In the fourth of five monthly articles, Building, in association with ConstructionSkills, investigates why construction operates so inefficiently – and asks what can be done to improve performance.

A construction project is a disaster waiting to happen. At least, that’s the impression given by three high profile projects that have gone horribly wrong in the past year – Bath Spa, the Clissold leisure centre and of course the Scottish parliament. These landmark buildings have been blighted by spiralling costs, delays and defects. The image that emerges is of an industry full of designers and contractors at each other’s throats, clients making unreasonable demands, substandard materials, incompetent workmanship and inefficient management. When projects go this spectacularly wrong it’s no surprise they end up in the headlines.

What is a surprise is that more fuss is not made about the number of mediocre projects. Disasters don’t strike that often but underperformance is a daily event. On the face of it, construction is doing well. It contributes about 6% of GDP and according to the latest predictions construction output is expected to increase 3-3.5% in 2004. But the frenetic activity masks the fact that much of the industry operates inefficiently.

In June this year Constructing Excellence released the latest set of key performance indicator results. This showed that demonstration companies – which operate according to Egan principles – outperform the rest of the industry in four crucial areas: they are twice as safe, score twice more on employee satisfaction, are 65% more productive, and have a 40% better environmental performance.

So why is most of construction failing to perform? For decades companies have not invested in innovation, and as a result skills, techniques, materials and business models are way out of date. If you’re making a profit, why change? Firms see innovation as an expense. The extent of the problem is shown by the amount of money the industry spends of research and development: less than 0.4% of sales, whereas the pharmaceutical, IT software, IT hardware and electronics industries spend 13%, 10%, 9% and 5% respectively. In these other industries costs can be spread over global markets, but construction firms in the main operate at a national level and investment in innovation cannot be so easily absorbed. This explains why most buildings are built using traditional brick, steel frame or concrete and why modern methods of construction, such as off-site manufacturing, are not widely used.

But to improve performance, it is not enough for individual firms to modernise their building techniques – the whole industry has to change the way it operates. There is much talk of cutting out waste by integrating the supply chain but in reality it is still far too fragmented. For each new project, a company usually has to secure a new contract and establish a new supply chain – knowledge rarely gets passed on and business relationships finish with the job. Subcontractors at the bottom of the chain are not guaranteed a flow of work and so have no incentive to invest. And at the top of the stream, clients too often opt for lowest price rather than best value – further undermining efforts to improve productivity.

If the structure of the industry is the barrier to productivity, it is the structure that has to change. ConstructionSkills is developing a scheme called the Supply Chain Readiness Network, which will look at ways of improving relationships between companies, clients, subcontractors and business services. “Our research shows that supply chain management is inconsistent. Supply chains can be short-lived, tend to become closed shops, they often do not lead to long-term agreements to work together, and their focus is not to upskill the workforce,” says Frazer Clement, ConstructionSkills’ director of business services. The network is at an early stage, with a number of pilot supply chains being planned for next year. “From these supply chains we hope to devise guidelines to identify training needs. So if a number of firms set up a supply chain initiative we’ll be able to provide them with relevant processes.” ConstructionSkills believes by working with supply chains a training and development culture will take hold, which will drive up profits and productivity for the whole industry.

Calls for change are now coming from the supply chain itself. Those at the top, the clients, are beginning to demand that construction is carried out more efficiently. Central government, construction’s biggest client, accounting for 40% of its work, wants the industry to deliver the houses, schools and hospitals it promised the electorate. Just last month deputy prime minister John Prescott attacked housebuilders for failing to invest in improving capacity. Clearly Prescott does not want to fall short of his target of 10,000 new homes a year, and so has put his faith in off-site manufacturing. “The industry needs to realise that it can cut times in delivering projects and increase profit,” he said. The benefits of off-site manufacturing are clear – it lowers costs and increases quality by removing much of the risk associated with construction.

New technology, though, means new skills. Off-site manufacturing, for example, will mean workers will have to be multiskilled, becoming proficient in production control, assembly and quality control. Managers, too, will have to adapt. According to research by ConstructionSkills and MRM Solutions, managers in construction do not have the skills they need for the future, such as business development, design management or risk appraisal. If companies are to be productive in the future they will have to invest in training so that they have competent staff.

That’s why ConstructionSkills is encouraging businesses to commit to training their workers and managers through initiatives such as Investors in People (see story opposite) and management courses (see below and overleaf). According to Frazer Clement, the key is to develop a training plan: “Companies need to identify their weaknesses and the skills they need. This year our target was for 1500 businesses to develop a training plan and we are on target to exceed that. On top of that more than 750 firms are working towards or have achieved their Investors In People standard.”

It seems that construction is finally waking up to the need to change the way it operates. But this is not just a task for individual firms – it is going to require a cultural change across the whole industry. Ultimately it is a question of adapt or die.

The training adviser

One of the main things Mike has noticed in his work with small firms is that they are highly skilled in construction processes but tend not to have a well-thought-out business strategy. It's Mike's job to persuade firms of the importance of having a business plan and to encourage them to think more about people management. Mike says: "The percentage of businesses I deal with that have a formal written business plan is very small. Most managers of companies have a plan in their head, they know what they want to achieve, but they don't communicate that to their staff."

Part of the problem is that the people managing firms were trained in construction skills not business skills: "Until about 10 years ago if you went on an HND course you weren't taught about customer liaison, managing staff or working with subcontractors."

Initially people can be sceptical about the effectiveness of business management courses. "People are concerned that it might not be relevant to their business. This perception is still a barrier to getting more firms to sign up to courses. The assumption is that ConstructionSkills is focused on big companies. I try to convince them that these courses can work for them."

An increasing number of companies are realising they need help, according to Mike. Blueprint for Building Performance is one programme he recommends. "Blueprint is a series of workshops and one-to-one support that covers a range of issues from supply chain management and meeting quality standards to developing a training programme or a business plan. It also enables firms to work towards achieving Investors in People status," he says.

Companies may get different things out of the course but for all of them it is an opportunity to really think carefully about the direction of the business: "It's a chance to get away from the coal face and take a step back. They realise that a structured approach can lead to real improvements."

The best part of the job for Mike is feeling that he has made a difference to a business' performance: "It's really good when someone just says thank you, that was really helpful'. That's the bottom line for me."

Information point

Blueprint for Building Performance is a programme designed to help construction companies make changes in direction, culture and performance by developing their staff. It involves a series of one-day workshops and one-to-one support. The workshops cover seven key areas: implementing change, measuring performance, business planning, communications, appraisals and reviews, developing people and management effectiveness.

To find out more, contact the National Construction College on 08457-336666 or email: