Construction’s productivity conundrum

How can the construction industry improve its productivity? A CIOB survey of MPs and industry professionals has attempted to provide an answer – but the issue is not straightforward. Will Mann explains.

The headline data does not paint a positive picture. Since 1994, official figures show UK construction productivity growth has been sluggish at best, improving just 7% over two decades. This is well behind other industry sectors, and drags down the productivity performance of the UK as a whole.

That will not please the government, which launched its own productivity plan for the UK economy last year and wants construction to deliver projects 50% quicker and 33% cheaper by 2025.

So how – if at all – can construction productivity be improved? This was the central question addressed by a wide-ranging study commissioned by the CIOB, surveying the views of 130 MPs and almost 500 senior industry professionals. Their views are presented and analysed in this article.

But it is not an easy question to answer. For one thing, measuring productivity is difficult. “In economic terms, the Office for National Statistics (ONS) defines productivity as the rate of output per unit of input – so creating more output for a given input should result in higher living standards,” explains the CIOB report author, industry analyst Brian Green. “However, while the concept may be simple to grasp, in practice measuring and interpreting productivity is fraught.”

Green and other commentators feel that the data on construction output published by the ONS is not necessarily a fair reflection of the industry’s productivity.

Construction productivity comparisons across Europe (% change since 1994)

Productivity comparisons by sector (UK) (% change since 1994)

Also, it is not an issue that other countries have cracked (see Europe chart, below). Using the same measures as the ONS, UK construction is – contrary to popular belief – actually slightly more productive than most of our counterparts in the major western European economies. So whatever our productivity problems are, they are shared by construction industries abroad.

This is by no means the first time construction has examined its productivity. The concern within government and industry is reflected in a stream of reports over the decades, dating back as far the Simon Committee report of 1944, which was commissioned during the second world war.

“Despite being commissioned at different times to address different immediate political, economic, social or industrial concerns, similar themes recur,” says Green. “Procurement, prefabrication and standardisation, communication, fragmentation between and within the design and build processes, safety, casual labour and quality.”

The CIOB survey responses show that, broadly, those issues are still among the top concerns, for both the industry and politicians.

Generally, there was a high degree of consensus between the views expressed by MPs and construction professionals.

The one that comfortably comes first is people. For both MPs and industry respondents people issues were most likely to be selected as the top and within the top three most impactful policy areas to improve industry productivity.

This is, of course, not the first time that the industry has been told how important its people are – or that it has a shortage of them.

The UK Commission for Employment and Skills, in a 2014 report, reckoned construction would need about one million new recruits by 2022. The Department for Business Innovation & Skills produced a study in 2013 called Supply Chain Analysis into the Construction Industry, which found that the quality of site management was pivotal to improving productivity. This was particularly true of the ability of the site management to communicate well.

Both industry and MPs want stability and see the National Infrastructure Commission (NIC) as an important means of achieving that. Construction professionals are particularly keen on the government pumping in public funds to keep the industry ticking over when a recession bites.

Priorities for raising construction productivity

There appears to be significant consensus between the industry and MPs on broad policy areas that are seen as potentially the most effective in improving construction’s productivity.

Both groups placed people issues as top, with the economy and innovation making up the top three most supported of the eight broad policy areas listed.

One large difference was in attitudes to investment – in areas like plant and machinery – from within the industry itself. This had significantly more support from MPs than the industry, where it ranked last. Most likely to be in the top three priorities for both MPs and the industry respondents were the economy, policy certainty and planning, with the industry very strong on policy certainty.

MPs v industry top priority for raising construction productivity (%)

MPs v industry top three priorities for raising construction productivity (%)

More than half of industry respondents ranked either people issues (29%) or the economy (26%) as their top priority for improving construction productivity. Almost a third ranked people and more than half ranked the economy in their top three. Least likely to be ranked as a top three priority were the broad areas of industry structure and investment.

A point of note is how highly industry respondents ranked organisation – above procurement and regulation. While it is a category that can be considered broad, it seems reasonable to assume that the view of the industry from within is that it is poorly organised.

MPs are far less likely to prioritise issues that appear to require more detailed industry knowledge, such as organisation, industry structure and regulation. MPs also see investment and innovation as far more important than the industry for improving productivity.

Where differences lie are around policies that may require more industry-specific knowledge. So MPs show significantly less immediate enthusiasm than industry for areas such as industry structure, organisation and regulation.

However, construction is less keen on investing itself. When asked to assess the effectiveness of eight broad policy areas for raising productivity within construction, the industry respondents ranked investment in areas such as plant and machinery last. 

The problem in analysing these results, as Green says, is that “they tell us things we already know about what is wrong with the industry, and what improvements need to be made – but there’s something stopping us from making them”. Similar sentiments have been echoed by other construction commentators.

“Both Noble Francis and Alasdair Reisner point to the need for new business models within the industry that can provide a context in which firms see reason to take the much-recognised actions to raise productivity,” says Green. “Tony Giddings may not use the same phrase, but in calling for more collaborative working he is, in effect, challenging the existing business models operating within the industry.”

There’s one other important point that emerges from the report, which harks back to the concerns expressed earlier about the reliability of construction data.

Policy options for raising construction productivity

The consensus was generally strong on specific policy types, with boosting investment in a recession and the National Infrastructure Commission (NIC) ranking high and increased public spending on R&D low.

Asked to prioritise a list of specific policies, industry respondents were most likely to rank as their top three priorities: first, a commitment to boost public investment during a recession (52%); second, establishing the NIC to focus on long-term planning (50%); and, third, increasing funding for training (48%).

MPs v industry ranking of policy options to boost UK construction productivity (%)

Asked to prioritise specific policies, MPs were most likely to rank, first, a commitment to boost public investment during a recession; and, second, establishing the NIC to focus on long-term planning, in their top three.

The main areas of difference appear to be more industry support for incentives on green/smart building and more enthusiasm for increased funding for training. Conversely the industry ranked land taxation reform much lower than MPs.

Overall, comparing MPs and industry responses suggests a high level of correlation in views. But one immediate observation is that while policy certainty seems to matter to both MPs and the industry, it matters more to the industry.

“There is a need to measure more effectively the productivity of the whole process of delivering the built environment and its impact on wider UK productivity – rather than just what happens on site,” says Green.

“Better buildings and infrastructure contribute to productivity not just through their primary function or through directly contributing to increased economic output. Making people happier, safer and healthier encourages them to be more productive and reduces costs elsewhere.”

He points to the “Boiler on Prescription” trial project, piloted in the north-east by housing association Gentoo Group, which discovered a strong link between improving the energy efficiency of its stock and improvements in its tenants’ health and welfare.

“Compared to roads or railways, it provides a less direct – but no less significant – example of how construction influences UK productivity,” says Green.

“The built environment that construction delivers influences every aspect of the lives of every person that engages with the modern world. It influences their health, education, effectiveness at work, their travel to work and how they spend their leisure time.

“It impacts not just on the quality of life but the effectiveness of the economy. In other words – its productivity. An understanding of this should be at the heart of policy-making.

“Construction needs to be seen not just as a low-productivity problem, but as a solution, supporting a high-productivity UK.”

Lies, damned lies and statistics

Why measuring construction productivity is tricky

The accuracy of official construction statistics has long been a bone of contention for industry economists. And finding data which accurately measures construction productivity is a “slippery” business, the CIOB report’s author Brian Green acknowledges.

Although there are many different productivity measures that are used, across all industries, the most common benchmark is output per hour worked, which has been used for this CIOB study. However, it does not necessarily tell the full story.

ONS data shows output per hour worked in 2012 in construction was £23.60. This compares very unfavourably with other industries. In chemicals and pharmaceuticals the figure was £73.30, in finance and insurance £56.30, while in real estate it was £230.60.

“The wide spread reflects, in part, the labour intensity within each sector,” says Green. “In construction repair and maintenance, for instance, work is noticeably more labour intensive than most new build. And over the years the share of repair and maintenance has increased.”

Another concern about the data is what actually counts as construction. “When determining the productivity of construction we measure the value added on site as the output and the labour (hours worked) on site as the input,” says Green. “But this does not then capture the materials supply chain or the professionals engaged in planning, financing and design.

“Offsite manufacture is seen as a way to boost productivity. It certainly can. However, productivity is about adding value and if work moves from the site to the factory the value added is likely to be classed as manufacturing, not construction, in the statistics.

“The work remaining on site may well end up being the less skilled and, in economic terms, less productive.”

So paradoxically, while innovation in building design and product manufacturing may increase the overall productivity in the process of delivering and maintaining the built environment – this does not necessarily raise productivity on site. Statistically such advances can, in fact, reduce measured construction productivity.

Indeed, data from both the UK and abroad suggests that construction productivity over recent decades has stalled or fallen. Clearly this is illogical. The steady fall in deaths on site, and the delivery of vastly better-performing buildings, helped by advances in technology, materials and techniques, indicate that the construction industry is doing something right. But does that mean the statistics are wrong?

“No,” says Green. “We just need to know what they mean and what they are telling us. And to this end the report argues for better statistics to help guide policy.”