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Diversity and Structure of the Construction Industry

1.1 Introduction:

This chapter illustrates how unique, huge, diverse and enormously complex is the construction industry. This industry generally constitutes of enterprises and professionals whose primary objective is to build communities, roads, schools, homes, business, hospitals and including its maintenance. The construction process consists of many activities, right from the onset of the project design and right through its implementation, maintenance, refurbishment, and goes up to the eventual disposal of its buildings or in other words, the whole life cycle of the project. This industry therefore require a wide range of suppliers, contractors and including manufacturers of materials and components to carry out its activities. The industry had changed a lot in its complexity over time, but the objective of the industry remains basically the same as it was 100 years ago.

However, the construction industry has a unique structure; with very few large establishments that dominate the infrastructure by carrying out works, that produces the majority of the turnover of this industry on a whole. Sears et al. 2008, p.2 state that contractors who vary widely in size and speciality accomplish the construction works. Some contractors choose to concentrate on a particular task or aspect of the construction project and are therefore referred to as specialty contractors. Others assume broader responsibility for a comprehensive work package and are referred to as main contractor.

Due to the diversity present in the industry, the industry is fragmented which is a reality, the reason might be due to the adversarial short-term relationships which causes dissatisfaction within the industry and is therefore a project – focused relationship. Moreover, lack of effective communication and implementation may also contribute to the fragmentation of the industry as it leads to significant negative impacts, low productivity, cost and time overruns and finally end up in conflicts and disputes.

The industry also now faces new levels of complexity as it moves forward trying to keep pace with the increasing energy, material and labour costs which are to a great extend mitigated by the other industries by adopting the new technologies especially communication and information technology and also advanced management strategies.

1.2 Overview:

The industry is considered to be one of the major economic sectors, which contributes a lot to the gross domestic product of the nation in respect to other industries. Cooke, and Williams, 2009, on p.3 states that the annual output of the UK construction industry is approximately £114 billion, which represents almost 9% of gross domestic product. This industry also underpins the remaining sectors of the economy by providing the essential infrastructure and facilities on which all sectors of the economy depend. According to Potts, 2008, on p.3, this construction sector with 11.8 million operatives directly employed makes it Europe’s largest industrial employer accounting for 7% of total employment and 28% of industrial employment in the EU.

There was also a report of the government policies, which was published by BIS (Department for Business Innovation and Skills – business group sector document), stating that ‘the UK construction industry consists of over 250,000 firms employing 2.1 million people in a multitude of roles. The sector is defined as one which embraces the construction materials and products; suppliers and producers; building services manufacturers, providers and installers; contractors, sub-contractors, professionals, advisors and construction clients and those organisations that are relevant to the design, build, operation and refurbishment of buildings’.

However, construction industry is very different from other manufacturing industries and therefore difficult to achieve similar performance, mainly due to its degree of uniqueness in its use, in the size, its location and complexity due to the varied non-uniform working conditions from one project to another. Therefore, it appears to be underperforming when compared to many other industries. Jones, & Saad, 2003, on p.12 state that, the diversity of the construction and the variability in the production process has to be reorganised with each new construction project. For each project, a series of decisions has to be taken which take into account the client’s specific requirements and the context in which the tasks are to be executed. This can make project outcomes difficult to predict and can result in short and often adversarial relationships.

Cox, & Townsend, 1998, on p.21 states that the productivity, value for money, and overall client satisfaction in the construction industry are fairly low compared to other industrial sectors. The factors being: low and discontinuous demand; frequent changes in specification; inappropriate (contractor and client) selection criteria; inappropriate allocation of risk; poor quality; inefficient methods of construction; poor management; inadequate investment; an adversarial culture; and a fragmented industry structure. In order to improve the performance of this industry, government had taken initiatives and had produced many reports but had not made any impact.

1.3 Reports and recommendations:

The publication of major notable reports namely Latham’s Report ‘Constructing the Team (1994)’ and two Egan Reports ‘Rethinking Construction (1998)’ and ‘Accelerating Change (2002)’ produced a considerable impact in UK’s construction industry and started changing its working culture.

Constructing the Team by Sir Michael Latham was published in July 1994, the key issues as summarised by Holroyd, 2003, on p.39 are as follows:

Clients have a role in promoting good design which provides value for money

Clients should select the most appropriate procurement route on the basis of the type of project

Effective design is crucial

A modern contract should include:

A specific duty for all parties to deal with each other

Firm duties of teamwork so all can share in success

A clear definition of the roles and responsibilities of all parties

Easily understood language with guidance notes

A choice of risk allocation

Avoid variations if it is required, price it in advance

Ensure fair, prompt and secure payment to all parties

Avoid conflict on site and disputes if any to be resolved speedily

When selecting suppliers or tenderers, consideration should be given to:

Quality as well as price

A lead manager

Sensible tender lists

No burdensome qualification procedures

Value for money

Cost in use

Factors which determine performance include:

Adequacy of safety consideration

Ability of operatives

Improved training

Relevant professional education

Adequate R&D, which is properly funded

Teamwork on site depends on fair treatment for all parties

The liability for defects post-completion should be properly addressed

Rethinking Construction by Sir John Egan delivered the report in July 1998 for the success of the construction industry. He opined that while UK construction at its best is excellent, substantial improvements can be made, and it is vital that they are made. The key issues of this report as summarised by Holroyd, 2003, on p.40 are as follows:

The UK construction industry needs to improve there should be:

  • Less fragmentation
  • Increased profitability
  • More capital investment
  • More investment in R&D
  • More and better training
  • Differentiation between price and cost

Set targets for improvement and give commitment to the needs of the customer, to quality, and to people the team and the process should be integrated around the product, and management should be committed to improvement throughout the organisation

The construction process should be improved by:

  • More process repetition on projects
  • Integrating all team members to use their skills to deliver value to the client
  • Focus on the end product how best to achieve the desired result
  • Continuous product improvement
  • Implement projects correctly, suiting the site and the customer
  • Partnering through the supply chain
  • Once improvement starts, maintain it

Improvement could be accomplished by developing a better culture in the industry:

  • Providing decent working conditions
  • More and better training
  • Produce designs which considers the projects end use
  • Standardise components where possible
  • Improve regulatory controls
  • Implement long term relationships

The National audit office report (2001)’ Modernising Construction’ as stated by Cooke, & Williams, 2009, on p.11 that a major contributory factor to the poor performance of this industry was the adversarial relationships that existed between the construction firms, consultants and clients and between contractors, subcontractors and suppliers. The report also identified that government departments and agencies to ensure collaboration, integration and value for monies in the procurement of construction services.

Further, it also suggested that the entire supply chain be integrated and that risk and value must be managed in order to reduce accidents, drive out waste and improve buildability. McGeorge and Palmer 2002 on p.54 cite CIRIA’s definition of buildability as ‘the extent to which the design of the building facilitates ease of construction, subject to the overall requirements for the completed building’.

These reports produced during the various periods had contributed a lot to the growth of the construction industry. Since these reports were published, a changed performance could be clearly noticed in the activities of this industry. The findings of the report had tried to build up a challenge in the construction industry to procure projects that could achieve best value and also help in understanding the balance between quality and whole-life cost of the project.

Many more studies on the performance of the construction industry were also conducted subsequently, which had identified the areas of strength and weakness of the construction industry. According to Jones, & Saad, 2003, on p.2, the strength of the industry includes its flexibility and adaptability and its persistent weakness include its fragmented structure and project processes and its adversarial relationships. Furthermore, deficiencies in its performance in relation to customer focus, learning and leadership were revealed when benchmarked against other industries.

1.4 Material use:

The construction industry is considered one of the major consumers of natural resources mainly the virgin materials from its surrounding environment. This will give rise to many environmental issues, which are unsustainable such as depleting natural resources, diminishing the earth’s biodiversity, and even cause extinction of habitat if we continue the present rate of consumption. As stated by Kelley et al. on p.298 that materials used in buildings account for some 40% of natural resource use, 30% of CO2 emissions and 40% of waste. However, the environmental issues would certainly create a vital impact on the society and hence this industry should take earnest attempt to develop a strategy to provide low carbon solutions by way of minimising its carbon footprint. In addition, the project’s Corporate Social Responsibility (CSR) that voluntarily decides to contribute to a better society and a cleaner environment and along with its procurement policy, could contribute to the environmental success.

Built environment:

The paper presented by Natural Building Technologies, have quoted ‘One Planet Living material’ of BioRegional and the World Wide Fund for Nature; have shown that if everyone in the world-consumed resources at the same rate that of UK, it would take the equivalent of three planets now to sustain this consumption. Hence, UK and the other western nations urgently need to take radical measures in order to reduce this present rate of consumption of resources. As we are aware that this planet has only a finite quantity of resources and therefore we in the construction industry should have a moral responsibility to ensure that industry is resourced using sustainable techniques. More over the construction industry should also insist on an environmental management system (EMS) accreditation for every project, which could help in continually, improving its environmental performance. An internal EMS audit if periodically conducted would help in checking the effectiveness and delivery capability of the management system.

The strategy paper of the UK Government, ‘Building a Better Quality of Life: A Strategy for more Sustainable Construction’ by the Department of Environment, Transport and the Regions (2000 b) as summarised by Kelly et al. 2002 on p.296 recognises the importance of sustainable construction and had challenged the construction industry to provide built assets which:

  • Cause minimum damage to natural and social environments
  • Minimise the use of resources
  • Enhance the quality of life
  • Will be acceptable to future generations

1.6 Needs:

The working pattern of the society is changing quite fast and construction industry is known for adapting to change at a faster pace than other industries. Nowadays many people tend to work from home since jobs functions can be remotely performed and is quite feasible. The benefit from working at home helps in the reduction of transport movements, thereby considerably reducing pollution and traffic congestion especially during the peak hours. It is an eco-friendly option and is to be encouraged. Hence, this working culture would require housing to provide a higher quality of life and greater flexibility of adaptable living and space requirements. Therefore, in majority of existing homes, a need for up gradation would be necessary and a lot more of new homes constructed to accommodate this new culture in the coming years; for which a huge quantity of materials are required by the industry. This results in a heavy material flow. In addition, while designing a sustainable project, selection of materials should be made based on locally and easily available material, in order to reduce the embedded energy cost of transportation. This option would also decrease the carbon footprint of the project.

1.7 Regulations:

A government publication by energy saving trust on the ‘Code for Sustainable Homes – New build housing’ (Relevant to: England and Wales), states that the government intends that all new build homes should be zero carbon by the year 2016. Code level 3 is proposed to become the new standards for Building Regulations in England in 2010 and by 2050; the nation’s entire housing stock will be virtually zero carbon. Clients, who desire to increase value of their project, could insist on the use of sustainable materials in order to acquire higher sustainability rating as mentioned in the BREEAM’s code for sustainable homes.

These regulations create a lot of pressure on the project management team if a proper supply chain management technique is not available.. As mentioned in the Code for Sustainable Homes (Annex B – Category 3, Materials on p.37), the supply chain management and material stewardship are essential elements of responsible sourcing. Hence, the supply chain manager is to consider the consequence and impacts of using materials by analysing its life cycle (right from the point it was mined or harvested,through manufacture and processing of the material, including its use, reuse and disposed off as waste with no further value), before the material is actually used in the project. However, all timber used in the project should be 100% legally sourced and 80% for all other assessed materials.

1.8 Sustainable sourcing code:

For the London 2012 games, London Organising Committee of the Olympic Games (LOCOG) had prepared a Sustainable Sourcing Code in consultation with industry leaders, sponsors and non-governmental organisations. It had been reviewing how its sponsorship and procurement activity could achieve the highest possible standards to ensure that the goods and services it procures comply with this code in meeting the sustainability objectives for the 2012 games. This code could be used as a benchmark in the preparation of a similar code of practice by the construction industry.

The four core principles of the LOGO’s Sustainable Sourcing Code and supporting guidelines on packaging and carbon emissions of products and services originally published in November 2007 and updated in December 2009 are as shown below:

Responsible sourcing:

  • Labour practices
  • Health and Safety
  • Diversity and inclusion
  • Animal welfare and Testing
  • Animal and plant products
  • Timber and timber products

Use of secondary products materials:

  • Reducing waste
  • Recycled content
  • Packaging
  • Waste electrical and electronic equipment

Minimising embodied impacts:

  • Environmental management
  • Supply of products
  • Transport
  • ‘Low carbon’ Games
  • Healthy materials:
  • Restricted substances and materials
  • Heavy metals and brominated fire retardants

1.9 Controlling material resources:

A material at site is money and is to be prudently handled. The cost of materials constitutes a major portion of the project cost. March 2009, p.139 states that the value of the materials incorporated into a building represent anything from 40 to 60 per cent of the final cost. Therefore, control of materials at site is a crucial element. Materials are not be wasted or lost. For proper control an effective communication between all involved for the project success namely the planning department, purchasing department, the site and the supplier is important. Responsibilities are to be clearly defined especially in buying of materials within the estimated amount since efficient buying results in savings, which in turn contributes to the profitability of the contract. Similarly hoarding of materials at site should be discouraged by initiating just in time delivery, but care is to be taken in the selection of material supplier so that the availability of bulk materials is ensured. Therefore, materials management in construction projects is essential for its success.

As Cooke and Williams 2009 on p.401 states that an essential component of materials management begins with site layout and planning. Designated areas must be allowed for material storage in order to reduce waste and damage to materials. Excessive stock of materials is a problem need to be controlled. March 2009, p.139 enumerates the reasons as to why excessive stock is to be controlled;

  • Excessive stocks take up capital which could be better used
  • Takes up space and absorb further capital for protection against weather
  • Likely to be damaged resulting in unnecessary expenditure and possible delay incurred in replacement
  • May be necessary to double handle stock to elsewhere on the site and missing the opportunity to have just in time delivery

Site efficiency can be increased by effective material handling and result in costly waste reduced. Every project worth more than £250 000 effective from April 2008 should have a Site waste management plan (SWMP), without which it would be a serious criminal offence as mentioned by Cooke and Williams 2009 on p.403 quoting The Clean Neighbourhood and Environment Act 2005 (Section 54 of Part 5).

1.10 Whole-life thinking:

In addition, the construction industry need to consider the aspect of whole life costing during the procurement as the project not only consumes sustainable resources, but also generates waste in construction and demolition activities. The procurement of materials for the industry is strongly affected by environmental issues. Greater use of modern methods of construction and off-site prefabrication could be a solution in reducing the total amount of waste generated at site. Hence, the construction industry should strive to develop and implement the new paradigm of the ‘triple bottom line’ namely environmental, social and economic sustainability.

Green building is an innovative technology and is good to be adopted by construction industry. This approach creates a positive environmental, social and economical impact over the entire life cycle of the project. It is a holistic approach of design and considers its impact on the wider environment and community around it. This technology procures homes, which are durable, save energy, reduce waste and pollution, and promote health and well-being.

1.11 Procurement methods:

One of the main problems in this industry says Cooke & Williams, 2009, on p.4, is that it separates design from production far greater than other industries and is still common despite the deficiencies of traditional procurement and the benefits offered by the newer and more flexible approaches. In traditional method of procurement, the design stage is separated from production by a tendering period. McGeorge and Palmer, 2002 on p.54, also support this view and quote ‘by comparison with other industries the separation of the process of design and construction is unique to the construction industry’.

Construction industry provides successful projects, the outcome of which is increased efficiency, greater borrowing capacity and payback long-term worth. The business objectives should always drive the selection of an appropriate procurement strategy, so as to procure a project to the complete satisfaction of the client. The procurement strategy so selected would depend on many factors; namely the client, the risk profile of the client, the cost certainty needed, accountability, flexibility, the type of project, time, funding, market condition, the industries capacity and capability.

1.11.1 Projects priorities:

Moreover the factors that are to be considered while analysing a business objectives requirements and their relative priorities as pointed out by Kelly et al., 2002 on p.178 are as listed below:

  • Factors outside the control of the project team
  • Client resources
  • Project characteristics
  • Ability to make changes
  • Risk management
  • Cost issues
  • Timing
  • Quality and performance

The choice of the strategy should ensure that control is maintained over those factors that are important to the clients perspective of the project.

1.11.2 Procurement strategy:

The authors also state that the choice of the strategy should ensure that control is maintained over those factors that are of most importance to the client. After a selection is made, a strategic brief will need to be produced defining the client’s project and the parameters within which the project must be realised to take the project to a success. Often less importance is imparted to the project’s objectives as compared to the primary criteria of time, quality and cost.

These three primary parameters form the key criteria in the selection mechanism and are interdependent of each other. Therefore, procurement strategies adopted for the project would not be able to deliver all of them as high priority. For example, fast-track solutions for a project deliver speed and time certainty, whereas the other criteria such as cost certainty and quality may be less achievable. Similarly, in projects where quality or costs are considered to be of top priority, then the other criteria are affected. Hence, if a high priority is imparted in defining the project and especially linking of the prioritisation of objectives to the business case, greater then are the chances of a successful procurement of the project to the entire satisfaction of the client.

However, from the client’s perspective of a project, time, quality, cost and functionality are important criteria for the success of a project. The client generally prefers the highest quality at the lowest cost and the project being completed in the shortest possible time. As earlier mentioned it is not possible to attain all these parameters together for a given project. Depending upon the client’s business objectives, a suitable selection of the procurement strategy should be chosen.

1.11.3 Procurement option:

If according to the client, a signature building is required for the project, then a traditional or design-bid-build strategy is an appropriate option for the project. For this project, quality would be very essential but this procurement technique adopts a sequential nature of activities, and therefore has no parallel working activity, which means that, construction could actually begin only after the design is completed as fully as possible. Hence is not suitable option for any fast track projects. However, this option fairly provides with cost certainty and time predicted. The delay experienced in completion of the project might be because considerable time is allowed for the design to take a full shape and thereafter in the preparation of detailed brief and also in the tendering procedures required to be completed before the start of the work. Therefore, an early start of the project would not be possible until the letter of intend is issued, which in turn have a knock on effect on the overall cost of the project (price escalation, inflation etc.).

Sometimes the client might go in for a functional building where cost implication is to be the lowest and had to be completed before a fixed date. Here in order to meet the business objectives, a design-build procurement technique is quite appropriate, since early certainty of the overall contract price could be obtained. Moreover, as this strategy facilitates overlapping of design and construction, a faster start on site is possible resulting in shorter project duration with greater certainty of meeting the targeted date. Hence, this option is quite suitable for fast track projects but is not suitable for any complex infrastructural projects and also in projects wherein the clients brief is uncertain or inadequate.

Alternatively, the client would require procuring a huge and complex infrastructural project with an emphasis on the targeted date of completion. Considering the clients business objective, the appropriate procurement route would be construction management, which is best-suited option for fast track and complex construction projects. In this procurement route, the construction work is divided into several packages, which are tendered separately to different experienced and qualified contractors. Hence, in this procurement method design, tendering and construction over lap thereby reducing the overall time of the project whereas there could be price uncertainty until the last package of the work had been awarded to a contractor. Due to the speed in completion, quality of the work would probably be effected and therefore a total quality management team would be required to ensure the quality of work during its progress. Therefore, this procurement route is not suitable for inexperienced clients and for those clients trying to transfer risk to the contractor.

Therefore, the procurement strategy developed should strike a balance between risks that could cause an impact on the clients business and the projects objectives. Some projects could adopt more than one procurement option for the successful completion of the project as per the clients’ perspective. Traditional approach may be used in the construction of the shell and core, whereas construction management would be used for the final works. The choices made might differ between clients of various projects depending upon their knowledge and experience of the industry. The scale and diversity of those involved in this industry is too enormous and hence this contributes to enormous pressures on the project teams, to ensure that the project completion is on time, budget and quality.

1.12 Risk:

The diversity of those involved in the industry namely design engineers, architects, consultants, main and subcontractors, suppliers and constructional managers is huge. However, all those who are involved in this industry throughout the world strive together to establish a strategic framework to meet the budgetary and scheduling goals of the project.

Time is one of the critical factors in construction industry, which has significant legal consequences. The client sets up rigid start and finishes dates for the project and if the contractor must comply with this period, barring any delay caused due to natural calamities, or lose money by paying the liquidated damages as laid down in the contract document. During the construction process delay in receiving of materials, equipments and services may erode profits.

For a successful completion of a project, lot depends on the quality of the subcontractors and suppliers. Therefore, construction organisations should ensure that an appropriate subcontractor is selected. The subcontractor’s selection process involves many important factors including the evaluation of their capacity and also in performing a SWOT (strengths, weaknesses, opportunities and threats) analysis.

The risk faced in construction industry is different from that of other industries. This is quite evident while analysing the difference between manufacturing risks and construction risks as indicated by Benton and McHenry 2010, on p.2 as shown below:

Risk versus reward for the manufacturing sector

Risk versus reward for the construction sector

In construction industry, the potential for committing mistakes is high and facing problems is magnified by the poor interrelationship that exists between all the entities involved namely, the client, architect, consultant, project manager, contractors and suppliers. The risks, if not mitigated in time, would prove disastrous and hence, recommended to be avoided at an early stage. Construction risks as mentioned by Benton and McHenry 2010, on p.3 are as narrated below:

Internal financial problems

Working capital problems

Slow payment from the client

Inferior plans and specifications

Inadequate technical capabilities

Insufficient information technology

Lack of communication between the entities

Productivity inefficiencies

Work quality problems

Work method problems

Delivery reliability problems

Bulk materials quality problems

Another notable difference between the manufacturing and construction industry is the probability of failure while considering the labour element. This can be clearly understood if an improvement curve technique is performed as explained by Benton and McHenry 2010, on p.4 and p.5 for both industries, the figures of which are as shown below:

Probability of failure for the manufacturing industry

Probability of failure for the construction industry

The improvement curve is exponential and depicts a constant-percentage reduction of labour, which means that, the workers learn how to do their job better as they produce more and more units at a lower production cost. This advantage is accomplished due to the impact of cumulative learning by experience, which is possible in the manufacturing industry.

Now considering the construction industry, which is constantly changing its complexity over time, we can observ

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