressing this is crucial to both infrastructure projects that are being delivered and projects yet to be procured. For projects where construction is underway, there needs to be documentation of cost and scheduling impacts, which would then support a partnering approach with the authorities. For infrastructure projects that are yet to be procured, government authorities are encouraged to consider how these risks can be mitigated.

The following upward pressure on infrastructure market costs and tender prices may result if there is no clarity on contractual protection or relief to these new risks:

• Labor Productivity Loss – New workplace distancing and safety protocols may lead to reduced efficiency and productivity.

• Supply Chain Disruptions – Risk of disruptions from local and foreign fabricators and manufacturers need to be considered.

• General Conditions Cost Increase – If schedules are longer and more cleaning and other construction measures are required, this will lead to an increase of the general condition costs.

• Schedule Impacts – Whether there are labor restrictions on construction work in confined spaces, reduced efficiencies for remote staff, or if the above-cited risks materialize, the resulting schedule impact will compound the upward pricing pressure.

In the current environment, the following downward pressures may feed through to a larger reduction in tender prices in the future:

• Softer Construction Demand – Construction prices have been rising faster than general inflation and construction input costs. This suggests that margins have increased in the last few years. A reduction in demand will lead to compressed margins, reduced conditions, and potentially reduced labor costs.

• Labor Rates – Softer construction demand would lead to downward pressure on labor rates.

• Commodity Prices –The reduced demand would lead to increased competition and therefore provide downward pressure on commodity prices.

It would be prudent for infrastructure asset owners to quickly address these risks on fixed-priced and date-certain contracts, particularly those under procurement. These may be addressed through relief events, force majeure, insurance requirements, or more prescriptive construction protocol or reporting requirements.

Moving Forward

Developers would find it challenging to commit to fixed construction prices and schedules in large, long-term projects while the impact of COVID-19remains uncertain. The private and public sector have a role to play in managing infrastructure delivery risks in this new business environment:

• The private sector can help identify and communicate these risks based on their experiences to date. Projects under active procurement would see bidders seeking contractual protections to limit risk exposure.

• The public sector is encouraged to consult with the industry on the risks and potential mitigants for current and future infrastructure project delivery. This is with a view to act promptly on commercial and technical provisions in the contract.