Select Committee on Business and Enterprise Written Evidence

Memorandum submitted by the Department for Business, Enterprise and Regulatory Reform (BERR), formerly the Department of Trade and Industry (DTI)

INTRODUCTION

  1.  This memorandum sets out for the Committee the Government's approach to the UK construction industry in the context of the issues raised in the call for evidence. We are grateful to our colleagues in other Government Departments who have helped prepare this written evidence. Where it is particularly significant to the questions posed by this Inquiry, the information they have provided is presented in Annexes.

  2.  After a brief discussion of the industry context, this memorandum seeks to cover each of the 11 headings set out in the Trade and Industry Committee's call for written evidence, focussing in particular on the key issues of long-term capacity, employment and payment practices, availability of and investment in skills, and regulation, with details of related policies and interventions.

THE UK CONSTRUCTION INDUSTRY

  3.  Construction is one of the pillars of the national economy and accounts for 8.7% of national gross value added. But its economic importance is wider than that—well managed and successfully delivered construction projects can improve the delivery of public services (such as health, education or transport), improve business productivity (more productive factories and offices) and improve standards of living and the natural environment.

  4.  There are over 270,000 enterprises active in the industry, employing over two million people. The industry is experiencing a period of sustained and high level activity and is responsible for nearly 20% of construction activity in the EU. A more detailed statistical summary is attached at Annex A and supplementary information at Annex B.

  5.  As Sir John Egan observed in "Rethinking Construction", at its best the UK construction industry is world class. The industry is flexible. Its workforce is willing and adaptable. Its ability to deliver the most demanding projects matches that of any other construction industry in the world.

  6.  However, the "traditional" industry is often considered to be one with a low and unreliable rate of profitability, which invests little in research and development, in capital or in training, and which works indiscriminatingly on the basis of lowest price. The extensive use of sub-contracting has bought contractual relations to the fore and made it more difficult to develop the continuity of supply chains which can be so important for efficient working.

  7.  Nowhere is this fragmentation clearer than within the construction industry's representative bodies—an informal survey commissioned by Wates (contractors) in 2006 uncovered a "whole cottage industry—over 300 organisations". It is for this reason that DTI works very closely with the construction industry through its umbrella bodies and the Strategic Forum for Construction.

DTI, THE STRATEGIC FORUM FOR CONSTRUCTION AND RETHINKING CONSTRUCTION

  8.  DTI's Construction Sector Unit (CSU):

—    works with the construction industry and with Government to improve the industry's performance and deliver policy objectives; and ensures where appropriate, that the views of the construction industry feed into policy development across Whitehall and in the European Union; and

—    acts as a critical friend to the industry, helping guide it through its relationships with Government. If there is an issue of concern to the industry, where CSU thinks industry has a sound case, it will take that up on the industry's behalf.

  9.  DTI's relationship with the construction industry is set firmly in the context of Sir John Egan's Rethinking Construction which was published in 1998. Rethinking Construction sets out an approach which leads to substantial improvements in quality and efficiency. Annex B contains some more information on this.

  10.  In 2002 the Strategic Forum's Rethinking Construction: Accelerating Change identified the 4 main areas of focus which were key to the widespread delivery of the Egan approach. They are:

—    client leadership—clients procuring projects in a way that allows all in the integrated team to maximise the added value their expertise can deliver;

—    integrated teams and supply side integration—created at the optimal time in the process to fully release the contribution each can make and share risk and reward in a non-adversarial way;

—    culture change in "people issues"—a positive image, an emphasis on education and training and behaviour based on mutual respect; and

—    a focus on the end product.

  11.  Increases in the efficiency of construction industry processes will also pay significant dividends for sustainable development. It is in the context of Rethinking Construction that DTI, working with other Government Departments and industry, is developing a strategy for sustainable construction. This will identify ways in which the industry and Government can ensure that the construction industry plays a full role in securing a sustainable legacy for future generations.

LONG-TERM CAPACITY FOR THE DELIVERY OF LARGE INFRASTRUCTURE PROJECTS ON TIME AND ON BUDGET/DELIVERY OF THE GOVERNMENT'S CAPITAL INVESTMENT PROGRAMME

  12.  The report Increasing Competition and Improving Long-term Capacity Planning in the Government Market Place by Sir Christopher Kelly in 2003 made recommendations on public sector procurement in construction in the following three areas:

—    Market Consultation—ways of engaging suppliers at an early stage in public sector procurement;

—    Market Shaping—ways to help the market by identifying any pinch points and capacity issues; and

—    Market Intelligence—ways of sharing supply and demand information to enable better future planning by suppliers and procurers.

  13.  OGC (Office of Government Commerce) has put in place systems to collect forward-look demand data. It also works with the supply side to consider its capacity to deliver.

  14.  DTI is a member of the Public Sector Construction Clients Forum (PSCCF) which, since its creation in December 2005, has led on this work. Membership of the PSCCF is drawn from key Government spending Departments, and from the construction industry through the Strategic Forum for Construction and Constructing Excellence.

  15.  OGC published a report in July 2006 on construction demand and capacity. The report examined the UK construction industry's capacity to deliver the public sector's built environment programmes between 2005 and 2015.

  16.  The report's key findings were:

—    The UK construction industry was not expected to face significant general labour capacity constraints to 2015, on the assumption that there would be no restrictions on the use of migrant labour.

—    Significant potential specific skills shortages were identified in project management. Other areas where skills could be in short supply were design (eg Mechanical and Electrical), civil engineering, bidding capacity and client-side leadership capacity).

—    Olympics construction expenditure was expected to add on average 0.12% per annum to output price inflation and 0.2% per annum to tender price inflation in London between 2006 and 2010; inflation premium would peak at 0.6% during 2006-07.

—    Energy and steel cost fluctuations could have a further impact on output prices.

  17.  The study produced an econometric model which can be used to model scenarios to inform investment decisions in public sector construction.

  A more detailed note prepared by OGC is attached at Annex C.

  18.  DTI is working with the industry and clients on a number of initiatives to ensure the industry is well placed to meet demand. Widespread adoption of the Egan approach throughout the industry and the more effective use of offsite construction methods will have a significant impact on the capacity of the industry to deliver the right end product.

  19.  DTI works closely with the Strategic Forum, the umbrella bodies and Constructing Excellence to help promote the Rethinking Construction approach throughout the industry. We have worked particularly closely with the Forum in the areas of integration, sustainability, and health and safety.

  20.  Most recently this has resulted in the development of the 2012 Construction Commitments. DTI's ambition, which is shared with the Strategic Forum, is for the Olympics to act as a showcase for best practice construction and for this to catalyse change (and increased productivity) more widely throughout the industry.

  21.  DTI is also collaborating with the Department of Health to establish a managed innovation and knowledge transfer programme for the Local Improvement Finance Trusts Companies (LIFTcos) to deliver improved primary health care facilities. Please see Annex B para 8 for more information.

  22.  In addition DTI is working with OGC to support BuildOffsite, to promote offsite construction techniques which will help the effective delivery of public sector programmes. Please see Annex B paras 9—10 for more information.

  23.  OGC and DTI continue to work with Government Departments to embed the best practice encapsulated in the Achieving Excellence in Construction suite of Guidance documents.

  24.  Large scale regeneration programmes are taking place in all of the English regions and the Regional Development Agencies (RDAs) have a strong interest to make sure that the construction industry is able to operate as an effective partner in these schemes. Very large projects, such as the Milton Keynes South Midlands growth area, will place demands on the sector that could have a significant impact both on capacity and standards. The RDAs are working with the Sector Skills Councils to support the matching of industry skill supply and demand in their areas.

EMPLOYMENT AND PAYMENT PRACTICES

Payment

  25.  Cash flow is the lifeblood of construction and ensuring a fair payment culture throughout industry supply chains is an essential part of the implementation of the Egan agenda.

  26.  DTI has worked closely with the OGC and the industry, through the PSCCF, to gain a consensus view on what constitutes fair payment best practice and to develop a fair payment charter for use by clients and industry. It is also intended that supply chains on all Government construction projects will use these.

  27.  In addition, DTI is reviewing Part II of the Housing Grants Construction and Regeneration Act 1996 to identify potential improvements. We plan to publish a consultation paper soon setting out the precise legislative wording of our proposed changes on which we will welcome the views of the industry.

Employment

  28.  Respect for People—The Egan agenda highlighted the importance of showing care for the workforce, embracing health and safety, good site conditions, how people work with each other, and the provision of learning/development opportunities. DTI has worked closely with Constructing Excellence, supporting the development of Toolkits to help firms benchmark and improve their performance; with HSE and the industry to develop the Code of Good Health and Safety practice; and has championed "respect for people" as a core business value through awareness leaflets and Constructing Excellence workshops.

  29.  Self employment/direct employment—Construction can be characterised by long and complex supply chains. Nearly all the main contractors sub-contract specialist expertise and labour. Typically, firms responsible for carpentry, bricklaying, and other traditional construction trades engage workers either on a directly employed basis, or from recruitment agencies.

  30.  There may be occasions where it would be appropriate for contractors to engage self-employed contractors. All projects are different, so it would be wrong for Government to set blanket rules on direct employment either for public sector contracts, or more generally, and it has no plans to do so.

  31.  For many individuals in construction, self-employment is a natural and desirable career path. Where the arrangement is legitimate, this reflects wider Government policy to encourage enterprise.

  32.  Many construction companies such as specialist sub-contractors (roofing; flooring; painting and decorating) employ workers directly. Long-term "framework" contracts (eg repair and refurbishment) awarded by housing organisations provide a continuity of work that provides a sound business footing, enabling contractors to engage workers directly. This may also support a local procurer's wider community employment objectives. Large scale projects (Terminal 5 is the oft quoted example) can also provide opportunity for contractors to engage workers directly. Advantages of direct employment often cited include the value of investment in the training of apprentices, for the company and the long-term needs of the industry, and clearer management control of health and safety.

  33.  However, false declaration of self-employment is wrong. HMRC leads on operation of the "new look" Construction Industry (tax) Scheme (introduced on 6 April 2007) There are new procedures to help firms to classify correctly the employment status of those they engage. Please see Annex D for more information.

  34.  The submission from the Department for Work and Pensions (Annex E) gives more information on employment-related issues.

AVAILABILITY OF, AND INVESTMENT IN, SKILLS

  35.  Government is committed to encouraging the development of skills in the workplace. As co-signatories of the Government's Skills Strategy, co-sponsors of the Skills for Business network and through the Skills Alliance, DTI fully supports the reform of learning and skills provision, and recognises the importance of ensuring that provision, qualifications and access routes to training meet employer needs.

  36.  The four built environment Sector Skills Councils (SSCs): ConstructionSkills (building and civil engineering); SummitSkills (building services engineering), AssetSkills (facilities management); and Proskills (construction products) work together through the Built Environment Skills Alliance (BESA) of SSCs, to help to develop a shared vision for a framework of standards and qualifications. This memorandum focuses on issues facing construction, although other built environment industries have similar challenges.

Capacity aspects: Availability and suitability

  37.  Over two million people are employed in construction. This is expected to grow to more than 2.8 million by 2011. According to ConstructionSkills (the industry's Sector Skills Council), there is a requirement for around 87,000 skilled workers (at all levels) for each of the next five years, to deliver the expected growth and replace those who will leave the industry. The highest demand will be in Greater London, the South and the East of England, with the greatest increases in employment in the trade skills—bricklayers, cladders and roofers, painters and decorators, scaffolders and wood trade workers. There will also be a significant need for professionals and managers.

  38.  The Leitch Review of Skills, Prosperity for all in the Global economy—world class skills, published in December 2006, pointed to demographic factors that will come into play over the next 15 years and will affect areas of the economy which require skilled trades, such as construction.

  39.  The under representation of women and ethnic minorities remains a priority issue for the industry. Labour force statistics show that marginal improvements are being made, but the proportion of women employed in construction is only around 10%, and those working in manual trades only 1%.

  40.  Historically, the construction workforce has been largely unqualified, with workers building up their skills through experience on the job. But for some years the industry has been pushing for a fully qualified workforce. Partly as a way to improve quality of work, but also to improve the health and safety performance of the industry. In 1995 the industry decided that Qualifying the Workforce would be a priority action. The mechanism chosen for attaining this goal was the Construction Skills Certification Scheme (CSCS). Government welcomes the Qualifying the Workforce programme.

  41.  ConstructionSkills comprises the Construction Industry Training Board (which was first established in statute under the Industrial Training Act 1964 and has the power to raise a levy on employers to fund training); the Construction Industry Council and the CITB Northern Ireland. CITB is one of only two remaining statutory training boards. ConstructionSkills is the lead body, licensed by Government (the Sector Skills Development Agency) and responsible for developing and implementing strategies to tackle the skills/recruitment needs of the industry. ConstructionSkills, DTI and OGDs work closely together to address specific policy and operational issues as they arise (see Annex F).

Investment in improving skills

  42.  The importance of skills is recognised in DTI's vision of creating the conditions for business success. Skills are a key enabler for industry to achieve improvement in productivity, competitiveness, and sustainability.

  43.  The skill sets acquired by construction workers largely reflect the building and engineering processes and products laid down by clients and designers. These are mainly the traditional building skills; bricklaying, carpentry etc. These are likely to remain in highest demand for the foreseeable future. Innovative construction techniques and products, driven by a demand for greater sustainability, and the efficiencies of Modern Construction Methods, are increasingly being specified. These are highlighting the importance of ensuring that skills sets reflect, and keep pace with developments—eg off-site produced timber-framed dwellings, factory produced modular kitchens and bathrooms. Against the backdrop of a highly mobile labour force it is important to ensure that the industry invests in skills for the future.

  44.  Business interests look to DTI support on the skills agenda to help meet employers' expressed needs. DTI has strongly encouraged business to get involved in the demand-led skills agenda and to engage with the Skills for Business Network. We will continue to promote the demand-led approach for Train to Gain (a Learning and Skills Council service to employers—please see Annex F para 15 for more information).

REGULATORY MATTERS, SUCH AS HEALTH AND SAFETY AND THE BUILDING REGULATIONS

  45.  Cutting red tape and improving regulation is a key priority for DTI. Our aim is for a light touch regulatory environment, with less red tape and burdens on business, while protecting the public, consumers and employees. Much of the regulation impacting on construction for which DTI is responsible (in particular employment law, consumer law and company law) is common to all business sectors. DTI's regulatory simplification plan was launched in December last year. It seeks, where appropriate, to reduce red tape and burdens on business by simplifying the regulatory environment. DTI has identified initiatives to reduce the administrative burdens on business resulting from its regulations by £700 million. These include some of the proposals we may introduce to improve the operation of the Construction Act.

  46.  Constructionline is a DTI scheme designed to reduce significantly the time and cost for construction firms in tendering for contracts, by providing the ability to prequalify once using the scheme and then to provide registration details to the procuring organisations as proof of bona fides.

  47.  Other legislation and regulatory measures specifically relevant to construction include health and safety, and Building Regulations.

Health and Safety (HSE Annex G)

  48.  The construction industry is one of the most dangerous industries for workers accounting for 25% of workplace fatalities and 16% of major accidents in 2005-06. Improved health and safety performance is a priority for government and the industry. After a period of declining fatalities (59 in 2005-06), the figures for 2006-07 are expected to show a marked increase of around 20-25%.

  49.  The Health and Safety at Work etc Act 1974 provides equal protection for all employees. The Health and Safety Executive (HSE) monitors industry's compliance with health and safety legislation and focuses on standards achieved.

  50.  Since 2000-01, when construction fatalities and major injury rates rose, a step change to improve health and safety performance has been sought through a series of collaborative (industry, HSE and other government departments (OGDs)) initiatives. High-level summits have been held, including one that identified a key role that the public sector could play as a construction client in raising health and safety standards. Industry also set its own challenging targets. HSE is working in partnership with OGDs, eg with DCLG (Department for Communities and Local Government) (to promote health and safety through the building control and planning regimes), DTI (to promote integrated teams) and OGC (through the PSCCF). Following extensive consultation, new Construction (Design and Management) Regulations 2007 (CDM2007) came in to force on 6 April 2007. The Regulations were developed in close partnership with the industry and OGDs, including DTI and addressed concerns with the Construction (Design and Management) Regulations 1994. Implementation is expected to provide the environment for the construction industry to improve its health and safety performance.

Building regulations (DCLG Annex H)

  51.  The goal of the DCLG is that places and communities will be planned, built, upgraded and managed in a way which respects and sustains the global, national and local environments.

  52.  Building Regulations ensure the health and safety of people in and around buildings by providing functional requirements for their design and construction. In addition, the regulations promote energy efficiency, make buildings accessible and provide the construction industry with baseline standards to work to and ensure a level playing field.

  53.  In March this year DCLG launched a major modernisation of the Building Control System in its consultation document the "Future of Building Control".

UK DEPENDENCE ON IMPORTED LABOUR AND EXPERTISE

  54.  The demand for skilled labour has highlighted the contribution of overseas migrant workers across all levels: operatives and trade occupations, skilled engineers, surveyors and other professionals. Please see Annex B paras 11 and 12 for more information.

  55.  DTI and Home Office work closely with industry to ensure that skills needs are fully understood, and that specific issues and concerns about operational aspects of the visa/work permit mechanisms are addressed.

  56.  Migrant workers often face difficulties in understanding and asserting their rights. The Government has offered to work with the Governments of all the new Member States, to prepare bi-lingual "know before you go" leaflets, giving advice on the legal protections offered to workers including agency workers.

MAINTENANCE OF STANDARDS WITHIN THE SECTOR

  57.  Botched home improvement work wastes £1.5 billion annually and over 111,000 complaints about cowboy builders were registered with Trading Standards Officers in 2004. Recent independent research from the Which? organisation puts this figure even higher.

  58.  DTI developed the TrustMark initiative in partnership with the construction industry and consumer protection organisations to take forward the principles of the earlier Quality Mark, by setting acceptable standards of competency and customer care in an industry-inclusive structure, under a single recognisable badge. TrustMark membership has grown to 10 member organisations (eg trade associations) representing over 10,000 member firms, with a further nine organisations in the process of joining.

CONSTRUCTION R & D

  59.  There are two main issues:

(a)  limited investment in Research & Development (R&D) by the sector; and

(b)  poor knowledge transfer between the research base and industry.

  60.  The industry-led National Platform for the Modern Built Environment is the strategic voice of the industry on research issues and is developing a strategic research agenda, reflecting the conclusions of the Fairclough report.[1]

  61.  There are a number of programmes to encourage R&D investment, and enhance business capacity for innovation. DTI provides grants to allow companies to participate in collaborative research and development, and supports companies in engaging expertise, and transferring knowledge, from the academic base. Small to medium sized enterprises can also receive direct grants for in-company R&D from their Regional Development Agencies. Companies are also able to receive Tax Credit for eligible R&D.

  62.  More research intensive organisations have obtained collaborative research funding from the Technology Programme in several generic areas like Materials, ICT, Design Engineering and Sustainable Production. Work is in hand to develop a proposal for a specific Built Environment technology application area and an Innovation Platform to advance technologies to produce buildings with a low environmental impact.

  63.  EPSRC (Engineering and Physical Sciences Research Council) funds most university based research related to construction and engineering. EPSRC gives businesses an opportunity to interact with the research base through collaborative research, projects to assess commercialisation, secondments, and strategic partnerships. EPSRC has a number of programmes relevant to construction in innovative manufacturing, creating more sustainable urban environments and in addressing climate change. Please see Annex B paras 22 to 25 for more information.

ENCOURAGING SUSTAINABILITY

  64.  The DTI is working with industry and other Government Departments to develop a Strategy for Sustainable Construction. The Department will shortly be issuing a Consultation Document for comment. The aim is to seek broad industry support for new strategic measures which will guide the industry through to the year 2020.Please see Annex B paras 26 and 27 for more information.

  65.  In 2004, more than a quarter of the UK's carbon dioxide emissions—a major cause of climate change—came from the energy we use to heat, light and run our homes.

  66.  The Code for Sustainable Homes was introduced by DCLG in April 2007 to drive a step-change in sustainable home building practice. It is a standard for key elements of design and construction which affect the sustainability of a new home. It will form the basis for future developments of the Building Regulations. Please also see Annex H, paras 20/21—DCLG.

  67.  All the RDAs also have an interest in sustainable development and are working with Government on the development of the Sustainable Construction Strategy. The RDAs operate a number of schemes and programmes to support innovation and business—these can and are used by construction sector firms.

BEST PRACTICE ON CONTRACT MANAGEMENT

  68.  Best practice project management is clearly critically important for the industry as it seeks to improve competitiveness and productivity. We continue to work closely with the Strategic Forum, with OGC and with other Government Departments to identify appropriate measures to ensure progress towards a more integrated industry. There is no single simple solution to this complex issue.

THE UK INDUSTRY'S PERFORMANCE AGAINST OTHER COUNTRIES

Summary of Key Findings of DTI-commissioned reports

  69.  In 2003 DTI commissioned two reports, one from Experian Business Strategies (EBS), and one from the University College of London (UCL) on estimates of average labour productivity (ALP) in the UK, US, Germany and France in construction.

  70.  EBS's conclusions were:

—    The US is about 25-35% ahead of the UK and Germany in terms of average labour productivity (ALP).

—    The UK is ahead of Germany in ALP on an output per worker basis, but not on an output per hour worked basis (this is due to Germans working fewer hours per week on average).

  71.  The UCL study estimated:

—    that the US leads the UK in ALP by 42%, with Germany level with the UK in ALP on an output per worker basis, but ahead on an output per hour worked basis.

—    Productivity comparisons of the UK with France are subject to difficulties. Depending on the exchange rates used for conversion purposes, France is found to be well ahead of Britain on some measures of ALP (and indeed is close to the US) but on other measures French ALP is much the same as in Britain.

  Please see Annex B paras 28 to 30 for more information.

Annex A

INDUSTRY STATISTICS

CONSTRUCTION STATISTICS

  The DTI uses a wide definition of the construction industry to take account of the breadth of industry supply chains. This is:

—    construction contracting;

—    the mining, quarrying and production of materials and products;

—    the retail and wholesale of materials and products;

—    professional services (eg architects, surveyors); and

—    plant hire

  We refer to this as Construction and Construction products.

1.   Construction and Construction Products total and as a proportion of the economy

  These figures come from the Annual Business Inquiry (ABI), run by the Office for National Statistics (ONS). The ABI is the only source of consistent data on all industry sectors, and should be used when measuring a combined figure for Construction and Construction Products, and when calculating sectoral shares of the economy. Gross Value Added is the most commonly used measure for this purpose. This data is compiled on a definition agreed within DTI. The latest data available is for 2005. These figures are provisional and are not yet available for all detailed SIC codes. This data is taken from the provisional ABI published in December 2006.

  

	C & CP	% of Whole Economy
Number of Enterprises	274,038
Total Turnover	£256,370m
Gross Value Added	£94,846m	8.7%
Average Employment	2,126,000
Total Net Capital Expenditure	£5,563m

  In addition there is considerable self-employment, particularly within the construction contracting sector. It is usually estimated at around 600,000, but there can be considerable seasonal variation.

2.   Construction Contracting Output (provisional)

  The DTI is responsible for producing statistics on Construction Output in Great Britain. This data is not consistent with the ABI, nor with measures of GDP, and so cannot be used to calculate sector share. It is the only official source of information on the type of building or civil engineering being carried out (eg housing, industrial, commercial), on regional construction, and on the split between public and private sector clients. DTI Output is also available earlier than the ABI, and so is provided to ONS to underpin their estimates of GDP, to the Monetary Policy Committee and to Eurostat under EU regulation. The latest annual data available is for 2006 for Great Britain and 2005 for Northern Ireland.

—    DTI Output in Great Britain in 2006 was £113.6 billion;

—    of this, 29% was publicly funded; and

—    GB output in real terms rose by 1% in 2006.

  Comparable figures for Northern Ireland are produced by the Northern Ireland Statistics and Research Agency. Output in Northern Ireland in 2005 was £3 billion.

3.   Orders for New Construction (final)

  DTI is also responsible for monthly statistics on orders and contracts in Great Britain. This data covers only new work and provides detailed information on the value of contracts placed, the site address, the type of construction carried out and whether the client is public or private sector. This data is also supplied to the Monetary Policy Committee and to Eurostat. The latest annual data available is for 2006

—    Orders in 2006 were £47.8 billion;

—    of this, the private commercial sector accounted for 37% and private housing for 28%; and

—    GB orders in real terms rose by 6% in 2006.

4.   Building Materials (provisional)

  DTI produces statistics on the volume of building materials delivered or sold in Great Britain. In 2006, these were:

Sales of sand and gravel	77,856,000 tonnes
Deliveries of slate	78,516 tonnes (2003 figures)
Deliveries of cement	11,221,000 tonnes
Deliveries of bricks	2,399 million
Deliveries of concrete blocks	87,510 thousand square metres
Deliveries of ready mixed concrete	23,029 thousand cubic metres

5.   Construction Professions (final)

  Official data on construction professionals is limited because the Standard Industrial Classification does not distinguish them from other technical professions. Because of this, DTI and the Construction Industry Council co-funded the Survey of UK Construction Professionals 2001-02 to follow up a similar survey from 1995-96. This reported that:

—    There were 23,500 firms providing construction professional services;

—    such firms employed 225,000 people; and

—    total fee income was £12.3 billion.

6.   Imports and Exports of Building Materials and Components

  DTI publish quarterly information on the import and export of 99 separate building materials and components, supplied by HM Revenue and Customs.

—    In 2006 the UK imported building materials and components to the value of £10.6 billion. In this period, £5.9 billion of materials and components were exported, thus creating a trade deficit of some £4.8 billion.

—    In current prices imports rose by 10%, whilst exports rose by 12% when compared to 2005.

—    Around 82% of imports were products and components, the top five being electrical wires, central heating boilers, builders ironmongery, lamps and fittings, and air conditioning equipment. Semi-manufactures such as sawn wood and steel for fabrication formed 16% of imports, whilst raw materials accounted for the remaining 2%.

—    87% of exports are products and components, the leading five being electrical wires, structural steel units, paints and varnishes, air conditioning equipment and linoleum floor coverings. Semi-manufactures such as aluminium and steel for fabrication form 11% of exports and raw materials are accountable for 2%.

7.   Net Foreign Direct Investment (provisional)

  ONS carry out annual surveys to measure Foreign Direct Investment, both by UK firms abroad and in the UK by foreign firms. The latest data available is for 2005.

—    In 2005, outward net foreign direct investment in the construction industry was worth £1,972 million; £1,192 million was invested in the USA and £143 million in the EU. Total inward net foreign direct investment for the same period was worth -£883 million; net investment from the EU was £219 million and from the USA was -£48 million.

8.   EU comparisons (final)

  Eurostat publish a monthly release covering the construction contracting sector in the EU. The latest release available is for Q4 2006. As of 1 January 2007, the European Union contains 27 countries, and the Eurozone 13 countries.

—    UK is the second largest contributor to total EU construction after Germany, and is responsible for around 17.5% of total EU-27 construction.

COMPARATIVE GROWTH, Q4 2006 COMPARED WITH Q4 2005

EU27	6.8%
Eurozone	6.8%
UK	3.1%

Annex B

DTI BACKGROUND INFORMATION

  Supplementary information, using the same topic headings as the main memorandum document:

THE STRATEGIC FORUM FOR CONSTRUCTION AND RETHINKING CONSTRUCTION

  1.  The principal role of the Strategic Forum for Construction (SFfC) is to coordinate, monitor, measure and report on progress under the headline targets which are set out in Rethinking Construction "Accelerating Change". Where it is felt that sufficient progress is not being made under a particular target new initiatives are being considered. The SFfC does not act as an operational body. Its strategy is being implemented via Constructing Excellence, ConstructionSkills, the Construction Umbrella Bodies, National Platform and other implementation bodies together with the wider stakeholders in the construction industry where appropriate. The Strategic Forum maintains close relations with all relevant government departments. DTI acts as an observer at main meetings and other departments are consulted in line will the strategic issues being tackled by the Forum.

  2.  "Rethinking Construction" remains at the heart of the DTI's relationship with the industry through the Strategic Forum for Construction and it continues to influence the agenda in key areas such as public procurement. For instance, most recently, the Strategic Forum has sought to ensure that the 2012 Olympics will be a catalyst in the widespread adoption of best practice across the construction industry by developing its 2012 Construction Commitments.

  3.  "Rethinking Construction" sets out an approach whereby substantial improvements in quality and efficiency can be made.

  4.  The business case for the Rethinking Construction approach has been made through a series of demonstration projects which are administered by Constructing Excellence. Demonstration projects have consistently outperformed the rest of the industry against a range of key performance indicators including on time and on budget.

LONG-TERM CAPACITY FOR THE DELIVERY OF LARGE INFRASTRUCTURE PROJECTS ON TIME AND ON BUDGET/DELIVERY OF THE GOVERNMENT'S CAPITAL INVESTMENT PROGRAMME

  5.  DTI has supported the Strategic Forum in its efforts to promote more integration and greater efficiency and productivity throughout the industry. The Department funded a major workshop with key industry stakeholders in June 2006. This work is now being taken forward by the Forum's integration working group—the Department is an observer on this group. DTI is also working closely with Departments responsible for major construction programmes to showcase and pilot the benefits of integration.

  6.  The 2012 Olympic and Paralympic Games offer a unique opportunity to showcase the very best of Britain. The construction industry expects to make an outstanding contribution that delivers sustainable, exemplary projects with long-term benefits for the local community and the nation. The Construction Commitments bring together the six key areas vital to delivering the Games' vision in time, safely and to budget. They represent the principles by which we will endeavour to achieve a better industry and exceed current best practice. The Commitments will be developed by the client and the industry in a practical and realistic way to suit the needs of the Olympic delivery programme and projects and to provide for relevant targets. DTI shares an aspiration with the Strategic Forum to see the Commitments adopted very widely across the industry so that the Olympics leave a legacy of best practice for the construction industry.

  7.  The DTI is further seeking to enhance the Government's ability to deliver major projects through knowledge transfer. As part of this policy, the DTI is investigating whether introducing managed innovation and knowledge transfer programmes into construction-led public sector procurement programmes will result in significant cost savings and/or increased value for money for the public purse.

  8.  The DTI is therefore collaborating with the Department of Health to establish a managed innovation and knowledge transfer programme for the Local Improvement Finance Trusts Companies (LIFTcos). The programme is focused on LIFTcos actively involved in the delivery of facilities. An 18 month trial programme to refine the principles is currently in progress with 12 LIFTcos; once complete it is hoped to roll this out across all LIFTcos by March 2008. We are liaising with the Department for Education and Skills (DFES) to establish a parallel programme for primary and secondary education facilities.

  9.  "Offsite" construction methods (sometimes called MMC—Modern Methods of Construction) are already delivering measurable improvements in quality, cost and time predictability, and improved health and safety, in respect of construction projects in the private and public sectors. To employ offsite solutions successfully the procurement process needs to take account of, and plan for, the use of manufactured assemblies produced under factory controlled conditions. Procurement of offsite construction is not necessarily more difficult than onsite build, but the procurement process is different. It is important that clients and their professional advisers fully understand how to plan procurement programmes to achieve the full benefits offered by offsite techniques. Offsite Construction (major building assemblies constructed in factories and transported to site for final installation) can potentially improve the performance of the construction sector in key areas such as, quality, predictability and health and safety. As such, promoting the use of offsite construction is a DTI priority under construction sector sponsorship agenda. To accelerate the take up of these innovative techniques the DTI in partnership with industry has established and jointly funded `Buildoffsite' to act as knowledge transfer organisation for better procurement of offsite product. This increasing influential member based organisation has met with the construction minister to advise on the impediments to the take up of these techniques and is now working with DTI and OGC to bring together public and private sector clients into a forum to develop and share best practice in procurement for offsite products.

  10.  In order to accelerate the take-up of offsite construction methods the DTI is working with OGC to support BuildOffsite in developing a forum of private and public sector clients to share knowledge and best procurement practice for offsite solutions.

REGULATORY MATTERS, SUCH AS HEALTH AND SAFETY AND THE BUILDING REGULATIONS

  No additional information.

UK DEPENDENCE ON IMPORTED LABOUR AND EXPERTISE

  11.  Industry tells us that overseas workers have much to offer, and many are hard working, diligent, and competent. Unions express concern about the rates that overseas workers (mainly at the operative/trade level) are paid, in the context of the collective agreements they negotiate with employers.

  12.  At the professional level, industry has an interest in the effective operation of the visa and Work Permits regimes, which they rely on when they need to engage overseas specialists, and where they are unable to recruit personnel from the UK. Migrants working legally in the UK are entitled to be paid the National Minimum Wage.

MAINTENANCE OF STANDARDS WITHIN THE SECTOR

Construction Products Directive

  13.  CPD was adopted in 1988 and implemented into UK law under the Construction Products Regulations 1991 and amending Regulations in 1994. Its purpose is twofold. To ensure that all construction products incorporated in a permanent manner in the finished construction works are fit for their intended purpose. And to reduce technical barriers to trade in the European Economic Area (EEA) that where such products are CE marked as compliant with the essential requirements and the level of attestation set down by harmonised European standards (and thus "fit for purpose") the provisions of the CPD prohibit further testing.

  14.  Of about 600 product standards under development a little over 300 have been harmonised. In addition there are some 1500 supporting standards mainly relating to test methods.

  15.  Over most of the EEA the use of CE marked construction products, where the relevant standards are harmonised, is mandatory. The UK, alongside Sweden, Finland and Ireland, has chosen a voluntary approach. The UK Building Regulations require that materials are suitable for their intended purpose and accompanying guidance sets down a number of ways such suitability may be demonstrated including CE marking. The UK industry is broadly happy with the status quo.

  16.  Eurocodes.

—    The Eurocodes are a series of design standards for structures. They cover nine key areas:

—  Basis of Structural design (overarching guidance);

—  Actions (on structures, assumptions for imposed loads, snow wind etc);

—  Concrete;

—  Steel;

—  Composites;

—  Timber;

—  Masonry;

—  Geotechnical;

—  Earthquake; and

—  Aluminium.

Background of the Eurocode programme

  17.  In 1975, the Commission of the European Community decided on an action programme in the field of construction based on article 95 of the Treaty. The objective of the programme was the elimination of technical obstacles to trade and the harmonisation of technical specifications.

  18.  Within this action programme, the Commission took the initiative to establish a set of harmonised technical rules for the structural design of construction works which, in the first stage, would serve as an alternative to the national rules in force in the Member States and, ultimately, would replace them.

  19.  For 15, the Commission, with the help of a Steering Committee containing Representatives of Member States, conducted the development of the Eurocodes programme, which led to the publication of a set of first generation European codes in the 80s.

  20.  In 1989, the Commission and the Member States decided, on the basis of an agreement with CEN, endorsed by the SCC, to transfer the preparation and the publication of the Eurocodes to CEN through a Mandate, in order that they would, in the future, have the status of European Standards.

  21.  In the UK, like CE marking under the CPD, Eurocodes are not mandatory. They maintain the same standing as British Standards and Codes of Practice. Sector support has been patchy. Concrete and Timber have seen them as a vehicle to promote their products. Steel has been more reticent and have dragged their heels in developing UK guidance.

CONSTRUCTION R & D

  22.  The sector, certainly in terms of construction contracting firms, is generally regarded as under-investing in Research and Development (R&D), particularly in relation to longer-term, strategic R&D. Although structural differences in domestic construction sectors may differ, the following table shows comparative R&D investment (see Table 1).

	UK	Netherlands	Finland	Denmark	France	Japan	USA
R&D as a proportion of output (%)	0.02	0.05	0.28	0.05	0.05	0.18	0.03

Construction Contracting R&D as a percentage of output 2003[2]

  23.  R&D is more evident among UK design and consulting engineers, and product manufacturers. This is borne out by the 2006 DTI R&D Scoreboard, where the top 20 construction and building materials firms have a mean R&D spend of 0.5% of sales; only two of these are contractors.

  24.  The lack of formal R&D is understandable in a large, project-based and fragmented sector, comprised mainly of small firms, requiring durable assets in a highly regulated environment. Clients and lenders are often incidental and risk-averse. The sector does however excel at "innovation" in the form of site-based problem solving, but this is rarely regarded as formal R&D.

  25.  The sector suffers from poor transfer of knowledge from the research base to industry, between firms and within firms, and often fails to capture the learning from project innovation, when project teams disperse. DTI is funding a Knowledge Transfer Network for the Modern Built Environment, focusing on Health, Office and Infrastructure-related construction, aiming to make key connections between knowledge providers and businesses.

ENCOURAGING SUSTAINABILITY

  26.  Following publication of the Review of Sustainable Construction in 2006, an aim was set to develop a new Strategy for both Government and Industry. Our key objectives will be to: improve and promote rapidly the sustainable built environment; build on the construction industry change agenda to enhance its efficiency; and support the development of a committed, skilled and adaptable workforce. We aim to achieve these objectives by encouraging industry to respond positively and by helping it to propose its own targets—where industry will go and what industry can do. In turn, this will provide an effective basis on which to create future government policies and thereby ensure their relevance to the construction industry.

  27.  We are promoting other work through the Sustainability Forum (an industry advisory body that reports to the Strategic Forum for Construction). Its remit focuses on knowledge transfer of current `best practice' to the construction industry. It has recently commissioned new guidance documents and has published (in collaboration with the Planning Officers' Society): Planning policies for sustainable building—guidance for Local Development Frameworks and will shortly be publishing: A Designers guide to Waste Minimisation. A number of "regional states of readiness" documents have also been prepared, including one for EMDA which has the RDA lead on construction matters.

BEST PRACTICE ON CONTRACT MANAGEMENT

  This is covered by material under other headings—in particular on the Strategic Forum and Egan, and Long Term Capacity.

THE UK INDUSTRY'S PERFORMANCE AGAINST OTHER COUNTRIES

  28.  The DTI asked Experian Business Strategies (EBS), and University College London in conjunction with the consultants Davis Langdon (UCL/DL) to analyse the international competitiveness of the UK construction industry. The two reports commissioned investigate the relative position—in terms of labour productivity and total factor productivity—of the UK construction industry compared to the construction industries of France, Germany and the USA.

Problems with International Comparisons

  29.  There are difficulties in conducting this type of analysis that are hard to surmount; for example, it is unlikely that labour inputs are well measured in any country because of migration, ` the hidden economy', etc, and results are sensitive to exchange rates. In many ways cross-country comparisons of productivity levels across the whole construction industry are not comparing like with like since the composition of construction output differs greatly from country to country. It is therefore hard to construct reliable national rankings based on aggregated data for construction given the present state of the data.

  30.  The DTI is currently investigating alternative methodologies that would lead to more robust productivity measures and at the same time would enable the identification of the underlying causes for differences in performance.

Annex C

OFFICE OF GOVERNMENT COMMERCE (OGC)

TRANSFORMING GOVERNMENT PROCUREMENT

  1.  Transforming Government Procurement (TGP) was launched by the Financial Secretary to the Treasury on 23 January 2007 to set out government's vision for the future of procurement and, through this, OGC's new role. That vision is based on Government's determination to step up its drive to deliver high quality public services that are good value for money and sustainable; and that procurement is an important means of delivering those objectives.

  2.  TGP sets out to raise the level of skills by transforming the Government Procurement Service itself.

—    The OGC Chief Executive will head a reinvigorated service across Government, modelled in line with the established Government Economic Service and the Government Statistical Service;

—    His professional links with the commercial directors and heads of procurement in departments will be strengthened;

—    The GPS will be more flexible, with resources concentrated where they can be best deployed by facilitating secondments within the public sector and between the public and private sectors;

—    There will be common standards and skill sets across government procurers, through more systematic training and development; and

—    There will be a new graduate entry route into the civil service.

  3.  As well as recruiting and developing the right quality of procurement professionals, departments will be required to:

—    Give a clear direction from the top of the central importance of procurement in delivering their objectives;

—    Set out a clear procurement framework of standards and processes, that are consistent with OGC best practice and that they will follow in their procurement operations; and

—    Collaborate with cross-government procurement initiatives, such as single source purchasing, minimum standards, supplier performance assessment and data collection.

  4.  Procurement Capability Reviews are now being piloted prior to being rolled out across central government. These will assess how far procurement meets the demanding standards required to deliver value for money now and in the future. The reviews will involve the deployment of a small team of high quality experts engaging intensively with departments over a short period to assess their current operating capability within their procurement functions.

  5.  TGP also sets out plans to establish a Major Projects Review Group in the Treasury, composed of commercial experts from with government, which will:

—    Examine projects at the early stage of development, to identify issues that are likely to be critical to their subsequent deliverability and affordability;

—    Review projects before tender, to test the specification is clear, all procurement options have been explored, and prospects of success are realistic; and

—    Check contract decisions before contract signature are likely to deliver what is needed on time, within budget and with value for money.

  6.  To meet these challenges and opportunities OGC will have stronger powers to:

—    Set out the procurement standards departments should meet;

—    Monitor departments performance through procurement capability reviews, and ensure that remedial action is taken where required; and

—    Demand departmental collaboration when buying common goods and services, including via OGC buying solutions, the Government Procurement card and other single source purchasing.

  7.  To achieve these changes OGC is being reformed, it is becoming a smaller, more focused, higher calibre organisation, with the skills and authority needed to drive through the necessary transformation in central government, where its levers are greatest. An important part of this agenda will be a transformation of the government estate through the High Performing Property initiative that was launched by the Chief Secretary in November 2006 and an Implementation Plan has recently been published.

  8.  OGC will continue to lead on procurement discussions and negotiations at World Trade Organisation and EU level, and to provide general expertise on Directives and procurement law.

9.   Public Sector Construction Clients' Forum (PSCCF)

  10.  The PSCCF was established in December 2005 as a result of one of the recommendations in the NAO's report Improving Public Services through better construction published in March 2005. This recommended that OGC should take the lead in establishing and supporting a single departmental forum at senior management level to strengthen the leadership and co-ordination of public sector construction activity. The PSCCF also addresses one of the First Kelly Market Report recommendations—Increasing Competition and Improving Long-term capacity planning in the Government Marketplace. This proposed that a senior stakeholder group, whose role included a market analysis function, should be established to receive and consider construction demand data and advise departments on the market implications of programme implementation. OGC is responsible for driving forward the First Kelly Market (Construction) programme.

  11.  The work of the PSCCF is supported by a series of limited-life working groups that consider and develop proposals on delegated themes:

—    WG1—public sector demand and industry capacity to deliver. [This work is complete and the resultant database and econometric model are in use.]

—    WG2—whole-life value for money. [Work almost complete. It is planned to disseminate the draft guidance prepared by this group during Spring 2007.]

—    WG3—better embedding best practice.

—    WG4—fair payment. [Work complete. Launch event being planned.]

—    WG5—procurement strategies.

—    WG6—capacity/capability.

  12.  Each working group normally has a life of 3-12 months and disbands once it has fulfilled its purpose.

  13.  At its last meeting PSCCF agreed to the formation of a short-lived, small working group to consider how Transforming Government Procurement translates to construction and to work with OGC to develop and draft a plan for discussion, approval and commitment of departmental resources at the next PSCCF meeting in June.

  14.  It is envisaged that OGC and PSCCF will continue to drive improvements in the following areas:

—    Market engagement, analysis and shaping will be vital to implementing Transforming Government Procurement by ensuring that the infrastructure and the information exist, which will provide a forward look of construction demand across the public and private sectors, and industry capacity, to enable the central government construction clients to make informed investment decisions about their programmes. With the infrastructure and information in place the PSCCF will be more focussed on its market analysis role, so that central government construction clients can operate in a more collaborative environment, where their individual prospective demands are viewed "corporately", cognisance being taken of the impact of their respective programmes on each other, on industry capacity and prevailing market conditions. Just as importantly industry will be given the medium/long term view of their likely demand it has been asking for in the past, for it to be able to make informed investment decisions. Central government clients working together will be able to avoid unrecognised inflationary pressures from uncoordinated demand derailing their programmes.

—    Standard setting, whole-life-performance monitoring and benchmarking will also be key elements in implementing TGP. OGC and central policy departments will refresh the Common Minimum Standards for the procurement of built environments in the public sector (CMS) and commit to embedding them in their procurement activities to ensure that their procurements fully comply with them. PSCCF will use CMS as the vehicle for taking forward work on whole-life procurement and sustainable construction agendas, as well as, potentially, fair payment, and project insurance and construction inflation.

—    The infrastructure that PSCCF has developed with OGC for market engagement and shaping will provide the means to collect, analyse, monitor and report benchmarking platform for in-project as well as in-use performance. This will be used as a vehicle for knowledge sharing, raising awareness and encouraging application of whole-life considerations, especially total financial and environmental costs, and through-life fitness for purpose.

—    Client Capacity/Capability are critical issues that the 2005-15 Construction Demand/Capacity Study identified as needing to be addressed if to avoid serious delivery problems. Skilling is an issue that has also been identified as a key issue to be addressed by central government departments in TGP. The recently established Working Group 6 of PSCCF on capacity/capability will take this forward.

—    Sustainability generally, and climate change in particular, are now at the core of government's policy development for the built environment. Construction procurement will have an important role to play in helping government to achieve its goals in this area. PSCCF will collaborate closely with DCLG, DEFRA, and DTI in delivering a step-change in performance towards government's aspirations.

—    The Procurement Strategies used by public sector construction procurers were also sited as critical issues by the 2005-2015 Construction Demand/Capacity Study and again more recently in TGP as having the capacity to adversely affect construction project delivery and which government needs to address. The recently established Working Group 5 of PSCCF will take this forward.

Summary

  15.  In summary PSCCF working with OGC, construction clients, the industry, as well as the Centre will be able to:

(a)  Identify, analyse and plan around the robust knowledge of:

—    what is planned to be procured;

—    by whom;

—    when and where;

—    industry's ability to deliver and at what cost to government and industry;

—    whether better VFM can be obtained by managing demand;

—    the suppliers delivering to central government clients; and

—    how the central government client is performing in delivering construction and construction-enabled services on a whole-life-basis.

(b)  Set and Monitor/Benchmark agreed Standards and whole-life-performance;

(c)  Improve the government Client's Capacity/ Capability;

(d)  Be more capable and better equipped to deliver sustainable, whole-life value for money construction projects;

(e)  Be more collaborative in their procurement approaches.

  16.  Collectively these measures should help government achieve the outcome of delivering world-class public services that are affordable, sustainable and represent value for money.

Annex D

DTI EMPLOYMENT BACKGROUND

ADDITIONAL BACKGROUND—EMPLOYMENT

National (collective) agreements

  1.  There are a number of national collective agreements in place in the construction industry. From time to time representations are received from the main construction unions (Union of Construction Allied Trades and Technicians (UCATT); Amicus, and T & G) about the status of these agreements.

  2.  Collective agreements are voluntary, and are not legally enforceable. There are therefore no statutory provisions to ensure that employers who are not party to such agreements are covered by them (by so-called "extension clauses"). This approach has been a long-standing tradition in this country, which both unions and employers have supported. This is because both sides want to keep the law away from industrial relations as far as possible, and to maintain some flexibility when applying collective agreements.

False self-employment

  3.  A person has a status of self-employment where the relationship between the person and the company or individual for whom they are undertaking work is governed not by employment but by commercial law. The terms, conditions and the reality of the relationship are crucial. For the individuals concerned, the issue is essentially about tax. For the contractors engaging the individuals, the arrangement provides greater flexibility in terms of engagement and termination of the contract. The main employer organisations and the unions concur that false declaration of self-employment is wrong.

  4.  HMRC leads on tax aspects. There are different tax arrangements for the self-employed, and those engaging them, in construction compared to PAYE. Under the new Construction Industry Scheme (implemented April 2007), there are new procedures to help firms to classify correctly the employment status of those they engage. In making their monthly returns, contractors will be required to consider the employment status of the individual concerned, and make a "solemn declaration" in that regard.

  It is not for Government to set blanket rules on direct employment either for public sector contracts, or more generally, and have no plans to do so. The type of employment should reflect the underlying reality of the relationship between worker and employer.

Annex E

DEPARTMENT FOR WORK AND PENSIONS (DWP)

EMPLOYMENT IN THE UK CONSTRUCTION INDUSTRY

SUMMARY

  The labour market is highly dynamic with 6.5 million people starting a new job each year, and 10,000 vacancies notified to Jobcentre Plus every day—with at least as many through other channels. In the construction industry, 549,000 people started a new job in the sector in 2006 (around 8% of all job starts), and there were around 10,000 vacancies notified to Jobcentre Plus in the month of March 2007 (around 3% of all vacancies notified to Jobcentre Plus).

  Around 90% of employees in the construction industry are male and above 90% of employees work full-time (both higher than nationally). Self-employment makes up 36% of all employees—three times as many as nationally. There are more people in the construction industry that hold trade apprenticeships, low or no qualifications and with less holding level 4 qualifications.

  Migration accounts for a small but important contribution to the UK labour market, including in the construction sector where the proportion of migrant workers has increased over the last 10 years from 2.7% in 1997 to 7.7% in 2006.

  Training in work is the most effective way of increasing skills, and employer-led, site based approaches to training such as the National Skills Academy for Construction aim to increase participation from under represented groups.

Note on figures provided

  1.  Figures provided below are from the quarterly and 2-quarters longitudinal Labour Force Survey datasets. These are not usually the best source of information for industries, but are used here as they give us information on the characteristics of individuals.

  2.  In terms of migrant workers, the LFS will tend to underestimate the number of migrants (for example, the number of temporary migrants) so figures should be treated somewhat indicatively.

Background

  3.  The labour market is highly dynamic with 6.5 million people starting a new job in the last year, and over 10,000 new job opportunities notified to Jobcentres every working day—with at least as many going through other channels—across a wide range of different sectors of the economy.

  4.  This is reflected in considerable movement up and down the labour market. Of the 1.4 million people who changed occupations between the summer 2005 and third quarter of 2006, more—around 56% moved from low skilled low paid occupations to higher skilled higher paid occupations and 44% moved from high skilled high paid occupations to lower skilled lower paid occupations.

Employment in the Construction Sector

  5.  Similar levels of dynamism can be found in the construction industry— around 549,000 people were recruited to the construction industry in the past 12 months, equal to around 8% of all new job starts, and compared to around 2.3 million people employed in the industry.

  6.  Recruitment has been largely flat with a slight decline since 1997. Employment in the construction sector has risen from around 1.86 million in 1997 to 2.29 million in 2006 (equal to about 8% of all employment in the whole economy). These trends suggest that the duration of employment in the construction sector has risen over this time.

  7.  Around 10,000 vacancies were notified to Jobcentre Plus in March 2007 for the construction sector (around 3% of all vacancies notified to Jobcentre Plus)—despite some fluctuation the trend has been relatively flat. Meanwhile, unfilled vacancies in Jobcentre Plus for the construction industry rose in 2004, but since October 2004 have fallen steadily to around 10,000 in March 2007. This contrasts to the ONS survey of all unfilled vacancies in the economy, which show unfilled vacancies in the construction sector remaining flat since March 2005, and standing around 20,400 in March 2007. This may reflect less vacancies being notified to Jobcentre Plus.

  8.  In December 2006, around 36% of employees in the sector were self-employed, rising slightly from under 34% in 2001. This compares to 12.6% nationally, which has also increased from 11.5% in 2001.

  9.  A higher percentage of people work as full time in the Construction sector—around 92.7% compared to the national average of 76.2%. Average total usual hours have been trending downward from around 45 hours per week in 1997 to around 42 in 2006.

  10.  Wages have been increasing by similar percentages to the whole UK labour market.

  11.  The proportion of permanent employees in the industry (96.8%) is reasonably similar to the national average (94.1%).

Types of people employed in the Construction Industry

  12.  Overall, employment in the construction industry is similar to that in the economy as a whole. Age distribution is largely similar to the national average with around 60% prime age (25-49) workers. The majority of workers in the construction industry are white, 96.3% compared to the national average of 91.5%.

  13.  However, there are some important differences. In particular, the vast majority of employees in the construction industry are male, at around 90%, compared to 54% for the whole economy.

  14.  There is a more even distribution of qualifications amongst employees working in the construction industry. More people in the construction industry hold trade apprenticeships (19% compared to 6% nationally), low or no qualifications (11.2% compared to 8.3%) and less holding level 4 qualifications (15.1% compared to 32.5%).

Availability of, and investment in, skills

  15.  Evidence on the role of skills in the labour market[3] stresses the importance of training at work as the most effective way of increasing skills amongst lower-skilled individuals.

  16.  Those with low or no qualifications are the least likely to receive training at work however—programmes such as Train to Gain could play an important role in ensuring that those with low skills get the opportunity to receive training once in work.

  17.  The National Skills Academy for Construction, is an employer led, site based approach to construction training in Bishopsgate, and aims to increase participation in the sector from under represented groups.

UK Dependence on imported labour and expertise

  18.  Migrants have made up a gradually rising proportion of the UK working age population over recent years, accounting for 12.5% of the UK working age population in Q4 2006, up from 9.6% in 2001.

  19.  While the proportion of migrants working in the construction sector has increased since 2001 from 4.6% to 7.7% in 2006, the sector still predominantly employs those born in the UK—over 90% of workers in the construction industry are born in the UK.

  20.  The proportion of migrants working in the construction sector in London has increased since 2001 from 21.5% to 41.9% in 2006. The proportion of migrants working in the construction sector outside of London has also increased since 2001 from 2.9% to 3.8% in 2006, but still remains very low. Thus, the large majority of migrant construction workers tend to work in London, but overall the sector still predominantly employs those born in the UK.

  21.  Migration has long made a small, but nevertheless important, contribution to the employment needs of the UK labour market. This is likely to continue in the future. It helps to ensure the labour market is flexible and can adjust to the needs of employers for new jobs and new skills.

  22.  However, there has been no discernible effect of A8 migration on claimant unemployment. Nearly all the applicants to the Worker Registration Scheme are in full-time employment and undertaking jobs in sectors where continued growth has led to recruitment difficulties. Virtually none are claiming benefits.

Annex F

Department for Education and Skills (DfES) and Department of Trade and Industry (DTI)

Additional background—skills and associated issues.

GENERAL

  1.  The construction industry is highly fragmented. A large proportion (over 90%) is comprised of micro (taken as employing 0-9 people), or small enterprises:

Micro	0-9	91.1%
Small	0-49	98.9%
Medium	50-249	0.9%
Large	250+	0.2%

Source:   ONS, 2005 (includes Northern Ireland and PAYE-only enterprises)

  2.  Construction is project based, and the need for workers may be short term. There is a high level of mobility, with workers moving from project to project. Employers need people with the right skills, at the right time. Margins are typically 2-3%, so industry is very sensitive to cost, including labour. Historically, construction workers have been highly mobile, moving from project to project not only around the UK, but overseas to gain experience, and where there is financial advantage.

  3.  As co-sponsors (with DfES and devolved administrations) of the Skills for Business Network, DTI recognises the importance of the role of Sectors Skills Councils (SSCs) in delivering skills and qualifications strategies, and the potential of National Skills Academies in raising the quality of training. It is essential that SSCs have the capability to represent the interests of their employers and this remains a key challenge, particularly if their role in raising employer demand is to be maximised.

  4.  Through our work with key sectors and business generally, we continue to urge the effective involvement of employers and ensure their voice is heard strongly in the reform of the learning and skills system, for example through the Regional Skills Partnerships, and the planning of regional and local supply through the Learning and Skills Council which meets employers' needs.

Construction Industry Training Board (CITB-ConstructionSkills) and ConstructionSkills

  5.  The Construction Industry Training Board (CITB) was established in 1964. It broadly covers the building and civil engineering industry in Great Britain. As the industry's training board, it is branded CITB-ConstructionSkills.

  6.  CITB-ConstructionSkills is the lead partner in ConstructionSkills, the Sector Skills Council for construction (along with the Construction Industry Council and CITB-Northern Ireland), and as such is responsible for developing and implementing strategies to tackle the skills/recruitment needs of the industry. ConstructionSkills is also part of the wider Skills for Business Network (of 25 Sector Skills Councils licensed by the Sector Skills Development Agency).

  7.  CITB-ConstructionSkills is managed and operated by employers from the industry. Their main source of income comes from a levy on employers within its industry. Each levy order requires the approval of both Houses of Parliament and is renewed annually.

  8.  Construction needs half a million new entrants by 2011. ConstructionSkills offers a wide range of services to employers, including setting occupational standards and developing vocational qualifications, delivering Apprenticeships and paying direct grants to employers who carry out training to approved standards.

  9.  ConstructionSkills offers Apprenticeships and Advanced Apprenticeships in 25 different trades for around 16,500 16-25 year olds in England.

  10.  An Apprenticeship is a structured programme of training which gives young people the opportunity to work for an employer, learn on the job and build up knowledge and transferable skills and gain nationally recognised qualifications that will be needed throughout a working life. Apprenticeships are supported by Government and industry as a high level, high quality technical qualification which will increase the technical skills base in the labour market.

  11.  According to ConstructionSkills, only around 25% of construction companies are directly engaged in training apprentices. Around 10,000 people complete one of the apprentice schemes provided by the various providers (mostly the ConstructionSkills managing agency, plus Carillion and Henry Boot). ConstructionSkills tell us that they have more prospective apprentices than they are able to provide work placements for. A key element of the apprenticeship programme is work experience, so the active participation of companies is crucial to an effective apprenticeship programme.

  12.  ConstructionSkills along with other Sector Skills Councils, has developed a Sector Skills Agreement (SSA) which has been negotiated as a series of agreements between training providers, employers and Government, designed to address the construction industry's current and future skills needs. Skills-related policy issues arising from the development of SSAs are taken up with the Sector Skills Development Agency (SSDA), the Learning and Skills Council and DfES.

Investment in skills

  13.  The recruitment challenge applies at all levels; from trades people, though to graduate professionals such as engineers, surveyors, and project managers. ConstructionSkills, OGC, and industry partners have sophisticated econometric modelling techniques in place to forecast future labour requirements, at a national and regional level. The overseas labour market; especially the new Accession states, has been an important source of skilled workers, but carries uncertainty of continued availability. There is increasing recognition that a long-term strategy, with new approaches, is needed to ensure the industry can meet its future recruitment needs. These include adult recruitment from other industries, and ex-service personnel. The gender imbalance in construction, where the proportion of women is only around 10% (and only 1% of trades people), and the low proportion of those from Black and Asian Minority Ethic (BAME) groups, are other areas where more work needs to be done. Overall, the key challenge is to encourage people into the industry; provide adequate training opportunities; and retain people for sufficient time to maximise the benefit of the investment.

  14.  A raft of programmes have been put in place by ConstructionSkills to encourage young people to choose construction as a career, and provide core training. Programmes include National Construction Week; and the National Construction Academy.

Other related issues

  15. Train to Gain—The Train to Gain is a demand-led programme of the Learning and Skills Council, which employers, especially small employers, can use to diagnose their skills needs and source appropriate training. This includes free training for those employees without a first full level 2 qualification.

  16.   Construction Skills Certification Scheme (CSCS) —Under the Construction Skills Certification Scheme (CSCS), workers are required to show their competency against a benchmark of appropriate NVQ standards (or equivalent for professionals), and pass a health and safety test.

  17.  The major contractors are taking a strong line that all workers on their sites must have an appropriate card. There are now around 950 thousand CSCS cardholders.

  Government champions adoption of Respect for People, providing guidance and case study material that presents the business case for respect for people as a core business value.

Annex G

HEALTH AND SAFETY EXECUTIVE (HSE)

OCCUPATIONAL HEALTH AND SAFETY IN THE UK CONSTRUCTION INDUSTRY

Summary

  1.  The UK construction industry is one of the most dangerous accounting for 25% of workplace fatalities and 16% of major accidents, in 2005-06. In the last 25 years, over 2,800 people have died from injuries they received as a result of construction work. Many more have been injured or made ill. Improved health and safety performance is a priority for government, the Health and Safety Executive (HSE) and the industry. Accordingly, since the turn of the millennium, HSE has been working with stakeholders to bring about change and there has been a substantial decline in accident and injury rates over this period.

  2.  HSE (together with Local Authorities) is responsible for regulating health and safety in the sector. The principle legislation is the Health and Safety at Work etc Act 1974 (HSWA) and construction specific legislation. HSWA provides equal protection for all employees (including legal and illegal migrant workers) irrespective of their status. HSE influences, monitors and regulates the sector through local inspection and enforcement activities, investigation of accidents and complaints, early involvement on major projects and co-ordinated interventions with large companies.

  3.  The nature of the industry presents challenges for the improvement of health and safety standards. It is diverse, highly fragmented, itinerant and casualised. Whilst there is a large number of competent and legitimately self-employed workers who provide a valuable contribution to GB's construction industry, there is also a large informal economy which contributes to the challenge facing all stakeholders seeking to improve standards. However, in a legal, practical and policy sense, the main responsibility for reducing the level of accidents and ill health in construction lies with the industry and a major cultural step change is needed to improve its health and safety performance. Over the years since 2000-01, when 105 construction workers were killed and many thousands more suffered a major injury or ill health as a result of their work, this step change has been sought through a series of collaborative initiatives involving the industry, HSE and other government departments (OGDs):

—  In 2001, the Deputy Prime Minister, John Prescott and Bill Callaghan, Chair of the Health and Safety Commission (HSC) held a high-level Construction Summit bringing together key stakeholders in the industry. Umbrella organisations drew up individual action plans and the industry set its own challenging targets[4] (more challenging than the Government's pan-industry Revitalising Health and Safety targets[5]).

—  In 2005, recognising that the targets the industry set for itself were not likely to be met without additional effort, the then minister with responsibility for health and safety agreed that a second Summit should be held. The event theme was "Ownership, Leadership and Partnership". This event launched the Respect for People Code of Good Working Health and Safety Practices developed by the industry to provide a focus for everyone to take action under eight leading issues.

—  The 2005 Summit identified a key role that the public sector could play as a construction client in raising health and safety standards. With up to 40% of construction work procured in the UK by Government, the latter is ideally situated to "lead by example" and set high health and safety standards in public sector projects. In 2006 a "Buying for Life—Construction in the Public Sector" event was held to spread best practice in government construction procurement.

—  HSE is working in partnership with other government departments, eg DCLG (to promote health and safety through the Building Control and Planning regimes), DTI (to promote integrated teams) and OGC (through the Public Sector Construction Clients' Forum).

  4.  Construction is a priority for HSE and this is reflected in the fact that construction accounted for more than 40% of all HSE's prosecutions in 2005-06(p). HSE's Construction Division, which focusses solely on construction activities, has developed an intervention strategy[6] and, based on intelligence gathered, a programme of work for 2007-08 and beyond that through a variety of projects, targets key priority areas of highest risk such as house building, refurbishment work and small and medium-sized enterprises.

  5.  In tandem with the initiatives described above, and with a view to supporting cultural change, HSC has been seeking, with the industry, to address the concerns raised with the Construction (Design and Management) Regulations (CDM) 1994. These were seen as unclear, complex and bureaucratic. Following extensive consultation, new CDM Regulations (CDM 2007) came in to force on 6 April 2007. Through a focus on managing risks on site, reducing paper work, encouraging team work and getting the right people for the right job at the right time, implementation is expected to provide the environment for improvement in health and safety performance. Enforcement will be proportionate and targeted at serious problems, in line with Government principles and HSC/E enforcement policy.

  6.  Since the first Summit, there has been encouraging progress with the rates of fatal, major and over three-day injuries for 2005-06 reaching their lowest levels ever. These outcomes would therefore appear to endorse the initiatives described and the HSE-targetted approach and intervention strategy. However, preliminary estimates for 2006-07 indicate that the number of construction fatalities increased by about 20%. There is therefore still much to be done despite the GB industry fatal injury rate per 100,000 workers comparing favourably with the EU average (3.6 compared with 10.6 in 2003 (the latest available figures)).

  7.  It is vital that all government departments, with an interest in construction, work together to support and encourage the cultural step change required and help the industry to demonstrate leadership and take ownership of its own health and safety performance.

  8.  The increase in the level of economic activity in the construction industry inevitably puts more pressure on the workforce and raises concerns that this will lead to deterioration in health and safety performance. With the anticipated demands on the industry to deliver large-scale projects such as the Olympics and Thames Gateway, the need for better-managed projects and exemplary health and safety performance will be clearly to the fore. HSE has already put in hand arrangements to help ensure delivery of the Olympics from an occupational health and safety perspective,[7] including the setting up of an internal co-ordinating group (chaired by the Chief Inspector of Construction) to oversee the work of HSE, and early engagement with the client and the Olympic Delivery Authority.

  9.  Compliance with the new CDM 2007 Regulations provides a sound basis on which the industry can continue to work towards the step change necessary to see improved health and safety standards. HSE will continue to work with the industry to improve awareness of, and compliance with, the Regulations.

Annex H

DEPARTMENT FOR COMMUNITIES AND LOCAL GOVERNMENT (DCLG)

OVERVIEW

  1.  The Department for Communities and Local Government's goal is that places and communities will be planned, built, upgraded and managed in a way which respects and sustains the global, national and local environments. We also have a key role to play in meeting the Government's targets of a 20% decrease in CO₂ emissions by 2010 and a 60% decrease by 2050. The UK construction industry is key to the delivery of these goals and we consult with them when developing our policies. Outlined below are the policy areas the Committee have indicated an interest in.

PLANNING

  2.  Planning is of fundamental importance to the quality of people's lives. Since 1997, we have made significant progress in improving our planning system. We have put sustainable development at the heart of planning. We have been able to achieve a substantial increase in new house building to help meet growing demand while minimising urban sprawl and maximising the use of brownfield land. Through our town centres first policy and revised compulsory purchase powers we have helped to regenerate and revitalise our town centres, and increase their amount of retail floor space. And we have replaced the three tier plan-making structure with a simpler system based on regional spatial strategies and local development frameworks.

  3.  But the long-term challenges for planning are increasing. Over the coming decades debate and decisions about where development should take place are likely to become more difficult. Later this spring, the Government will set out in a White Paper its proposals in response to Kate Barker's recommendations for improving the speed, responsiveness and efficiency of land use planning, and for taking forward Kate Barker's and Rod Eddington's proposals for reform of major infrastructure planning.

  4.  For key national infrastructure, we propose to set out a new single system of planning for major infrastructure, with clear national policy statements which balance economic, social and environmental objectives, effective public consultation and a more efficient and transparent decision making process. These reforms should make the infrastructure consent system more predictable, allowing the construction industry to better plan for the construction of major infrastructure projects.

HOUSING GROWTH

  5.  In our response to Kate Barker's Review of Housing Supply, we set a challenging ambition to increase the supply of new housing to at least 200,000 a year by 2016.

  6.  However, flourishing communities are not created by new housing alone. In order for them to be sustainable, they need a range of supporting infrastructure, from public services including health, education and transport.

  7.  DCLG has been working with HM Treasury on the 2007 CSR Policy Review into Supporting Housing Growth, which has been working to ensure that this infrastructure will be provided.

  8.  A central finding of the Policy Review has been for the need for better infrastructure delivery planning by local authorities, in discussions with the house builders and the property federation and other key local partners. These stakeholders should be more involved, earlier, in helping to identify and prioritise infrastructure requirements, recognising that they often fund key infrastructure.

  9.  We have supported HMT in the stakeholder engagement of the Policy Review. The Review has engaged industry through an initial call for submissions, then through a series of case study visits, and again via interactive seminars in November 2006 and February 2007 to test emerging findings.

REGULATORY MATTERS

Impact of Building Regulations on the Construction Industry

  10.  Building Regulations ensure the health and safety of people in and around buildings by providing functional requirements for building design and construction. In addition, the regulations promote energy efficiency and accessibility in buildings. The quality, variety and performance of buildings in this country are a testament to the past success of the system and the people that operate it.

  11.  Building Regulations provide the construction industry with baseline standards to work to and ensure a level playing field. Standards provide certainty where uncertainty would otherwise prevail, and where temptations to erode those standards in the face of competition would otherwise exist.

  12.  The building regulations are outcome focussed, rather than prescriptive. This allows flexibility and encourages innovation.

  13.  The Secretary of State sets out in guidance what she sees as appropriate and reasonable measures as asked for by the regulations, but this is a wholly devolved system and other means are allowed of showing compliance. It is for building control (local authority or private approved inspector) to decide what is acceptable.

  14.  In developing the Building Regulations we produce a Regulatory Impact Assessment for all revisions. This assessment must demonstrate overall cost effectiveness (ie benefits outweigh the costs).

  15.  We also consult very widely on any proposed changes so that the construction industry always have early warning of the changes and can make representations as to the appropriateness, practicality and timing of any changes.

Review of the Building Control System

  16.  Building control bodies (local authorities and approved inspectors) have a duty to check whether those carrying out building work have complied with the requirements of the Building Regulations to ensure that buildings are safe, healthy and sustainable. Where work is not compliant local authorities can take a criminal prosecution or serve a notice on the building owner requiring the work to be brought up to the required standard.

  17.  Over the last year, we have been talking to the people who operate and use the Building Control System and we have been gathering views on how it needs to change. They have told us that the system is not broken but it has some failings and weaknesses that must be tackled if we are to ensure that it remains fit for purpose in today's world and in the future.

  18.  In response we have begun to modernise the Building Control System and published, in March this year, the Future for Building Control. This package of options include simplifying procedures and introducing a planned timetable for, and approach to, reviewing guidance to create a more effective system that minimises burdens on the end user. We will be developing this into a fuller consultation paper later in the year and specifically seek the views of the UK Construction Industry.

SUSTAINABLE BUILDINGS

  19.  Sustainability in buildings has become an important issue, particularly in relation climate change. In 2004, more than a quarter of the UK's carbon dioxide emissions—a major cause of climate change—came from the energy we use to heat, light and run our homes. Construction and use of our homes has a range of other environmental impacts, created for example through water use, waste generation and use of polluting materials.

New homes

  20.  The Code for Sustainable Homes (the Code) was introduced in April 2007 following extensive consultation with the construction industry and other stakeholders to drive a step-change in home building practice. It will become the single national standard for sustainable homes, used by home designers and builders as a guide to development, and by home-buyers to assist in their choice of home. The Code will also form the basis for future developments of the Building Regulations in relation to carbon emissions from, and energy use in homes, with the goal of all new homes being `zero carbon' by 2016.

  21.  All new homes built with Housing Corporation funding and those developed by English Partnerships and with the direct funding support of the Department for Communities and Local Government, will be built to Code level 3. This will promote innovation in the design and construction of new homes.

Non-domestic new buildings

  22.  Having begun to tackle sustainability in the domestic sector, we are now keen to start looking at sustainability in the new non-domestic sector.

  23.  We believe it should be technologically and economically possible for all new non-domestic buildings to achieve substantial reductions in carbon emissions over the next decade and in many cases to achieve zero carbon on non-process related emissions. Buildings outside of dense urban areas and those with low appliance energy requirements, such as warehouses, distribution centres and some retail outlets, should be able to be built to a zero carbon specification more easily. Other building types may take longer to get there.

  24.  We are working closely with industry through our task group to learn the lessons from existing exemplars that individual organisations have built, so we can fully understand the costs involved and the barriers to progress. We will use this knowledge to set in place an action plan and milestones towards a major de-carbonisation of new non-domestic buildings.

Existing Buildings Review

  25.  We also recognise that improving the sustainability of the existing building stock is critical to achieving the carbon targets and to helping to minimise the impact of new development on natural resources, including water. Buildings have a long life. Current and predicted rates of construction and demolition suggest that much of the 2050 building stock already exists. We estimate that around two-thirds of the housing stock that will exist in 2050 has already been built. So widespread retrofitting of the existing stock will be essential to delivering the carbon emission reduction target.

  26.  Encouraging building owners and occupiers to improve and manage their buildings better is not necessarily a matter for regulation, indeed the Building Regulations are focussed on setting standards for the building process, not on modest upgrading of existing fabric, fixtures or fittings. The existing buildings review is looking at the barriers to uptake of energy and water efficient products, and encouraging owners and users to improve the sustainability of their buildings. A mix of education and incentives will help to drive the demand for new and better products, so encouraging innovation in and transforming the market for "green" technology. The scale of refurbishment we are trying to encourage would create a significant market for existing and innovative new materials and technologies. [The outcome of work on improving the sustainability of existing dwellings will be included in the Energy White Paper when it is published in May].

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1   Sir John Fairclough (2002), Rethinking Construction Innovation and Research, DTI and DTLR (Department of Transport, Local Government and the Regions). Back

2   Source: OECD R&D expenditure in industry database. Back

3   DfES and DWP: A shared evidence base, the role of skills in the labour market. Back

4   To reduce, by 2010-the incidence rate of fatal ands major injury accidents by 66% (40% by 2004) ie 10% year-on-year;-the incidence rate of cases of work-related ill health by 50% (20% by 2004);-the number of working days lost per 100,000 workers from work related injury and ill health by 50% (20% by 2004). Back

5   The Revitalising Health and Safety initiative was launched by the Deputy Prime Minister and Bill Callaghan in June 2000 to inject new impetus and relaunch the health and safety agenda, 25 years after the Health and Safety at Work etc. Act 1974. It was designed to achieve a step change in health and safety performance in all workplaces over the next decade. Back

6   The intervention strategy helps deliver the targets industry has set for itself and to achieve this, HSE has adopted new ways of working, including changing the way in which we plan our work and focus our interventions. The Strategy includes intervening with clients (including property developers), designers, planning supervisors and principal contractors to secure a greater commitment to the effective planning, resourcing and management of health and safety on site and throughout the lifetime of the building or structure; taking a more holistic approach to larger and more complex projects and working in partnership with intermediaries. Back

7   We have set up an internal co-ordinating group (chaired by the Chief Inspector of Construction) to oversee the work of HSE in relation to Olympics 2012. Included in the aims and objectives of the Group are to provide practical assistance to Ministers and the Olympic Delivery Authority (ODA), and to work closely with other regulators to ensure a consistent, coherent and joined up approach. In developing this approach we considered the lessons from the Sydney Olympics and Manchester Commonwealth Games as well as our own experience with major projects like the Channel Tunnel, Heathrow Terminal 5 and Wembley Stadium. We have also allowed for additional management resources to oversee our input to the Olympics work at the appropriate stage. Back

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Prepared 16 July 2008