To sustain our living standards into the future and to continue our unprecedented 23 years of continuous economic growth, the government is looking to break complacency and drive up productivity by encouraging more competition, innovation and entrepreneurship.
In a recent Construction Leaders Forum hosted by the Faculty of the Built Environment at the University of New South Wales and supported by the Australian Constructors Association and the Australian Institute of Building, 25 leaders from Australia’s largest contractors came together to share ideas around increasing innovation and productivity in the construction industry.
Three broad propositions were put forward for debate:
- Construction productivity can be improved. The evidence available indicates that productivity increases evident in the industry have been eroded by cost increases and that our competitive advantage has declined over the last decade. Construction productivity is determined by a wide range of factors and Australia needs a multi-dimensional strategy to improve it. The smart way to build ‘long-term’ competitive advantages and remain at the top of the international value chain is not to seek a low-wage industry but to increase productivity and increase innovation. This will take leadership, collective vision and a strategy to get the industry to where it needs to be.
- More of the same is not an option. Australia has to be innovative and think differently. New players will enter the market and bring new ideas. The question we should be addressing is: what innovation is required to make the industry more productive and efficient in changing times? Other countries have found that improving construction efficiency and performance is dependent on a whole range of innovations around procurement, supply chain integration, technology, skills development, collaboration, and design.
- While industrial relations is an important ingredient in the productivity debate, it is one of many. Those who do not accept the challenge to innovate and collaborate will be left behind. Good productivity is driven by an educated, skilled and engaged workforce, an efficient work environment, innovation, efficient procurement models and ultimately trust between industry stakeholders.
The recommendations that emerged from the discussions, outlined below, point to the need for collective responsibility between industry, clients and government regulators in improving construction industry innovation and productivity.
What can the construction industry do to improve productivity?
Increase predictability of delivery
Clients want certainty and predictability of delivery. Major causes of lost productivity include interruptions/poor coordination, poor site management/supervision, poor up-front planning, lack of integration in project teams, lack of commitment to productivity improvement, poor skills/competencies, poor design and design management, and a lack of productivity data and analytics.
Drive greater integration and collaboration
Siloed thinking and production systems are disappearing in other sectors but are still pervasive in construction. Organisations which can control and integrate the entire supply chain from design through to construction to manufacturing and facilities management are better able to manage risk and to deliver a whole-of-life solution which better responds to client’s needs.
Move to a service-based rather than a product-based delivery model
Lump-sum contracting is being replaced with a game-changing paradigm of a fully integrated service-based delivery model. Clients have a business need and many are happy for the industry to provide a ‘service’ solution to satisfy that need. Many clients want an organisation that will take entire one-stop responsibility for delivering a high performance asset.
It is key to increase industry engagement with new technologies which have driven productivity improvements in other sectors. Technologies that offer particular promise to increase productivity include ICTs, off-site fabrication, robotics, materials management systems, automated tracking and GPS, cameras and bar coding technologies, mobile technologies, BIM, and augmented reality.
Improve project management and supervisory skills
Under-investments in training and an aging workforce means we are losing project management skills – particularly in communication, coordination, logistics and execution. There is also a need to address years of under-investment in construction blue-collar worker skills development. The subcontracting model has impacted significantly on investments in people.
Deeper supply chain collaboration
Subcontractors are typically poorly integrated into projects. The term subcontracting is derogatory and reflects embedded mistrust, risk transfer cultures and power imbalances within the industry. A better term would be specialist subcontractors, co-contractors or contract partners. These organisations are key to improving productivity and there are many productivity and cost benefits of treating subcontractors as partners and involving them earlier on.
Workplace culture is critical
Workplaces need to be set up to perform highly. High performance workplaces combine strong diagnostic use of performance data; high level of external connectedness to customers, communities and supply chains; strong internal connectedness between functions and levels; effective communication; good employee relations; strong connections between effort and reward; employee participation and empowerment; and fairness and dignity at work.
What can government, regulators and clients do to increase construction productivity?
Increase transparency and reduce uncertainty around project pipelines
Industry needs greater political consensus, clearer commitment and more consistency around future public project pipelines, priorities and approvals. Politics comes at a price. Stop-start project programs make it very hard to be efficient, and they reduce market confidence and increase risk. Better joint planning and communication between government and industry will lead to more predictability and certainty of public project outcomes.
Provide enough time to plan and innovate
Unrealistic time constraints are the cause of failure in many projects. The adverse consequences of late project commencement and unrealistic project timelines cascade through projects, creating a reactive project environment and reducing the time to properly plan, innovate and collaborate. When time is squeezed, people are forced to revert to conservative and historical ways of doing things.
Reduce bidding costs
Many PPP projects incur unrealistic and reiterative bidding costs which waste time and resources and which cannot be realistically borne by the market without significant knock-on effects in financial loss and contractor/subcontractor failure. There is a significant doubling up and waste of resources in procuring public projects which society and clients ultimately pay for.
Ensure realistic project planning and feasibility
Many projects are doomed from the start because of poor project planning and feasibility. Perverse incentives can often cause project promoters to underestimate costs and overestimate benefits in the business cases for projects. This builds in the seeds of cost and time overruns and benefits shortfalls.
Review contract and procurement models
Productivity and efficiency is reduced by the use of inappropriate contract and procurement models. There is a need to better align procurement models with project goals, project complexity and client capabilities in managing risk.
The debate should not be about lowering costs but about maximising value. Project team selection should be based on a ‘value proposition’ rather than lowest price. A focus on lowest price is a disincentive to innovation and gives an advantage to firms that do the bare minimum and rely on traditional methods that will not drive-up productivity and efficiency.
Early contractor involvement
Significant efficiencies and innovation could be driven by an early contractor involvement model. This could significantly reduce constructor risk and improve productivity and cost efficiency by allowing earlier input into design and up-front project planning.
More efficient regulation and reduced bureaucracy
Increasing regulation and bureaucracy has added considerable cost and time to projects and reduced the number of staff working on productive tasks. There are multiple layers of complex, prescriptive and overlapping regulations which waste large amounts of time and money and constrain innovation.
Attach greater value to good design
Good design is greatly undervalued. Good design which links through to productivity and manufacturing and a well-managed design process is critical to productivity. Bespoke design should be avoided. Overseas experience has shown that early contractor involvement in design and standardisation can produce significant productivity and cost benefits without reducing aesthetics and functionality.
Better use of data and analytics
Decision-making would be better informed by better use of performance data and analytics around productivity and efficiency. Governments, clients and industry should invest in more research to provide an evidence-base to inform better decision-making, benchmarking and monitoring of cost and productivity drivers and trends.