Construction Sector Deal: big on aspiration, but can it deliver?

Building a better construction sector is a familiar government theme. A slew of well-meaning reports and strategies have been launched in recent decades yet construction remains trapped by tradition, and established practices such as retentions and late payment have stubbornly remained.

Scratch beneath the surface of the supply chain and you will find companies a world away from the 21st-century digital technology culture of many big firms. But two recent shocks to the sector – the fire at Grenfell Tower and the collapse of Carillion – have combined to give renewed impetus to the calls for change.

And so we come to the government’s latest Industrial Strategy. It did not get off to the best of starts for the construction sector, which was barely mentioned in the green paper issued by the government in early 2017. By the time the strategy was unveiled late last year, that had changed and construction was clearly identified as a key priority. But the sector deal, initially planned for January, was delayed by six months.

“This time government has pledged direct support for the industry, provided the industry takes positive steps to help itself. It’s a deal”

Professor Peter Hansford, former government adviser

It was eventually published last month, in a 48-page document that is long on rhetoric and short on substance. It covers everything from increasing diversity among the workforce to changing the way business is done. But there appears to be no new money – at least none that has not been previously announced. 

In the weeks since the the sector deal’s release it has received a mixed reaction. As a set of aspirations for an industry in desperate need of change it is welcomed, but there are warnings that the steps needed to bring about that change are lacking. So how are people interpreting the deal that has been struck between government and construction? Is the desire for a digitally led, manufacturing-focused and collaborative industry achievable, given the financial pressures that most contractors are under and limited government funding? And is Whitehall at risk of ignoring the one factor that could influence the sector more than any other: Brexit?

Who foots the bill?

In terms of the funding that sits behind the sector deal, the industry will foot most of the bill, with £250m expected from R&D spending. In contrast, the government will – as it already announced last November – invest up to £170m in “transforming construction” projects through its Industrial Strategy Challenge Fund, which aims to “strengthen UK science and business innovation and take on the biggest challenges that society and industries face today”.

The sector deal policy paper states: “This will develop digital, manufacturing and renewable energy technologies for the construction sector, improving construction productivity and enabling built assets to be produced more quickly, sustainably and at reduced cost.”

It pays tribute to the industry: “The life of every person in Britain is affected by the construction sector. It is one of our truly nationwide industries – encompassing individual homes in remote areas and some of the greatest infrastructure projects of our generation, in every corner of the UK.”

But companies will have to change their ways if they want to survive, it warns: “The current business model of the construction sector is not sustainable. Construction customers and businesses across the supply chain are focused on the costs and risks of individual projects, and do not collaborate effectively.”

The paper adds: “This results in built assets that deliver poor value, supply chain inefficiencies and unfair payment practices that have a disproportionate impact on small firms in the sector. Transforming the business model will be difficult. It requires construction clients, their advisers and businesses at all levels in the supply chain to adapt.”

The new approach, which packages together a number of ideas previously presented along with existing funding commitments, has been broadly welcomed by the sector. The deal has been developed by the Construction Leadership Council (CLC) and other industry groups, in partnership with the Department for Business, Energy and Industrial Strategy.

Unlike many strategies of the past, this one has funding attached to it, in the form of the aforementioned Industrial Strategy Challenge Fund. Greg Clarke, the business and energy secretary, said at the launch of the deal: “This sector deal is supported by the biggest government investment in construction for at least a decade and will drive economic growth and create well-paid, highly skilled jobs in every part of the UK.”

Modern methods

Embracing digital technology is at the heart of the strategy, which aims to modernise the way construction is carried out. Sir John Egan, whose 1998 report, Rethinking Construction, recommended radical change to modernise the sector, tells Building: “We should always have hope, and there are some exemplar companies in the construction industries who have embraced advanced technologies, among them being Persimmon and Laing O’Rourke.”

But he warns: “The majority of construction companies have poor productivity and quality because of poor leadership and will thus remain poor users of advanced technologies.”

The main targets in the sector deal are taken from the Construction 2025 strategy set out by then business secretary Sir Vince Cable five years ago. They include slashing by half the time it takes to construct buildings, reducing build costs by one-third, and halving both lifetime carbon emissions and the trade gap between construction exports and imports (see “Sector deal targets”, above). Cable dismisses the latest strategy as “essentially a rebranding of the work we did in coalition”. 

Referring to the work done since the present government came to power in 2015, he remarks: “What was baffling was a fairly modest extension of our work took two-and-a-half years to develop. That’s too much time wasted for sectors like construction and infrastructure, which desperately need some stability and certainty against the backdrop of a chaotic Brexit.” 

The strategy sets the right direction of travel, according to John Nolan, chair of the Construction Industry Council. “It’s not the detailed map as to how to get to where we want to go, and in order to generate that a very large number of us are going to be involved in the work to come up with advice and guidance on that.”

Richard Beresford, chief executive of the National Federation of Builders, says that on paper it looks like a good deal, but says: “What remains to be seen is if the government’s confidence in this plan will stand the test of time and whether the industry will robustly remind the government of its commitments, as the industry’s biggest client, to securing the long-term health of the industry and its supply chains.”

The strategy should make a huge difference to the construction sector, says Professor Peter Hansford, the government’s former chief construction adviser. “The sector deal is very different to previous industrial strategy initiatives. This time government has pledged direct support for the industry, provided the industry takes positive steps to help itself. It’s a deal.

“Government support for the sector, matched by industry, will boost the research and innovation desperately needed in construction to accelerate the modernisation of the industry and to achieve productivity improvements. Brexit, in whatever form it takes, will make the need for modernisation of the industry even more compelling.”

Ann Bentley, a CLC member and global director at Rider Levett Bucknall, wants the government to lead by example and use its buying power to help bring about change, not through legislation, but using financial incentives. In other words, companies should not get big government contracts unless they change their ways. “Where the test for government will be is whether it’s actually going to flex its muscles as a client,”  she says. 

Bentley is calling for a new approach to procurement, replacing the traditional way of judging value in terms of cost with a holistic view of value that looks at whole-life costs and function of projects – as outlined in her report, Procuring for Value, released less than two weeks after the sector deal.

The CLC is working on a detailed procurement model “that will easily enable clients to look at a much wider definition of value” and that should be ready to present to government by the end of this year. “One of the flaws of the sector deal is that it simply sets out aspirations and it sets out a list of slightly disjointed projects,” says Bentley, adding that it has a reasonable chance of success, in part because she believes there’s a genuine desire from government to work with the industry.

But changing the way the sector operates will not be easy, she says. “We’ve got to build and maintain a momentum and that will be hugely challenging because I think that industry is taking a bigger burden than government in that the bulk of the work is actually being carried by private sector businesses.”

Bentley believes that the government should bring back the role of chief construction adviser, which it axed in 2015. The position, she said, created a sense that the government was focused on the issue and an accountable link between it and industry. She says: “If we really want to change something it should be a properly funded paid role, but to not have that properly funded point of focus does suggest that you’re sort of playing at it.”

Gail Cartmail, assistant general secretary of union Unite, describes the deal as “heavy on aspiration” but “light on the action needed to make this a reality”. She adds: “Hoping that the private sector will deliver it on its own is wishful thinking by government ministers.”

Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, says: “I hope this will not be another false dawn and that there will be a concerted effort from government and industry to change the industry.” Change doesn’t just happen, but needs to be driven, he argues. He suggests that there should be a body to implement and drive change, with a full-time staff and a “Lord Adonis-type character” leading it.

The Brexit effect

Stephen Beechey, group strategy director, Wates, describes the deal as “a positive signal for change” but is concerned at the pressure it will place on companies within the sector. Most firms are in very weak financial positions, he says. “At the SME level, when you’re facing Brexit and you don’t know if you’re going to be able to have the labour force to deliver the work you’ve committed to, and you don’t know if you’re going to have to pay more money for the materials you’re importing from Europe, to then have this on top of that is quite a challenge.”

Beechey adds that the strategy expects “huge increases in R&D investment, huge increases in training and paying the supply chain more quickly, in an industry that is struggling”.

But the biggest threat to the success of the construction sector deal is Brexit, according to Richard Steer, chairman of consultant Gleeds. “There’s a big gap between hyperbole and reality and I think the government is so fixated on Brexit at the moment that really very little in practical terms is likely to happen. I really don’t think that it will come to fruition,” he says.

Rachel Reeves MP, chair of the business, energy and industrial strategy committee, says: “Brexit is again the elephant in the room. There’s no mention in this deal about how the government will work with industry to help manage the impact on the construction sector of leaving the EU on, for example, our exports or on recruitment in the sector.”

The detail of the deal will be examined by the committee as part of its current inquiry into the government’s Industrial Strategy. “We are looking at what this construction sector will mean for businesses, how the deal has been secured, and what success will look like. We will be calling witnesses from the construction sector in to give oral evidence in the autumn.”

With Brexit fast approaching, it remains to be seen just how the new deal will play out across a large and divided construction sector in desperate need of change. In the face of such uncertainty, one thing seems certain: doing nothing is no longer an option.