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Construction industry KPIs shows struggle to improve

Construction 2025 set ambitious targets on time and cost but the latest key performance indicators show serious deterioration in levels of punctuality while on-budget completions fail to improve.

The Construction 2025 industrial strategy was published little over two years ago but questions are already being asked over whether its ambitious improvement targets can be met.

The industry has continued its steady struggle out of recession, and the upturn has made it easy to forget what the previous government had set out to achieve with its industrial strategy.

A 33 per cent reduction in the initial and whole-life cost of built assets, and a 50 per cent cut in the overall time from inception to completion for new-build and refurbished assets: both seemed like ambitious targets that were met with cautious optimism when published in 2013.

But the latest key performance indicators shared exclusively with Construction News by the CITB, Constructing Excellence, Glenigan and the Department for Business, Innovation & Skills show little progress is being made to tackle the dual challenges of time and cost.

Last year’s KPIs suggested cost predictability had been improving steadily, with 69 per cent of overall projects delivered on or below budget.

But punctuality was lagging behind, with only 45 per cent of schemes delivered on time or earlier.

The ldata shows that not only has the industry failed to improve on cost, but that project delays have increased significantly in the past year.

Project punctuality down

The KPIs found that:

  • 40 per cent of overall projects were delivered on time or better
  • 53 per cent of project design was delivered on time or better
  • 48 per cent of project construction was delivered on time or better

The most significant decline was seen in the construction element of projects: only 48 per cent of construction phases were on time or better – down sharply from 67 per cent in 2014.

This figure for construction is the third lowest since records began in 1999 – and is significantly below the pre-recession average of 58 per cent.

Design phases however were delivered on time or better on 53 per cent of projects – up from 52 per cent in 2014.

Overall, only 40 per cent of projects were delivered on time or better, compared with 45 per cent last year; evidently, construction’s poor performance dragged down the overall figure significantly.

Glenigan economist Tom Crane suggests this drop in punctuality reflects the market pressures facing top contractors.

“The more time committed to a project up front, the more you can deliver it right first time on site”

Don Ward, Constructing Excellence

“Projects might be on cost, but given the pressures on labour and materials, it’s taking longer for the construction phase of projects to be completed,” he says.

“Contractors might be keeping costs under control but shortages mean getting projects over the line has taken significantly longer.”

On this evidence, is Construction 2025’s target of a 50 per cent reduction in project completion time achievable?

Constructing Excellence chief executive Don Ward says he is confident the industry will improve performance and meet its punctuality target by 2025.

“People are becoming more aware of the issues around the planning process and smarter procurement,” he says.

“Firms will eventually begin to realise the more time committed to a project up front, the more you can deliver it right first time on site.”

Cost certainty stable

Cost predictability did not record the same slump as timeliness, but still failed to improve compared with 2014.

The KPIs found that:

  • 69 per cent of overall projects were delivered on cost or better
  • 75 per cent of project design was delivered on cost or better
  • 56 per cent of project construction was delivered on cost or better

At 69 per cent, the proportion of overall projects hitting budget was flat year on year.

The figure for the design phase was down slightly from the 79 per cent recorded in 2014, but still well above the long-running KPI average of 68 per cent.

Construction’s performance meanwhile was down just one percentage point from last year’s figures.

Mr Crane says these results should be seen as positive, given the intense cost pressures some contractors have seen over the past 12 months.

“Steady predictability on cost is actually an impressive result, given it’s only slightly down compared with previous years, in spite of the significant cost inflation for materials and labour we’ve seen in the past year,” he says.

All of 2015’s cost predictability stats were ahead of their long-running averages and of pre-recession levels, suggesting a positive long-term trajectory despite the lack of improvement this year.

Mr Ward says the recessionary hangover is still hindering progress. “Obviously a factor in projects taking place during [2014] is that the majority were conceived, if not procured, during the recession,” he says.

“There is no doubt that on the supply side contractors were hungry, bordering on desperate for work, and the cut-throat competition drove prices through the floor; a lot of prices were simply not deliverable.”

Housing vs non-housing

Looking at the two different types of project covered by the KPIs – housing and non-housing – there are some stark differences on both time and cost-effectiveness.

The KPIs found that:

  • 70 per cent of housing project construction was delivered on time or better
  • 45 per cent of non-housing project construction was delivered on time or better
  • 51 per cent of housing project construction was delivered on cost or better
  • 56 per cent of non-housing project construction was delivered on cost or better

On punctuality, housing projects outperformed non-housing projects significantly.

Housing construction was on time or better in 70 per cent of cases, up from 65 per cent in 2014.

This was far ahead of non-housing construction, with only 45 per cent on time or better – down sharply from 67 per cent in 2014.

Looking at projects overall, 51 per cent were completed on time or better, up from 41 per cent – the highest level on record for this particular indicator.

In contrast, non-housing projects saw overall timeliness slip to its second-lowest rating ever, with only 38 per cent completed on time or better – down from 46 per cent in the previous year.

This weaker performance was largely driven by the construction phase on non-housing jobs, only 45 per cent of which came in on time in 2015, down from 67 per cent the previous year.

In contrast, design phase punctuality for non-housing was flat at 52 per cent.

Historically, time predictability has been poor for housing projects compared with non-housing.

“There is a link between an increase in time predictability and a decrease in cost predictability for housing projects”

Tom Crane, Glenigan

Between 2003 and 2015, the average on-time figure for construction phases was 56 per cent for housing projects and 59 per cent for non-housing, putting non-housing’s recent slump into even greater focus.

The upturn in timeliness for housing projects has been underpinned by demand in the market, according to Mr Crane, as schemes such as Help to Buy increase activity and housebuilders focus on getting homes to market on schedule.

Rush on housing comes at a price

However, this increase in punctuality has come at the expense of cost predictability.

Only 51 per cent of housing construction phases were completed on cost or better in the latest KPIs, down from the 58 per cent recorded in 2014.

This figure is also below the long-running average of 52 per cent, though remains an improvement on pre-recession figures.

“There is definitely a link between housebuilders wanting to get projects delivered quickly to meet demand, and a decrease in cost predictability for housing projects,” Mr Crane says.

“This could be a reflection of contractors paying extra to get the necessary workers and extra materials, often at higher rates – you only need to look at the increasing daily wages for trades like bricklayers to see that.”

Non-housing projects have seen no such surge in costs: 56 per cent of construction phases were delivered to budget, down marginally from 57 per cent in 2014 but above the long-term average of 47 per cent.

Looking at the wider implications for industry, what do the latest KPIs tell us?

Firstly, the industry is keeping costs largely under control despite inflationary pressures, showing signs of progress towards the Construction 2025’s cost reduction target.

The data also indicates that profitability may have bottomed out: the median profit margin before interest and tax was 2.8 per cent – up from last year’s nadir of 2.1 per cent.

This figure is still way off the pre-recession heyday of the 2009 KPIs, when median margins stood at 9.9 per cent, and is still the third-lowest on record, reflecting the continuing difficulties faced by contractors.

Nevertheless, 2.8 per cent does at least mark an improvement over last year’s 2.1 per cent and 2012’s 2.7 per cent.

Workforce ageing badly

The figures covering workforce and training, however, offer no such encouragement.

The KPIs found that:

  • Staff turnover for all companies stood at 5.3 per cent
  • On average, 21 per cent of the workforce is female
  • On average, 8 per cent of the workforce is aged 24 or under
  • On average, 14 per cent of the workforce is aged over 55

Staff turnover in construction was up to 5.3 per cent, significantly above last year’s 3.3 per cent and the highest level recorded since 2008.

Mr Crane argues the rise is good news given the especially low levels seen during the depths of the recession – in 2012, staff turnover stood at only 2.1 per cent.

“The big positive is that there’s been something of a return to the churn of staff that we’ve seen pre-recession,” he says.

“The KPIs suggest the people leaving the industry are being replaced, unlike during the recession.”

But the workforce demographic data indicates that, while turnover is up, firms are still failing to attract young people.

Only 8 per cent of the workforce is aged 24 or under – the lowest level recorded since this measure became part of the KPIs in 2012.

Back then the figure stood at 12 per cent, before falling to 10 per cent in 2014 and by a further two percentage points this year.

At the same time, there has been a two percentage point rise in the proportion of over 55s in the industry, which has risen to 14 per cent from 12 per cent in 2014.

Mr Crane says this suggests the people being hired are re-entrants to the industry, rather than entirely new recruits.

In an industry in dire need of young entrants, it is a worrying trend.

Mr Ward argues that this dip is a consequence of young people being turned off the industry during the recession.

“The drop in the number of people in the industry aged 24 and below is the generation that would have entered during the recession – it mirrors what happened in the recession of 1992 to 1994,” he says.

“Still today you can see a hole in the industry of people who didn’t come into the industry during that time. It’s a real concern.”

Upskilling underwhelming

Training, too, has remained static from last year, with the median annual training days per full-time employee standing at 1.2. This is down from the 1.5 per cent recorded in 2012, but encouragingly, it is still ahead of the average levels seen before the recession.

Nevertheless, Mr Ward says these levels seem “very low”.

“There’s not quite enough confidence in the industry at the moment to start recruiting big time, so everyone’s having to work harder and work longer hours, and people are very focused on the short term,” he says.

“Firms don’t have time to think about next year or training for the future – it’s all about ‘now, now, now’, winning work and trying to recover.”

So where do 2015’s KPIs leave the industry on the path to 2025?

Mr Ward is relatively confident of hitting the time reduction targets, but says there are still major worries around whether cost savings can be achieved.

“We’re getting better at running cost, but these KPIs don’t give us much confidence that working the same old ways can deliver anything like those cost savings,” he argues.

“You can keep doing what we’re doing now more efficiently, and you could probably achieve a cost saving of around 10-20 per cent. But if you’re looking at 30-40 per cent cost savings, you need to be doing things radically differently.

“The industry would have to swing with its whole sail towards delivering things differently if we’re going to get anywhere near that target.”

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