Memorandum submitted by the Chartered
Institute of Building
INTRODUCTION
The Chartered Institute of Building (CIOB) represents,
on behalf of the public, the most diverse set of professionals
in the construction industry. Our role is to:
— Promote the importance of the built
environment.
— Lead the industry to create a sustainable
future worldwide.
— Encourage leadership potential.
— Promote the highest standards in
quality, safety and qualification.
— Create an industry where excellence
prospers.
We have over 42,000 members around the world,
and are considered to be the international voice of the building
professional, representing an unequalled body of knowledge concerning
the management of the total building process.
CIOB members are skilled professionals with
a common commitment to achieving and maintaining the highest possible
standards. Chartered Member status, represented by the designations
MCIOB and FCIOB, is recognised internationally as the mark of
a true professional in the construction industry.
The CIOB is also a member of the Society for
the Environment and is able to award the Chartered Environmentalist
qualification.
Our submission has been developed for the public
benefit and is informed by feedback from our membership.
EXECUTIVE SUMMARY
The CIOB endorses the joint CIC, CPA, CC written
submission. In addition, we would like to raise the following
points for consideration by the committee.
— The need to recognise the UK construction
industry's role in a global context.
— The need to recognise that the construction
industry is not one industry—one solution does not fit all
circumstances.
— The importance of risk management
in procurement for public sector projects.
— The availability and cost of materials
and its impact on long-term fixed price contracts.
— The need to generate a better link
between innovation, research and development and the taxation
incentive system.
CIOB COMMENT
As a member of the Construction Industry Council
(CIC), the CIOB endorses the written submission of the CIC, the
Construction Products Association (CPA) and the Construction Confederation
(CC).
Following our meeting with Peter Luff MP on
the 1st August 2007, we would add the following points for consideration
by the committee.
1. The Global Construction Sector
The challenges being faced by the UK construction
sector are not special or unique to the UK. Most developed world
countries are facing the same or similar challenges with high
demand for construction work, lack of skilled workers, extensive
use of overseas workers on site, the need to improve health and
safety in the sector, gender inequality in employment in the sector,
price inflation, pressures on raw materials supply, a fragmented
supply chain, increasing levels of risk, the need to embrace and
use new technologies to improve performance and products, and
the need for greater focus on sustainability in the built environment.
There are many other pressures for the built
environment which impact on the construction sector, for example
taking account of an ageing population in the design of facilities
and making cities age-friendly.
In recent years construction has become increasingly
global with the import and export of design services, construction
plant, materials, components, finance, and insurance. Many UK
enterprises are foreign owned and controlled. The Select Committee
brief is to consider the delivery of public sector projects, but
this should embrace the UK construction industry in a wider context
and within a global context. The UK is driven much more by the
knowledge economy; this is the case with design and production,
where UK design organisations are regarded as amongst the best
and the largest in the world.
Construction activity is booming in most regions
of the world, in particular China, the Middle East, North America,
and India; and it is expected that demand will continue to increase.
Annual global construction output in 2005 was estimated to be
in the region of US$4.6 trillion. To put the UK construction sector
into context, annual output in the UK in 2006 was £113.5
billion. The UK annual output ranks in the top 10 in the world;
hence the UK is an important country because of the size of the
market and the knowledge base. The UK has few barriers to entry
and is attractive to overseas companies because of the stable
economy and well established business practices.
2. The "Construction Industry"
It is tempting to define `construction' as one
industry—it is not; it is made up of four distinct parts:
1. construction enterprises (including house-building,
civil engineering, general building contracting, repair and maintenance);
2. construction consultants (including architectural,
civil, structural, mechanical and electrical design, cost management,
project management);
3. product manufacture of components, plant
and equipment, and raw materials; and
4. allied professional services (including
finance, IT, insurance, accountancy, and legal services).
The difference between the business of each
of these sectors is apparent when comparing general contracting
with house building. Contractors bid for work based on a lump
sum fixed price and complete a project within strict contractual
arrangements. They are paid as the works progresses and operate
as cash generators with few fixed assets. This is very different
to the more speculative house-building sector where developers
buy land, hold the land in a land bank for a number of years,
obtain planning and building code approvals, build houses and
then sell their product on an open market.
Further differences are seen in the domestic,
repair and maintenance sector, where we see a highly fragmented
sector, and an economy that operates much closer to the retail
sector than to any other construction economy.
The CIOB believes that the industry and Government
would benefit from better statistical intelligence, and analysis
of the global impact of construction production. This would enable
a better understanding of the value of the industry to the UK
economy, which we suspect is miscalculated at the present time.
For example, over the past 20 years there has been significant
growth in the export of UK design and allied consultancy services,
such as architectural design, civil and structural engineering
design, and urban planning. Historically, UK construction enterprises
have built widely overseas, today the export is much more related
to the provision of design, finance, knowledge, and materials
and components. Knowledge has become a very important component.
3. Market Demand and Risk
Risk is endemic in construction activities.
It can either arise as a direct result of a construction project
(eg delays and disruptions, non-payment etc), or it can be external,
unrelated to the construction project and out of the direct control
of the project participants (eg the availability of skilled labour
or materials). Because risk involves both controllable and uncontrollable
events, the industry needs to have much greater awareness on the
need to manage risk effectively.
The CIOB would like to see more emphasis and
openness about the management of risk in construction projects,
particularly in public sector procurement.
4. Long-Term Availability of Materials
The fundamental assumption of any market is
a balance between supply and demand. With construction output
around the world increasing, there is an issue about the long-term
availability of raw materials.
China and Europe do not have raw materials to
cope with large increases in demand. There is likely to be inflationary
pressure on material supply in the future driven by availability.
This presents an issue of the long-term supply that needs to be
considered, especially in relation to the delivery of UK public
sector projects.
The availability and cost of materials has a
serious impact on contractors on long-term fixed price contracts,
resulting in contractors being unwilling to commit to future long-term
contracts without significant risk premiums being built into their
bids. The problem is most pronounced in longer, more complex projects,
such as healthcare, the Olympics, Crossrail, the schools programme,
and other large projects that are often in the national interest.
5. Innovation & Capacity Building
One way to address the problems outlined above
is to promote innovation and research and development in the sector.
While there is often a view that this is the industry's responsibility,
the CIOB believes that there are also important implications for
the national economy and for maintaining the UK's competitive
advantage.
There are taxation advantages in investing in
research and development; they are cumbersome and difficult to
apply to much of construction, such as providing a unique innovative
design, or new material. They need to be reviewed to maximise
the benefits to the UK economy and to the construction programme.
The tax credits should recognise the change in the knowledge economy
and its importance to delivering public projects.
October 2007
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