Blog2018-06-12T14:15:06+00:00

Can the Construction Industry meet the 2050 net zero target with a growing skills gap?

The construction industry is embracing the challenge of meeting the 2050 net zero climate emissions target but its ability to get there in time may be impeded by a growing skills gap.

The skills issue is not new to the sector, but two reports published in recent weeks gave a clear warning that rapid change is needed now to create the talent required to achieve success.

The Institute of Public Policy Research (IPPR) ‘Skills for a Green Recovery’ report highlights a perfect storm that may significantly slow down the progress on delivering the government’s vision for 2050.

It identifies that up to 750,000 construction workers could retire or be about to retire over the next fifteen years.  It goes on to say that not enough is being done to replace these workers with only 20% of construction workers aged under 30.

A report from the Construction Industry Training Board (CITB) added some interesting detail on how the skills gap needs to be filled. It warns that construction will need the equivalent of 350,000 new roles by 2028 to achieve the 2050 net zero target. That’s 50,000 new roles every year for the next seven years.

The CITB points out that 80% of the critical work required to achieve the targets will be on retrofitting buildings that already exist, which could account for 95% of future built environment emissions.

The IPPR also discovered that skills and employment programmes in the infrastructure industry are hamstrung by a lack of collective action among firms, along with a lack of leadership in government.

The net zero target, along with the launch of the Construction Playbook, creates an opportunity for the industry to reset now. The sector needs to double down on the leadership, innovation and collaboration that has seen it manage the COVID crisis and bring clarity to the skills and learning needed for future success.

A joined up approach that recognises early how employers’ needs are changing is essential. Everyone in the sector needs to realise that they have a role to play.

Will IR35 Herald the end of freelance contractors?

The traditional reliance on subcontracting in the construction sector is about to change when HMRC introduces new IR35 employment tax changes this April.

Postponed by a year because of COVID 19, the new rules are designed to remove the tax benefits for contractors working as disguised employees. The legislation shifts the responsibility for determining tax status away from the contractor and onto the business engaging their services. If IR35 applies to the contractor then they must be taxed as an employee under PAYE.

The impact for construction will be significant and most companies in the sector still have no plans to deal with IR35, despite the extra year’s delay. A series of HMRC webinars in January, designed to inform about the pending tax changes, was fully booked within just a few hours of being announced.

HMRC estimates that only around 10% of contractors in construction comply with IR35 rules, which means 90% of contractors in the sector could be affected by the change, reducing their profits by 20%. It’s even harsher for the employer, with potentially up to 37% higher NI contributions for a contractor moving onto their payroll and taking home the same pay.

IR35 was originally introduced for public sector organisations in 2017. The following year almost half of the public sector contractors increased their day rates by 20% to balance the additional cost.

Employers face the risk of hefty fines for non-compliance and any business deemed not to have taken appropriate care to determine IR35 status for every individual engaged via a personal service company will increase their chances of being penalised.

While costs increased, the experience in the public sector suggests that recent prophecies of contractors’ demise may be premature. Similar fears were expressed in 2017, but the reality was that around 89% of public contractors eventually passed IR35 assessments once employers fully understood how to properly undertake the process.

The construction sector needs to heed the lessons from the public sector and use the few weeks left until 6 April to learn the rules and assessment criteria for IR35.

There is more information available at:

https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

PFI Handback – Tortoise and the Hare

The UK has been a global leader in the implementation of PFI, with more than 716 projects established since the early 1990s, with a range of operating periods from 15-25 years.

To date, only 19 projects have achieved handback, equating to 2.6% of the market which puts into perspective the scale of the PFI handback ‘operation’ that awaits as we move forward within this decade.

England has the monopoly of the PFI market at 76% which in monetary terms equates to £42,017.60M of the overall PFI capital spend.  Scotland have received £5,829.50M across 12% of the PFI market.  Interestingly, there is a greater spend per head in Scotland than in England.

Early contracts are heavily impacted by poorly defined handback arrangements which will affect the handback process and quality of the asset.  One aspect that needs consideration is whether there are sufficient funds remaining in the lifecycle funds.

The hare will race through handback returning the building and the staff to the public sector. The tortoise will consider the opportunity that handback presents and carefully craft an outcome that reflects strategic direction as well as contractual and commercial compliance.

The Construction Playbook

The Construction Playbook has been roundly welcomed by the UK construction sector and recognised as an opportunity to transform the industry.

It is designed to eliminate the “race to the bottom culture” of lowest bid wins identified in the post-Grenfell Hackitt Report, setting out key policies for the public sector to achieve a collaborative approach to procurement with a focus on whole life cost, productivity and modern methods of construction (MMC).

The Playbook is a powerful framework for change and supports recovery from COVID 19. It is mandatory for all central government and arm’s length businesses, setting the benchmark for the Prime Minister’s promise to “build, build, build” with £37 billion of social and economic contracts in the next year.

The focus on value is music to the ears of an industry that has struggled with poor productivity and low margins for decades.  A mandate for the increased use of MMC will improve efficiency and certainly meet the “build back greener faster” ambitions.

A huge amount of collaborative work has gone into developing the Playbook, but the real challenge is in implementation. The term ‘playbook’ comes from the world of sport and any coach will tell you that even the best playbook strategies are meaningless unless properly executed on the field of play.

The proof in this pudding comes down to implementation. It will require training for many public procurement professionals, underscored by a strong communications campaign from Government.

We’ve been here a few times before over the years. The Construction Sector Deal was announced in 2018 but there has been little data available since then to measure its success. The Playbook puts MMC at the heart of the new drive for value. In 2017 the Government announced the presumption of offsite across five departments but very few projects were delivered using those methods. The slow uptake was attributed to a lack of understanding by public sector procurement teams.

Mandating a methodology is one thing, delivering the desired outcomes is quite another but the Cabinet Office has pledged to monitor the implementation of the new policies to achieve success.

The Construction Playbook is a potential game-changer that will transform buildings in the UK if rolled out effectively.  As always, actions will speak loudest in making it successful.

Cybercriminals are coming after construction

Cybercriminals have recognised the potential for rich pickings in the construction sector as it continues to expand the use of digital solutions and automation.

Within four months this year, four major UK contractors were the victims of sophisticated malicious attacks targeting their systems.

As construction embraces digitalisation and automation, the risks from costly and damaging cyber attacks rise exponentially. Last year, almost half (46%) of UK businesses experienced a cyber security breach, with that figure rising to 68% for medium companies and 75% for large firms.

There’s no doubt that construction is investing more in cyber security than ever before, but companies need to understand that effective protection is reliant on a security culture across the entire business, not just the technical protection that IT teams have installed.  Over 80% of successful cyber attacks are from phishing, whereas the incidence of virus or malware attempts has dropped significantly in recent years to around 15%. Phishing relies on human error or misjudgement, its crucial staff are aware of the risks and work in a culture that operates best practice for password security and information sharing.

Construction companies must also look beyond their own teams to ensure that a cyber secure culture runs throughout their supply chain partnerships. The use of shared digital platforms and software solutions across project delivery means that your business is only as secure as the weakest link in the supply chain.

Large public sector infrastructure projects are increasingly demanding evidence of robust cyber security arrangements and corporate policies. The Government backed Cyber Essentials certification is mandatory for most public contracts as reassurance that appropriate basic measures have been put in place to protect from cyber attack.

The onward march of automation presents another opportunity for cybercriminals. Any machinery that has to connect to a network and is part of the ‘internet of things’ becomes a potential door into corporate servers and all the data that resides there.

The industry needs to collaborate on cyber threat and share experience and information to mitigate the risk for everyone. In the analogue age, we used to say that car thieves were so good that they could crack a new car alarm within hours of it coming to market.   In this digital age, the best way to keep up is by instilling a cyber secure culture across the organisation and it’s supply chain partners to mitigate the risk.

Does Construction need a Brexit Vaccine?

The announcements on new vaccines have given hope to every business that in a few months we will have come through the worst of the pandemics’ damage to the economy. But the impact of Brexit that’s just a few weeks away will create more challenges for which unfortunately there is no vaccine available.

The pandemic has shown how the construction sector can adapt quickly when it needs to, but the challenge with Brexit is that we know change is coming but there’s still no clarity about what it will be.

The ‘oven-ready’ deal seems to have been left in the fridge. The Prime Minister says he’s prepared to walk away from a deal and key deadlines continue to come and go with no more indication of what the likely outcome is.

Without certainty, planning will only ever be a ‘best estimate’. Construction needs certainty, and soon.

More than 60% of materials imported by the UK construction industry comes from the EU. These products are not currently subject to any tariffs. If the UK reverts to World Trade Organisation (WTO) rules there will be tariffs along with border checks, which will increase costs and potentially cause delays as materials are held up at the border.

There are additional challenges in terms of product standards and quality assurance recognition. The new UKCA marking is due to be introduced in 2021 and will apply to most goods currently subject to CE marking. It can be used from January 2021 but CE marking can still be used for a twelve month transition period up to 1 January 2022. CE marking will only remain valid after that where UK and EU rules remain the same or if the EU changes its rules. The UKCA marking will not be recognised in the EU. This means potentially that manufacturers will have to pay twice for test certifications to meet the two schemes which would increase costs.

In a sector that relies heavily on immigrant labour, the loss of free movement will exacerbate the skills shortage that construction has endured for so long. Yes, it’s possible that skills training initiatives can eventually close the gap, but that will take time and in the meantime labour costs will be driven higher.

Whether there is a deal or not, the prediction is that the UK economy will suffer from the impact of Brexit, so we need to plan to soften the blow. The Government has invested millions creating information campaigns for businesses to prepare, but the answers are still vague because no one knows exactly what to prepare for. The uncertainty has become a greater risk than Brexit itself.