Why does poor performance in the construction industry matter?
The fluctuations have a major impact on employment in the industry which adversely affects national unemployment figures and skills in the industry.
Question
The results of a major survey of the construction industry in the United Kingdom conducted by Glenigan with support from the Construction Industry Training Board (CITB) revealed that only 64% of projects were delivered within budget in 2015 and 41% projects were delivered on time. These statistics indicate that the industry needs to improve productivity and efficiency (Construction Index 2016). Why does this poor performance matter?
Answer
The construction industry in the United Kingdom (UK) plays a vital role in society contributing an estimated £103 billion in economic output and providing over 2.1 million jobs which equates to 6.2% of the working population (Rhodes 2015). In addition, more than 25% of construction output is from the public sector, with HM Government being the biggest single construction client, which means that an inefficient construction sector does not add value for the British taxpayer. These statistics also matter because these problems are persistent in the construction industry as evidenced by successive reports over the past three decades, including for example the Latham Report (1994), the Egan Report (1998) and more recently Construction 2025 (HM Government 2013). The concern is that this persistent poor performance could affect the industry’s slice of global construction work, which is forecast to increase year-on-year over the coming decade (HM Government 2013).
Poor performance also matters for profitability of organisations within the UK construction sector, particularly as profit margins are typically low at an average of 2.5%. The profitability of the industry is also susceptible to fluctuations in the national and global economy, as demonstrated by the impact of the 2008-2009 recession where as shown in Figure 1, productivity dropped significantly due to the recession and the industry was also slow to recover compared to wider economic performance (Rhodes 2015).
Figure 1 Economic Output (Gross Value Added) Construction Industry 2007-2015 (Rhodes 2015, p. 6)
In short these fluctuations have a major impact on employment in the industry which adversely affects national unemployment figures and skills in the industry. The result is that the industry is now facing a severe skills shortage which will ultimately affect future performance (NBS 2014).
References
Construction Index, 2016. “Contractors still failing to meet budgets and programmes”. [online]. Available at < http://www.theconstructionindex.co.uk/news/view/contractors-still-failing-to-meet-budget-and-programme > [accessed 12th October 2016].
Egan, J., 1998. The Egan Report-Rethinking Construction. report of the construction industry task force to the deputy prime minister. London: HMSO.
HM Government, 2013. Construction 2025. London: HM Government.
Infrastructure and Projects Authority (IPA), 2016. Government Construction Strategy 2016-20 March 2016. London: IPA.
Latham, M., 1994. Constructing the team: final report of the government/industry review of procurement and contractual arrangements in the UK construction industry. London: HMSO.
NBS, 2014. UK productivity – how the construction industry can help. [online]. Available at < https://www.thenbs.com/knowledge/uk-productivity-how-the-construction-industry-can-help > [accessed 11th October 2016].
Rhodes, C., 2015. Briefing Paper Number 01432, 6 October 2015. Construction industry: statistics and policy. London: House of Commons Library.