France: Increases in the Costs of the Construction and Management of the Expected Claims, Post-Partum
- Christophe Friang
Following talks with various organizations and unions in the construction sector, the French government has launched in April a “Guide to health safety recommendations for the continuity of the construction activity in the middle of the COVID-19 coronavirus pandemic,” in order to allow the continuity of activities, for the French, the sector of the construction during lockdown.
The protection measures
This guide lists the measures for the protection of the health and safety protocols which construction professionals must comply with when handling claims after the COVID-19, the lock is removed. Nobody knows exactly how long these measures will be in place, but we’re talking about several months at least.
These very strict rules saying that companies should implement important measures. For example, in normal circumstances, the professionals travel to a site by groups of two or three, each of them is necessary to travel individually. This begs the question: has the company enough company cars available? The workers should they use their car and be reimbursed for the following travel expenses?
Another example is the equipment (brushes, tools, etc). The guide provides the equipment should not be collective (that is to say, a common toolkit), but rather that each worker should have his / her individual equipment, forcing firms to acquire more equipment.
8% to 15% increase
These measures have an impact on businesses – more time spent on construction sites, more equipment to buy, as well as extra travel costs. Together, all these elements will very probably cause a price surge in the construction sector, in particular for the renovation work compared to a disaster of the request; where this issue will also have an impact on insurers. Our research indicates that the increase in costs can vary between 8% and 15%. These figures are important for insurers, the results of which techniques are critical to their financial health.
Thus, we conducted a study on this issue, with the support of the other members of the Federation of Societies of Expertise.
There are two aspects to consider – the small and large projects. On one side, you have small sites, where workers are usually alone, and which constitute 75% of our business with the insurers. These can be claims for water damage, requiring renovation work such as painting or replacement of wall and/or floor coverings. Our group’s conclusion shows an expected 9% to 11% reasonable increase of the citation, including:
- Equipment (brushes, tools, about 3% of a project, unit costs): increase of 50%, so 1.5% of the total
- Supplies (paint, wallpaper, flooring, masonry, and various other raw materials, 27% of project costs): increase of 5%, so 0.5% to 1% of the total
- Services (administration and customer relationship, 12% of project cost): 30% increase, so 5% of the total
- Labour (by far the largest percentage of a project’s costs, 58%): 7% increase, which includes an addition 30 minutes of work per day to clean, develop measures of protection and various other security protocols. This adds another 4% of the total project costs for a site.
It is conceivable that some companies may arbitrarily overcharge, taking advantage of the ambiguity present.
On the other hand, these additional costs could be as high as 12% to 15% on larger projects. Applications with the different services involved, different sites to coordinate, and so on. The situation is more complex in these cases, because more of the security rules must be put in place and coordinated within the framework of the social distancing and team work. This means additional delays, which, in turn, an impact on the budget of these large sites.
Another question is, of course, which will absorb the additional costs? The companies have to cover these increases, and hence reduce their margins? Or will they be in place for the clients, knowing that the quotation has already been made and accepted by both parties?
Some argue that the cost of the surge will be greater than 20%; and construction experts, we believe that it is a great exaggeration. That being said, there is a potential for many companies to be driven out of business because of the COVID-19 crisis. As a result, prices soar dramatically.
Supply and demand
There is another element that further complicates this discussion: the impact of the pandemic on the supply and demand in the construction sector.
It is still too early to assess how many companies have been affected. Many construction companies in the French market are quite small and include, for example, a painter, a specialist in drywall. These small and medium-sized enterprises (Smes) are fragile, and many could very well file for bankruptcy. Quite logically, the prices tend to increase more and more as the supply is more and more rare. This trend could worsen the said increase in the economy.
Conversely, the argument can be made that, given the anxiety of the current environment, and the insured are the individuals and professional organizations alike – may be more cautious and reluctant to undertake repair projects. A decrease in demand would lead to a price decline.
It is useful to recall that, at this time, we do not yet have the hindsight to predict both how many firms through the crisis in the construction sector and other services sectors are typically associated with the insurance and to predict the evolution of the market, individuals and professionals will react when it comes to repair projects.
Nobody knows exactly how long the protection measures and health and safety protocols will remain in place. However, it will take at least six months. It is difficult to predict the extent of the impact, if any, the following elements could have over time: the evolution of supply and demand, or the summer period, usually a synonym of a slowing in activity for the construction sector in general.
As a result of the health of safety measures, construction professionals need to rethink work habits and put in place new models for the coming months, which could also last longer and, therefore, significantly change the sector as a whole.
All of this remains ambiguous, because we are only in the early stages of the deconfinement.
By Christopher Friang
Courtesy of Sedgwick Connection
Be the first person to comment!
Warning: WorkersCompensation.com publishes independently generated written from a variety of the workers ‘ compensation industry stakeholders. The opinions expressed are those of the author and do not necessarily reflect those of WorkersCompensation.com.