The Impact of the Covid-19 Pandemic on the Malaysian Construction Industry
Malaysian businesses and the economy, in general, have suffered as a result of the coronavirus and the measures put in place to attempt to contain it, like the Movement Control Order.
The construction industry in Malaysia, like other industries, was impacted by the pandemic. In fact, except for necessary or required utilities, most construction activities were suspended throughout the MCO.
Even after the MCO was lifted, contractors continued to face challenges, such as the high cost of construction materials in Malaysia and the need to implement tight standard operating procedures on health and safety precautions for construction sites.
Because of the disruption, contractors have been unable to complete their tasks as initially and routinely planned.
How COVID-19 Impacted the Construction Industry During MCO in Malaysia
Cash Flow
Many contractors experienced cash flow issues as a direct result of the COVID-19 pandemic. In most cases, project compensation is calculated depending on the quantity of work completed.
As almost all construction activities were halted during the MCO, no work was completed and thus no payments were received. Contractors continued to incur their ongoing costs, such as rental rates, labour, overheads, etc.
Risk of Liquidation and Termination
The primary contractual responsibility of a contractor is to carry out and finish the construction work in accordance with the contract within the given time frame.
When a contractor fails to finish the job within the specified time frame and no extension of time is allowed, an employer or client often has the contractual right to impose liquidated damages and occasionally other associated penalties, or, in the worst-case situation, to cancel the contract.
When their projects were paused and all site activities ceased, several contractors successfully requested extensions of time for the MCO term under the contract. However, in many other circumstances, contractors struggle to gain additional time extensions after the MCO.
How COVID-19 Affected Malaysia's Construction Industry Post MCO
Contractors have typically faced challenges such as having to implement new health and safety SOPs, a shortage of workers, restricted working hours, a delay in their supply chains, rework after a long suspension, disruption due to limits on the number of workers required to comply with social distancing requirements at the workplace, and more.
Such delays and disruptions have undoubtedly reduced productivity and created further delays in project completion deadlines, resulting in higher expenditures for contractors.
Productivity loss is not always straightforward to identify and assess, and the consequences of a construction project are frequently neglected until far later in the process.
Proven approaches for estimating productivity loss include measured mile analysis, earned value analysis, and program analysis, just to name a few.
However, in order to conduct meaningful analysis, adequate and accurate contemporaneous documents and data are required. Furthermore, such data is critical for demonstrating the link between disruptive occurrences and productivity losses.
Responses and Solutions
The Malaysian government gazetted an act named "Temporary Measures for Reducing the Impact of Coronavirus Diseases 2019 (COVID-19) Act 2020" ("COVID-19 Act") on October 23, 2020.
Section 7 of the COVID-19 Act states that if any party whose contract falls under the categories listed is unable to perform its contractual obligation due to the measures prescribed, made, or taken under the Prevention and Control of Infectious Diseases Act 1988, the aggrieved party or parties to the contract cannot exercise their rights between 18 March 2020 and 31 December 2020 (the period was later extended by the Minister for Works to 30 June 2021).
The Malaysian COVID-19 Act applies to a wide range of contract types, including those executed solely by a brief letter of award, purchase order, or other similar documents, even if such contractual documents contain insufficient provisions to deal with the unprecedented and complex COVID-19 pandemic situation.
Any party that is unable to execute contractual commitments as a result of their compliance with the Prevention and Control of Infectious Diseases Act 1988 may now seek remedies under the COVID-19 Act.
All in All
The Covid-19 pandemic, an unprecedented disaster for the human race, has affected virtually all industries around the world.
As for the Malaysian construction industry, the affected parties include contractors, housing developers, cement suppliers, quarry suppliers, local ready-mix concrete suppliers, concrete suppliers, and many more.
The good news is that economic recovery is imminent, with Malaysia having recorded growth in GDP of 8.9 per cent year on year and 3.5 per cent quarter on quarter.
While Malaysia enters its third quarter, the outlook is positive that the country will recover even at a greater speed in the months to come.