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Future of Construction

SummaryJun, 2018

The collapse of Carillion this year was a blow to the construction industry, more so because it exposed widespread issues throughout the sector, from malpractice to systemic mental illness. As the industry faces profound uncertainty, the Future of Construction report explores how modular homes could be the answer to the housing crisis, how servitisation can add value for firms, and the five technologies set to transform the sector

In this report

How Carillion unmasked the construction industry

Corporate culture across the construction industry is changing - but it won’t be a quick fix

Sometimes, things have to get worse, before they get better, so people say. Well, as regards public perception and corporate credibility, the construction industry in the UK must be ready to pivot. Last year saw the tragedy of the Grenfell Tower fire. Then, at the start of 2018, came Carillion.

The collapse of the Carillion group looks set to break national insolvency records, with liabilities of £7 billion and debt over £1.5 billion. In contrast to these huge numbers, potential payouts to creditors amongst it 30,000 suppliers could amount to less than a penny in the pound.

Many outside the world of construction have been asking just how this spectacular implosion could have happened at the second-largest construction company in the UK and a major provider of services to the public sector. Inside the industry, however, there is less surprise, explains Chief Executive of the Building Engineering Services Association (BESA), David Frise. “The government knew about Carillion’s reputation as a terrible payer but thought it didn’t matter - if Carillion squeezed the supply chain they got a better deal. Sadly, they’ve learned the hard way that we all lose when a major contractor fails.”

Concern that Carillion may not be a one-off

The worry is that Carillion might prove far from a one-off, or freak occurrence, acknowledges Don Ward, Chief Executive of Constructing Excellence. “Carillion’s was only a slightly extreme version of the sector’s default business model. Plenty of other tier-one contractors are exposed to the same risks.”

Indeed, according to Chair of the Supply Chain Sustainability School, Shaun McCarthy, there has perhaps been too little attention paid in the press and public debate to just how close other industry players were, or perhaps still are, to ‘doing a Carillion’. “The media coverage focused primarily on the lack of governance and the role of the directors. There has been very little written about the duty of their auditors or the structural issues in the construction sector.”

The consensus view emerging appears to be that the issues in the sector are systemic, not isolated

The consensus view emerging appears to be that the issues in the sector are systemic, not isolated. In short, the problem is construction, not just Carillion, suggests Mr McCarthy. “What other sector has businesses making paper-thin margins at the top of the supply chain and trading risk down below tier one to companies they don’t even know, in some cases?”

Systemic mental health issues throughout the industry 

The knock-on effects of this structural malaise are felt not only companies, but also individuals, the people – with sometimes tragic consequences, adds Mr Frise. “The most likely way you will die in construction is not through an accident at work but suicide. We put people under immense pressure to deliver half-finished designs on time and on budget. The result is broken buildings – Grenfell – and broken people – mental-health issues.”

The Mind Matters research conducted by Construction News last year uncovered shocking figures for mental health within the industry, revealing one in four construction workers surveyed had contemplated taking their own life, rising to one in three amongst junior staff and graduates.

A further survey by recruitment specialists Randstad also found that almost a quarter of construction workers were considering leaving the industry within a year, many due to stress and poor mental health. To be haemorrhaging human resource at such a rate is clearly unthinkable and unsustainable – especially given the existing skills-gap challenge of an ageing, predominantly white and male workforce.

The severity of the situation calls for a full system reboot, concludes Mr Frise. “We need culture change – across the board from the clients, funders, government, designers and contractors who drive behaviours – and we need to start treating the disease not the symptoms.”

Lessons construction should take from Carillion 

Anyone expecting a quick fix, though, will be disappointed, warns Mr Ward. “Culture change is under way in construction, having started with a focus on the accident rate, which has reduced by over 70 per cent over the last 20 years, but there is a long way to go. Construction is an industry which is slow to change - projects take time and the feedback loop or learning cycle is dysfunctional, severely impeded by the long and opaque supply chains.”

Though this tunnel of transformation may be long, there are nevertheless glimmers of light. Technical innovation is full of promise – whether supporting digitalisation via Building Information Modelling (BIM), offsite manufacturing and modular construction, or even 3D-printing of whole buildings, not just components. The industry is also beginning to get to grips with rethinking material flows within a circular-economy business model, plus advancing decarbonisation of both process and product.

Rather than an end, Carillion must effectively become the start of something better

However, there remains a sense that all such new developments risk being erected on unsound footings and crumbling foundations, if the corrosive cultural issues and structural supply-chain disconnect continue to bankroll adversarial attitudes to risk transfer.

Ultimately, the danger is that construction does not so much get remodelled, as replaced, suggests Kenny Ingram, Global Industry Director for Construction, Engineering and Infrastructure at IFS. “In ten years, the UK construction industry may look completely different, in that many newcomers are entering from outside and could come to dominate the market. Perhaps the new face of construction will be logistics companies, or manufacturing, or both.”

Rather than an end, Carillion must effectively become the start of something better, he concludes. “To facilitate growth in an historically unpredictable and unstable market, it will be critical for UK companies to have an approach, processes and technologies in place that allow complete visibility, traceability and financial transparency across the business – or perhaps face becoming the next big catastrophe.”

Modular homes are the future of UK housing

To meet the demands of modern construction, it’s time for the business to unilaterally embrace design for manufacture

The column inches written about the dysfunctional British housing market are legion. Too few homes, at too high a price, built for too few people. Two years ago, the Farmer Report commissioned by the Government concluded that the British construction industry, using a medical analogy, was a dying patient.

Fast forward to today, it still lies on its sick bed, failing to change at a scale necessary to answer the UK housing crisis, boost productivity or innovate quick enough. The collapse of Carillion proves how fragile major contractors can be. Mark Farmer said at one event late last year that the industry: “is standing on a burning platform and all other options have gone. It simply has to change.”

Modular homes set to revive ailing construction industry

There’s one option, which could be a reviving shot in the arm for this ailing industry, and that’s modular construction. Rather than lay bricks and pour concrete on-site, sections can be manufactured in a factory, shipped to their destination and then bolted together for final assembly. The finished product can look very similar to existing buildings, yet 80 per cent of the work is done off-site.

This offers a new way of delivering more buildings, faster and of better quality, including homes, schools, hospitals or prisons. In his Autumn Budget, the Chancellor Philip Hammond said the state will use its purchasing power to drive the adoption of this technology come 2019, whether it be through the Ministry of Transport, Justice, Health, Education or Defence.

This offers a new way of delivering more buildings, faster and of better quality

“We cannot deliver the infrastructure we need with the model we have today, there just isn’t enough capacity,” explains Kenny Ingram, global industry director for IFS. “It’s the reason why the government mentions modular homes in every second sentence at the moment, it doesn’t help that there are labour and skills shortages as well.”

Major construction firms getting on-board with modular

Many industry players including Mace, Laing O’Rourke and Mott MacDonald support offsite manufacturing, so do others such as Kier, NG Bailey, Sverfield and Arup, all extolling the benefits of so-called construction integrated manufacturing, or design for manufacture.

“We are looking at the biggest change in 100 years,” states Mr Ingram, whose company develops and delivers enterprise software for customers, globally. “It’s been talked about for a long-time, but now there’s real momentum and we’ve seen a greater number of companies come and talk to us about this.”

The UK construction industry is slow at moving into the 21st Century, adopting new technologies and changing its business processes, including the use of digital design tools, such as building information modelling  (BIM). Productivity has barely budged in 25 years, in manufacturing it’s doubled in this time.

The government wants 300,000 homes a year built by 2025, at the moment the sector can only deliver 190,000. The UK now lags behind Sweden, Germany and the Netherlands when it comes to the merger of manufacturing and construction, while in Japan more than 15 per cent of a million or so new homes constructed each year are, to some extent, prefabricated.

The many benefits of modular homes 

There’s also a perfect storm brewing in this sector with an ageing workforce, a lack of new entrants and growing restrictions on free movement of labour, think Brexit, as well as a structural decline. There were 12,000 small housebuilders in 1988 accounting for one in four homes, by 2017 this had dropped to 2,500 responsible for just 12 per cent of new builds .

“There are lots of cultural barriers to change. The big driver is the housing market and the current crisis. This will force the issue. We are going to have to build more and companies are going to have to release land and land banks to relieve the pressure or build houses on them affordably. There is a sheer weight of demand,” states Mr Ingram.

There are benefits to building modular homes, 50 per cent reduction in time, lower labour costs, less materials, which means lower overall costs

“The market is now catching up. There are benefits to building modular homes, 50 per cent reduction in time, lower labour costs, less materials, which means lower overall costs. There are now quite a few factories where these modular homes can be built.”

However, investing in offsite manufacturing from the construction industry is still in a very early stage. Capital costs are high. Many top tier companies don’t know what their strategy is or should be. The government is pushing modular construction, and digital solutions like BIM, but is yet to mandate on it.

“The issue is getting people to realise there is an issue at all. Many construction firms are entrepreneurial and privately run. They started as one-man bands. Getting them to change is challenging. However, the fact that they are entrepreneurial means they can turn on a knife-edge quickly and invest if they have to,” decries Mr Ingram.

Construction needs government buy-in to drive modular forward

Amongst industry players there’s widespread agreement that if the government legislated on modular manufacture creating a solid pipeline of work there would be a drive to invest in factories that could churn out the buildings and infrastructure of the future.

“The government will force the issue in time. The issue is that the construction industry is still working on the same platforms as it ever has. Many companies don’t know how to manufacture. Shipping and logistics will also be part of this new picture. Many traditional firms just don’t have business systems that support these capabilities,” says Mr Ingram.

“We have solutions that works with construction, manufacturing and logistics. That’s why people are listening to us. The fact is the disruption will come, maybe not from construction, but from other sectors. Insurance companies, manufacturers, even Amazon are looking into this.”

The fact is the disruption will come, maybe not from construction, but from other sectors. Insurance companies, manufacturers, even Amazon are looking into this

Other sectors of the economy have been disrupted by tech-driven solutions from transport (Tesla), to accommodation (Airbnb), construction could be next. It doesn’t have to be from a domestic player either, with modular manufacturing, competition is global, since flat-pack housing can be produced in Sheffield or Shanghai.

“We began investing in construction 20 years ago and in parallel have a strong capability in manufacturing. It is a no brainer to bring the two together and offer the best of both worlds,” states Mr Ingram. “Now expect to see huge change around the corner.”

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Servitisation in construction

Adding value at every stage of the customer journey with servitisation of the construction industry

The idea of increasing the worth of a product by overlaying additional services – ‘servitisation’ for shorthand – is something that progressive business leaders in the construction industry are beginning to offer. Thanks to the progression of technology, it is becoming a no-brainer: construction is big business and represents a significant cost to the client in exchange for a significant, long-lasting asset, so the management of that asset is the next step.

When looking at the impact construction could have, Mark Brewer, global industry director for Service Management IFS says that “For construction companies looking to add innovative service and asset management capabilities to their offerings, the benefits are straightforward: enhanced revenue, better margins, sustainable business growth, predictable income streams and higher levels of customer satisfaction. Customers want to pay for an outcome, for an asset to be productive in the long term, and for a streamlined supply chain. Construction companies taking a servitisation approach from the ground up can build that outcome into every stage of a project - from design, to delivery, to ongoing service.”

Construction companies taking a servitisation approach from the ground up can build that outcome into every stage of a project - from design, to delivery, to ongoing service

Servitisation is popular in a raft of other industries, mostly because of its ability to add value for both the supplier and the consumer. Indeed, the term was coined in 1988 by authors Sandra Vandermerwe and Juan Rada in their book Servitization of business: Adding value by adding services.

“There is a growing portfolio of examples where advanced services are delivering benefits,” says Professor Tim Baines of the operations and information management department at Aston Business School. “Rolls-Royce, for instance, offers power-by-the-hour on gas turbines, and partially because of this the engineering giant earns over 50 per cent of its revenues from services.

“These days, society’s appetite for services greatly outstrips its appetite for product. Recent innovations in digital technologies are starting to provide businesses with platforms that de-risk and enable more advanced services, although some businesses are quicker than others to recognise this opportunity. They do, though, encounter obstacles in their adoption of servitisation – the most prominent being those associated with change and internal innovation issues.”

Asked whether contracting should be based on its outcomes, Prof. Baines says: “It depends on the situation. If your own home required decorating and you chose to contract a painter, would you pay them for the time they take to do this by time and materials, or would you rather fix a price for the complete job to an agreed standard, i.e. the outcome? It all comes down to risk: if it is high, and visible, the manufacturer is best positioned to manage that, rather than the customer. If that is the case then it is a good idea to both offer and adopt an advanced service.”

Prof. Baines believes “there is significant potential” for servitisation to develop in the construction industry, “especially in the B2B context”. He says: “This is particularly prevalent in building infrastructure. Air-conditioning systems are one example where outcome contracts have taken hold. The same potential exists for many building systems – electrical, heating, water.”

Software organisation Canonical has recently conducted research into how the Internet of Things (IoT) is impacting the construction industry, and servitisation in particular. Jamie Bennett, vice president of engineering, IoT and devices at Canonical, suggests constructors should take advantage of artificial intelligence-infused predictive maintenance software and developments in robotics – not least because it is what the consumer has come to expect and, moreover, demand.

“Servitisation is the result of a culture dominated by immediacy and macro-access,” he says. “Music streaming, car leases, and rolling energy tariffs have all shown that choice is more important than ownership in today’s world. And it’s no different in construction, with suppliers moving away from singular business transactions in favour of ongoing, subscription-based offerings.

Servitisation is the result of a culture dominated by immediacy and macro-access

“Servitisation suits an industry experiencing a digital revolution, and as construction evolves alongside three-dimensional printing, robotics, and smarter supply chains, a business model designed to maximise the worth of every purchase reigns supreme.”

Outlining the advantages, Mr Bennett continues: “Successful construction relies on end-to-end efficiency, and servitisation will enable the integration of smarter systems and devices into that overall journey. Although servitisation could pose a threat at first – rolling updates and beta products promote choice, not quality – it also allows new technologies such as big data and the IoT to elevate operations.

“Predictive maintenance, achieved through a web of connected sensors and nodes, will help construction businesses extend the life cycles of heavy equipment; monitoring temperature fluctuations and excessive strains in real-time, resulting in less downtime and better results.”

“Servitisation also allows buyers to incorporate tracking features into their operations. This means that contractors today can streamline the development of prefabricated buildings from production line to construction and, more accurately, report on deliverables in the process. In the future, on-site robots and fleets of autonomous drones will assess challenges at a micro level, and respond in a highly targeted, per use basis.”

Servitisation can only be viable or profitable for construction companies when the organisation has a true understanding of the services it provides throughout its life cycle

However, Jennifer Major, head of IoT at SAS in the United Kingdom and Ireland, warns: “Servitisation can only be viable or profitable for construction companies when the organisation has a true understanding of the services it provides throughout its life cycle. This means knowing every aspect of the throughput cost, logistics, environmental operations, performance degradation and more.

“In simple terms, it’s about understanding the operational footprint a device or service has. This provides the insight needed to effectively manage and cost a servitisation offering effectively. Many organisations are familiar with the term ‘big data’ that represents data in volume, variety and velocity, but very few know how to manage this data and extract the right level of insight and value to adopt this type of strategy.”

Mr Bennett is more positive, and adds: “Construction is increasingly an exact science and servitisation can more accurately marry investment to outcome. By analysing the exact usage of a product within an IoT network, businesses can pay only for what they use, while suppliers can also benefit from recurring payments and a more engaged customer-base.

“This form of lean construction promotes a greater deal of flexibility, whereby data-driven services more accurately assess the outcome of any construction project. The anything-as-a-service model that IoT enables means that construction companies will adapt to offer increasingly bespoke solutions, with constantly evolving outcomes replacing finite contracts.”

The rise of the mega HQ

When you’re a big enough company to define an industry, how do you build an HQ of similarly impressive stature?

The rise of the tech giants known as the FAANGs (Facebook, Amazon, Apple, Netflix and Google) along with fast-growing upstarts such as Uber and AirBnB, has led to a rash of mega-projects as these companies build new headquarters that reflect their status.

The scale of these projects is so ambitious that they are starting to affect the companies that build them and the construction industry at large.

These ambitious and radical workspaces are all about attracting and retaining the best talent

The buildings are often visually striking (think Apple’s circular HQ in Cupertino, California), innovative and on a staggering scale – the 2.8m sq ft doughnut-shaped Apple Park is on a 175-acre site and is believed to have cost around $5 billion. Amazon, earlier this year, unveiled The Spheres at its Seattle HQ, hosting 40,000 sub-tropical plants across three giant biospheres. Microsoft’s plans to upgrade its Redmond HQ will boast 131 buildings that can host 55,000 workers (as well as cricket and soccer pitches) while Facebook has hired the superstar architect Frank Gehry to design new buildings for its campus.

These ambitious and radical workspaces are all about attracting and retaining the best talent, says Kenny Ingram, global industry director for Construction, Engineering, & Infrastructure at IFS.

“These companies value their employees very highly,” adds Rupert Green, a technology consultant at the developer Lendlease. “They want to get the most out of them so they’re always thinking of their wellbeing, ensuring that everyone has natural light and the space they need, how they’re going to bump into each other – it leads to a very different building to accommodate all these different spaces and functions.

“These offices have to be distinctive and different – in part they are about putting a company’s colours on display. They are important symbolically and in terms of brand,” he adds.

These offices have to be distinctive and different – in part they are about putting a company’s colours on display

“This of course puts pressure on designers and firms to deliver on increasingly elaborate and lofty ambitions,” says Ingram, “and we are already seeing this emphasis on sustainability and technology permeate down to more and more projects in the construction industry.”

Bloomberg’s UK HQ, which opened in 2017 in the heart of the City of London, is said to be the most sustainable office building in the world, with features including bronze “gills” that open and close as part of a passive ventilation scheme. The media firm says that the $1 billion building uses 70% less water and 40% less energy than a typical office building.

“These are absolutely bespoke projects that have a lot of innovation requirements from the design process onwards,” Green adds.

This means that the construction partners on these projects are getting involved at a much earlier stage than normal, providing advice on design, logistics and materials. “A lot of effort is spent on understanding how everything hangs together. You have to think how everything integrates before you start building because once you are on site, it’s too late,” Green says.

The pressure on designers and firms to deliver on increasingly elaborate and lofty ambitions means that technology will be key to delivering and managing projects on this scale, Ingram says. “Those firms that wish to compete in the era of the ‘mega-HQ’ will need to ensure that they are considerably further along on their journey to digital maturity,” he stresses.

New flagship buildings are increasingly data-enabled, with building management systems of increasing sophistication giving users a lot more control over how the building is used. This enhanced level of connectivity and the high profile of mega-HQs also means that security, both cyber and physical, is of growing importance.

“These HQs throw up security issues because they are so high-profile. They offer a single point of attack that can shut down an entire company,” says Ian Robinson, business development manager at security company RWS. “It’s really important to design security measures in from the start of the process. Retrofitting them is a nightmare.”

It’s important to us that our spaces encourage human interaction and have natural opportunities for people to have those ‘water cooler’ moments

Equally, it is important to remember that the technology is there to support the workforce, not the other way round, says Michael Teixeira, CEO of UK tech group MVF, which is planning a new UK HQ in London. “Technology will play a huge part in the building’s infrastructure and design to support our work. In saying that, when planning an office space, I don’t believe you should start with the tech – the tech should support the people.

“With recent reports showing workplace loneliness is on the rise in the workplace, it’s critical companies don’t make the mistake of opting for tech that isolates over tech that brings people together. It’s important to us that our spaces encourage human interaction and have natural opportunities for people to have those ‘water cooler’ moments that often lead to collaboration.”

Looking to the future, these firms’ influence on the construction sector cannot be understated, says Ingram. “Tech giants such as Amazon are at the cutting edge of developing artificial intelligence solutions, which are already beginning to influence the technological solutions driving construction forward.

“Additionally, as these companies expand their operations physically with more regional offices, distribution centres, and warehouses, we may even see them venture into the construction industry themselves,” he forecasts. “Watch this space…”

Five technologies changing construction

Technology is changing every industry, but what are the top technologies accelerating construction?

The construction industry, in general, suffers from a traditional hesitancy to embrace nascent technologies, caused partly because projects take years to plan and complete. Recently, however, progressive construction honchos have begun to harness and realise the potency of tech – whether it’s virtual reality, autonomous drones, artificial intelligence, concrete three-dimensional (3D) printing and much more.

Thanks to incredible tech advancements, great value is generated by optimising efficiency and productivity – at every stage, from planning to construction. Indeed, many within the industry predict that in a decade a building site will look very different. Here follows five of the most game-changing technologies in the construction world.

01 Drones

Autonomous drones are being used to map out – sometimes hazardous – construction sites digitally, and providing a higher level of accuracy. Errors cause delays and increase costs, making inexpensive drones a no-brainer, according to Shakti Shaligram of designers seymourpowell. “Drones can drastically improve the speed, accuracy, and safety standards of many parts of the construction cycle,” says the Massachusetts Institute of Technology graduate. “Drones collect data by flying over a site and taking high-resolution photographs. Using photogrammetry, skilled technicians can extract high-quality point clouds and 3D models from the photographs. This results in fewer errors and a reduction in timeline from months to days – even hours, in some cases. With the advent of machine intelligence, drones are becoming smarter and more capable. Real-time obstacle avoidance, gesture recognition and fully automated flight used to be the realm of science fiction, but today they exist on £450 drones.”

02 3D printing

In April, NASA announced it will use more than 100 3D-printed parts to build its Orion spacecraft, which from next year will conduct a series of lunar missions, as well as exploration to other destinations including Mars. On Earth, the first 3D-printed building was completed in December, by Copenhagen-based 3D Printhuset. A gantry-type printer – measuring 8x8x6 metres – was used to create the structural walls of the “building on demand” (BOD). Other BODs have popped up in the months since. David Bloom, a partner at Goldacre, says: “As well as the obvious benefit of reducing construction costs, the use of 3D printing makes it possible to embed wireless sensors into the walls of a property, achieving the full integration of technology and the built environment required for genuinely smart buildings.”

03 Building Information Modelling

Keeping within budget is a high priority for construction projects of any size, and Building Information Modelling (BIM) – a process involving the generation and management of digital representations of physical and functional characteristics of places – is helping considerably. “Since the United Kingdom government’s BIM initiative was mandated in 2016, the modernisation of the sector is well underway and shaping the future of the industry globally,” posits Jonathan Hunter, chief operating officer of Elecosoft, a digital construction company. “BIM is being adopted by construction contractors, medium-sized building companies and house builders, as it becomes affordable and its benefits are tangible.” There is much more to come. He adds: “The future of BIM construction data will be used to support the predictive and automated maintenance schedules during the building life. For example, by passing BIM data from the build programme through to the operations and maintenance phase of the building lifecycle, the property manager would know where all the services, fixtures and fittings are, together with installation dates, certificates, service intervals and so on, all from the original construction details.”

04 Smart devices

Lee Penson, founder of Penson, the super-innovative commercial architectural firm behind Google’s famous inflatable office space, says: “Technology can make you fly. It will unlock potential and give you freedom, but you have to be committed to it.” He is a big advocate of using smart devices in construction. “Snagging a job – checking a project over for last-minute adjustments and minor faults – can take a large amount of time, but newly developed apps and mobile-based solutions are not only quicker to input information into, but it means a paperless system that ensure no information is lost,” Mr Penson continues. “The information can be read instantly by others elsewhere on the construction site and in the office.”

05 Virtual reality

Architects, house buyers, project managers, and other stakeholders are benefitting from the visualisation of constructions that are either in the process of being finished or complete, through virtual reality (VR). Geoff Sutton, chairman of Spinview Global, says: “VR is creating huge opportunities for business transformation in the property and construction world. For example, estate agents can tour multiple properties using VR headsets, and use modelling tech to change colour schemes, designs, and potential refurbishments without visit the site.” David Lewis, a partner at global architecture firm NBBJ, adds: “We have developed our own VR client engagement platform. Stakeholder engagement has always been important, and this technology can solicit feedback from unlimited numbers of users. Because of VR crowd-sourcing design input is a reality, and provides true collaboration and decision making ability throughout the construction process.”