Improvement in the UK Construction Industry - Case Study Example

The 1990s witnessed severe downfall in UK construction industry. A significant requirement of reviewing and analysing the then construction market practices was felt both by the government and the industry itself. In 1994 a committee chaired by Sir Michael Latham was formed which included government official, builders and other business specialists. The study resulted in publication of a report entitled ‘Constructing the Team’ (1994) which reviewed the procurement and contractual arrangements in the UK construction industry. The report was later reinforced by Sir John Egan’s task force report ‘Rethinking Construction’ (1998). Sir Michael Latham and Sir John Egan, in their reports, highlighted the grey areas in UK construction industry. They proposed following measures to bring improvement in the construction industry: 1. The government, including public sector organisations such as local authorities and health authorities, should become a 'best practice client'. Clients should remain at the centre of the procurement process and work together to bring value in their projects and promote excellence in design. 2. A productivity target of 30 per cent cost reduction by the year 2000 should be launched. 3. Fragmentation and confrontational relationships, being the greatest barriers for improving quality and productivity, should be over come through long term partnerships and collaboration. 4. Although the construction industry is likely to have an output equivalent to approximately 10 per cent of the GDP, the industry’s in-house research and development capital has fallen by 80 per cent since 1981. Investment in research and development is required. 5. There are five key drivers for change: committed leadership, customer focus, integrated processes and teams, quality driven agenda and commitment to people. 6. In order to achieve 10 per cent annual reduction in construction costs and 20 per cent reduction of defects, radical changes are needed to the processes through which the project develops. These processes need to be explicit and transparent to the industry and its clients. Initially the government (being the sponsoring side) and the key player within the construction industry responded well to both the reports. The drive for change originated from procurement and contractual areas in the UK construction industry. Later years witnessed considerable changes in UK construction industry, which impacted the way projects were managed and reviewed. The construction process at all levels experienced the benefits of collaboration, and ultimately the way of working in the construction industry changed. The main responsible agencies within the government i.e. The Department of the Environment, Transport and the Regions and The Office of Government Commerce, along with the key players in construction industry attempted to improve the performance of departments and Contractors. The report ‘Mordenising Construction’ by the Controller and Auditor General (2001) mentions that, government and key players within the construction industry took several steps to implement the key principles highlighted in the reports. These include: 1. The Movement for Innovation and the Housing Forum in order to promote innovation through demonstration projects. 2. Achieving Excellence Programme to improve the performance of departments as clients. 3. Introduction of different forms of contracting by the Office of Government Commerce in an attempt to denounce awarding of contracts on the basis of lowest price bid as it fails to provide value for money in the longer term. 4. Private sector clients established long term partnering with construction firms for the advantage of both parties - client and supplier. 5. Introduction of Gateway process, reviewing the procurement process at critical points (known as gates), aimed at ensuring that the project is justified and the procurement approach achieved value for money. 6. Introduction of Performance Measurement concept by the Department of the Environment, Transport and the Regions in collaboration with the construction industry. The concept aimed at developing the Key Performance Indicators to measure performance during the life of a project. 7. Development of Clients Charter by the Construction Client’s Forum (now the Confederation of Construction Clients) in response to a challenge from the Department of Environment, Transport and the Regions’ Ministers. Clients who sign the charter are bound to implement three to five year programmes for improving their performance, and measuring both their own performance and that of their projects. 8. The Construction Industry Board which represents clients as well as suppliers also developed policies in order to improve construction performance by enhancing the quality and skills of the construction workforce. 9. In 2006 the Assembly Government improved the distribution and delivery of its Social Housing Grant Programme by Housing Associations with an aim to increase efficiency through cooperation and collaboration. (View. 2007) The UK construction industry saw various successful partnering built by departments and agencies. The construction of Dudley Southern Bypass applied project based partnering. Highways Agency used longer term relationships with contractors, and the Ministry of Defence also implemented partnering to improve the management of all contractors involved in their construction supply chain. Longer term relationships and partnering arrangements (Balfour Beatty PLC); more value to customers (Alfred McAlpine and Halcrow); better supply management (Terrapin Ltd), learning from promoting good practice (MANSELL plc) and investing in research and development to identify better ways of reducing the whole life cost (WS Atkins) are few glaring examples of the steps taken in the direction of achieving excellence in construction industry. All these steps did manage to score a number of successes in the construction projects. The benefits were quite visible. The private sector earned savings from two per cent to 30 percent through different forms of partnering. The lower level of savings resulted from project based partnering whereas the upper limit was gained from strategic partnering. The cost of partnering was found to be less than one per cent to project costs. Customers, like British Land, BAA and Slough Estates adopted a collaborative approach (Brown, Andrew. 2007). As a result, a smooth delivery process leading to superior finished buildings was achieved. The use of partnering or framework approach and collaborative working as a standard practice enabled UK construction to deliver remarkable building projects every year. These included motorways, bridges, tunnels, schools, hospitals and landmark commercial developments. (Brown, Andrew. 2007) Andrew Brown in his article ‘Change for the Better’ (2007) makes mention of the National Audit Office report of 2001, Modernising Construction, which reflected that the majority of public sector schemes in 1999 were delayed and overrun the budget. Later on, the follow up report of 2005, revealed improved results due to changes in procurement methods. The public sector was found to have saved nearly £750m in four years out of a potential £2.5bn. The Highways Agency set a good example of collaborative working through their Early Contractor Involvement schemes. Willmott Dixon also contributed through skill improvement in construction industry. It invested over £150,000 in training of its employees in order to enlighten them about the value and benefits of partnering. (Brown,Andrew. 2007) Although the industry has set some very good examples of construction ways, the industry still lags in achieving excellence. Despite the fact that the UK construction industry did make some progress in consequent years, the targets have not been achieved fully. The stakeholders including clients, builders, project managers etc have actually not displayed true commitment to the principles given by Sir Latham and Sir Egan. “In some sectors, such as housing, construction simply does not matter, because there is such limited understanding of how value can be created through the construction process”. There are many other reasons that have led to the situation where not much improvement can be seen in the construction industry. The Egan and Latham reports (i.e. towards collaboration, building the team) could not fully cover the conflicts of interests between Client, Consultant, Contractor & sub contractors. As evident in the recent economic recession, the fragmented approach still exists. The combative work ethic, starting a price war and a blame culture, has impacted on everyone in the supply chain. Everyone seems to be focusing on them rather than on client needs and working with each other. The race is ultimately costing clients more. (Verhoef, Greg. 2010) Moreover, the Legislation arising from the Latham and Egan reports (e.g. 1996 HGCRA) failed to fully impact on poor business practices in the construction industry leading to the necessity for the 2008 draft construction act. Although higher levels of the industry benefited from the reports and subsequent legislation, internal working remained opposed and self-protectionist. The concept of best practice, adopted from other sectors, does not seem to fulfil the actual requirement of construction industry. Construction Best Practice Programme and the Construction Industry Board are strong advocates of ‘Best Practice’. Public-funding agencies demand outputs that meet market needs. ‘As a result an inevitable conservatism is reached which preserves the status quo’. (Green, Stuart.D. n.d) Stuart D.Green, in his paper ‘Towards a Critical Research Agenda in Construction Management’ (n.d), criticises that construction process improvement embraces business process re-engineering (BPR); despite various researches suggesting that the majority of BPR initiatives have failed. The UK's Construction Industry Board (1996) strongly supports BPR. Construction industry also seems too convinced to adopt BPR owing to its success in other sectors. However, Grint (1994) and Micklethwait and Wooldridge (1997) both cite a BPR failure rate of 70%. It can be assumed that industry leaders tend to advocate BPR as it asserts others to be more efficient while the language of BPR supports the 'enterprise culture' . Same is the case with the concept of lean production as it has been taken for granted that it possesses a sound basis as it has led to success in other sectors. The idea conceptualises organisations as profit-making machines where success depends only upon efficiency and the needs of the customer. Lean construction is recommended as an essential component of construction best practice by Rethinking Construction (DETR, 1998), the Construction Best Practice Programme and Building for Growth (Commonwealth of Australia, 1999). These sources tend to ignore the fact that this concept can result in overstressed work force trying to meet demanding targets. Garrahan and Stewart (1992) and Turnbull (1988) provide similar criticisms of Nissan's plant in the UK, which was studied by the Egan Report (DETR, 1998). (Green, Stuart.D. n.d) Stuart D.Green (n.d) goes on with the criticism that partnering has also received widespread appreciation in the UK construction industry (DETR, 1998; Bennett and Jayes, 1998; Construction Industry Board, 1997). Rethinking Construction (DETR, 1998), by the large clients that formed Sir John Egan's Task Force also supports partnering. The legitimacy of BAA can be judged by the fact that its operations are monitored by government to ensure that they do not exploit their position. The big names in construction industry prefer partnering to avoid being labelled as ‘adversarial’ which might deny their access to the market. The commitment of clients not to take advantage of their buying power remains non-controversial despite the fact that BAA has publicly admitted its failure to abide by its promises. (Green, Stuart.D. n.d) Sir Michael in Andrew Brown’s ‘Change for the Better’ (2007) also identifies a few forces that act against the basic theme of the reports. He regards clients’ lack of knowledge and incapability to make the right decision as a factor that contributes to the resistance. “In these sorts of schemes, integrated working has become second nature, but it nearly always comes about at the clients’ insistence,” says Sir Michael. “Progress has not been as good as I hoped, but better than I expected,” he further replies. (Brown, Andrew. 2007) The construction industry faces major challenges ahead. Owing to the economic recession, most of the clients are cutting their long-term investment plans. The key players in the industry are opting to cut down the capital investment. Government, too, is under pressure to reduce public spending. The firms are taking on work at less than cost which is not sustainable behaviour and is bound to affect the construction activities severely. The practice, if not curbed, might lead to the same downfall as was seen in the recession of the 1990s. Benjamin Franklin once said, ‘when you are finished changing, you are finished’ In order to succeed as a collaborative model, it is important that every one operate as a fully integrated team. To maintain change and fulfil its potential, education holds the key to the industry’s future. “Clients need educating and it is up to the industry to work with them – that way everyone can benefit,” says Sir Michael. (Brown, Andrew. 2007) There are certain prerequisites that must be met in order to obtain success in partnering. The conflict resolution strategy needs to be formulated and communicated. The participants should also be willing to share resources. The parties should be committed to the win-win attitude. Moreover, there should be regular monitoring of partnering process. The Government, as a policy maker, must create an environment that supports innovation and accepts the requirement to change. There is also a need for a robust skill enhancement and education system that grooms the industry professionals in a way that they can comprehend the importance of integration and appreciate the value that integration promises to deliver. There is also a need to develop industry bodies, professional associations and regulating bodies that are able to represent the UK construction industry effectively to Government and the public. Most importantly, the construction industry needs leaders who can drive the public and key stakeholders towards the much needed ‘change’ in the existing system. The must be able to create ‘new value’ in the industry that can attract more talented and innovative people from a wider pool. Their dynamic leadership skills must be able to influence the employees to deliver the necessary changes and produce quality work. The leaders must work with prospective approach and should be able to develop more influential and dynamic leaders for the industry. Suppliers, clients and Government must also adopt a new vision for the industry based on the notion of the built environment. They should look beyond the building cost and should be able to create value over the whole life cycle of a project. There is a growing need to abandon the short-term thinking. A new system should be introduced that rewards suppliers to deliver quality and sustainability. The time has come to do away with the client-led changes and bring economic, social and environmental value in UK construction industry through innovation, collaboration and integrated working. Government and construction industry leaders ought to carryout critical analysis before actually buying the ideas from other sectors. The manufacturing industries’ practices must be adapted in order to commensurate the requirement of construction industry. Research must be 'relevant to the needs of industry' rather than supporting the market. The critical research, if implemented, would not only benefit construction industry but will also help create a climate that is open to innovation and change. Thorough analysis of the working of UK construction industry strongly suggests that it is the time to transform our words into action. The principles of both the reports should be implemented with true spirit while critically examining the requirement of the industry. Sir Winston Chirchill (1874-1965) quite aptly summarised the whole idea in few words, ‘We shape our buildings; thereafter they shape us’. = References Brown, Andrew. (2007). Change for the better. View. [online]. Spring/Summer 2007. Issue 01 p.5. Available from: http:// www.cewales.org.uk/cew/wp-content/uploads/cew_view_1.pdf [Accessed 06/07/2010] Green, Stuart.D. (n.d). Towards a Critical Research Agenda in Construction Management. Available from: http://www.personal.reading.ac.uk/~kcsgrest/critical-research-agenda.htm [Accessed 05/07/2010] The Controller and Auditor General. (2001). Mordenising Construction. London. (HC-87) Verhoef, Greg. (2010). Fighting among ourselves. Builduing.co.uk [Online]. Available from: http://www.building.co.uk [Accessed 06/07/2010] View. (2007). Housing consortia to take a fresh approach. [online] Spring/Summer 2007. Issue 01 p.5. Available from: http:// www.cewales.org.uk/cew/wp-content/uploads/cew_view_1.pdf [Accessed 06/07/2010] Read More