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

WILL THE CORONAVIRUS CHANGE CONSTRUCTION FOREVER?

Up until very recently, construction had been one of the less affected sectors in the global pandemic crisis. As sites now close and work grinds to a halt across the country, the industry is understandably too busy right now to look beyond the immediate crisis, but when restrictions do eventually ease how will the sector recover?

This is a sector that, even before the devastating impact of the virus, was already in the emergency room waiting for a new treatment.  Twenty two firms entered administration in January, with a 158 in stages of liquidation and a further 67 in meetings with creditors. At that time, before any impact of coronavirus was considered, the estimate was that around 4,000 construction firms would cease trading in 2020. As the economic impact of government restrictions tighten over the next few weeks, the sad reality is that many more businesses than ever imagined will be forced to close.

How quickly the sector can recover when the crisis subsides will depend on a number of factors.  Supply chain capacity is likely to be severely limited as a result of the disruption.  The health of the banking sector will have a significant impact on recovery, dictating how willing the banks are to allow delayed payments to support business liquidity.

Perhaps though, when faint light appears at what currently feels like a pretty long tunnel, the time will have come to make some of the changes that the industry has been talking about for years. Albert Einstein said, “In the middle of difficulty lies opportunity” and while this crisis will have a devasting effect on in the sector, it may also be the opportunity for a reset. Short term change in working practices for a few weeks may not last, but we are all in this for the long haul and many will realise that their new approaches to deal with the crisis need not be temporary.

Government and public organisations are using emergency powers to streamline as much bureaucracy as possible in areas like procurement. Businesses are thinking more creatively to rapidly innovate new solutions using different processes. Technology is already playing a major part in changing how businesses operate and survive the crisis. The Farmer Report’s mantra of ‘modernise or die’ could not be more relevant than it is today.

Artificial Intelligence, digital engineering and offsite construction all have a major role to play in driving productivity and quality across the sector. However, their benefits have too often been overlooked in preference for doing things the ‘way we always have’.

Einstein also said, “Insanity is doing the same thing over and over and expecting a different result”, which is what construction in the UK has been doing for years.

When this is over the construction sector will recover, hopefully quickly, but it needs to ensure that the crisis does not mask the problems that already existed, and in doing so, create the opportunity to reset and change for long term success.

A BUDGET BIG ON POTENTIAL BUT SHORT ON DETAIL

“If the country needs it, we will build it”. The words of a new Chancellor announcing his first budget that had been eagerly anticipated by a UK construction sector desperate for some good news and inspiration.

The Prime Minister called it the ‘Infrastructure Budget’ as the government promised the ‘biggest programme of public investment ever’ – £600 billion over the next five years into infrastructure.

This all sounds like good news for the sector, but without any more detail it’s very difficult to get a clear picture of how this translates into projects on the ground that boost growth in the sector.  The hope is that when the delayed infrastructure strategy announcement finally arrives in late Spring it will deliver the specifics. It’s worth noting also that whatever changes are planned for the Treasury Green Book will also impact decisions on major investment and we await this announcement also.

Whilst it’s difficult to tell how much of the projects announced are new money, rather than expenditure already committed, the budget certainly looks very positive for the construction sector and on the face of it should be welcomed.

However, it comes at a time when the economy is plunging down a steep COVID 19 slope with no one able to predict when the momentum will slow and the world will start to return to normal. It has the potential to severely undermine any government’s best efforts to protect its construction sector.  Some economists predicted that even with the budget spending plans, emergency interest rate cuts and promised tax cuts, the sector is unlikely to see any growth of more than 1% this year. It is inevitable that staff will have to self-isolate for significant periods of time and that will have added impact.

Just when it seems the industry had some good news from a budget to inspire a much needed step forward, mother nature looks like pushing it back two steps with an unprecedented health emergency.

The government needs to keep its promise and follow up an optimistic budget with detailed plans for delivery and financial measures to mitigate the impact of COVID 19.

Re-Education in Procurement Needed Realise Benefits of Offsite Construction

Of the five government departments that committed to prioritising offsite construction by 2019, three have not yet awarded any contracts with an offsite component. That’s a disappointing statistic for a government that agreed to adopt the promotion of offsite methods as one of the key recommendations of the Farmer report in 2016.

Farmer was recently reported as saying that a ‘fixation with cost’ was partly to blame in the adoption of offsite construction and that the internal teams within departments need to be re-educated around how to procure value.

While there is a recognised enthusiasm for offsite at a senior level, often the teams actually working on tenders just revert to doing things the way they’ve always been done. There is considerable inconsistency, with education and justice departments incorporating offsite into new projects but to date we’ve yet to see anything in health, defence and transport.

The benefits of offsite construction have been widely recognised for some time but it’s clear that there is less understanding of how to deliver those benefits. The challenge for many in procurement and project design is understanding the changes required to traditional processes. A new approach is needed that revises the order in which things are normally done so that offsite components can be finalised and procured early.

One of the biggest advantages from offsite, along with quality control and safety, is the cost savings from a reduced construction schedule. But for that to work it needs design work to be brought forward to the start of the process so that all of the components of the project are scheduled accurately.

Once public procurement teams look beyond lowest price to understand value, it will enable teams to recognise cost, programme and quality advantages from a collaborative approach to projects that incorporate offsite techniques.

The Government needs to understand that in order to achieve its ambitions to use more offsite construction, a programme of education is needed at an operational level so that procurement and delivery teams understand how to translate ambition into reality.

OFFSITE MANUFACTURING IS KEY TO THE SUCCESS OF THE CONSTRUCTION SECTOR DEAL

In July 2018 the Government published its response to a recognised need for innovative new ways of working and investment in technology to improve productivity in the construction industry.

The Construction Sector Deal was an ambitious response to widely held concerns that construction in the UK lacked the capacity to deliver the nation’s £600 billion infrastructure pipeline over the next ten years. Although criticised by some for being long on rhetoric and ambition but a little short on detail, the deal set out clear objectives that have a strong focus on productivity:

• a 33% reduction in the cost of construction and the whole life cost of assets
• a 50% reduction in the time taken from inception to completion of new build
• a 50% reduction in greenhouse gas emissions in the built environment
• a 50% reduction in the trade gap between total exports and total imports of construction products and materials.

Offsite manufacturing technology was identified as a key strategic area to achieve these targets, along with the use of digital technology and a shift to measuring whole life asset performance to the total building life cycle.

The deal recognises that offsite manufacturing technologies will help to minimise wastage, inefficiencies and delays that affect onsite construction and enable production to happen in parallel with site preparation – speeding up construction and reducing disruption.

The move towards increased use of offsite construction is supported by a number of reports over recent years. McKinsey reported that the biggest impact on productivity in construction would come from moving toward thinking about construction as a production system, where possible encouraging offsite manufacturing, minimizing onsite construction through the extensive use of pre-cast technology, assembling panels in factories and finishing units onsite.

A WPI Economics report in 2017 on the value of offsite construction suggested that increasing a proportion of the UK construction undertaken offsite could significantly boost UK productivity and growth. The report modelled data from the ONS to suggest that increasing offsite construction by 25% of all construction work undertaken would be associated with an increase in GVA (Gross Value Added) per job of 3.6% in the construction sector. In cumulative terms that represents over £30billion in growth up to 2025.

The Government’s own report “Offsite Manufacture for Construction: Building for Change” recognised the clear benefits of offsite technology and the importance of its role in achieving infrastructure programmes.

The case for offsite construction has been well made and understood across the industry. The Government has committed to changing its procurement models to promote the use of offsite methods and allow the public sector to procure for whole life value rather than upfront cost.

It’s still early days in terms of seeing that delivery on the ground but there some signs of implementation, with the announcement in the summer of a £3bn framework offsite to build secondary and primary schools. Offsite manufacturing is also increasingly being used to build new homes.

In its update one year on from the publication of the Construction Sector Deal the Government was once again a little short on detail. It says that it is consulting on how government departments can take a consistent approach to drive a new market for manufacturing in construction, taking advantage of economies of scale. In July 2019 it said that the response to the consultation is due for publication “shortly”.

There is no doubt that the use offsite construction is growing, but a lack of data on its proportion of total UK construction is still hard to come by, which is why there have been calls for an annual report from the Government to detail the proportion of public funded offsite construction.

What’s clear is that offsite is key to the success of the Construction Sector Deal and can deliver all of the targets for improved productivity and cost, and sustainability in UK construction projects.

CONSTRUCTION SHOULD SEIZE THE OPPORTUNITY FOR A LOW CARBON FUTURE

The Government’s target of net zero carbon emissions by 2050 is challenging for every business sector but perhaps none more so than in the construction industry.

UK construction directly accounts for 10% of the country’s emissions and influences a staggering 47% of all emissions through all of the work in the sector.

Rapid change is likely to be incredibly difficult due to the fragmented nature of the sector and its complex supply chains, but there is a real opportunity for clients and contractors to drive the agenda so that UK construction gets moving and recognizes the opportunities ahead.

The National Federation of Builders (NFB) in November called for open and frank discussions on solutions that the industry can provide to tackle climate change and challenged the Government to establish a “Ministry of Carbon’ to drive forward the initiatives needed to reach the low carbon targets. We’ll have to wait and see whether the Government takes them up on this but you don’t need a crystal ball to predict that whoever holds the balance of power after 12th December will soon take a stick to the industry in the form of legislation to force carbon reduction.

There is no doubt that legislated standards are required that counter the effects of short term market forces so that those who ignore the environment cannot gain economic advantage from doing so. But the NFB also points to the need for Government funding to support low carbon initiatives and create the necessary momentum to achieve targets.

The application of appropriate standards and verifiable outputs needs to be provided at the procurement stage by design teams. The industry needs to adopt a more collaborative approach in procurement to procurement that treats all stakeholders fairly with appropriate transfer of risk.

There are a number of initiatives already focused on designing out waste and developing new products and materials with low carbon footprint.  Offsite manufacturing can reduce carbon within a building using efficient, repeatable designs and more efficient production. Onsite waste accounts for 15% of the embodied energy of a building and research shows that offsite manufacture can reduce this by at least 50%.

There is a real opportunity for construction to make significant impact on carbon reduction and the best way to achieve this is through a collaborative approach with main contractors, clients and the whole supply chain acting as one.

The NFB is right to point out that without a bold vision from Government, backed by a detailed action plan and regulatory landscape, the challenge is probably insurmountable. But in the current political landscape that will take time so the industry should seize the opportunity now and drive the agenda so that it is ready to make the most of the carrots and mitigate the pain of a regulatory stick.

BUILDING SAFETY OVERHAUL IS LONG OVERDUE

It’s taken more than a year since the publication of the Hackitt Final Report in 2018 but the Queen’s Speech confirmed that the Government will “bring forward laws to implement new building safety standards” in what has been described as the biggest regulatory reform programme in over 40 years.

A much tougher and more effective regulatory framework promises to improve building standards across the country with plans to create an independent buildings safety regulator to oversee construction practice.

All of Hackitt’s 53 recommendations are being taken forward by the Government and in some cases they are going even further. Reforms include making it a criminal offense for failing to comply with proposed new safety regime for designing and building high rise homes. Duty holders will have to demonstrate a building’s safety through a new system of gateway points during design and construction and through a safety case regime during occupation. The legislation is also expected to develop a new framework to provide national oversight of construction projects to ensure that they meet high performance standards.

The new regulator will be given powers to take quick and effective action, including heavy fines, when designers and contractors are non-compliant.

The message from government is clear – building safety is top of the agenda and developers, contractors, designers and building owners need to be more accountable in ensuring compliance with national standards.

There is still way to go before the recommendations become law and with the lack of government majority in the Commons there is a possibility that the Queen’s Speech could be voted down with an election to follow. However, it seems unlikely that opposition would vote against the proposals whenever they do eventually move through the legislative process.

The proposed reforms highlight the challenges in the construction sector that ultimately stem from a ‘lowest cost wins’ culture which risks compromising quality and in turn has implications for building safety. The construction sector must continue to push procurement reforms that focus on a collaborative model, abandoning what Hackitt described as ‘the race to the bottom’ and focusing on improved quality and productivity.