Our authors have examined the key areas that we consider have high importance in any assessment of the industry, commencing with:
The state of the industry globally
Causes of project and corporate failure
Consultants' challenges in the international market
Issues with supply chains.
We then provided structures, explanations, and details on the important elements of the main themes that we consider essential for successful project outcomes:
People and teamwork – management competency, structuring projects, personnel issues.
The right framework – business models, forms of contract, collaboration, and Public Private Partnerships (PPPs).
Management of risk – human factors, effective processes, technology, successful projects.
Robust processes – for corporate and project management, conflict management, audits.
It is clear from our reviews that such a global and diversified industry will always attract a wide range of issues (and opinions). It is also clear that many of today's issues are not really ‘new’ and that the industry has faced many of the same core challenges for decades. Some common and extremely important themes have emerged from our chapters and we summarise these as follows.
It has become evident from our findings that some sections of the global construction industry are currently doing well, but many participants are not. Also, that some countries have a much healthier construction industry than others. At a high level, one can conclude that:
There are still far too many project failures around the world, with high cost over‐runs, delayed completions, and poor quality.
There are too many contractor insolvencies (for a number of different reasons).
Clients will nearly always achieve better project delivery with less risk if they enter into contracts that suit the specific project and the mutual relationship that they want with the contractor and/or consultant.
Contractors, consultants, and clients need to:
Invest in and empower people in their organisations, with more extensive training and with a deeper understanding of the impact of human dynamics
Implement robust business processes
Place far more importance on risk management
Embrace technology
Give much greater recognition to the criticality and viability of the supply chain.
We have observed that contractors world‐wide appear to be operating on two distinctly different levels of efficiency, which are summarised in Table 28.1.
Table 28.1 Different Levels of Contractor Efficiency.
Progressive and well‐managed contractors that have:
Contractors who are persisting with ‘old style’ industry practices and cultures and who:
Tight financial controls
Are surviving from day to day using unprofitable business and contracting models
Robust strategies and policies governing bidding, margins, and liquidity
Have management who are living in the past and have limited competence for the present (never mind the future)
Effective processes, including stringent risk management, and who can often make use of new digital platforms to obtain efficiency gains
Have inadequate risk management, ineffective control, and reporting processes, and are seemingly unable to cope with new technologies
An understanding of the human factors in all areas and an ability to embrace these
Do not understand the human dynamics
Significant reinvestment in R&D, training and technology
Do not invest sufficiently in R&D, training and technology
No amount of legislative change can protect ‘old fashioned’ contractors from their own inefficiencies and out‐of‐date management approaches and practices. Lenders and shareholders might put on a lot of pressure, but ultimately contractors like these will not survive in the long term if they are unable to ‘modernise’.
There is no doubt that construction is a tradition‐bound industry, with methods and processes being passed down from one generation to the next as being ‘the only way to do it’, but these traditional methods are no longer adequate for survival when you are competing against really progressive contractors who are running their operations in a hard‐headed business manner and using very efficient methods and new technologies to manage their finances, personnel, general administration, risk assessment, project delivery, etc.
28.2 Where Is the Global Industry Headed?
To the industry outsider, it seems quite ridiculous that the same construction sector problems have been recurring in cycles for decades and keep happening with each new generation of managers – despite (or sometimes, because of) endless independent and government investigations and industry body reports. This is unacceptable. Construction is such an important industry in every country in terms of employment and GDP share that it is way past time that real changes should take place in order to move on from obsolete and unprofitable business models and practices, and in some countries, ongoing corruption.
In such a low margin industry it does not take many ‘bad’ projects to tip a construction contractor over the edge and into bankruptcy, which is then followed by major problems for employees and the supply chain and losses for the investors and banks and also for the economy as a whole.
However, it is too easy to blame over‐competitiveness and low margins for these failed projects or contractors, particularly because the majority of contractors are profitable enough to survive year in, year out, even if they are not really prospering, and a minority of contractors and their supply chain are actually doing very well.
Not all clients are perfect either, with some having unrealistic expectations coupled with inadequate knowledge of the contracting process, often entering into unsuitable forms of contract; others can be just plain inefficient, and worst of all are those that turn out to be untrustworthy bad payers.
Risk management plays a big part in managing for success and it is really all about people. Organisations need to invest in the best and most appropriate corporate processes available, but at the end of the day the success or failure of the project will depend on all stakeholders having the right people in the right positions, efficiently using these right processes.
It is crucial to make sure the ‘lessons learnt’ from both successful projects and disastrous ones are passed on to the next project and the next generation. One of the main objectives of this book has been to present these experiences in an easy‐to‐read, concise, and practical form for all participants in the industry and, in particular, we hope that young professionals can take them on board and not learn them the hard way. Managing for success is the over‐riding goal.
It is time that CEOs, directors, and senior managers of many construction companies moved on from the industry's embedded cultural practices and started to run their organisations in a more robust business manner (for example, stop the ‘must win’ chase for projects).
At the same time, it is important that they invest sufficiently in training and new technology in all the areas necessary to achieve real and sustainable corporate and project efficiency.
28.3 Key Observations and Recommended Actions
Listed below are the key observations that we have made from our review of the industry and our recommended actions to assist department heads, CEOs, directors, and senior managers in making the necessary step changes that will make construction a more stable industry. It is essential that clear leadership needs to be provided by both contractors and clients towards improving the efficiency of the industry.
28.3.1 Legislative Change
This will vary from country to country, but it is required to improve and ensure high industry standards and to protect the industry from unscrupulous and/or really inefficient clients and contractors in areas such as:
More stringent financial reporting and auditing
Strict adherence to health, safety, and environmental standards
Security of retentions and payments
Pension fund protection
Corporate social responsibility (CSR)
Provision for greater accountability by senior managers and directors.
Government departments and politicians responsible for such changes would be well advised to be more proactive in comparing notes with other countries and listening more carefully to their industry organisations, rather than wait until disasters such as Carillion or Grenfell Towers in the UK occur before taking action. The signals for problem areas are normally loud and clear.
28.3.2 Client Contractor Relationships
Adversarial relationships are self‐destructive. This is well recognised by successful contractors and experienced clients. Good relationships produce good projects and good projects produce successful contractors.
There are some fundamental requirements and principles that are required in order to develop strong client contractor relationships:
Mutual recognition of the desired result of each other, i.e. a quality project, on time, and on budget for the client, and a profitable, trouble‐free construction process for the contractor.
Mutual respect and awareness of business, personnel, and cultural values.
Proactive implementation at the outset of effective communications and relationship management protocols.
The following are our additional key observations and the recommendations we putforward to address these challenges:
The supply chain has been taken advantage of (in numerous different ways) by clients, contractors, and consultants for too long.
This must change because all supply chain participants comprise an integral part of the entire industry and are heavily relied upon by contractors and clients. We must seek to find more and better ‘win–win’ outcomes for project delivery.
Competency of people, team building, and recognition of the importance of human factors are constantly recurring themes in corporate and project management.
Corporate and government senior management competency is a fundamental thread throughout this book, because at the end of the day all good (and bad) management practices and cultures emanate and are led from the top.
The importance of having capable teams, good team spirit, and of understanding human behaviour cannot be over‐emphasised. In return, employees expect openness, honesty, and trusting delegation of responsibilities. There is no room at the top for dominating, noncommunicating, incompetent managers (who may only have got to that level in an organisation through cronyism or time serving).
Real improvements have occurred with several forms of direct construction contracting and business models.
Internationally, the 2017 FIDIC Suite of Contracts and the 2017 New Engineering Contract (NEC4) represent substantive improvements in standardised contracts that enable efficient management of major projects, and provide for proactive collaboration and non‐confrontational resolution of conflicts and disputes.
Similar improvements have been made in several countries with their standard forms of contracts and globally there is now a good range of different contracting formats available to suit specific types of projects.
PPPs, despite having been around in various forms for a long time, still require significant review today of contract terms, risk share, and basic understanding to ensure that these projects are attractive to clients, consultants, potential investors, contractors, and facilities management services companies.
The basic PPP format has only seen incremental changes in recent years (up until the publication of this book). Because PPPs are growing in importance worldwide, especially in developing countries, the changes outlined in Chapter 15 should be addressed urgently to ensure that the full lessons of the past are utilised for a successful future.
The following are of particular note for new PPP markets in this regard:
The current forms of PPP contract do not always reflect a level playing field, with the ‘allocation of risks to the party best able to manage them’ and this is driving potential participants away, to the overall economic detriment of potential new projects.
Excessively high Bid costs are continuing to make PPPs a less attractive and more risky investment for the private sector and for contractors (and consultants).
In a number of countries there is far too much corruption and diverting of PPP investment funds, so lenders, investors, and contractors need to tighten up the supervisory governance substantially, as this is also driving away potential participants.
Successful clients acknowledge that cheapest is not always best and can be risky.
These clients are prepared to negotiate fair and reasonable contract terms on the basis that they require a quality project delivered on time and on budget, with minimal cost variations and disputes. To achieve this, they are prepared to work closely with contractors and consultants in the planning, design, and budgeting in the lead‐up to signing the construction contract.
They will then enter into an appropriate form of contract to suit the project, such as ECI (early contractor involvement), or one that might include some form of risk/reward sharing, or it might be an alliancing contract.
There are several contracting business models available, but all of them will only work well if clients, including governments, recognise that it is in their best interest if contractors and consultants are financially sound and have positive cash flows.
Beware of clients who portray themselves as being ‘smart and tough’.
Typically this is the sort of client who likes to negotiate the price down to a level that is actually unrealistic for the delivery time and quality. They are then prepared to argue and fight all the way through the contract delivery.
This type of client is also often the bad payer; on time at the start, then getting slower as the work progresses, and finally holding out on the completion payments.
Property developers, who are often highly geared, have a particularly bad reputation in many countries as bad payers (although ‘enlightened’ developers do work closely with their team, nearly always resulting in a better outcome for all the parties – and repeat business)
Risk management is being poorly implemented by many clients, contractors, and consultants.
The value of good risk management appears to be badly misunderstood and underestimated by many. They are consequently not making best use of the available processes.
They often do not seem to equate effective risk management with ensuring project and corporate financial security and profitability.
Chapter 18 describes the risk management processes used by Kiewit Development Company in the US and Canada, which provide a good core model for all contractors.
The industry must embrace new technology.
Significant change is always difficult in any industry, and implementing new digital technologies as aids to design and construction certainly requires strong motivation and support from senior management, because:
Construction is a particularly traditional industry, long resistant to change and innovation.
There may be significant capital expenditure required to incorporate change.
New specialised employees may have to be recruited.
There has to be a commitment to employee training at project and corporate level
Advances in technology are occurring rapidly and some organisations are too slow to absorb and adapt.
The use of digital technology is expected to grow rapidly and will define the difference between progressive and innovative managers and ‘the old school’.
Robust processes for corporate and project management.
Clients, contractors, and the supply chain use either proprietary, in‐house or a mix of both for data gathering, control, and reporting systems.
Whichever process that is used it must be based on up‐to‐date and accurate data and it is essential that the real‐time control and reporting formats and systems are easy and simple for employees to use.
The process must be able to provide this real‐time data for all essential management components, such as cost, financial status, progress, risk management, and corporate governance updates. Strict discipline is required in reporting.
It is not acceptable to be announcing project and corporate figures and progress reports that are even three months old, let alone six months out of date.
Bad news travels fast. It is completely unacceptable for contractors to suddenly announce that they have just become aware of losses on a project that has been under construction for two or three years, as we have witnessed in various parts of the world in recent years. This is senior management incompetency at its absolute worst!
28.4 Final Thoughts
There are signs that the continually increasing global demand for infrastructure and the readily available finance from governments, PPP investors, and the private sector will further push the demand for the construction industry to expand. On balance, the global industry should be poised to go on to a better and brighter future, with large volumes of work available in infrastructures, residential, industrial, and commercial.
However, to succeed legislative changes are necessary and the industry itself must make the badly needed changes that we have identified in order to achieve greater stability and profitability. If this is not done then the industry will fail to meet expectations.
The messages and recommendations made in this book are aimed first and foremost at the senior leaders in government, client organisations, contracting companies, and construction industry organisations, because real change can only be achieved by all of them working collaboratively and with a sense of urgency. And then firmly advising politicians on the requirements.
For far too long we have been hearing about the need for these changes, but they have been too slow coming so it is time for some meaningful and ongoing leadership to give the construction industry the viable platform across all sectors that it should have as one of the world's most important industries.
Failing to plan and adapt is planning to fail – it's your choice. Good luck.
Charles O'Neil on behalf of our team of authors, 2018.