Procurement

6 Challenges facing the construction industry

Athena Commercial
June 4, 2021

Covid-19 has impacted the construction industry in a huge way. We have worked on a number of construction bids and projects over the last 18 months, and whilst we may be not construction experts, we do have first-hand experience of the impact that new ways of working are having on the industry.

Even ahead of Covid, the Farmer Review of 2016 stated that the construction industry needs to “modernise or die”.  A report that highlighted the industry’s shortcomings in recent years to align industry and client interests and pointing to its root cause in antiquated processes and a lack on investment in innovation. With the evolving challenges and rapid technology advances, construction contractors need to place technology implementation at the core of their business to reduce disputes, deliver better projects, increase productivity and, fundamentally, deliver profitable contracts.

Whilst many of the industry’s core issues precede the pandemic, the unfolding of the last 12 months has reiterated the problems identified in Farmer’s review and have made clear where urgent change is needed to safeguard the future of the industry.

In this article we focus on six main challenges that the industry is facing and what actions industry stakeholders must take to address them.

Resource Productivity

The impact that social distancing and reduced resource levels are having on the construction industry is well documented. The restrictions put in place to mitigate the effects of Covid-19 have made it harder for on-site workers to carry out manual tasks and communicate efficiently. The result of this is evident, with productivity losses of around 25% on UK construction sites. This is also having a subsequent impact on project delivery, both through programme delays and a rise in disputes associated with non-performance and errors.

Covid-19 is clearly affecting all businesses, however, the knock-on effects in the supply chain are being felt the most by contractors. The uncertainty regarding whether staff, kit or materials are going to turn up when expected has caused additional delays and productivity impacts, affecting both customer satisfaction and internal profitability.

Whilst the existing situation is clearly caused by macro factors which are difficult to navigate around, companies must look to implement smarter working practices to alleviate the risks presented and to continuously improve their operations. New approaches are propelling the industry forward both in terms of resourcefulness and project efficiency, and firms should be looking into such practices for when normality resumes.

What are Smarter Working Practices?

We expect that the majority of firms are already utilising some degree of project management techniques to streamline operational processes. This includes sequencing tasks more efficiently to enable more flexibility and to safeguard company operations against future disruption. One benefit of the reduced number of workers and the new necessity for smarter working practices, is the reduced risk of on-site congestion and removing process waste.

A smarter use of technology, including cameras, sensors and data collection / analytics also means that supervisors and management can review job progress remotely rather than being on site. Whilst these technologies have been in play for a while, the recent disruption has sped up adoption across the industry. This has led to more dynamic communication and responsiveness to analysis productivity, identifying bottle-necks and communicating real time changes to reduce productivity risk.

Such technologies also aid in customer management, allowing for the dynamic sharing of information and visuals with clients, acting both as evidence of work being done and as a vital record should disputes arise. This increased visibility over such processes is also helping to foster stronger relationships between clients and contractors, ensuring that expectations are managed, and project goals are aligned.

How Can Construction Companies Successfully Implement Smarter Working Practices?

Unsurprisingly, the implementation of new technology within project management presents its own challenges. Organisation members often struggle to understand how proposed IT innovations can replace and improve existing processes. Furthermore, IT transformation contracts are often poorly drafted and are heavily reliant on a mix of external suppliers and consultants.

One way businesses can support the implementation of new innovations in construction, is by focussing on the end-user; management should see that users receive the relevant training for new processes, ensuring that they understand the purpose, requirements and capabilities of each new technology.

Another common issue with implementing technology transformation in construction, is that projects typically have a large number of contractors working on inter-relating projects. Alongside this, managers often also have various customer departments (and government departments) to interface with. All of these parties usually operate different technology stacks, leaving workers to juggle multiple different process technologies at once.

Further to this, it is often the case that general contractors mandate the use of their systems on sub-contractors, which puts sub-contractors at a disadvantage. In this scenario, the general contractor owns all the documentation and permissions, can edit information as they see fit and, in some cases, they can revoke system access in the event of a claim or a dispute. It therefore helps to hold your own systems and access permissions but ensure such systems are set up in a way to easily interface with client platforms.

Cash Flow and Working Capital

Cash flow has long been an issue within the construction industry and is a common cause of insolvency in contractors and sub-contractors. This has been further exacerbated by Covid-19 owing to a number of factors, with major construction firms from around the globe citing significant drops in market valuations throughout the pandemic. Further to this, supply shortages such as a national shortage of plaster in the UK and the resulting inflated costs, along with reduced workforces, have also contributed to instability within the industry.

As with many other industries, Covid-19 has also caused unprecedented issues between suppliers, contractors and clients– issues that are not all provisioned for within contractual agreements. Further to this, the majority of construction projects combine suppliers and contractors from across a number of different countries – all of which have been suffering in varying ways from the pandemic. Within the UK alone, different localities have also been subjected to different restrictions owing to the traffic light system.  The result of this has been an increase in inter-party disputes.

To safeguard their businesses, many large construction firms have also responded to the instability caused by Covid by altering their usual payment terms – leaving contractors exposed to cashflow issues.  Though such issues of payment abuse have been acknowledged by Paul Scully – the Minister for Small Businesses – thus far, there has been a distinct lack of progression in resolving issues of cash retention.

So, what can contractors do to mitigate these problems?

In simple terms, document everything. Disputes are both time consuming and financially draining and inevitably impact project completion and contractor relationships. Contractors should look to develop comprehensive processes to avoid the occurrence of misunderstandings and the coinciding disputes that arise.

Evidence capturing needs to be embedded within the everyday operations of contractors and their teams, using pictures, visual documentation and / or team collaboration software where appropriate to thoroughly document progress. This should also include accurate reports of delays, disruptions and lost hours from on-site workers.

Whilst this may appear time consuming, the implementation of technology can ease the process with which this is done. Furthermore, the use of shared databases, centralised storage and the ease of data transference reduce the potentiality for costly human error.

Though we know that trust fosters strong relationships between contractors and clients, it is also pivotal to gain documented approvals from clients throughout the project. Such actions will ensure clarity between parties throughout the project duration and will protect the relevant party should a dispute occur. Documenting approvals should be ingrained within your operations for every project – even when working with clients with whom you have a long-standing professional relationship with.

Project Bank Accounts

Nearly a decade on from the Government Construction Board determining that all public bodies should adopt project bank accounts (PBAs), we’re increasingly seeing PBAs filter into private sector projects – with many construction firms now seeing the benefit of sidestepping financial disputes altogether. PBAs also offer a number of other benefits, easing cash flow through the project system and nurturing closer working within the supply chain as well as offering tier one contractors stronger visibility over the supply chain as a whole.

Blockchain Technology

In recent years we have also seen the development of several new technologies that solve a lot of the issues created by the fragmented nature of the construction industry. With multiple tiers of contractors, subcontractors and suppliers, accountability and inter-party transparency have long been issues which have fuelled distrust and the resulting disputes. However, the emergence of products such as Blockchain offers a fresh leaf for the industry – promoting transparency across project supply chains through unalterable records of information that are accessible to all parties.

Such technology also brings with it a host of other benefits, namely through the automation of multiple processes and thus improving operational efficiency. As previously explored, lockdown has highlighted the ability for ‘David and Goliath’ style issues to emerge between operation tiers, with smaller sub-contractors placed at a continuous risk of poor cash flow. Blockchain technology can alleviate such issues and promote a fairer practice throughout the industry.

Additionally, the automation of simple administrative tasks also presents the opportunity for significant cost savings across projects.

Supply Chain & Resource Availability

Most of us have grown up in an era of advanced globalisation – able to import and export materials and services from across the world. For the first time, Covid-19 has highlighted how vulnerable this has made industries such as construction, which largely rely on an ability to source and procure materials internationally. An issue further exacerbated by Brexit.  

Once an industrial hub, the UK’s manufacturing sector has shrunk significantly over the last thirty years – coined as the largest industrial deconstruction of any major first-world nation.

This has largely been navigated by leaders such as Thatcher and Blair who have taken deliberate steps towards a ‘knowledge economy’ – one fuelled by ideas and services. Throughout such developments the ethos towards manufactured goods has been simple: it can be found cheaper elsewhere. Over the past few decades this has inevitably resulted in the movement of manufacturing capabilities to off-shore locations.

The Work-around

Though hopefully a brief stint in an otherwise globally-accessible world, Covid-19 has now set a precedent for the potentiality of other future catastrophic events – one which industry leaders would be wise to head if they wish to safeguard their businesses against all eventualities. Despite the reduction in the UKs manufacturing capacity, local sourcing options are available and should certainly be explored by contractors. This of course comes with certain disadvantages – namely financial – with UK suppliers typically more expensive and thus likely to impact construction project costs and profitability. Nonetheless, this does offer supply security – offsetting the potential costs incurred by delays from overseas suppliers should another inhibiting event occur.

Even as the UK starts to move away from lockdown and the construction industry approaches business-as-usual, we recommend that steps are taken to establish connections with UK-based suppliers and to scope out potential relationships and the coinciding costs of business. Once this has been done, contractors should look to discuss such options with clients and seek written approval to proceed as needed.

A Diminishing Workforce

The shortage of skilled labour workers in the UK is not a revelation and indeed is not at all surprising given the aforementioned shift in the UK economy from manufacturing to knowledge-based professions. Nonetheless, the growing reliance on unskilled labour is an important issue – one which decreases project productivity and increases the risk for on-site injuries – and needs tackling promptly.

Why the urgency now? The decline of skilled labourers in the UK may be an ‘age-old’ problem, but it has certainly gained additional significance since Covid-19 – particularly as the pandemic has impacted more elderly workers who have been forced to shield to protect themselves and others.

In 2018 it was recorded by the Office of National Statistics (ONS) that approximately 50% of the UK’s construction workforce were aged 45 years and over between 2014 to 2016. With state pension age set to 65-66 years of age – and with many electing to retire earlier than this – the growing void in skilled and experienced workers is becoming increasingly problematic. Unless more is done by industry leaders to drive more young talent into this sector, the construction industry could be facing serious problems within the next five to ten years.

The issue has been largely placated in recent year as the number of non-UK construction workers has counteracted the lack of UK workers; with an estimated 35% of London’s construction workforce represented by EU nationals. Of course, with Brexit, this safety net is rapidly dwindling, revealing the true extent of desperation the industry is facing.

What’s the Solution?

It’s clear that the issue lies within the UK itself. The industry must do more to dispel misconceptions and stigmas that surround the industry, with many youngsters believing that a career in construction requires low-skilled, manual labour. Little has been done to promote the number of highly-skilled and technical professions available within the industry and this is clearly reflected by the declining number of UK youngsters who are opting to pursue a career within construction. Industry leaders must take the issue head-on and look to implement changes at the root – through targeting younger generations on the brink of making career decisions.

The government is also taking this issue seriously, with the Construction Skills Fund launched by the Department of Education in 2018. The initiative granted 26 UK construction projects £22 million to train individuals in construction careers. Initially the programme aimed to have 17,000 new UK construction workers site-ready by March 2020. Though impacted by Covid, the initiative has gained ongoing support from the Government, receiving an additional £7.5 million grant and 12 month extension to see it through to fruition.

Further to this, the introduction of a new construction T-level (a technical qualification for students at A-Level age) will help to close the skill gap in youngsters and promote the pursual of a career in construction from a younger age.

How can UK Construction Businesses Support This?

There are a number of things that key leaders can do to support the acquisition of younger skilled workers.

Appeal to Their Digital Skills

Gen Z grew up as digital natives – surrounded by technology and the use of it in their everyday lives. This generation did not grow up surrounded by manual labour and as such, they’re unlikely to be attracted to jobs that, in their mind, require a high level of physically demanding work which does not put to good use their technological capabilities. Of course, those already working within construction know that technology plays a central role in much of modern-day construction – 3D printing, augmented and virtual reality technologies and drone cameras are all becoming increasingly mainstream tools in construction projects.

It’s down to leading firms to change existing social views on what a career in construction looks like in 2021. Offering career sessions and presentations to schools and colleges will be a fundamental aspect of this.

Talk About Construction Career Prospects

Love it or hate it, social media has shaped the younger generation’s views on life.

Importantly, their value of work-life balance and their financial and lifestyle expectations. Construction offers a lot of prospects, particularly for those who pursue a managerial career-path, but this is largely unknown by younger generations.

Further to this, with 54% of construction managers set to retire in the next decade, the opportunity and availability of such roles will become increasingly prevalent in coming years – something which should be communicated to younger generations so that they can make informed decisions about their future and career progression that is available to them within the industry.

Incentive Pay & Benefit Schemes in Construction

As previously mentioned, quality of life is a priority of younger generations – with many valuing time and other incentives over high salaries.

Firms should put more time into planning attractive employee benefit schemes – private healthcare, gym memberships, extra days off – to name but a few. Covid itself will undoubtedly also shape the way in which employees expect to be able to work. Firms should look to embrace this, offering flexible and remote working where feasible.

Companies also shouldn’t underestimate the power of small perks and treats for employees who exceed performance targets or received positive feedback from external clients. Recognition of hard work and showing employees that they are valued will be an increasingly important part of employee satisfaction in coming years.

Work on Company Culture

It’s no secret that your employees have the potential to be your business’ biggest advocates and with more and more job candidates using platforms such as Glassdoor and Indeed to research employee satisfaction, it is more important than ever for construction leaders to ensure they’re prioritising company culture and wellbeing.  Further to this, prioritising employee advocacy also opens the door to recruiting through alumni groups – increasing firm exposure to your employee’s wider networks.

This also brings additional cost-saving benefits to businesses, with some recent studies predicting that the average cost of replacing a salaried worker is six to nine months of salary in recruiting and training expenses. A figure that is likely even higher for the construction sector where skilled talent is currently scarce.

As such, employee retention should be an absolute priority, not only for the sake of business efficiency in the short-term but also for attracting new, younger talent in the long term.

Final Words

It’s clear that the construction industry has reached a cross-road – one where it can continue down a path of self-destruction, or, where it can take the unfamiliar road of innovation and growth. Whatever the future holds for construction, change needs to happen now, swiftly, and each and every company must take an active role in it to safeguard its future.

Athena Commercial are working with a number of construction and civil engineering companies with commercial and procurement projects at the moment. If your looking for advice on how to scale your business and navigate the commercial landscape, or if you need support with contract management or any disputes please get in touch below

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