There’s no doubting the contribution that Brexit makes to the stagnation of growth in the UK construction sector, but it would be naïve of anyone in the industry not to recognise other factors are also in play.
The sector’s output has been falling at its steepest rate since 2009. The Markit/CPIS UK Construction purchasing manager’s index recorded a reading of 43.1 in June, down from 48.6 in May. Economists expected a rise 49.2, almost above the crucial 50, which indicates growth.
It’s been another tough year for construction, with weakness across the board as housebuilding, engineering and commercial work all fell significantly in June.
Earlier predictions of a Brexit bounce of up to 5% seem to be receding as the new Cabinet repeat their mantra of a hard exit with no deal if the EU is unwilling to renegotiate. For any chance of a bounce there needs to be a deal.
But while the industry frets as spending decisions are delayed and investors sit on their hands, it would do well to find a cure for the underlying and more familiar malaise that lurks behind the Brexit spotlight.
A declining global economy and sustained weakness in the pound seriously impact the cost of materials. Pressure on margins continues as clients still look for lowest cost over best value. Labour costs continue to rise, according to ONS the figure is 5% in the last 12 months, and the skills shortage isn’t showing any signs of narrowing as 30% of the workforce head for retirement. And let’s not forget Theresa May’s commitment to increase the UK’s target for CO2 emissions, which will be costly.
While UK construction waits for a Brexit resolution, the sector needs to also address the chronic underlying inhibitors. And it can’t rely on the infrastructure promises of a new Prime Minister when the political context is so combustible.
The industry has developed innovative workable solutions such as collaborative procurement, digital integration, offsite manufacturing and BIM, that have been proven to improve efficiency and productivity.
These are new approaches that are trickling out across the sector at a time when they need to flood. We used to call all of this ‘new thinking’ and ‘modern methods of construction’ – but it’s not new anymore and for only a minority is it now standard operating procedure.
The construction sector needs to get on and on and make the most of the knowledge and technologies that exists if it wants to overcome the old problems that even clarity on Brexit won’t cure.
The skills gap in construction continues to challenge the sector, with little sign of it narrowing in the near future.
But the stark figures on the number of women in construction offer an opportunity to boost skills with a concerted effort to change culture and working practices in the industry and inspire more women into a career in construction.
Between 65% and 70% of the UK workforce is now made up of women, yet that figure tumbles to 14% in the construction sector and a fairly damning 2% when looking at the number of women working on sites across the country.
There are many companies and organisations working hard to encourage women into the industry, but the figures make clear that much more needs to be done to inspire and motivate women to choose a career in construction.
When it comes to pay, the latest data published by the Government shows that among the UK’s top principal contractors the gap between men and women ranges from £34% to 10%.
Although there has been some progress, sadly in the 21stcentury a culture of sexism is still prevalent and it’s understandably a significant barrier for women. This is an issue that is cutting the sector off from 50% of the talent available to close the skills gap.
A RICS survey in 2017 identified that 30% of women already in construction believe that sexism stops them from pursuing senior roles. The same survey showed that 38% of men in the sector believe that their skills are better suited to the sector than women. It would be interesting to know what those men perceived those skills to be!
Changing culture is never easy but the industry really needs to prioritise its effort and take a harder look at itself to identify ways to change so that it can benefit from the pool of talent that is going elsewhere.
The sector needs to develop much greater early engagement with young women with the creation of more female construction ambassadors.
The UK Government innovation agency, Innovate UK, recommends a number of changes including the introduction of more flexible working and higher paid part-time role for women and men, specific training for women, construction sit open days and cleaner workspaces.
Construction needs more talent. If it can do a better job of inspiring women eradicating sexist culture where it still exists, there is a rich seam of talent already available.
With continued low productivity rates and pressure on margins, late payment still blights the construction sector and may soon exclude some companies from major contracts.
The most recent data from Creditsafe for the third quarter of 2018 showed that construction is the second worst payer by sector in the UK (after hospitality), averaging payment 41 days later than contracted timescales. The same quarter showed an increase in company failures, which is unlikely to be coincidental.
The Government’s Prompt Payment Code (PPC) was supposed to address this issue with companies signing up to a pledge to pay 95% of invoices within 60 days. But evidence suggests that many of the biggest names in the construction industry are not living up to their commitment.
We won’t name them here, but a recent review of the data provided by members to the Code resulted in seven construction companies which are among the largest in the country being suspended for not paying their suppliers in line with the promised terms.
Suspension or expulsion from the code is likely to cost companies dearly in the future as there is an expectation that the Government will implement plans to restrict those who breach the code from bidding from public contracts. The likelihood is that for all public contracts over £5 million per annum, bidders’ payment records will be examined closely and anyone who does not meet the PPC standard will be excluded.
The Government’s ‘Construction 2025’ long term vision for the future of the industry cited equitable financial arrangements and certainty of payment as critical success factors for the industry. The report recommends creating conditions for construction supply chains to thrive by addressing access to finance and payment practices.
Late payment is a historical problem in the constructions sector but getting paid on time is critical for many companies in the supply chain. SME’s, which make up 99% of the construction supply chain, are hardest hit by late payment. They are unlikely to invest in skills training and new technologies if their cash flow is under constant pressure from unpaid invoices.
The problem needs to be addressed at the source of the flow of payments through the supply chain. If large contractors continue to ignore their responsibility, they will exclude themselves from the public contracts that are their lifeblood shrinking the supply chain and restricting opportunities for growth and profitability for everyone.
The latest Future Skills Report from the Construction Leadership Council says that contractors should upskill for the future by directly employing staff, encouraging smart construction and updating training in the sector.
The report challenges the industry to adapt to change to improve the poor image of construction, transform sector productivity, advance quality and create a sustainable and diverse industry.
It describes the UK as being on the cusp of “one of the greatest programmes of construction in history with a pipeline of more than £600 billion”. The caveat is a challenging context with the end of Freedom of Movement and the loss of 30% of the workforce to retirement at a critical time for the industry.
The recommend three key actions:
Direct employment– A call for clients to agree a code of employment where those who contribute to a project are directly employed, thereby ensuring it is in the employer’s best interest to train their staff and benefit from improved productivity.
Encourage Smart Construction– Create an environment where Smart Construction methods are encouraged through early design and procurement processes, creating the demand for skilled employees, which in turn drives employers to invest in training.
Update Construction Training– update qualifications and training to include Smart Construction techniques and behaviours with funding made available to accelerate adoption.
The recommendations are based on sound logic and detailed context provided within the report. It does not shy away from identifying the size of the task ahead and the challenges that must be overcome. But the jury will be out for a while on whether the industry – and government – will embrace the roadmap to a more productive future.
The difficulty is that the challenges are inexorably linked to productivity, quality, skills development and more. It’s like a jigsaw that requires all the pieces to come together at once. For example, without a change in the way projects are procured and managed, margins will remain under pressure, curbing the appetite for direct employment and investment in training.
The delivery of a fit for purpose apprenticeship program is a major component of the construction industry’s efforts to close a skills gap which, Brexit issues aside, continues to be at the mercy of increasing retirement rates and a poor pipeline of younger new entrants.
The Farmer report described the skills gap as a “ticking time bomb” and predicted a decline of 20-25% in the workforce over the next decade. Construction Industry Training Board data shows that the overall appeal of construction as a career option for young people is low, not helped by high profile failures like Carillion.
Parents often want their children to be doctors or lawyers, but why not engineers, project managers, surveyors or town planners? These are the skills that design the communities that we live in and are the fabric of our society.
The Government’s Apprenticeship Levy was introduced in 2017 to encourage employers to hire apprentices but in its first year there was a 26% drop in new apprenticeships, perhaps due to a lack of clarity about the new initiative.
The latest figures from the National Audit Office show that UK employers deposited £2.2bn into the levy in 2017-18 but only 9% has been accessed and reinvested in staff training programs.
Businesses have to draw the total value of their levy payments to fund apprenticeships within two years of the payment dates or after that they are forfeit to the Treasury. But many companies still see it as a stealth tax and argue that if take up is to improve the Government needs to simplify the bureaucracy and better explain that the programme covers a very wide range of subject specialisms at many levels.
Many projects require contractors to create a specific number of apprenticeships and job placements but there is evidence that in many cases these individuals return to the training pool once a project is complete. Having the security of a place being allocated and a potential future in employment at the end of an apprenticeship is the best motivation to encourage take up. So maybe the KPI’s on these projects need to be reviewed to reflect that and improve the likelihood of a job at the of the process.
For any chance of apprenticeships to close the skills gap in construction, the sector needs to work together and engage more effectively with schools and pupils to overcome the negative perceptions that currently exist. Stronger links to education would result in the teaching of relevant skills and a clear understanding of the opportunities and rewards that are on offer in the construction sector. The industry needs to overcome the barriers in schools that are so often heavily focused on exam results and don’t have adequate resources to properly consider where pupils will gain employment. Perhaps the education sector needs to build in processes to measure their effective contribution to future employment, which is an important indicator of the value of school learning.
We need to promote the benefits of working on projects that for many years will serve our communities and remain as long term legacies.
As the use of technology in construction grows rapidly, there is a very real danger that a lack of investment in protection is leaving projects and companies exposed – and cyber criminals are taking note.
A recent Government survey identified that over a third of business in the UK had experienced a cyber breach in the last year but only 33% have cyber security policies in place.
A report from the Department of Health noted that the WannaCry cyber attack on the NHS cost the organisation £92 million and was largely blamed on the use of old software systems that had simply not been updated.
The growth of BIM has had a dramatic effect on modern construction and is expected to have been adopted by 90% of the companies in the next three to five years. As a computer based control system, it allows shared access for contractors and creates a central repository for huge amounts of data.
It doesn’t take an expert to understand the effect of an attack on a large construction project if information and control systems are closed down for days or weeks or designs amended without signoff from the design team. That’s why it is surprising that two thirds of companies have no cyber security policy in place to mitigate the risk, leaving themselves incredibly vulnerable.
In an industry where risk is carefully managed it would be interesting to know how often cyber security is identified and reviewed on project risk registers.
Cyber criminals see the potential for success in targeting construction because the combination of extensive document sharing using cloud services and a supply chain of many third parties makes it attractive.
While most businesses now have at least basic firewall and network security, the majority of attacks are phishing or social engineering based, or simply employee negligence.
Although most now have technical IT measures in place to secure networks, they need to recognise that humans are always the weakest link. A human has to make the decision to invest (or not) in solutions that mitigate risk and commit the business to maintaining a secure environment. You can have as many steps in a technical authentication process as you like, but how can you legislate for the staff member who clicks a link in a sophisticated phishing email or plugs an infected USB stick into a network device.
Every project needs to have a minimum IT standard for all of the supply chain, along with a digital risk assessment that is reviewed on an ongoing basis. That will take care of the technical aspect, but it should also be supported by a clear staff policy promoted to everyone involved in the project with continuous education and awareness programmes.
Hopefully it won’t take a successful cyber attack on a high profile construction project for the sector to recognise that a robust cyber risk management programme should be at the top of the agenda on every project.