2.1 There is no shortage of statistics about the construction industry. It contains 200,000 contracting firms, of which 95,000 are private individuals or one person firms. Only 12,000 contracting firms employ more than 7 people. (Source: DOE, 1992. All figures are approximate.) About 45% of registered architects are sole principals, or employ five qualified staff or less (source: RIBA, 1993). The value of output in the whole industry in 1993 was €46.3 billion, which represented about 8% of Gross Domestic Product (source: DOE). Large construction firms (employing 80 people or more) carried out over 40% of the workload by value in 1992. The industry is vital to the economy, Most people in the contracting sector work alone, or in small firms, but a limited number of large firms undertake a substantial proportion of the work.
2.2 The public sector is a less dominant client than it used to be. Some previously extensive programmes such as local authority housebuilding have been greatly reduced. Other work is now partly funded by private investment, or has been totally privatised. Privatisation has also involved the transfer of many professional services to the private sector which were previously carried out "in house" by Government Departments or local authorities. New procurers have appeared such as Executive Agencies, National Health Service Trusts or educational bodies such as Colleges of Further Education. Government has ceased to be a single procurer. The untying of Departments from the Property Services Agency has resulted in the emergence of a wide range of procurement techniques. There are now about 90 separate Government procurement bodies.
2.3 Client profiles in civil engineering have also been changing. According to a survey carried out by the Federation of Civil Engineering Contractors (FCEC), 60% of the workload of its member firms in 1991/1992 was carried out for public sector clients, and the remaining 40% for private sector clients, compared with only 10% in the late 1970s. A breakdown is given in box 1 overleaf.
BOX1
| PUBLIC SECTOR • 23% for the Department of Transport, Scottish Office and Welsh Office on motorways and trunk roads; • 11% for local councils on local roads; • about 5% for the Ministry of Defence; • 4/5% for British Rail and London Underground, and Public Sector Light Railways; • about 3% at ports and airports, and waterways still in the public sector; • over 2% for Scottish Local Authorities (Water and Sewerage) • about 3% for Nuclear Electric; • about 4% for British Coal • and about 2% for flood defence works. PRIVATE SECTOR • nearly 14% for the water industry in England and Wales; • over 7% in private sector transport infrastructure; • nearly 6% for energy industries; • and nearly 7% site preparation connected with private building projects. |
Box 1 "Survey of Civil Engineering Workload Mix 1991 /92 ", FCEC 1992
2.4 The industry remains dependent upon wider economic stability. I wrote in the Interim Report that it was no part of my duty to advise upon Government economic policy generally. Some respondents to the enquiry have criticised that, but it must remain the case. The Government is responsible to Parliament, and through it to the electorate, for the conduct of the economy. I have not been asked to make recommendations about it.
2.5 However, some general observations are necessary because economic factors lie behind many of the issues addressed by the Review.
1. If the flow of work to the industry is less than the capacity available, a number of consequences follow: -
a. firms will reduce their staff, or may close altogether;
b. fee bids by consultants will become extremely keen, and may not allow the successful bidder to make any profit out of the commission;
c. tender prices submitted by contractors will be uneconomically low, with adverse effects on all participants in the construction process;
d. training and education will suffer;
e. little money will be available for research and development or for enhancing the public image of the industry.
The CIEC comments in its final report to the Review (April 1994) that, since 1989, almost half a million jobs have been lost in the industry, training has fallen by over 50% and over 35,000 small businesses and companies have become insolvent.
2. Government directly affects construction workload by:-
a. financing of public projects. This is particularly important in civil engineering;
b. influencing the general level of demand in the economy. That determines the purchasing power and willingness of clients to proceed with construction investment.
2.6 The recession of recent years has hit the construction industry very hard, though hopefully some improvement in trading conditions is now beginning. It affected the construction industry more deeply than other industries. By 1993, construction output was still some 39% below its 1990 peak, whereas for manufacturing the dip was 3% and for services any lost growth has now been regained (source: CSO, 1994). Many of the industry's problems have been worsened by economic difficulties, though some were inherent and some exist in other countries as well. Government remains vital to construction. If the economy is weak, the industry will suffer, and its participants will try to alleviate that suffering at the expense of others (including clients). It is not easy to create teamwork in construction when everyone is struggling to avoid losses. If the economy is going wrong, little will go right in the construction industry.
2.7 Many of the core decisions are in the hands of Government. The industry has complained for many years that it should not be used as an economic regulator. It has almost ceased to believe that Government can, or ever will, resist the temptation to affect its livelihood through public expenditure restrictions or fiscal/monetary policies. It has taken steps to fill the gaps by turning to private financing, or joint activities with public clients, or overseas work. But the level of domestic construction work load is ultimately determined by Government economic policy. The industry can redistribute the work available amongst its participants through normal competitive forces. It can seek to bolster the purchasing power of clients through joint funding techniques. But it cannot create its core activities out of nothing. If there is more work around, there may be more money for efficient firms. If there is more money, there may be more trust. This is not a "begging bowl" approach, or a lack of a can/do" attitude. It is a simple statement of commercial reality. It pervades virtually every decision taken every day by every participant in the construction process.