A prominent UK professor of construction management has blamed the seemingly intractable problems of the industry – including chronic skills shortages, defective buildings, and business failures – on its response to successive governments’ embracing of laissez-faire economic ideology over the past four decades.
Speaking to this month’s 21CC podcast, Stuart Green said former prime minister Margaret Thatcher ditched the longstanding government practice of alleviating fluctuations in demand for construction by commissioning public housing and other works, which helped to control unemployment and maintain a baseline of skills and capacity in the sector. Listen to a short clip here, full episode below
As a result, contractors adopted a strategy of “structural flexibility”, which Green defined as “the ability to expand and contract painlessly in accordance with fluctuations in demand”.
They began shedding as many overhead costs as possible, including training, direct employment, and investing in productivity, all while pushing risk down to their supply chains.
“The reality is that many contractors have progressively, over the course of the last four decades, removed themselves from taking responsibility for the physical task of construction,” said Green, a professor of construction management at the University of Reading for 21 years, and head of its School of the Built Environment between 2010 and 2017.
“The business model over that period has changed fundamentally, such that it no longer relies on improving productivity. The risk of poor productivity is simply passed down to the supply chain.
“So the dominant business model of what we now refer to as tier one contractors is primarily an exercise in contract trading. They don’t do construction, they do contract trading. That’s what they do.
“They’re set up to get the money in as early as possible and pay it out to the supply chain as late as possible.”
Listen to ‘Is The Industry Broken?’ in the latest 21CC podcast:
‘Flea in their ear’
Green said the turning point came on Friday 15 October 1982, when the so-called Group of Eight – a collection of professional institutions, industry associations, and trade unions – met Thatcher to ask for help in the early 1980s recession, as governments had always done before.
“And of course they got a very clear message from Margaret Thatcher, who apparently talked for the entire duration of the meeting,” said Green.
“She sent them away with a flea in their ear, saying that this is the reality. If you can’t cope with this task of delivering what we need, then we’ll bring overseas contractors in and they will.
“So they went back to their boardrooms and embarked upon a different course of action, which was the adoption of the strategic model of structural flexibility.”
‘In the name of modernisation’
Green says the results showed up quickly in the national statistics: increasing reliance on subcontracting; the rise of “specialist” contractors and the decline of firms labelled “main trades”; the loss of apprenticeships; the steady growth of workforce casualisation to the point where nearly 50% of the construction employees are nominally self-employed, a phenomenon incentivised by the tax and national insurance system.
He suggests we can’t understand seemingly unrelated “black swan” events like the collapse of Carillion, the Grenfell Tower catastrophe, and the emergency closure of defective schools in Edinburgh without considering this fundamental change the industry went through.
“When we talk about the things that don’t work, what we actually end up talking about are the unintended consequences of previous initiatives done in the name of modernisation,” he said.
“Firms have no certainty of what project they’re going to have on the books next year, fluctuating demand, vagaries of the competitive tendering situation: it’s a clear disincentive to invest in their own future. It’s a clear disincentive to employ people directly. It’s a clear disincentive to invest in new technology. It’s a clear disincentive to invest in the workforce.
“These are the things that we now lament as the problems with ‘traditional ways of working’ but, in truth, these are the externalities of the path that we’ve traveled, and I’m afraid the harbingers of modernisation are directly implicated in the failings that we see happening around us today.”
The second edition of Stuart Green’s 2011 book, Making Sense of Construction Improvement, is due out in January, updated to cover the period of 2010 to the present.
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Prof Green records accurately – MT’s demands result in loss of construction skill education, skills and project efficiency as actual risk management and quality control are being pushed down to the lowest level possible where there is least motivation and ability to manage them.
The old system promoted a balanced process which worked well as long as QA and PERT routines were maintained in a disciplined way. Politicians needed to understand that balanced process brings best product and price. It’s a long term, NOT a five year cyclical operation, just like life!
Having worked in pre and post Thatcher era I think Professor Green has absolutely nailed the problem we have in construction at the present time. I just hope his synopsis is seriously looked at and acted upon by those in power, however I’m not holding my breath with the present incumbents, I just have to be hopeful for the future.
I agree with everything said and it’s about time clients when they ask for employment and training records also asked what % of the work did the contractor sub-contract. If it’s over 50% then they shouldn’t be on the list. It’s something CIOB should be promoting.
Agreed – it’s even worse in Singapore. The main contractors have taken non-engagement to a new level. Consultants and architects reign supreme and cannot be challenged. Practical know-how and experience carry no value.
I agree with most of what the professor has said. I also worked in the construction trade pre and post Thatcher. However, some of the problems started in the 1950’s/60’s with tradesmen being encouraged to go on the ‘Lump’ i.e. a fixed price per unit of work (usually set by the main contractor) this encouraged speed rather than quality (where unchecked). It also meant fewer apprentices were employed. The other problem is nobody checks if someone is actually a ‘tradesman’ leading to anybody being able to say they are competent at a particular trade.
Replying to David Stainton: Singapore is highly developed urban nation and generally held up as an an example of how to run a successful country and economy. Are you saying that there a big issues with the construction industry there due to the points you made? What are the symptoms?
Whilst it may have been the Thatcher government and also previous governments implementing this influence on the marketplace, no further governments have changed this path. To take on trainees and direct employees also makes it difficult for individual contractors to change the way businesses operate without being uncompetitive either in the same construction sector, or when competing for resources in competing sectors such as; public, healthcare versus housing and the domestic market. A possible solution; government intervention on employment rules (% of direct employees to turnover) and rules of competing for works in government and private sectors. In a global market how does this work and where individuals have become sole traders or are SME’s and are reaping the benefits??? It would be a bad idea for the big companies to take over and everyone become an employee, we need SMEs and sole traders. We also need an injection of new talent into the market place.
Prof Green records very accurately:ha ving started in the construction industry with tier 1 contractors in 1973 and saw the changes to rely on subcontractors in the early 1980s, then retiring 2020.
This has lead to project managers with really little useful experiences running projects and relying on criticising the subcontractors for misjudgements of their own making. This lead to a bad working relationship between the parties with an attempt to claw back monies from the supply chain and attempted justification for late completions.
Late completions will mean for the project manager extra weekly income to pay for the essentials.
Clients can see the problems but their hands are tied unless justified to demand removal of the project manager, which has happen!
Senior management are foremost interested in the profit margin.
During the late 1970s and early 1980s trade unions were very militant. I had to cross picket lines, suffer abuse. Even one site manager was assaulted. Therefore, sub-contractors were seen as a safer and cheaper choice. The sub-contractors didn’t have the expense of training their trades, buying them in from main contractors. Plus it was part of Thatcher’s plan to break the unions. Now those sub-contractors have the expense of training trades and main contractors using 120-day payments as Carillon once did.