What’s Holding back Construction Down Under? 3

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Wednesday, May 28th, 2014
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The past month has been notable for the number of conferences dealing with off-site construction.

Last week, UK-based organisation Buildoffsite launched an Australasian offshoot with seminars in Auckland and Sydney, presenting a northern hemisphere insight into what’s going on.

Last month, PrefabNZ held its annual conference in Auckland. Its speakers offered insights into what’s happening down under and included multi-sector presentations on new product technologies and how these may apply to construction’s off-site future. Both offered terrific insights into goings-on in construction and other transformative industries around the world.

Cases were made for substantial improvements to be made in construction productivity and in lowering the industry’s costs. The recurring theme was about reducing waste in the construction process; not just wasted construction materials and processes on-site, but across the board.

 If it’s so obvious, why is this not a national priority?

From the sub-texts of many of the presentations I heard and in all of the conversations I had with attendees at these events, there seems to be a lot of “Dead Hands” in the mix who are just as happy with the status quo. The challenge will be breaking through to drive the industry-wide changes that everyone knows should be being made. Construction costs must be brought down by at least 20 per cent and then set on a path of better, faster, cheaper on an industrial scale for two decades.

Buildoffsite chairman Richard Ogden MBE has a bit of experience in improving construction outcomes. He was responsible for the business transformation of McDonald’s UK construction projects.

Ogden told Auckland and Sydney events that construction has some heavy lifting to do. He compared the UK’s increase in construction costs of 89 per cent between 1997 and 2006 with the increases in the general economy of only 25 per cent. He also noted that housing construction costs had increased by a staggering 180 per cent in the same period, compared with motor vehicle price increases of just 1.5 per cent.

The current cost of construction in Australia is unsustainable. It is understandable that companies such as Incitec Pivot are taking their new US$850 million ammonia plant off-shore.

CEO James Fazzino has been reported as saying “the labour costs of the plant to be built in New Orleans only represent 35 per cent of the build cost there, whereas in Australia they would represent 60 per cent.”

The project will generate 750 construction jobs over three years. This is not an isolated story, and it’s not just about whole projects. Increasingly, Australian construction is witnessing much of its progressive moves to off-site fabrication mostly becoming off-shore. If these trends continue, I believe it could mean a loss of over 70,000 Australian construction jobs by 2023.

Ogden points to the recognition that the UK government is giving to its construction sector. He quoted the UK 2025 Construction Strategy as having set goals to lower construction costs by 33 per cent, speed up the delivery of construction projects by 50 per cent, lower construction driven CO2 emissions by 50 per cent and improve the UK construction export performance by 50 per cent.

He cites early achievements on a number of projects claiming as much as 60 per cent reduction in on-site field-force inputs and 30 per cent reduction in construction times. His claims for projects cited were weakened by a lack of independently verified benchmarks either against their peers or business as usual baselines.

PrefabNZ’s 2014 Conference in Auckland saw the launch of the case for off-site (prefab). What’s clear is that the NZ government and the industry are getting right behind the potential of off-site in NZ.

In a jointly sponsored publication by NZ’s Building Construction Productivity Council and BRANZ, the case for increased off-site construction was made by modelling how as much as 60 per cent could be taken out of the construction time for a 157 square metre house and its cost reduced by 15 per cent.

There is a lot of innovation evident in construction in NZ especially in the Christchurch re-build, and PrefabNZ CEO Pamela Bell has helped to get these wheels turning.

 It all looks like a one-country, one-industry approach all getting set for the construction world game.

So who or what are the Dead Hands? Well, they are the behind the scenes interests who seem happy with the status quo and frustrate change. They are policy makers and heads of enquiries that look more to business as usual. They overlook the opportunity to investigate the potential to lower construction costs by at least 20 per cent in the short term and even more after that.

They are the industry associations who are not prepared to redefine their futures at the expense of possibly thousands of their members, whose current business models need to be recalibrated. They are the unions without a plan for their members’ future. They are regulators who are captive of those interests. And if they listened to Joe Hockey’s 2014 Budget Speech, they would be the ‘leaners not the lifters.’

What’s clear from those promoting change such as Buildoffsite and PrefabNZ is that the status quo is not sustainable in construction. Construction is now a huge global business. It’s reportedly headed for a US$15 trillion global turnover by 2025.

Defining the future in my view, are three clear forces. Construction is going off-site, it is becoming industrialised and it is going global. The key to making a future in construction is to innovate on an industrial scale, to drive down costs by at least 20 per cent in the short term and construction durations down by at least 50 per cent in the medium term with commensurate improvements in construction quality and on-site safety.

Measuring construction productivity achievement must become a central plank to every client’s procurement strategy. Clients must start asking for evidence based affirmation of the improving construction performances of their contractors. Individual acclamations by parts of the construction industry do not make for improvement of the whole.

Initiatives such as BIM and Lean are of little benefit if they have not embraced Designed for Manufacture and Assembly (DFMA) and if their achievements are not benchmarked against universally adopted comparators. These can be simply deployed. Measuring the trends in reducing on-site field-force fabrication and on-site construction durations provide the early indicators that a new approach to construction organisation is afoot.

The current Productivity Commission Inquiry into Infrastructure has made a number of compelling observations about the state of infrastructure costs in Australia. The Commission reports that “data problems beset the detailed analysis of the costs and productivity of public infrastructure construction, and of the effects of various policies. A co-ordinated and coherent data collection process can address this and improve future project selection decisions.”

If the Productivity Commission has not brought the relationship of off-site’s construction productivity potential into the framework of what’s happening on-site in infrastructure considerable future public value will be lost.

There is nothing more seminal than the calculations of Net Present Value (NPV) in a new project’s business case than the impact of initial construction costs. If new infrastructure project costs are not reduced by 20 per cent for a start and their delivery times reduced by 50 per cent, then the current regime of project assessment comparators will continue to build into the economy financing and user pays expenses that should and could have been avoided.

The massive infrastructure commitments made in the 2014 Budget must pass this filter. Beyond these projects, national adoption of new construction selection criteria will have a positive industry wide impact on the viability of future public and private sector project investments.

Until this occurs, the future for construction in Australia will deteriorate and its wasteful practices will continue uncontested.  It’s now a national priority.

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3
  1. David Brown

    Like all Mr. Chandler's recent posts on Sourceable and his own web site this is a thought-provoking and well-argued assessment of the industry and its future. Surely there are more industry leaders willing to put their heads above the parapet and look to a different future. Or will heads continue to be buried in the sand while jobs are lost and industry innovators head overseas to greener pastures. NZ looks better and better!

  2. Danny T

    Chandler speaks the truth – BIM is absolutely dispensable for modern construction and engineering firms who want to stay ahead of the competition.

  3. Tim T

    Great article. Unsustainable work practices and old school thinking will strangle the building industry creating a self fulfilling unaffordability of no building and no jobs. Conversely, efficient construction using EVERY smart innovation will mean more people can and will buy their homes, which in turn means more construction, and most importantly more jobs