The latest UK Construction Industry Key Performance Indicators (KPIs), published today, reveal the impact on the industry of the harsh market conditions endured over the past four years, with average profitability falling to a new low of 2.7%, in marked contrast to the 9.9% seen in 2009.
The KPIs are based on data from thousands of construction projects completed during 2011 and are produced for the industry by Glenigan and Constructing Excellence with the support of the Department for Business Innovation and Skills. The survey shows that only one in three projects finished on time – the worst result in 12 years of the survey.
Allan Wilen, economics director at Glenigan, which has produced the annual survey of industry projects for 14 years, commented: “The double-dip recession is leaving its mark on the industry. As workloads have fallen, margins have been squeezed and firms have shed labour. The latest Indicators suggest that this challenging economic environment is now undermining the industry’s efforts to deliver an improved product and service to clients. The 2012 Key Performance Indicators have recorded retrenchment in a number of important areas, covering client satisfaction and the delivery of projects to time and to budget.
“More encouragingly, our analysis found higher levels of both client and contractor satisfaction on projects where KPIs had been used to monitor performance during the construction and design process. The difference was particularly marked for clients’ perception of service delivery, with 80% of clients giving a rating of eight or more out of 10 on projects using KPIs, compared to 70% on non-KPI projects. This appears to demonstrate how using KPIs can improve the dialogue across the supply chain and hopefully help secure repeat business from clients.”
Wilen added: “A slow, but sustained, improvement in the satisfaction KPIs has been arrested by the protracted downturn in construction activity. Client satisfaction levelled off during 2010 and 2011 and has slipped back in the latest set of indicators.”
Client “satisfaction with the finished product” scored an eight out of 10 or higher on 83% of surveyed projects – a slight decline on the record 87% achieved during 2010 and 2011. Clients with large projects (those value at £5m or more) were less satisfied (79% scored eight out of 10 or better) than those with small projects of less than £1m (84%).
Client satisfaction with the service received from contractors also declined for the third consecutive year. At 75% the proportion of clients rating service as eight out of 10 or better has dropped to a level last seen in 2007. There was a disparity between client satisfaction with large projects and those with smaller projects (71% compared to 77%).
There was also some variation between the types of project. Clients rated the service lowest on private housing projects with 59% giving a rating of eight or more out of 10. This is despite 85% of clients on such projects rating the product highly.
On 78% of projects, clients scored “value for money” as eight out of 10 or higher. This is a 3% drop on 2011, but the third highest mark since the survey started. Once again, projects under £1m fared well with 81% of such projects rated eight out of 10 or better. This compares with just over three quarters of large projects.
Wilen commented: “Conversely, contractors reported an increased satisfaction with their client’s overall performance as well as the provision of information and payments. At this stage it is unclear whether this marks a structural and hopefully permanent improvement. The economic recession may be a contributory factor with repeat clients accounting for a greater proportion of projects completed during the year. Companies reported that, on average, 79% of their turnover was from companies they had previously worked with.
“Encouragingly, analysis found higher levels of both client and contractor satisfaction on projects where KPIs had been used to monitor performance during the construction and design process. The difference was particularly marked for clients’ perception of service delivery, with 80% of clients giving a rating of 8 or more out of 10 on projects using KPIs, compared to 70% on non-KPI projects.”
KPIs in more detail
The report shows that contractor satisfaction scored highly in 2011. The KPIs either equalled all-time highs or set new highs. However, like clients, their satisfaction decreased as the projects got bigger.
Overall contractor satisfaction with the performance of the client rose to a new high during 2012, with three quarters of contractors rating the client’s performance as eight out of 10 or better. Satisfaction was especially high on projects valued under £1m, with 79% of such projects achieving a rating of at least eight compared to 73% of larger projects.
Contractor satisfaction with the client’s provision of information reached a new high, with 74% giving a rating of eight out 10 or higher. 70% of contractors on projects with a construction value of £5m or more gave such a rating. This compares to 55% in last year’s survey. On small schemes, 77% of contractors rated the provision of information by the client as eight out of ten or better, up from 69% in 2011.
Contractor satisfaction with payment also improved. Four out of five contractors gave a rating of eight or above; the greatest proportion since the survey started.
The KPI for the clients’ rating of the “condition of the facility in respect to defects” improved, recovering some of the ground lost during 2011. 74% of clients rated the impact of defects as eight out of 10 or better; this compares to 68% in 2011 but is still off the 77% peak achieved in 2009. Larger projects continue to drag down the overall rating, with only 62% of schemes over £5m securing a rating of eight or more compared to 74% of projects of £1m to £5m and 79% of small projects.
Recent improvements in the cost predictability measures were maintained during 2012, while the year saw a reversal of the trend in the time predictability KPIs.
Project costs were on budget or better for 61% of projects; this is slightly down on the record 63% recorded in 2011, but substantially above the level achieved in any previous year.
Design costs came in on or under budget 79% of the time. This maintained the record high set in 2011. The predictability of design costs was especially good on large projects, with 83% of £5m plus schemes being on budget or better, this compares to 74% of sub-£1m projects.
Predictability in the cost of construction was broadly unchanged on 2011, with 58% coming in on budget or better compared to 59% last year. Projects of £5m or more were on budget or better only 46% of the time compared to 60% for projects under £1m; in contrast to 2011 when larger projects outperformed smaller schemes
The time predictability KPIs are less encouraging, with the improving trend in all three measures suffering a reversal during 2012. Whilst poor weather may have played its part, the deterioration suggests that the harsh economic climate is taking its toll. Funding issues, fragile market conditions and related delays in starting the construction of projects may have contributed to the slide in the predictability of the design phase.
It is noticeable that the predictability of private housing projects was especially poor, suggesting that the weak housing market has impacted on both the design and construction phases of surveyed projects. In addition, firms across the construction industry have had to shed labour over the last five years; this may now be constraining firms’ ability to respond promptly to the unanticipated demands during the design and construction phases of a projects life and having a detrimental impact on its timely delivery.
Projects, as a whole, came in on time or better 34% of the time. This compares to 45% or projects in 2011 and is the worst performance for 12 years. Projects under £1m were more on time than their larger counterparts (43% versus 27%). The time predictability for the design has slipped back further, with design being delivered on time or better for only 48% projects. This compares to 51% in the previous year and the record high of 59% recorded in 2010. The construction phase was on time or better for 42% of projects. This compares to 60% last year.
Industry profitability has continued to tumble, falling from 5% in the 2011 survey to 2.7% this year. This is the lowest level since the survey began and is in sharp contrast to the peak of 9.9% recorded in the 2009 survey. The progressive decline in profit margins charted by the last three surveys reflects the squeeze on contractors’ margins from falling tending prices.
The initial sharp jump in productivity seen in the 2011 survey results was due to contractors making more efficient use of a slimmed down workforce. In contrast the latest year has seen a more modest improvement, with productivity rise by just 1.1%.
The first few years of the survey saw safety KPIs improve dramatically. In 2007, the percentage of contractors reporting no accidents topped 60% for the first time and remained steady during the subsequent four years. This has been maintained in the latest survey, with 63% of main contractors reporting a zero accident rate (the rate rises to 80% for contractors and subcontractors).
The official HSE statistics have also recorded a sustained improvement in the industry Accident Incident Rate, which fell to 536 per 100,000 employees in 2010/11, a 7% reduction on the preceding year.
Respect for People KPI
Respect for people data has been collected and analysed for 11 years. The latest survey includes a series of new KPIs covering CSCS take-up, changes in direct employment and the composition of the workforce. The first four years showed steady improvement in most areas, but the picture has been mixed since then.
The downward trend in staff turnover has been reinstated, with average turnover dropping to a new low of 2.1%. Unfortunately the fall appears to reflect retrenchment across the industry. The new KPI on staff loss found that on average 9.1% of direct by employees had left the surveyed firms during the year. The low staff turnover figure suggests therefore that departing employees are not being replaced.
Sickness absence returned to a median of 1.7 days lost per employees per year, having dropped to a record low of just one day lost per year in 2011. Conversely, median training days improved. Having fallen to an all-time low of just 0.6 days per employee last year, training rose to 1.5 days, suggesting that firms in part may be have been investing training that had been deferred from the previous year.
Employees covered by Investors in People commitment & recognition slipped back from 18% to 14%.
The median number of employees qualified to NVQ Level 2 or higher rose sharply to 66%, almost twice the level seen in 2011. Over half (56%) of direct employees held a Construction Skills Certification Card (CSCS).
On average 15% employees were women. People under 24 accounted for 8% of employees and 11% of employees were aged over 55.
Environmental indicators
This year’s Environmental KPIs reveal strong improvement, especially in the areas of energy usage and waste reduction.
Looking at product performance, the designed median energy use fell to 2,000 kg CO2 per 100m2 of gross floor area. This is a 41% decline on 2011. The median Housing SAP2005 rating has also improved and at 86.5 is 4.5% up on a year ago. Less encouragingly, designed average waste usage was unchanged on the previous year and the proportion of respondents reporting no change or an increase in created or retained habitat on a scheme fell slightly to 77%.
On-site energy usage has fallen sharply. Median energy use, at 196kg CO2 per £100,000 of project value (current prices), is 36% lower on a year ago.
Mains water use rise from the record low recorded in 2011. In contrast waste and commercial vehicle movements have maintained their downward trend, to reach new record lows.
The median waste removed from sites saw a fifth successive decline, falling by 27% to record low of 19.4m3. At 24m3, waste from small projects was 21% down on 2011. In contrast median waste from larger projects rose fell by 56% to 17.3m3.
Median commercial vehicle movements also fell to 16.1 per £100,000 of project value from 19.7 in 2011, a 26% decline. Vehicle movements were highest on sub-£1m projects at 34.2 per £100,000.
