Ministers have endorsed the majority of recommendations of a construction industry review which said the sector needs to “modernise or die”.
The damning report by Cast chief executive Mark Farmer said the sector must change its dysfunctional training model and lack of innovation, and there needs to be more alignment between construction companies and the developers that hire them.
Responding to the review’s findings this week, the ministers for housing, education and construction accepted nearly all the policy recommendations, which were first published in October 2016.
Farmer said: “I think there is a growing nervousness about how a poorly-performing construction industry can really hamper economic growth, particularly with Brexit now upon us.
“When you’ve got a political agenda which is highly driven by the importance of housing, I think if we are going to deliver anywhere near the government’s ambitions around new housing there is an absolute recognition now that we have to change the way we deliver.”
Stark challenges
Government has stopped short of proposing any specific fiscal or planning policy that could force the sector to change.
Farmer had recommended the introduction of a charge of up to 0.5% of the value of contracts on clients who refuse to reform by investing in skills and innovation voluntarily. Ministers said the levy “could risk damaging developer confidence and increasing costs, at least in the short term.”
However, Farmer said he would not rule out changes coming forward in future budgets and the National Planning Policy Framework, which is due to be updated later this year.
For now, the sector needs to show how it is prepared to modernise through its demands for a sector deal in response to the government’s industrial strategy green paper.
In a joint statement, the ministers said: “Alongside its recommendations to government, ‘Modernise or Die’ poses a stark challenge to industry to up its game on skills, embrace new and more productive ways of working, ensure the quality of design and workmanship and be more innovative.
“The challenging context of an ageing workforce, alongside the need to deliver a step change in housing quality and output and major infrastructure improvements, highlights the importance of rising to this challenge.”
Poor results
The review was commissioned in response to concerns that productivity and capacity in the construction sector are undermined by its reliance on subcontracted labour and low levels of investment in skills and innovation.
A series of poor results from the major construction industry players, most notably Carillion this month, demonstrates a “systemic failure” in the sector, Farmer said. The failings mean developers could lose out through potential delays and retendered contracts potentially being more expensive.
Farmer said: “It is becoming increasingly difficult for contractors to work in a lumped-sum, fixed-price environment where they are not in control of their resources anymore, and whether that be labour or the cost of materials, with pricing affected by sterling, they are all things which are increasing the risk of being able to sign up to fixed-price contracts and I think what you have seen in the recent string of poor announcements is some of that crystallising on people’s balance sheets.”
Industry fragmentation
He said the subcontracting culture, which began in the 1970s, means many construction companies are now really “management companies”. He said: “They are managing a process, they are not physically delivering – all of that is done by the subcontractors below them.”
While it is too early to say whether the fire at Grenfell Tower in Kensington was a construction failure, the reports of “everyone blaming everyone else” showed the fragmentation in the industry with “no-one owning the problem”. He added: “The reality is that we need to overcome that by creating a more integrated process.”
He cited Laing O’Rourke as a major player which has bucked the subcontracting trend, directly employing its own labour and owning its own plant on the balance sheet, but said it was an exception.
Government intent around the need to change the sector has stayed firm since the report was first commissioned in early 2016, despite the fact there have been three skills ministers, three housing ministers and two education ministers during that period.
“If we leave it five years-plus, and we haven’t got some of the key things changed in the industry, we are headed for a disaster. And that is the time that government would need to think more seriously about intervening,” Farmer said.
Farmer Review recommendations
1. Reform Construction Leadership Council around tripartite government, industry and client covenant in order to drive recommendations.
2. Reform the Construction Industry Training Board to be more efficient, fund innovation and include related sectors.
3. Industry, government and clients to work together to reform industry business models and increase investment and innovation in construction by changing commissioning trends from traditional to pre-manufactured approaches.
4. Industry, government and clients should deliver an innovation programme with residential focus.
5. CITB should align grant funding to a reformed industry.
6. CITB or standalone body should specifically work on improving public image of construction.
7. Government to intervene in further education sector, planning and tax/employment policies to produce right skills.
8. Government to use existing funding streams and policy to promote pre-manufactured construction methods.
9. Government should publish a pipeline of housing developments.
10. Government to impose construction industry client levy set at no more than 0.5% construction value if companies do not reform voluntarily.
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