Looking at one of the most challenging periods for construction on record, a new report reveals the full impact on the industry’s key performance indicators.
For the construction industry, 2017/18 was one of the most tumultuous spells in recent memory.
The sector witnessed the tragedy and repercussions of Grenfell, continuing controversies over HS2, and high-profile administrations such as Lakesmere and, of course, Carillion.
Now, a new comprehensive dataset covering the year to 31 March 2018 has shed new light on how this challenging period has impacted industry performance.
The 2018 Key Performance Indicators report, produced by industry intelligence provider Glenigan in partnership with the CITB and Department for Business, Energy and Industrial Strategy, surveyed more than 1,500 clients, contractors and consultants involved in projects completed during the 2017/18 financial year to 31 March.
Shared exclusively with Construction News, the report reveals a sector that is improving on several fronts, but that has also fallen back on a number of others.
Industry productivity for example (measured by value added per employee) rose from £68,200 – relatively unchanged for two consecutive years – to £71,800. This suggests businesses are making more efficient use of their workforces, and could partly explain why median pre-tax profit rose marginally to 2.8 per cent from 2.7 per cent in last year’s report.
However, this did little to improve satisfaction levels within the contractor / client relationship.
On the whole, the proportion of contractors who were satisfied with their clients fell by six percentage points to 71 per cent. Clients on the other hand reported falling satisfaction levels with end-products, level of service and value for money.
Elsewhere, the inescapable impact of Brexit, coupled with a societal shift towards more frequent changes between employers, saw staff turnover rise to 3.2 per cent – up from 2.4 per cent in the previous report.
There were positive developments regarding staff retention, however, as the median percentage of direct employees leaving during the year fell to 6.1 per cent, down from 8.5 per cent.
A dissatisfied industry
The fall in satisfaction levels across much of the industry is one of the most striking findings of the KPIs report.
Client satisfaction with contractors was largely down across the board, with 87 per cent of clients rating their overall satisfaction with the end-product as eight out of 10 or higher. This represented a fall of three percentage points from last year’s report (90 per cent), while satisfaction with the service received from contractors fell from 81 per cent to 77 per cent.
The biggest fall, however, involved value for money. Just 73 per cent of clients rated their satisfaction in this area as 8 out of 10 or higher – a fall of seven percentage points on the previous report and the lowest rating since 2003.
kpis client satisfaction levels 2018
Last month Turner & Townsend’s latest market report found that material costs were set to increase by 5.3 per cent over the next 12 months. The consultant added that London maintained its place as the fifth most expensive place to build in the world, and continued to have “noticeably higher costs than other UK regions”.
Glenigan economics director and author of the report Allan Wilén suggests “the falling satisfaction levels could be reflective of the pressures both industry and clients were facing”.
Mr Wilén does point out that the long-term trend suggests “there’s a much better relationship than there was historically; it’s been on an improving trend, but it’s come off a little compared to last time round”.
When it came to defects on projects, however, the proportion of clients rating their satisfaction at eight out of 10 or higher improved by four percentage points to reach a record high of 82 per cent (clients rated the impact on a project at the point of handover, on a scale from 1-10, where 10 represent zero defects).
“The fact that the satisfaction of contractors with their clients has deteriorated is perhaps reflective of wider frustrations of the working environment that they’re in”
Mark Farmer, Cast
Client satisfaction with consultants meanwhile improved by two percentage points to 76 per cent, but this is as good as it got for them.
Satisfaction in consultants’ overall performance fell from 79 per cent to 75 per cent. For timely delivery, the figure fell by one percentage point to 76 per cent, while for value for money it was unchanged at 72 per cent.
At the same time, contractors’ satisfaction with their clients and consultants dropped to 71 per cent from a record high of 77 per cent in the previous report.
Furthermore, the KPIs show there is a link between the size of a project and a contractor’s satisfaction with the client relationship.
Some 67 per cent of contractors on projects worth more than £5m gave an overall satisfaction rating of eight out of 10 or higher. This figure rose to 71 per cent on projects worth less than £1m, while 86 per cent of contractors on projects worth £1m-£5m reported being satisfied.
kpis contractor satisfaction 2018
Contractor satisfaction with the level of information and payment arrangements provided by clients was also highest in projects worth £1m-£5m, with 86 per cent satisfied with information and 91 per cent satisfied with payment arrangements.
On larger projects, however, only 63 per cent were satisfied with payment arrangements and 67 per cent with the level of information provided by their clients.
“The fact that the satisfaction of contractors with their clients has deteriorated is perhaps reflective of wider frustrations of the working environment that they’re in,” Cast Consultancy CEO Mark Farmer suggests.
“Their struggle to make money and get projects delivered – in some instances that’s probably reflective of the fact that its clients and their advisers that are contributing to some of those issues.”
Time and cost predictability
While it remained on a long-term upward trajectory, the proportion of jobs completed on time or better fell from 66 per cent to 63 per cent in the latest KPI report.
This was the result of a steep fall in the predictability of the construction phase, with the proportion of these phases finishing on time or better down eight percentage points to 59 per cent. Time predictability on the design phase of projects was unchanged, though remained worse than that of the construction phase at 53 per cent.
One of the most high-profile recent design-phase delays afflicted HS2. The start of the civil construction phase was pushed back earlier this year from March to June 2019, to give suppliers “additional time to optimise their designs” on the £55.7bn project.
Morgan Sindall managing director for construction Pat Boyle says it is difficult to draw conclusions from these numbers, as various things can impact the time taken to complete a project. “Time can be quite an unusual one because there were big events this year around weather, things like the Beast from the East could have had an impact on the numbers we’re looking at,” he says. “It’s very difficult to say there’s change within the industry as a result of this.”
kpis time cost predictability 2018
Cost predictability meanwhile, which represents the proportion of projects completed to cost or better, was up marginally by one percentage point to 66 per cent.
Within this, cost predictability for the design stage was unchanged at 67 per cent, while for the construction phase the figure edged up from 65 per cent to 66 per cent.
Breaking the figures down by sector, the proportion of housing projects completed to cost or better finally stabilised at 60 per cent – unchanged from the previous year – having declined sharply from a high of 81 per cent in 2012.
Housing cost predictability has now come almost full circle since the last recession, having stood at 65 per cent in 2009.
People and skills
Looking at data on the industry’s workforce, the report offered a mixed bag.
The median rate of staff turnover across the industry rose to 3.2 per cent, up from 2.4 per cent in the previous dataset. Glenigan suggests this could reflect “an increase in hiring pressures as industry workload grew and […] reduced availability of overseas labour”.
The latest staff turnover figure is still below the 5.3 per cent recorded in 2015, and significantly lower than the high of 6.3 per cent seen in 2008 at the start of the recession.
Cast’s Mr Farmer suggests there could be multiple reasons for the increase. “It’s a reflection of stress in the labour market,” he says. “It’s a demand-led market at the moment, people are being attracted by salaries going up. If you’re good, or in some instances if you’re not that good, you can command a bit more money and that’s telling in people starting to move around a bit more.”
“Time can be quite an unusual one because there were big events this year around weather, things like the Beast from the East could have had an impact on the numbers we’re looking at”
Pat Boyle, Morgan Sindall
Mr Farmer says another contributory factor could be a “societal shift” where people “don’t necessarily see it as a job for life”. This is a trend, Mr Farmer argues, that is more prevalent among the younger generation.
However, the KPIs show that while staff turnover rose, the rate at which direct employees left companies slowed, with the median firm losing 6.1 per cent of its employees – down from 8.6 per cent in last year’s report. This is a welcome reduction, given this figure has been above 7 per cent every year but one since 2012.
In further positive news, the amount of training provided among the industry firms surveyed hit its highest level on record. The median firm provided 2.2 days of training, up from 1.3 days and the highest number recorded by Glenigan in its 15 years of monitoring this metric.
Staff turnover, 2018 report vs previous year
kpis staff turnover 2018
Productivity – measured by value added per employee – also grew, up 10.4 per cent in 2018’s report having declined by 2.1 per cent in last year’s.
Mr Wilén describes the rise as “encouraging and also slightly surprising”, but is likely to be reflective of the nature of projects completed. “One of the factors that may change that is product mix. If you do less labour-intensive work, that could be a factor,” Mr Wilén says.
Reflective of an uncertain climate?
Productivity is far from the only metric in this year’s report that is potentially ambiguous.
For example, while training days are at record highs, employees aged 24 or under accounted for 2 per cent of workers at the median firm surveyed – down from 7 per cent in the previous survey.
Similarly, the proportion of projects being completed on the time or better fell three percentage points, yet those finishing on or below budget was up one point.
What is undeniable is that all the primary measures of satisfaction have decreased in this year’s report. If, as Glenigan’s Mr Wilén suggests, growing levels of dissatisfaction among clients and contractors are being driven by increasing market pressures for both clients and contractors, these metrics may well decline further next year.