The construction industry has ‘remarkably poor productivity’ when compared to growth in the world economy according to a new report.
The report, Reinventing construction: a route to higher productivity, has been published by the McKinsey Global Institute (MGI). It said that the global economic value added from labour-productivity growth – the measurement of the amount of goods and services produced by one hour of labour – in construction had averaged only 1% a year over the last two decades which contrasted with growth of 2.8% in the world economy and 3.6% in manufacturing.
Within the report it said that there had been a number of root causes for the industry’s underperformance. Among the reasons, it said that the construction industry was very dependent on public-sector demand, highly cyclical, fragmented and contracts often had mismatches in risk allocations and rewards. This it said, often led to inexperienced clients ‘finding it hard to navigate an opaque marketplace’. This resulted in poor project management and execution, insufficient skills, inadequate design processes, and underinvestment in skills development, research and development and innovation.
The report then went on to detail seven ways in which it said the industry could improve its productivity by 50% to 60%.
Among the reasons it said moving away from a ‘hostile contracting environment’ to a system focused on collaboration and problem solving was essential to improving productivity. The report suggested this could be achieved by rewiring the contractual framework to a tendering processes based on best value and past performance rather than cost alone.
In addition to this it said that where possible,the use of off-site manufacture, minimising on-site construction through extensive use of pre-cast technology, assembling panels in factories with finishing of the units onsite should be encouraged.
“The UK construction industry performs relatively well on productivity compared with those of other countries, but there is still significant room for improvement,” said McKinsey manager and co-author of the report Nick Bertram. ”The biggest barrier to higher productivity is the fragmentation of the sector both in terms of local and national level public sector suppliers unable to drive scale, and among construction companies more broadly as indicated by the fact that 40% of construction workers are self-employed, much lower than the national average of 15%.
”A large pipeline of infrastructure projects is coming onstream in the near future, and if the industry were to address its productivity challenges and bring it up to the level of the UK economy as a whole, construction could generate an additional £12bn of value each year.”
Seven ways in which the construction industry can improve its productivity
Reshape regulation and raise transparency
It said that best practice regulation would include moving toward outcome-based, more standardised building codes and consolidating land to promote scale. Examples of this it said included Singapore’s move to allow cross-laminated timber (CLT) for high-rise structures and Japan’s promotion of scale through land pooling.
Rewire the contractual framework
The report stated that there was a need to move away from the ‘hostile contracting environment’ that characterised many construction projects. It said that it needed to a system focused on collaboration and problem solving with a tendering processes based on best value and past performance rather than cost alone and public processes streamlined.
It said that alternative contracting models such as integrated project delivery (IPD) could help build long-term collaborative relationships.
Rethink design and engineering processes
The report said that the biggest impact on productivity would come from moving towards thinking about construction as a production system. Where possible, it said that the use of off-site manufacture, minimising on-site construction through extensive use of pre-cast technology, assembling panels in factories with finishing of the units onsite should be encouraged. Using this principle, increased productivity could be seen in both the oil and gas, automotive and aerospace industries.
Improve procurement and supply-chain management
Using digitally enabled approaches can deliver substantial change the report said. Improved planning and increased transparency among contractors and suppliers would reduce delays significantly. It said that best practice in areas such as digitising procurement and supply-chain workflows would enable more sophisticated logistics management and just-in-time delivery.
Improve on-site execution
The report highlighted four key approaches that it said were well known in the industry but had not been universally adopted.
First was the introduction of a rigorous planning process to ensure that key activities were achieved on time and on budget. It said that the use of integrated planning tools on a large-scale oil and gas project, for instance, achieved a 70% increase in the project’s productivity.
Second was reshaping the relationship between owners and contractors with key performance indicators (KPIs) being agreed on and used at regular performance meetings at which on-site issues are resolved.
Thirdly it said that improving the mobilization for new projects by ensuring that all pre-work has been completed prior to starting onsite.
Finally, there is a need for careful planning and coordination of different disciplines on-site along with the application of lean principles to reduce waste and variability.
Infuse digital technology, new materials, and advanced automation.
Using 3D building information modeling (BIM) alongside use of digital collaboration tools, drones, and unmanned aerial vehicles for scanning, monitoring, and mapping can improve productivity said the report.
But it said that companies could also put themselves at the cutting edge by using platforms such as 5D BIM to establish transparency in design, costing, and progress visualization; advanced analytics enabled by the Internet of Things to improve on-site monitoring of materials, labour, and equipment productivity; and digital collaboration and mobility tools (such as construction management apps loaded on mobile devices) to better track progress and collaborate in real time.
The introduction of predictive analytics and pattern recognition has enabled far more sophisticated monitoring of construction projects; one example is the network of sensors installed to track the impact of tunnelling works for London’s Crossrail project.
MGI’s productivity survey indicated that the biggest barriers to innovation by construction companies are underinvestment in IT and technology more broadly, and a lack of R&D processes. It said that establishing innovation officers could make a difference for technology adoption.
Reskill the workforce
It said that change in the construction sector could not be achieved without investment in retooling a workforce that is aging and changing its makeup through migration. Construction firms and workers need to continuously reskill and train to use the latest equipment and digital tools the report stated.