Construction Journal: September-October 2019
We look at why contracts are crucial to any project’s success, the range of contracts available – and how they affect the procurement processes.
10 SEP 2019
Some would say it was inevitable. For years, the construction industry has known that it has a problem when it comes to the volume of skilled labour available in the UK. However, the fallout from the EU referendum has made matters much worse and, as surely as night follows day, the supply-demand dynamic has now well and truly kicked in.
Research published this June by specialist recruitment agency Randstad Construction, Property & Engineering examined almost 6,800 permanent placements across the sector and found that pay had risen by 9% over the course of just one year. As Randstad managing director Owen Goodhead puts it: “While it’s good news for individuals, it’s not such great news for the economy.”
So, can the current skills crisis – and subsequent wage inflation – afflicting construction really be blamed entirely on Brexit? And what exactly is being done and should be done to address it?
Certainly, Goodhead believes that Brexit bears responsibility for the loss of skilled labour. “Our research shows that construction workers from overseas are being put off coming to the UK, and those that are here are thinking about moving elsewhere,” he says. “We know that more than one-third of European construction workers who are already here have considered leaving the UK due to Brexit.”
Goodhead isn’t alone. Richard Steer FRICS, chairman of global construction consultant Gleeds, points out that the pound fell dramatically against the euro in the wake of the Brexit vote – and has barely recovered since. Quite simply, EU workers no longer have an incentive to leave family and friends to make their living in sterling. “With the devaluation of the pound there is less point in them working here because they can’t send as much money home,” says Steer.
Jo Cowen, founder of the eponymous architecture firm, agrees. “We had been developing a more international workforce in the UK, mainly eastern European, and there is much less movement now,” she says. “The pound is weak, and the pay and conditions in Germany or Austria are as good or better – and you’re closer to home.”
However, Brexit isn’t the only issue. Domestically, construction’s appeal as a long-term career has waned, and more people are retiring from the industry than are joining it. “The problem is reflective of the construction industry’s attractiveness compared with other sectors in the current labour market,” says Martyn Evans, project director at M3 Consulting. “There is a real challenge to be overcome in terms of explaining to young people what is attractive about the sector.”
Part of the issue is that - fairly or otherwise - construction work is regarded as unstable. “The industry suffers an immediate impact in any economic downturn,” says Evans. “There is a perception that jobs aren’t necessarily as secure as in other industries. The tap gets turned off pretty rapidly in uncertain economic times. In the last crash, a lot of people left the industry, it became less appealing to new entrants and you get this contraction in the labour force across the sector.”
In terms of what is being done to tackle the problem, commentators point to the government’s construction apprenticeships scheme. However, there are concerns that the programme is not extensive enough and that the Construction Industry Training Board (CITB), which administers most construction apprenticeships, hasn’t provided sufficient encouragement.
“The apprenticeships have started slowly and they’re certainly not filling the gap, and even when someone has completed an apprenticeship it still takes years after that before they are properly skilled up,” argues Steer. “The CITB didn’t really do its job over the last 10-20 years. It is a specific training board for the industry that the main contractors are paying into and it hasn’t created the sorts of skilled labour that it should have done.”
There is a real challenge to be overcome in terms of explaining to young people what is attractive about the sector
Project Director at M3 Consulting
The CITB’s director of policy, Steve Radley, argues that the organisation is listening to the industry, and has streamlined to better prepare construction for future employment challenges. “We’re investing in digital and offsite construction skills and this summer we launched a commission to create hubs to help trainees gain on-site experience,” he says. “This draws on the ongoing Construction Skills Fund, which we run for government and is already being hailed a success by industry.”
For her part, Cowen is more positive when it comes to the contribution made by apprenticeships. “The last Labour government put a lot of money into apprenticeships and we are starting to feel the benefit, but it’s still playing catch up after 25 years of low investment,” she says. “The apprenticeships have continued under successive governments, but it takes time. We will see the rise of the British worker, and apprenticeship schemes will start to have a major impact.”
The rise of modern methods of construction (MMC), involving the offsite manufacture of certain building components, may also help when it comes to recruitment. “People don’t really want to go into construction these days – they would rather work in advertising or marketing than stand on a wet, muddy building site in November,” says Steer. “MMC is part of the solution, but it’s not sophisticated enough yet.”
Cowen agrees. “There needs to be more investment in MMC – we’re a long way behind the rest of the world,” she says. “It’s ultimately how you reignite construction skills. There is more quality control and ability to be inventive. However, I can’t think of a single university or technical course that prepares you for MMC.”
In the longer term, it is clear that government and industry need to work together more closely to support training and skills development, something that “has to be in the government’s own interest”, says Evans. “There is a significant amount of national infrastructure that needs renewal and that can only be successfully delivered if you have a construction sector with the capacity to deliver it. At the moment, we don’t.”
Speaking off the record, another consultant adds that the lack of skills is behind much of the cost overruns on Crossrail. “One of the problems that Crossrail is facing is that it has had to pay a premium for electricians,” he says. “That means that capable electricians have gone to work for Crossrail. The industry is massively made up of self-employed people who will go off to another job if someone is willing to pay them 50p/hour more.”
Another issue that requires government intervention is that construction is highly cyclical. As a result, many companies are reluctant to invest in people when they might have to be let go within a matter of years. However, given that the government is by far the biggest client of the construction industry, it is in its power to change this through quasi-Keynesian counter-cyclical investment.
“If the industry had an assured workload then there would be money to invest in training,” says Steer. “You need government and industry working with one another to try and create a workload where contractors can see future turnover and have the confidence to train people and bring apprentices on board.”
This isn’t actually a revolutionary idea – you just have to go back a bit to find governments that supported construction in the way Steer describes. “The old Labour governments in the 1960s and 70s would increase public spending to smooth out the peaks and troughs in the property cycle,” he says. “Then we had the Thatcher years, when it was everyone for themselves and we didn’t have the Keynesian infills. It needs to be addressed.”
So, the roots of the current construction skills crisis go back far further than the 2016 EU referendum. Reversing that decision might help address the situation, but that is a path as controversial as it is complex. More realistically, government and industry need to work far more closely to encourage people to join the industry and deliver the skills it so sorely needs.
All parties, from educators to employers, need to work together to find a solution, argues Michail Kagioglou
There is currently a huge skills gap that is resulting in increased costs, which is then fed back into the cost of construction. Certainly, as further and higher education institutions we are not really producing enough qualified technical staff to work in the sector. And in the last few years, the availability of skilled labour from across Europe has reduced, which has made matters worse.
There is also a real gap when it comes to the skills needed to support modern methods of construction. There is an issue about developing skills for the industry as it stands, but that is quite different to producing the skills that will be needed in the future. The skills crisis is forcing the industry to demand the skills it needs today and future skills are not being considered to the extent that is necessary. That doesn’t allow the sector to move forward.
The UK in particular has a huge problem with productivity, and there are a great many tools and methodologies that aren’t being used at the moment.
We just follow very traditional methods of managing construction. Everyone draws the comparison with the car manufacturing sector, but you can also look at white goods and bespoke manufacturing. In those sectors, there is a lot of simulation work that has taken place, a lot of training, and then all of that is put in place through digitisation. Construction is still too fragmented and doesn’t perform in the same way.
I think everybody has a part to play in fixing the situation. Professional institutions need to have a cohesive understanding of what the skills gap is and how they can develop their members. For repeat clients, there is also a need to integrate supply chains better and there is a key role for the government to play in that.
But the industry itself needs to serve its customers better. There is a huge role for tier-one contractors to play in terms of improving productivity. So, it’s a multifaceted issue and needs a cohesive, coordinated plan.
Michail Kagioglou is a professor and dean of the School of Art, Design & Architecture at the University of Huddersfield, and vice-president of the International Council for Research and Innovation in Building and Construction