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.

WILL THE CORONAVIRUS CHANGE CONSTRUCTION FOREVER?2020-04-01T09:13:33+00:00

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.

A BUDGET BIG ON POTENTIAL BUT SHORT ON DETAIL2020-03-18T14:11:13+00:00

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.

Re-Education in Procurement Needed Realise Benefits of Offsite Construction2020-02-04T11:49:14+00:00

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.

OFFSITE MANUFACTURING IS KEY TO THE SUCCESS OF THE CONSTRUCTION SECTOR DEAL2019-12-10T09:59:40+00:00

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.

CONSTRUCTION SHOULD SEIZE THE OPPORTUNITY FOR A LOW CARBON FUTURE2019-12-02T16:03:47+00:00

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.

BUILDING SAFETY OVERHAUL IS LONG OVERDUE2019-11-04T15:35:04+00:00

Is it Time to Abolish Retentions?

They have been described as a “blight on the construction industry” and a significant contributor to late payments in the supply chain and subcontractor insolvencies. So is it time to abolish retentions altogether, as proposed by CECA and Build UK or will new legislation to reform address the problem?

The collapse of Carillion shone a stark light on the practice and its impact on the supply chain, with the company holding £800 million in retentions which caused heavy repercussions for sub-contractors and pushed many of them over the insolvency cliff.

Retentions are part of a business model in construction that is unsustainable in terms of profit margins.

The problem isn’t necessarily in the principle of retentions per se, but more in the way that they are used and abused in practice by clients and contractors, who are themselves often under cash flow pressure. The system has always been open to abuse and the supply chain and bankruptcy courts are full of examples to back the claim.

Some contractors have adopted a standard operating procedure of keeping retentions so long that subcontractors write off the debt or in extreme cases go bust. These contractors consider retention part of their profit margin. So to counteract this, many subcontractors build the retention into their pricing. It is a corrosive process that ultimately undermines the whole industry.

With British construction companies recently reporting that they have a third less work in the pipeline than a year ago, the industry needs to shake off historic ways of working. It must operate at optimum or there are likely to be more high profile failures that send terminal tremors through a supply chain that now reports 19 weeks of work in the pipeline – down from 27 weeks last year.

The industry needs to increase pressure for legislative reform.

The “Aldous Bill” introduced by MP Peter Aldous in 2018 proposes a retention deposit scheme that would protect retention money, rather than allowing it to simply sit in contractors’ bank accounts. Failing that, the money would have to be paid in within seven days. But like many other bills, progress is snail-like as the political focus is dominated by Brexit.

In an ideal world where clients, contractors and sub-contractors always delivered on time and to specification and there were no unforeseen challenges, there wouldn’t be a need for retention. But in the real world, we still need a way of managing risk. The obvious compromise is a ring fenced deposit scheme supported by much more transparency in the payment process.

Is it Time to Abolish Retentions?2019-10-07T14:12:43+00:00

NO TIME TO WASTE AFTER REVERSE CHARGE VAT DEFERMENT

The construction industry recently heaved a sigh of relief after it was announced that the government has agreed to delay the implementation of domestic reverse charge VAT for construction services by a year.

The original plan to implement it on October 1st 2019 would have potentially put terminal pressure on cash flow for a huge number of companies creating conditions for a resulting sharp rise in business failures across the sector. For some, it’s a crucial reprieve from disaster, others though are still blissfully unaware that the legislation was about to be implemented which, along with concerns about Brexit, is why the government caved in to intense lobbying for a deferral.

But far from relaxing, construction businesses need to now use the time wisely to make the necessary arrangements well in advance of the new deadline of October 1st 2020, or they’ll simply be postponing the inevitable. While a small number of companies may now have to take steps to reverse systems that were put in place for the change, the majority need to get on and prepare for the change next year with robust plans to manage cash flow.

The initiative is intended to tackle VAT fraud in the industry by getting the customer to account for VAT on supplies on their VAT return, rather than suppliers. HMRC has promised to focus additional resources on identifying perpetrators of fraud and to provide additional guidance and work more closely with the industry to help businesses prepare for the new implementation date.

The message is simple – companies who weren’t ready (or possibly even aware) of this change need to start preparing now without procrastination. Suppliers need to identify customers that are liable to account for the reverse charge by checking VAT numbers and obtaining evidence that a customer is an end user or not so that VAT can be invoices correctly.

The National Federation of Builders plans to work with the government to deliver a series of workshops around the country for construction employers to explain what is happening and why. Other construction associations are also planning similar initiatives so companies should check with their own for any details.

More information about the planned changes available from the government website at: https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

NO TIME TO WASTE AFTER REVERSE CHARGE VAT DEFERMENT2019-09-23T11:36:48+00:00

Construction’s Malaise is More Than Just Brexit

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.

Construction’s Malaise is More Than Just Brexit2019-09-10T09:01:01+00:00

Want to Close the Skills Gap? Inspire Women

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.

Want to Close the Skills Gap? Inspire Women2019-07-29T13:03:09+00:00