Do you bet everything on the Farmer?

In early January Mark Farmer outlined what the construction industry needs to be prepared for and what it might be able to do to innovate, improve, survive and modernise. He was writing in Building – but do you agree with him?

One key point seemed to be that the industry had to collaborate, and drive change itself – as HM Government, let alone the devolved Governments like our own Welsh Government – are not going to facilitate the changes we as an industry have been lobbying for.

To a point he might be right. But really? Surely there is only so much industry can do on its own without legislation and clear, agreed and mapped out policies and plans. As one commentator put it after a diet of boom and bust what the industry needs is a solid regular meal of work.

Farmer’s argument is that whilst we have seen that construction has proved itself to be adaptive to the circumstances in which we have found ourselves over the past two years, the question now, is whether our industry’s decline in structural resiliency combined with growing compliance and regulatory challenges will make the future much more difficult to predict.

He sees three issues taking centre stage in the short to medium-term outlook for the sector: decarbonisation, resource scarcity and procurement reform.

In the wake of the COP26 conference it might seem appropriate to start with the ever-growing significance of the carbon agenda in construction. Despite a 30% reduction in operational carbon recently being confirmed via changes in building regulations from June 2022, there is a lingering cynicism that the sector is at risk of greenwashing itself into a false sense of security that it is ahead of the game when, in reality, it still has a mountain to climb.

Back in the summer of 2021 Mark Farmer spoke about the concept of “peak new-build” appearing on the horizon – a world where every decision to demolish an existing asset or indeed to build a new one on a virgin site would need to be prefaced with the alternatives of do nothing or more likely re-purpose, upgrade and adapt existing assets. As this trend sweeps over large parts of both the commercial property world and parts of the public estate, the implications on design and construction will be significant, in terms of workload size and profile, skills required and risk allocation.

The second big-picture issue that will continue to dominate boardroom thinking in 2022 is the impact of construction resource scarcity. Having seen this emerge as a growing threat during 2021 – and partly reflected in the latest inflation figures and ensuing interest rate rise – the interruption of material supply chains and labour supply has inevitably sparked a conflation of cause-and-effect explanations spanning the impact of Brexit and the pandemic.

Subject to the future course of the pandemic, material supplies could potentially normalise in 2022 and opportunistic price hikes may subside. What is much more a thorny long-term issue is the fact that the human resource base of our industry is continuing to be eroded, and recent events have only acted to accelerate what was in fact already happening due to demographics and societal change.

We cannot replenish skilled labour in the same way that manufactured materials can be re-stockpiled. Unprecedented wage inflation is starting to elevate the productivity debate across the industry and is also inextricably linked with the embodied carbon point referenced above.

Businesses are going to be increasingly challenged by their own cost base as wage inflation and sheer lack of the right skills gradually make the adoption of technology and manufacturing principles a more attractive option than the previously perceived extra cost and risk of change.

It is almost inevitable that the pace of innovation will lag behind the labour resource squeeze we are facing and the resulting build cost inflation, and the inability to physically deliver some projects will become an invisible ceiling on industry growth

As the Building Safety Bill continues to move through legislative process during 2022, the competency and assurance filter that our industry has managed to circumnavigate for so long will finally be overlaid across a large part of our industry. The harsh reality is that this will further reduce the available, competent workforce and will further force consideration of alternative methods of delivery as a critical means of assuring the “golden thread.”

The third issue is in fact linked to both of the above points. Will 2022 deliver what the industry desperately needs in terms of procurement reform? The question is whether we will start to see changed behaviour and a rebasing of client requirements to respond to the challenges of decarbonising while also trying to improve delivery certainty against the resiliency decline and increasing regulatory burden set out above.

We need to see more responsible ‘clienting,’ with advisors supporting, focused on better security of supply chain delivery and better able to demonstrate that the client has put safety and quality first as these matters become more regulated.

We could also see the influence of ESG driven investors and lenders increasingly forcing the industry to measure and then improve what it does beyond how cheap we can deliver. A real ESG drive will force consideration of total process carbon, skills and training legacies, the working and employment conditions of the workforce and wider community benefits.

The danger, however, is that, due to inevitable cost pressures, it will become a tick-box exercise as a starter before getting onto the usual main course of buying construction as cheaply as possible.

On this procurement point, It will be interesting to see how quickly Construction Playbook principles are tangibly embedded in some of the major public infrastructure programmes coming forward. We also have the government’s wider “transforming public procurement” reforms taking shape this year for enactment into law in 2023.

We could finally be tackling a different exam question which requires a different answer, one that is not about how cheap you can price but how we all collectively create more value and assured outcomes.

We’ve attempted to abridge Mark Farmer’s article. But it is worth reading in full, digesting, seeing where it might apply in Wales and then reflecting on the last segment we picked out. Can we transform the procurement process, and can we move forward to a world focused on outcomes and not obsessed with price?