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Farmer Review: Construction industry must 'Modernise or Die'

Mark Farmer’s review into the structure and operation of the UK construction industry features some eye-opening facts and stark recommendations.

The UK construction industry is in extremely poor health.

For years it has battled with low margins, poor productivity and fragmentation, the consequences of which are coming to a critical juncture.

That is the central message running through a stark report published today and written by Mark Farmer, chief executive and founder of Cast Consultancy.

In February, Mr Farmer was set a task by the government, through the Construction Leadership Council, to identify solutions that will fix this failing market.

The outcome was a 80-page report, laying out 10 recommendations to fundamentally change the way the industry operates, particularly in the delivery of housing where the UK is falling severely short.

Among Mr Farmer’s proposals are major changes to the CITB, the creation of a new build housing pipeline (similar to the National Infrastructure Pipeline) and a tax on clients that fail to innovate.

Mr Farmer insists that this is not another ’must do better school report’ as he tells the industry: Modernise or Die.

Symptoms and Diagnosis

The construction industry is showing signs of failure and poor performance in a number of areas, according to the report.

Mr Farmer has identified 10 critical areas here, which include dysfunctional training funding and delivery models and a chronic lack of investment in research and development in innovation.

There are three fundamental problems sitting behind these 10 characteristics, he adds, which help to explain why the industry is struggling.

He says the most important of these issues is that there is no strategic incentive or framework in place, such as government policy or wider public client measures, to help contractors and clients to overcome these challenges.

His prognosis for the industry if no action is taken is bleak, with factors including construction cost inflation and workforce availability only placing further pressure on the sector.

 

Modernise or die graphic

Modernise or die graphic

Over the next 10 years, the UK could see a 25 per cent decline in available workforce, Mr Farmer estimates – a scenario that the UK has never faced before.

Such a decrease would render the industry incapable of delivering the infrastructure and housing that the country badly needs.

Migrant labour has previously played a crucial role in UK construction, particularly in London and the South-east and the UK’s vote to leave the EU could place further pressure on this lack of available domestic workers.

The report says that a tipping point is likely to be reached in the next five to 10 years, when the industry’s symptoms will worsen and its decline will become irreversible.

Recommendations

One: Construction Leadership Council should have strategic oversight of the implementation of these recommendations.

Mr Farmer describes the CLC as a good starting point to implement change, whilst suggesting areas where the organisation could be easily improved – namely by better representing all parts of the industry on the panel.

Two: CITB should be totally reformed.

There are a number of aspects to the CITB that Mr Farmer proposes need to be reviewed, ranging from its levy – the principle for which he says is a sound one but that needs to be more efficient – to the historic legislative mandate under which it operates.

Three: Industry, government and clients should expand on the work being done through the CLC’s business models work stream, to improve supply chain relationships and increase investment in R&D by changing commissioning trends.

The CLC meets four times a year and focuses on six working streams to deliver improvements to the industry: skills; supply chain/business models; innovation; sustainability; trade; communications.

Mr Farmer says the business models stream, which focuses on aligning client and contractor interests, should be a starting point to drive change.

Four: Industry, government and clients should expand on the work being done through the CLC’s innovation work stream, to create an innovation programme, with a focus on residential construction.

The report also backs the CLC’s innovation work stream and says an innovation programme should be drawn up looking at areas including ‘factory sharing’ to spread the risk for SMEs looking to use offsite solutions.

Five: CITB should reorganise its grant funding model for skills and training to better reflect what a future modernised industry will need. Industry bodies and professional institutions should also take a more active role in producing talent that is appropriate for a digitally enabled world.

This would form part of the CITB reform programme laid out in recommendation two, looking at the skills and training needed to design an appropriate grant system.

Six: A reformed CITB or standalone body should be challenged and given power to change the image of construction industry, through a school outreach programme.

Mr Farmer argues that there is a real need for a central body to lead on improving the image of construction through marketing and outreach programmes into schools at 11+ level.

Seven: The government should be willing to intervene to better the construction sector, through appropriate further education, planning and tax/ employment policies.

The report says that government support for the sector can come in a number of forms, including reforming section 106 agreements or assessing how the Construction Industry Scheme can further disincentivise false self-employment.

Eight: The government should promote the use of pre-manufactured methods through policy measures. This could be done in a number of ways including: incentivising institutional investment into PRS; promotion of solutions through social housebuilding by registered providers; direct commissioning; or a combination of the above. It should also consider planning breaks for pre-manufactured approaches.

Mr Farmer argues that the government can intervene in the housing sector, whilst promoting new business models and innovation, through the three routes mentioned above.

Nine: The government and private sector should work together to develop a pipeline of demand in the new build housing sector, similar to the National Infrastructure Pipeline.

He says the housing sector would benefit from greater visibility and confidence of future demand for new public housing and suggests that government and industry should work with local and regional authorities as well as registered providers to get a better understanding of their plans including the quantity and timing of delivery.

Ten: If clients fail to act and adopt the above recommendations, the government should introduce a tax of no more than 0.5 per cent of a project’s total construction value in an attempt to alter behaviour. Clients would be able to avoid paying this by demonstrating how they are improving the industry – particularly around skills and innovation.

Mr Farmer argues that private clients must be at the heart of change in the industry, given that they account for 75 per cent of work commissioned in the sector, adding that behaviour is one of the largest barriers to overcome.

He suggests implementing a small charge to try and shift behaviour much in the same way the carrier bag tax did for consumers after it was imposed by the government in 2015.

Any money collected from the charge would then build a supplementary fund in addition to the CITB levy or its equivalent, which could be used to invest in technology advancement.

A timescale for a decision on whether to introduce the client tax should be set out by the government well in advance and in any event should be decided in the next five years, he argues.

What next?

Mr Farmer says that in order for real change to occur everyone would need to act and warns that “cherry picking” recommendations could have negative impacts.

The report is being shared with government departments, with ministers waiting to see how the industry responds before it makes its move.

“All interested parties should consider and reflect on the impacts set out in this review of potential industry decline, not only from their own perspective but also hopefully prompting the desire for us to collectively create an appropriate legacy for future generations,” Mr Farmer urges.

“I truly believe that being part of the engine room delivering our nation’s built environment and by implication, economic prosperity, offers a massively dynamic and fulfilling career. 

“However, continuing as we are is not an option if we are going to be able to make that claim in the years ahead.”

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