The UKs Construction Industry - Essay Example

? Engineering and Construction Essay Summary of UK’s Construction Industry The construction industry in the United Kingdom has depicted steady growth over the past decade, with the commercial house construction industry and infrastructure or civil engineering sectors occupying the front position of the development trend. This lucrative industry in the UK was valued at GBP122.3 billion in the year 2011 (DKM Economic Consultants, 2009, P.10). The industry also recorded a 0.96% CAGR during this evaluation period (DKM Economic Consultants, 2009, P.12). House construction was ranked as the largest market in the industry valued at 36.5% of the entire industry value, this sector also had a 0.12% CAGR over this duration. Overall, construction advanced by 8% in the year 2010 and in the subsequent year by 2.8% (DKM Economic Consultants, 2009, P.15). Nevertheless, by the later part of the year 2011, the entire construction industry’s growth had started to become slow with a relative downturn in the year 2010. For instance, new construction orders in the year 2012 were below the preceding quarter’s level, by 8.5% (DKM Economic Consultants, 2009, P.17). At this time, the house construction sector, both public and private suffered a major blow, and only infrastructure construction showed slight signs of development, as the government made the attempt to keep the civil works running, through collaboration with private investors. This implies that, by the year 2012, the house construction segment had been surpassed by civil engineering in terms of performance and industry leadership. The United Kingdom’s construction industry is a major economic pillar, since it contributes about a tenth of Britain’s (GDP), provides work to approximately 1.4 million individuals and accrues revenue of about ?65 billion per year. This industry is also ranked among the world’s top ten industries, further emphasizing its significance and the wide array of opportunities it has for new engineering companies. Construction Market Sectors The United Kingdom building and engineering industry comprises of large and dominant companies, which operate along with smaller establishments. Competitive rivalry in the industry is slightly eased when companies diversify their operations into different sectors. Key among these sectors, are the house construction and civil engineering sectors, which are analyzed hereunder, for the purpose of advising a potential construction contractor (Greenhalgh and Squires, 2011, P.35). Civil Engineering Sector Civil Engineering, which encompasses public works like railway, highway and other infrastructure constructions, is UK’s building and construction industry’s largest segment. This sector accounts for approximately 52.9% of the overall value of the industry (Data Monitor. 2012, P.7). In 2012, the output from infrastructure construction amounted to ?14,181 million, whereas infrastructure maintenance stood at ?7,775m (Data Monitor. 2012, P.10). Division of the civil engineering sector into its sub-sectors indicates that, railways, roads, as well as, water and sewerage subdivisions represent the greatest infrastructure construction components, at 25%, 24% and 22% in that order (Data Monitor. 2012, P.16). In the duration running from 2007 to 2011, all the new civil engineering sub-sectors depicted relatively steady annual growth. For instance, the water and sewerage sub-sector depicted a 10% growth, the roads sub-division a growth of 9%, while the railway construction sub-sector was at 24% (Data Monitor. 2012, P.18). One of the principal leaders in this sector is Balfour Beatty. This renowned civil engineering company deals with construction, business investment and overall engineering services. Balfour Beatty offers its specialized services in complex structure, road, utility systems and rail construction, not only to the United Kingdom, but to the entire globe as well. The company’s operations cover the entire European region, the Americas, as well as, the Asia Pacific area. This company works via four principal business sectors, which include building administration and services; civil and expert engineering services; rail network engineering operations; and business investments (Cooke and Williams, 2008, P.68). House Construction Sector This sector of the construction industry represents about 47.1% of the total industry value, which is the remnant portion from that occupied by civil engineering (Egan, 2002, P.45). House construction is highly unpredictable, as is evident from the ever fluctuating growth rates. For instance, while this sector was projected to grow by 3% in the year 2012, the industry instead slumped by 2.6% (Egan, 2002, P.47). Additionally, the projected new orders on housing fell by an estimated 2.2%. Owing to reduced capital funding of house construction from the government, researchers project that this reduction in growth is likely to persist, declining an additional 10% this year (Egan, 2002, P.49). To make matters worse, these analysts indicate that even after recovering, the house construction industry is still expected to depict lower growth than that experienced in the year 2010. One of the chief industry leaders in the house construction sector of the construction industry is known as Kier Group or simply Kier. This company is a leader in provision of private, as well as, public house buildings. The company diversifies its operations by getting involved in the Private Finance Initiative (PFI) and property development. This company principally conducts its operations in the United Kingdom. Just like Balfour Beatty, in civil engineering, this company executes its duties through four divisions including: support services, construction services, property and partnership homes development. The new engineering contractor, can therefore, borrow operations strategies from these two organizations, in order to gain competitive advantage in the construction market. Procurement Strategies in the Sectors Buyers in the construction industry are usually large but few. Normally the principal buyers comprise of government organizations or key private-sector clients, in most cases companies and not individuals. Additionally, in the construction industry, clients usually call upon players in the market to bid for contracts that are created based on their (clients’) terms and conditions (Uff, 2009, 21). This gives the implication that, the buyers or clients stand in a position of power, in comparison to the contractor, since they are responsible for defining project parameters. In the procurement process, it is also imperative to note that, there are two major types of suppliers to the construction industry. The first type is the material and component distributor, while the second is the sub-contractor responsible for providing specialized services required for project completion. All the same, procurement strategies are as described below: Procurement Strategy for House Construction This industry primarily utilizes the design-build procurement strategy. In this procurement approach, the contractor is responsible for designing and constructing. The method is appropriate for: all customers, including the inexperienced ones who are far from the project’s site (Brook, 2008, P. 58). The approach is also beneficial in regard to cost certainty and faster paced projects. A detailed procurement strategy is described in detail hereunder. (Streamlined procurement process) House shell supply chain Utilization of varying technology in the design as well as execution phase Limiting the supplier base to one or a few Procurement centralization Establishing trust with manufacturers Highly-valued furnish supply chain Reducing direct costs by using new technologies Reducing complexity through utilization of a single product rather than multiple ones Lowly-valued furnish supply chain Establishing one centralized supplier Integrating information acquired from the market, in order to fulfill clients’ wishes satisfactorily. Establishing trust between trading stakeholders. Doyle Wilson Making all construction processes standard Eliminating builder/ sales bonuses Procurement Strategy for Civil Engineering Traditionally the procurement technique that is used in civil engineering contracts in Britain is “design-bid-build”. However there are doubts as to whether this method is the best for procurement technique for huge, as well as, composite construction projects (Walker and Wilkie, 2002, PP. 30-45). This is where multifaceted trade-offs are supposed to take place between physical design process and the modes utilized in construction. Nevertheless, this is the most utilized method of procurement because it is suitable for: Each and every client, including the one that is inexperienced in the business Composite projects as well as projects that have their functionality being a prime objective Can be used in for projects with time schedules and short period Cost certainty projects Nevertheless, this procurement method is not most suitable for fast track projects because there is uncertainty in developing client brief. The customer is supposed to develop a business case for the venture, the give a brief s well as budget and also appoint a squad of consultants that will prepare the design, and tender documentations. The customer also has the responsibility of appointing the building contractor. The contractor is responsible for constructing the works with the provided schedule and price that is agreed upon. In many cases most of the work is usually sub contracted to professional organizations (Murdoch and Hughes, 2007, PP. 102-107). However the contractor is held liable for the construction and management of labour, price and also maintaining the schedule. The consultants are responsible for administering the agreed contract for the customer and also advise on the factors that are coupled with the design, work progress and the payments level or period which is supposed to must be paid by the customer. However, separating the contractor from the design may means that there will be no input or professional advice offered. Risks and Opportunities in each Sector Britain’s civil engineering industry opportunities The UK is gradually increasing its operations in the third main home markets with Japan and the US being the other two players in the sector. In comparison to UK the US market is exceedingly fragmented and this can present good opportunities for the UK civil engineering organizations. Developing countries are in need of major infrastructure in order to sustain gloaball standards in the economic development. This is because they have less developed home industries as well as luck of funds to finance their projects. This is an opportunity for the UK civil engineering industry. If they have the capability of financing these markets, then this is a huge opportunity for them. In the future it is forecasted that private financed infrastructure developments will have the largest opportunities. There is dynamics in the transportation policies which means that civil engineering organizations will have to be more innovative to be able to acquire work. The planning policy has changed because there is a lot of promotion for the urban regeneration in comparison to the rural development. Land reclamation is required as well as reconditioning so as to attract potential back to the cities. Risks for the UK Civil Engineering Industry There are diverse risks that are being experienced by the UK civil Engineering industry. Some of these risks are discussed hereunder. There is an existing intense competition and overcapacity of civil engineering firms in the in the market Britain’s civil engineering market fragmentation is high in comparison to other large scale engineering projects especially in aerospace and shipbuilding. Therefore, there are low margins presented by competition between which is placed between players. This overcapacity depicted in the civil engineering market can be sustained by banks and shareholders who are unwilling, inconsistencies and time and again underperformed over a period of time. Britain’s civil engineering customers have traditionally relied on buying on the basis of lowest price. Therefore, with the current overcapacity in the market, many organizations in the market have been pressurized into lowering their prices. The mode of separating design and construction by customers gives partial opportunities for contractors. This means that there is no chance for having innovations in the product as well as in the process. Opportunities in the house construction industry There are prospects in the house constriction. However, the overall prospects for the maintenance, improvement and repair in the market is weak. This reflects difficulty in trading conditions for numerous organizations. Nevertheless, there is a likelihood of having small scale businesses in the home improvement as well as retro-fit market (Potts, 2008, P. 89). Risks in the house construction industry There are certain organizations that enjoy near monopoly conditions, while other companies have a meticulous advantage on certain contracts because of the ability to withstand price pressures and this would be a big risk for a new company venturing into the industry. Soma suppliers in the industry can seek integration of fix and supply services. This would take work away from contractors and sub-contractors. Raising performance on suppliers via partnering can backfire on contractors. Adoption of Best Strategy and Success Traditionally design-bid-build strategy was the best strategy because of its low-risk option for customers that wish to minimize exposure of the risks in overspending, failure in design failure and breach of schedule (Tang, 2003, PP. 56-69). Nevertheless, there will be more exposure to risk when the design stage is rushed. This strategy also saves the contractor a lot of time, since the complete design is not required at the project’s onset. In addition, it leaves room for implementation of necessary changes as the project progresses, thus increasing chances of success. Adopting this strategy would, therefore, enable an engineering firm to gradually build its performance capacity hence broadening its customer base. Barriers of entry Britain has numerous companies that deal with civil engineering and house construction. This is a major barrier for a new industry in both sectors. Another barrier which is predominant in the two industries is customer loyalty. This is because people may refuse to venture into contracts with a new company that they don’t have experience working with (Greenhalgh and Squires, 2011, P. 48). Recommended Sector and Conclusion When using design-build strategy, when being used house building sector, the tendering process is expensive thus caries more risk for the contractor. This is attributable to the fact that the contractor is supposed to develop an outline design and also make a budget detailing the price. Further, the house construction industry has limited opportunities in comparison to that of civil engineering, which features diverse opportunities like railway, road, bridges, dams and other infrastructural construction (Lazarus and Clifton, 2001, P.71). For this reason, it would be advisable for the relatively new engineering company to place tenders for civil engineering works. This would serve to distribute the risk and increase chances of acquiring a contract. Based on the analysis of the two sectors, it is evident that the civil engineering or infrastructure development sector is currently depicting better growth, and projects equally stable growth, in comparison to the house construction sector. Therefore, investing in civil engineering would produce greater profits. Additionally, getting several varying contracts would enable the company to develop its portfolio, gradually bolstering its credibility in the construction industry, thus paving way for lucrative ventures in the future. Bibliography Murdoch, J. and Hughes, W. 2007. Construction Contract: Law and Management. 4th ed. Abingdon: Taylor & Francis. Potts K. 2008. Construction Cost Management. Abingdon: Taylor & Francis. Cooke, B. and Williams P. 2008. Project Planning Programming and Control. Oxford, London: Blackwell Publishers. Keating, D. 2005. Keating on Building Contracts. 100 Avenue, London: Sweet and Maxwell. Uff, J. 2009. Construction Law. 9th Edition. 100 Avenue, London: Sweet and Maxwell. Akintola, B. and Hardcastle, A. 2003. Public Private Partnerships: managing risks and opportunities. Oxford, London: Blackwell Publishers. Brook, M. 2008. Estimating and Tendering for Construction Work. Oxford, London: Elsevier Butterworth Heinemann Fewings, P. 2005. Construction Project Management: An Integrated Approach. Abingdon: Taylor & Francis. Tang S. 2003. Modern Construction Project Management. Pok Fu Lam Rd, Hong Kong: Hong Kong University Press. Walker, I. and Wilkie, R. 2002. Commercial Management in Construction. Oxford, London: Blackwell Publishers. Data Monitor. 2012. Construction & Engineering in the United Kingdom. [Online] Available at [Accessed 23 April 2013] DKM Economic Consultants. 2009. Annual Construction Industry Review 2009 and Outlook 2010–2012. [Online] Available at [Accessed 23 April 2013] Greenhalgh, B and Squires, G. 2011. Introduction to Building Procurement. Abingdon: Taylor and Francis Lazarus and Clifton. 2001. Managing Project Change: A best practice guide. CIRIA/DTI. Egan, J. 2002. Accelerating Construction. Strategic Forum for Construction. London: HMSO. Read More