Productivity: is the construction industry holding us back?

11 September 2017

In previous blogs I have examined obstacles to productivity improvement generally, in manufacturing and in the office. The industry that is now holding back the UK’s productivity improvement most is construction, and this is a problem in most developed nations across the globe. In the UK since 1994 output per hour has improved by 60% in the manufacturing industry, 30% in services, but only 5% in construction. By comparison with other developed economies gross value added (GVA) per labour hour in the UK building industry is about the same as that in France and Italy, slightly better than Germany and worse than the United States.

As well as being a significant part of the UK’s economic output, the construction industry contributes indirectly to national productivity; better buildings and infrastructure contribute to the efficiency of other industries, increase economic output, create safer, healthier work environments and generate happiness and well-being in the workforce. The case for improved productivity in this industry is the same as for all the others – it leads to higher wages, therefore more spent on goods and services, and reduced waste.

Measuring productivity in the construction industry is not straightforward. The Construction Industry Training Board (CITB) has identified 70 different factors that various academic studies have identified and used in preparing industry statistics. To illustrate these difficulties there is a considerable difference in GVA between repair and maintenance activities and new-build; the former being more labour-intensive. The mix of these two activities will vary over a period of time, depending on the state of the economy, the amount of public sector investment and many other factors.

The Chartered Institute of Building (CIOB) sampled the opinions of construction industry leaders, MPs and academic experts on a range of factors affecting productivity. These were:

  • innovation eg. improving both structures and processes used in the industry;
  • investment eg. spending more on labour-saving plant and machinery;
  • organisation eg. improvements to management processes;
  • procurement eg. improving procurement processes in the supply chain;
  • people eg. improvements in training, wages and culture;
  • regulation eg. better regulation to incentivise productivity or reduce burdens;
  • economy eg. making construction less ‘boom and bust’; and
  • industry structure eg. reducing the number of different firms involved in the design and building process.

Industry respondents ranked people and the economy as the two main factors affecting productivity. The least important, in their opinion, were industry structure and investment.

Other commentators have taken a more radical view, pointing out that whilst manufacturers have had to respond to global competition by investing in technology and reducing labour-intensive processes, the construction industry, without such competition, has expanded its workforce but not its output. They also highlight other reasons for low productivity:

  • every project is a one-off;
  • the stifling hierarchy of clients, agents, main contractors, sub-contractors and suppliers;
  • inefficient project management;
  • acceptance of huge rates of wastage of materials; and
  • the lack of skilled labour.

In the CIOB survey the MPs stated that a major step towards greater productivity would be better project management and that improved site management was pivotal.

Other suggestions include more use of components manufactured offsite so that only assembly occurs onsite. Much better process management could be achieved by using modelling software and lean techniques – in fact in several countries including Britain, bidders for public-sector projects are now required to use a type of digitised construction plan. The objective is to reduce design errors that have to be rectified on site.

Looking at the broader picture, one of the industry’s problems is uncertainty over future investment, particularly by the government. This is a disincentive for firms to invest in machinery and technology rather than in the labour-force as the latter is easier to cut back in lean times. To address this issue the government has established its National Infrastructure Pipeline, an assessment of planned spending by both the public and private sector.

It seems that the drive to improve productivity in the construction industry is gathering momentum. If you are involved in the industry and would like further information on this subject, please contact me or your usual UHY adviser.