Download master builders and contractors association

MASTER BUILDERS
AND CONTRACTORS
ASSOCIATION
A Strategy for the Construction Industry:
Construct 21
A Strategy for the Construction Industry: Construct 21
Contents
Introduction ............................................................................................. 4
Background.............................................................................................. 5
Construction within the context of the Irish Economy ....... 6
A global construction opportunity ................................................ 7
Strategic Review and the
Forum for the Construction Industry ........................................... 8
Recommendations ............................................................................... 9
Appendices ............................................................................................12
PAGE 3
Introduction
The Master Builders’ and Contractors’ Association (MBCA) is a constituent association
of the Construction Industry Federation (CIF) and is comprised of main contractors
and building contractors, large & small, throughout the country. MBCA members,
who bid for work by competitive tender to the State and to private sector clients,
are responsible for delivering public and private commercial buildings, including
educational, healthcare, retail, leisure and FDI facilities, and infrastructure such as
roads, public transportation, water and waste water treatment plants, bridge structures,
harbours and sea defences.
These companies, who have developed the capacity to deliver complex buildings
within strict cost and time parameters, are concerned that the present economic
circumstances will result in the loss of their professional project management
expertise and skills. The Association believes that sooner or later the country will again
require sophisticated construction services and would like to work with Government
and Forfas and all appropriate State bodies to ensure that the necessary management
expertise, skills and experience are available to meet future demand.
MBCA calls for a national strategy to nurture the construction industry to ensure that
it will be able to meet the requirement for social and economic infrastructure as well
as the needs of indigenous and inward direct investment clients.
Against this backdrop, MBCA initiated an examination, with reference to international
experience, of what the interface between Government and Ireland’s construction
industry could look like in order to advise on the appropriate overall enterprise
governance and policy framework for the sector.
This Report sets out the key findings and recommendations arising from this
examination. It is not intended as historic analyses of industry output and trends but
rather as a forward-looking identification of the issues which must be addressed to
secure construction’s future.
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A Strategy for the Construction Industry: Construct 21
Background
One of the legacies of the past 15 years was the creation of a world-class construction
industry in Ireland, capable of delivering major infrastructure programmes such as the
Inter-Urban Motorways, buildings like Dublin Airport’s Terminal 2, IFSC, the Aviva,
the Criminal Courts Complex and the National Convention Centre, and the major
regeneration of areas throughout our cities and towns. The ability to deliver these
projects did not happen by accident - it was the result of sustained investment in
people, plant and systems in response to the growth needs of the Irish economy.
Whilst acknowledging that the construction sector grew too large, a proportion of the
economy at its peak [mostly in respect of home building and support infrastructure],
especially over the period 2004 to 2007, the industry has now overcorrected.
Construction activity this year is forecast to be <7% of economic activity and to fall
to 5% in 2012. This is leading to the erosion of essential management skills and
capacity and undermining the entire fabric of the sector, which is based around a
vibrant culture of innovation and competition.
Since 2007, over 180,000 direct construction jobs have been lost to the economy and
many large and small firms have ceased trading.
The overcorrection in the sector is occurring despite the fact that sooner or later the
economy will recover and sustainable construction output will again be required
at levels consistent with developed economies worldwide, which will represent up
to 12/13% of Irish GDP. Rebuilding an effective, functioning construction industry,
capable of meeting the medium-term growth needs of the economy, should therefore
form a core objective of Government enterprise policy. However, reflecting historical
weaknesses in the governance of the construction sector, and in the interface between
policy makers and industry, this does not appear to be the case.
Additionally, it appears that there isn’t a sufficiently robust and comprehensive
policy framework in place to formulate and implement policy aimed at ensuring
the sustainability of the construction sector, and maximising its contribution to the
economic life of the country.
PAGE 5
Construction within
the context of the Irish Economy
Construction investment is, for a combination of reasons, of particular importance
for the Irish economy. This investment has low import content and is employment
intensive. Construction is also a key enabler of social and economic advancement in
Ireland through the provision of necessary infrastructure that directly supports existing
and new enterprises, particularly in the export sector, and helps drive productivity
growth, improved competitiveness and long-term job creation.
Despite its overcorrection and on-going contraction [180,000 have already lost their
jobs], the industry still directly employs over 100,000 people in the Irish economy
today and supports substantial employment in related sectors and through the
investment multiplier effect. Operating closer to its medium-term equilibrium level,
the industry would provide direct employment for an additional 80,000 people. In
contrast however, the industry is currently exerting a major drag on employment
and economic activity, accounting for half of the total employment drop, and twothirds of the male employment drop, in the Irish economy in the year to date. Longterm unemployment amongst young males has already taken hold as a result of the
construction downturn and will become a significant structural problem in the Irish
economy over the short- to medium-term.
The underlying weaknesses in the sector clearly also have a substantial bearing on
Exchequer finances and the medium-term fiscal framework. Stability in the sector
would, conversely, give more scope for fiscal measures to promote economic activity
and job creation, and in turn support further progress.
Significant infrastructure gaps remain in Ireland, which is reflected in a poor perception
internationally. The World Economic Forum’s competitiveness report 2010/2011, for
instance, ranked Ireland 69th in the world and 31st out of 34 OECD members in
terms of quality of infrastructure. The decline in public capital investment and the
stop in private investment will see Ireland slip further in international rankings and
substantially harm the country’s attractiveness for investment.
At the same time, Ireland is facing a demographic imperative in terms of infrastructure
development planning. Census 2011 outlined that our population grew by 341,000
in the period since 2006, an annual growth rate of 1.6%. The Census also revealed
an ‘additional’ 100,000 people in the country that have not been factored into any
assessment of Ireland’s immediate or future demand for infrastructure. In addition,
Ireland has the highest birth rate in the EU at over 17 births per 1,000 of the population.
According to recent forecasts, Ireland is expected to see the strongest population
growth in the EU over coming years, increasing at nearly twice the average for the EU27 as a whole . Ireland will require additional infrastructure to support this population
expansion.
Addressing Ireland’s accumulated capital infrastructure deficit will be a major
challenge for the Irish economy, made decidedly more difficult by the diminution in
construction capacity and capability.
Measures are therefore needed. It is imperative to minimise the further loss of capacity
in the construction sector and to maximise its contribution, over the medium- and
longer-term, to the economic and social advancement of the country.
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A Strategy for the Construction Industry: Construct 21
A global
construction opportunity
Despite the current economic difficulties, the country’s leading building, civil
engineering, mechanical and electrical, and specialist contracting firms represent
a key competitive advantage for the Irish economy and an opportunity to develop
a global construction services centre in Ireland. The potential return to the Irish
economy can be measured by the fact that, globally, today’s construction market is
worth an estimated ™5.51 trillion or 13.5% of total GDP. Already, in many European
countries up to 50% of total construction turnover is accounted for by exports .
By 2020, the global market in construction services will be worth an estimated
™9.5 trillion.
The internationalisation of Ireland’s construction industry is underway. Over recent
years, we have seen a refocusing within the industry on overseas construction services,
particularly amongst high-end contracting firms, which, it must be acknowledged, has
been supported by Enterprise Ireland.
Already FDI companies operating in Ireland use Irish construction expertise for building
facilities abroad.
However, firms are being hindered in their attempts to internationalise both by the
growing fragmentation and break-up within the home market, which is acting as a
major constraint on the ability of firms to exploit identified opportunities abroad, and
by systematic problems such as, for instance, the demonstrable market failure in the
provision of construction bonds as a result of the economic/credit crisis.
PAGE 7
Strategic Review and the Forum
for the Construction Industry
In March 1996 the Minister for the Environment and Local Government agreed to a
request from the construction industry to formulate, in partnership with Government,
a development strategy for the construction industry up to the turn of the century and
beyond.
To formulate the strategy the Minister established the Strategic Review Committee
(SRC) whose report ‘‘Building our Future Together’’ was approved by Government and
published in June 1997.
The report contained 86 key recommendations with the following broad objectives:
•to improve efficiency and productivity in the construction industry;
•to promote the competitiveness of the Irish industry in the domestic and
international markets;
•to secure, as far as practicable, reasonable stability in construction demand;
•to ensure fair, transparent and efficient procedures, including competitive
construction tendering, in accordance with EU regulations;
•to reduce conflict between the parties to the construction process and reduce
the cost of dispute resolution; and
•to secure a regulatory environment which will promote quality and safety in
building design and construction by the most cost effective means.
In October 1997, the Minister established the Forum for the Construction Industry (FCI),
with the responsibility for overseeing and advising on the detailed implementation of
the SRC’s recommendations. The FCI was broadly representative of private and public
clients, the building professions, contractors, the trade unions and the construction
products manufacturers.
Why the FCI Failed
Size: while having a formal structure, the Forum, its Sub-Committees and Task Forces
were too large, unnecessarily overrepresented, and often unwieldy.
Focus: often the motive of participants was to protect individual self-interests rather
than to secure joint objectives.
Authority: the Forum itself and its representatives didn’t have the authority or wouldn’t
take the responsibility to take or approve decisions/ implement action.
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A Strategy for the Construction Industry: Construct 21
Recommendations
1)
Establishment of an Enterprise Focus on Construction with a
Government Department/Identification of Ministerial Responsibility
The Minister for Jobs, Enterprise and Innovation and his Department, should have
responsibility for achieving a sustainable and diverse construction sector, contributing
fully to Ireland’s domestic and export economies.
It is striking that, given both the importance of construction as a component of
domestic economic activity in Ireland and its centrality to the achievement of longerterm economic, social and environmental policy objectives, there is no enterprise
focus on the sector within a particular Government Department to complement the
existing regulatory and procurement oversight provided by, inter alia, the Department
of Environment, Community and Local Government, the Department of Finance, and
the newly formed Department of Public Expenditure and Reform.
It is a key recommendation therefore that an enterprise focus on the construction
industry be established within the Department of Jobs, Enterprise and Innovation.
As part of this process, responsibility for the achievement of a dynamic, sustainable
and diverse construction sector, contributing fully within the context of Ireland’s
domestic and export economies, should be vested in the Minister for Jobs,
Enterprise and Innovation.
PAGE 9
Recommendations (continued)
2)
Construction Enterprise Council
Since the lapse of the Forum for the Construction Industry, no formal interface exists
between those vested with responsibility for policy relating to construction and the
industry itself.
A Construction Enterprise Council, driven by the Department of Jobs, Enterprise and
Innovation and comprising experts from wider government, the construction industry,
business and economics, should be established to contribute to the formulation
and implementation of a national enterprise strategy for the sector.
The establishment of the Construction Enterprise Council would provide a basis for the
shared recognition of and response to the need for necessary change in the strategy,
management and operations of Ireland’s construction industry.
The Council should comprise Ministerial appointees representing Government,
industry, business leaders, and academia. Government appointees should be at
Assistant Secretary Level or higher; Managing Directors of leading construction firms,
which ideally have an international dimension; and principals in the areas of private
finance, economics, spatial strategy, FDI, and the materials supply chain. The Chair
should be appointed by the Minister on the basis of proven experience and expertise
in all areas of business and enterprise (Appendix 1).
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A Strategy for the Construction Industry: Construct 21
3)
An Enterprise Strategy for the Construction Industry
The Department of Jobs, Enterprise and Innovation should, through a joint initiative
with industry (outlined herein), formulate a medium- and long-term sustainable
enterprise strategy for the industry - CONSTRUCT 21, which provides clarity around
the range of Government commitments and targets for the sector, signposts the future
direction of public policy, and which harnesses construction’s potential to support the
achievement of overall national priorities relating to both the domestic and export
economies (Appendices 2 & 3).
PAGE 11
Appendices
Appendix 1: Proposed Composition of Construction Enterprise Council
Learning the lessons from past mistakes, the establishment of a Construction
Enterprise Council on the following lines is recommended:
CONSTRUCTION ENTERPRISE COUNCIL
A strategy for business, reform, growth
Membership: 15 Ministerial Appointees
Government (5)
Construction Industry (5)
Business/Specialist Expertise (5)
Chair
Construction Industry
Business Leader
FDI Business Leader
Jobs, Enterprise
& Innovation
Construction Industry
Business Leader
Spatial Strategist
Public
Expenditure
and Reform
Construction Industry
Business Leader
Private Sector Finance
Environment,
Community and
Local Government
Construction Industry
Business Leader
Building Materials (Export) Industry
Finance
Design/Project Management
Business Leader
Independent Economist
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A Strategy for the Construction Industry: Construct 21
Appendix 2: Construction Enterprise Council Operations
• Establish current size, composition, and capacity (including skills base) of the domestic
industry.
• Establish current nature and size of construction export industry, including building
works, design/project management services, materials.
• Obtain submissions from industry trade associations, professional bodies, government
agencies, and other stakeholders.
• Assess the effectiveness of existing forms of contracts and contract procedures in
delivery of best long-term value and best in class projects
• Assess medium and long term capacity requirements for public and private works.
• Explore measures for alternative finance of infrastructural projects.
• Meet (at least once yearly) in open forum with industry participants and stakeholders.
• Establish working groups/committees and, as necessary, sub-committees (with focused
balanced representation) to support the work of the council.
• At the end of the first year, issue a report of findings, interim recommendations, and an
action plan to address particular issues.
PAGE 13
Appendices (continued)
Appendix 3: Construct 21 - Objectives
The overriding objective of the Construction Enterprise Strategy should be
identification of the measures needed to ‘maximise the contribution of the
construction industry to the rebuilding of Ireland’s economy and to the creation of
the future conditions for enterprise to flourish’.
A number of key objectives flow from this, including:
•Sustainable domestic construction output in line with the growth requirements
of the Irish economy and the sector’s medium- and long-run equilibrium levels
•Development of a vibrant global construction services centre in Ireland,
building upon the country’s key competitive advantages in the design,
financing, management and construction of complex building, civil
engineering, and mechanical and electrical processes
•A competitive and efficient construction industry through:
•Implementation of best in class procurement and planning systems
•Reduction of costs through procurement innovation and efficiency in
delivery
•Further enhancements in quality and safety in building design and
construction
•Promotion of energy efficient, low carbon construction processes
•A regulatory environment that promotes quality and safety in building
design and construction by the most cost effective means
PAGE 14
MBCA IS A CONSTITUENT ASSOCIATION OF THE
CONSTRUCTION INDUSTRY FEDERATION