Examination of Witnesses (Questions 1-19)
CONSTRUCTION CONFEDERATION,
CONSTRUCTION INDUSTRY
COUNCIL, CONSTRUCTION
PRODUCTS ASSOC.
23 OCTOBER 2007
Q1 Chairman: Gentlemen, welcome to this
first and much delayed evidence session of this inquiry into the
construction industry. I apologise publicly for the delay. We
did think we might be about to be abolished at one stage, and
so we decided to be prudent and tidy up our on-going investigations
rather than open a new one. Having been spared, or at least reborn,
we can proceed. I am very grateful for the industry's tolerance
and patience. The other thing I would like to say before we begin
is that there was some puzzlement as to why we were doing this
inquiry. The answer is we think you are frightfully important
and do not get enough attention, and there may be public policy
issues that you want amended, looked at, refreshed, and, indeed,
your evidence, not just your evidence but the evidence from a
bewilderingly large range of potential witnesses—we have
had some 47 submissions altogether—suggests there is an
appetite for this inquiry, so we are all the more glad we are
doing it. We have deliberately set a very broad agenda so that
you could tell us what you thought was important within it, and
that has happened in the evidence that we have received and we
are very grateful for that. I would like to say a particular thank
you to your three organisations for actually putting in joint
evidence and, indeed, supplementary evidence dealing with specific
issues, some responding to requests from me, some updating issues
since your original evidence was submitted. We are very grateful
for that coherence, though it does still mean there are 47 other
witnesses as well, potentially, which does pose something of a
challenge to the management of the inquiry but we are coping.
So, that is by way of introduction. Can I then ask you to introduce
yourselves, as I always do, and particularly to explain what you
do in the sector: because those of us who are relatively new to
the issue are a bit bewildered by the extraordinarily wide and
large number of organisations and their roles. I would suggest
there could be 300 representative organisations in the broadly
defined construction sector, so could you explain how you fit
into the overall scheme of things as well as introduce yourselves,
please?
Mr Fison: I am Chief Executive
of Skanska UK. We are a £1.5 billion contractor, so I do
everything from roads to utilities to bridges to buildings, et
cetera. Today I am representing the Construction Confederation,
which is an umbrella group, probably the largest representative
body in the building and civil engineering sectors. We have about
4,000 construction companies representing about 75% of the construction
output, but I am very much speaking as a contractor.
Mr Raynsford: I am Nick Raynsford,
Member of Parliament for Greenwich and Woolwich. I should explain
to you why I am here today. I am also the Chairman of the Construction
Industry Council, which I will say a little bit about in a moment,
but I think for proprietary reasons I should draw attention to
the declaration relating to that in the Declaration of Members'
Interests. The CIC is the representative body for professionals
within the construction industry, covering a very wide range of
bodies involved in design, planning, engineering, in facilities
management, in surveying, in research and a whole series of other
professional services to the industry. That sector accounts for
probably a turnover of around £14 billion a year of which
£2.5 billion is earned overseas, so it is extremely important
in relation to export work, and the CIC represents, effectively,
some 300,000 people working in that sector and about 27,000 firms.
Mr Colley: I am John Colley. I
am Executive Managing Director for Saint Gobain for insulation
and gypsum, which is predominantly plasterboard, and I look after
all the northern European territories—Eastern Europe, South
Africa, et cetera—so quite extensive responsibilities
beyond the UK. I am here as President of the Construction Products
Association, which is an umbrella body which represents the manufacturers
and distributors of building materials. It contains a very large
number of trade associations, plus the major companies. It represents
something in the region of about £40 billion of sales, which
is something in the region of perhaps 4% of GDP. The manufacturing
sector is round about 20% of UK manufacturing.
Q2 Chairman: The biggest industry
I have ever heard of.
Mr Colley: It is quite big.
Q3 Chairman: One question before
I pass on to my colleagues. The Strategic Forum for Construction.
What role does that have? I believe you are all involved with
it.
Mr Raynsford: Should I answer
that one to start with, because when I was construction minister
in the period up until 2001 I was actually responsible for setting
up the Strategic Forum. Its objective was to oversee the implementation
of the Industry Improvement Agenda set initially by the Egan Report,
Rethinking Construction, and the subsequent follow-up report
Accelerating Change, and the Strategic Forum was designed
to bring together the key players in the industry to focus strategically
on the main implementation targets arising from the Egan Report.
It represents the main umbrella bodies in the industry. It is
serviced by the three organisations who are giving evidence to
you today.
Chairman: Thank you very much indeed.
Lindsay Hoyle.
Q4 Mr Hoyle: Thank you, Chairman.
Are you game keeper or poacher now, or shall we judge you at the
end? Can I move you on to construction in the UK economy? Obviously
the construction industry is a major player in fact. The gross
value-added is more than energy, automotive and aerospace sectors
combined, so it really is a huge benefit to the UK. To what extent
has the construction sector been a driver of economic growth in
recent years?
Mr Colley: Certainly we produced
some figures recently for 2005 which suggested the construction
industry produces something in the region of £80-90 billion
of added value in the UK, and that compares to retail, which was
for that year about £61 billion, the chemicals industry £16
billion, aerospace 7 billion, and so it is a very significant
industry. It is almost 9% of GDP, the industry as a whole.
Q5 Mr Hoyle: It is that point, is
it not? People talk of aerospace, it is trendy, the UK has got
to be seen to be flying and building aircraft that go round the
world. Given the importance of your sector, do you think there
is enough attention given to you by the Government as we give
to other industries?
Mr Raynsford: If I can answer
that one, I think the three ways in which government relate to
the industry, firstly, as a client, and the important thing to
remember is that the Government in its broadest sense, the public
sector, represents about 40% of the industry's total work load,
so it is a very, very important role as a client. The Government's
interest is obviously to get best value and the Office of Government
Commerce has done extremely good work in identifying best practice
and trying to promote that. There is a Public Sector Construction
Clients Forum as well which brings together the main client bodies.
We believe that this could be more effective and, indeed, that
more work could be done to ensure that the OGC recommendations
on best value really are applied across the whole of the public
sector. The implementation, in our view, is patchy at the moment.
A number of government agencies, such as the Highways Agency,
are very much engaged in the process; others less so. The second
way in which government relates to the industry is as regulator.
Here the position is quite fragmented. If I can give a very brief
summary, the Department for Business, Enterprise and Regulatory
Reform, your department, is responsible, obviously, for construction
legislation, payment regulation, that sort of issue; CLG is responsible
for building regulations and planning; Defra is responsible for
environmental issues; the Treasury (I have already mentioned the
OGC) is in the lead in relation to procurement; the DCMS is responsible
for design and architecture, though I should add that architectural
registration is still with CLG; the DCSF is responsible for skills
and training, the DIUS for higher education, the DWP for health
and safety. All of those involve regulatory inputs into the industry,
and from industry's point of view the crucial issue is coordination,
which does not always work as well as it should, and that is,
I think, an area of concern. We do see the need for good regulation
(and perhaps we can come back to this at a later stage) to drive
performance, but it needs to be better coordinated. The third
role in which the Government relates to the industry is as sponsor.
That is the role of BERR, and we have very constructive relationships
with BERR and the ministerial teams. Stephen Timms is currently
the minister. The capacity of BERR is, obviously, limited by the
amount of resource it is able to deploy and I cannot but reflect
on the fact that when I was construction minister I had a team
of approaching 200 civil servants working on a range of issues
including industry improvement, trade promotion and other such
factors. The current capacity is less than that and the research
programme which we used to fund is no longer there, the specific
industry-related research programme, so there are capacity issues,
but we have a good and constructive relationship with BERR and
the aim is to ensure that they act as an effective sponsor for
our industry.
Chairman: Brian has some questions later
which I think I would like him to bring in now. It seems logical
in terms of the flow.
Q6 Mr Binley: You are very kind,
Chairman. Can I first of all say how delighted I am to see a good,
solid Northampton boy in such an important position, in such an
important industry. I am concerned and the National Audit Office
has been concerned about fragmentation for some time. I wondered
whether you feel, as they do, that the impetus for improvement
within the industry provided by the Latham Review in 1994 and
then Egan that you have touched on in 1998 has lost its impetus,
has ground to a halt, and it is time for another real look at
this? You have got massive experience in this area. How would
you want to see changes to make the industry less fragmented,
both from the Government's side and from the sector itself?
Mr Raynsford: If I can kick off,
I suspect my colleagues will also want to contribute on this.
Q7 Chairman: The point we are putting
here is not the economic market condition of fragmentation; it
is fragmentation of representation, the interaction of public
policy issues.
Mr Raynsford: Yes. This is a very
diverse industry, as you recognise. The Strategic Forum does bring
together the key players and is an attempt to focus on those issues
that really have to be dealt with at an industry-wide level and
which are crucial to the success of the industry and its relationship
with government. I believe that it has done pretty well in the
last few years in that particular function, particularly under
James Wate's chairmanship last year. I think there was a lot of
very impressive work that was undertaken in relation to both health
and safety, waste, sustainability and industry integration. So,
there are good work streams in train there, but it would be wrong
to give the impression that there was not still a problem about
the very diverse nature of the industry and trying to ensure that
all parts of it are striving to improve. We have a very long tail
and some parts of the industry do give the best an unfortunate
bad name. The image of the industry is not as good as it ought
to be because some of the public's perception of the industry
is often the least attractive part—the small informal, often
slightly dodgy, operators who people perhaps encounter when they
need to improve their own homes and have a less than satisfactory
experience.
Q8 Mr Binley: Can I go back and press
you, Nick, I am sorry, but I really would like your view, because
you are as knowledgeable as almost anybody, on this whole area
of reforming government to service and work with the industry
more effectively and, indeed, for reforming the industry itself
in a reverse capacity, as it were?
Mr Raynsford: If I can pick up
your earlier question, I think there was a real surge of activity
in the aftermath of the Latham and Egan Reports and the movement
for innovation which was established in the late 1990s and was
very much an attempt to drive the improvement programme through
demonstration projects. I think there is a feeling across the
industry that the momentum has to some extent been lost, but that
does not mean that there is not still progress being made. So
it is important to find ways in which a new thrust of energy can
be injected to ensure that we are driving ahead on the things
that are vital, and some of the big policy challenges of the current
time, sustainability in particular, are absolutely vital as people,
I think will come on to deal with later.
Mr Binley: I am going to make you Prime
Minister: what would you do?
Q9 Chairman: The machinery of government.
Mr Raynsford: The machinery of
government I am, in a sense, slightly reluctant to talk about
because I was part of it. I have to say that in my day I did have
probably an easier task than my successors have had, because I
have already referred to the rather larger capacity within the
old DETR and the DoE before that, and it was probably easier to
corral the many other elements within government behind the industry
improvement agenda, particularly the Egan Report. I think it is
quite hard for BERR to ensure really effective integration across
central government with such a diverse pattern as I have described.
Q10 Mr Hoyle: You have touched on
the capacity and efficiency. I think it is quite right to draw
you a little more. There are problems, as we see it, that construction
output is forecast to grow between one and 3.5% per annum for
each of the next five years. At the same time construction inflation
is running at twice the rate of consumer price inflation. This
suggests there is little spare capacity within the industry. From
where do you expect the construction industry to draw greater
capacity over the coming years?
Mr Fison: Maybe I can pick that
up. I think the first thing to say is that the construction industry
has a great capacity to deliver when it gets engaged early. There
are huge efficiencies when the supply chain (the complete supply
chain, not just part of it) gets engaged. We are not the most
efficient industry in the way we procure and in the way we deliver.
One of the ways we can solve that problem is simply by earlier
engagement. I think we have to recognise that we are also slow
to change and we use migrant labour, as you know, and we have
used it for many, many years, and they are very, very good labour,
and we have got no criticism or problems with that, but whilst
we have a source of labour like that, then it is easy to carry
on the way you carry on, and I do believe that there is plenty
of scope, if we saw that labour reducing, to change the methods
of construction and there is possibly not enough incentive to
change the methods of construction whilst we have those resources.
Mr Colley: I wonder if I could
perhaps speak as well, partly from the manufacturers'/distributors'
perspective, which I think is where the heavy investment has to
go in, in terms of longer-term capacity, as typically plants are
very costly and have quite a long lead-time to put them in. What
I would say is the Construction Products Association has undertaken
a survey very recently of our members and they have added something
in the region of about 10% new capacity this last couple of years
and are planning to add another 9% in the year or two to come.
My own industries as well, the plasterboard industries, added
35% capacity this last year and the mineral wool insulation industry
has added round about 70% over the last couple of years; so there
are very significant amounts of capacity which are being added
and I think it does show that the industry really is quite flexible
in terms of being able to plan and equate its capacity with demand.
Q11 Mr Hoyle: It is strange that
you do admit being dependent on migrant workers. Is that because
there is not enough training done or is that because there is
not enough pool labour to draw on?
Mr Fison: I think the construction
industry is not perceived as an attractive industry for young
people to go into—that is something which we have all got
to work at delivering; it is a joint effort—and as such
we do not draw enough people into it. So, when there is a large
pool of high quality migrant labour, it is fairly natural that
we will go and draw upon it. In the longer term we need to correct
that problem, and that does require us to make sure the education
in our schools actually sells construction as a beneficial career
to follow. It means that we have got to provide in the industry
a way for young people to come in and for it to be seen to be
attractive, and one of the important things for that is stability.
Q12 Mr Hoyle: I do worry about what
you have just said, but in the longer term how long do we have
to wait? That is closing the stable door when the horse has bolted
17 fields away, is it not? It is not good enough, is it? You have
got to be taking action now surely. We do not want to be looking
at it in the future. I think it is very negative.
Mr Fison: I agree with that, but
when you are talking about educating children that obviously takes
a number of years.
Q13 Mr Hoyle: If you have not started
now when do you think you will start?
Mr Raynsford: Could I add a comment
to that, because I think it would be wrong to give the impression
the industry has not started? I would like us to tell you about
a particular experience last year when I was engaged in supporting
some specific training initiatives designed to help people living
in some of the most deprived communities in the country to get
the benefit of the work that would come from the regeneration
activities in those areas, and talking to some of the people involved
in running the training programmes, they made the point that it
was the negative image of the industry among the parents which
often was the biggest obstacle to recruiting the youngsters in
those areas, because it was still perceived as a dirty and dangerous
industry. The industry is changing. There are considerable advances.
There is much more being done to train and develop young people
in deprived areas, and I am very conscious of that in East London
in the run-up to the Olympics. The work is being done to ensure
that the construction opportunities are used for young people
currently out of work.
Q14 Mr Hoyle: Can I just say to you,
there is life outside London. I know you are dedicated to London,
you have been a great ambassador for London, but, believe it or
not, the UK is much bigger. What we have got to do is get the
mindset outside London. Let us look at the whole of the UK and
what the message is. Let us take action now and let us not wait
until later. I get that message.
Mr Raynsford: The example I was
giving earlier, I did not mention it, but it was specifically
in Bradford, so please be assured that I am not only—
Q15 Mr Hoyle: To a Lancastrian that
is not a good example, I assure you! What does bother me is that
what we have seen with migrant workers is composite companies
that have been used in the construction industry that have been
collapsed halfway through a contract. People are not paying their
tax and national insurance. There has been a real problem there.
Are we going to see an end to that?
Mr Fison: I play at the major
contracting end, the larger company end, and, I must say, we do
not see that problem. Of course we read it in the press and we
know about it.
Q16 Mr Hoyle: It is on the major
construction sites where it is actually happening: because you
sub-contract, who then sub-contract, who then form a company,
put people as directors and there are not the responsibilities
that go with major sub-contractors. It is because it is halfway
down the line from the major companies that nobody is actually
looking at it, but it is something that you should have a look
at and come back on. For that we would be very grateful. Can I
move on to one other question? Are there particular areas, both
in the workforce and geographically, in which you can foresee
skills or other capacity shortages which touch on to where we
have just been, other than Bradford?
Mr Colley: I think this is probably
more an issue around manpower. Generally speaking, most manufacturing
industries nationally are structured, so I do not personally see
issues around regional shortages. I think the issues are probably
much more around labour, perhaps contracting labour as well rather
than manufacturing or distribution type labour, which is really
the issue to which you referred a bit earlier, where they may
be shortages in the South East which results in higher wage levels,
et cetera.
Mr Fison: The one other area which
is a real capacity constraint at the present time in the industry
is the ability to tender for work. The sheer capability of the
industry to put together tenders, particularly large and complex
ones, and there there is a requirement for some further thought
and it is quite interesting that there is a range of different
approaches. The Highways Agency are using their ECI to shorten
down the process. There are also possibly some lessons to be learned
from the private sector, who have two-stage tendering and they
have a greater use of frameworks, but there is a capacity constraint
in the number of people to estimate and tender for work.
Q17 Mr Hoyle: You used to always
say, I do not know whether it is still the case, that construction
always does better under a Labour Government because they are
willing to spend. Mr Fison is nodding.
Mr Raynsford: I have to be very
careful in this current context because of the hat that I am wearing
at CIC, but I think there is no question in the last 14 years
that the industry has benefited enormously from continued growth
without the boom/bust cycles that were actually very damaging
to the industry in most of the post-war period up until the mid-1990s.
Chairman: Your dating is noted with approval
by the Chairman.
Q18 Mr Clapham: Before we leave the
area, Mr Fison, could I ask about bogus self-employment. You may
have seen the report that was done maybe three years ago by Dr
Harvey for UCATT, which suggested that because of bogus self-employment
we were in a situation where something like £2.5 billion
in revenue was being lost each year. Are we getting to grips with
that? Have new procedures been put in place to deal with that?
Mr Fison: You have put in regulations
which, hopefully, will work their way through the system and prevent
it. I believe there is regulation in place now to move us forward.
Q19 Mr Clapham: Coming back to the
way in which this has been dealt with, I understand that there
is a new certification system that the Inland Revenue has introduced.
Is that working through the industry?
Mr Fison: It is early days, but,
yes, it is working and it gets teeth in the very near future.
That is why I say the regulation is there, we have all got to
support it and we have got to make it work.
Chairman: Before I move on, Peter Bone
wants to come in.
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