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E13: What's the Future of Construction in the UK?
84 Plays2 years ago
In this episode, Carlos and Jason discuss the How We Build Now report by Procore.
The report suggests the UK market is entering a confident and strong 12 months, which seems pretty at odds with other headlines in the region...so, what's really going on?
They also discuss self-delivery vs subcontracting approaches to dig into the costs and benefits of each.
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Transcript
Introduction of hosts and podcast focus
00:00:00
Speaker
Hey everyone and welcome to episode 13 of the Offsite Podcast where we chat all things construction and technology. My name is Carlos and I spend most of my days talking to construction teams about how they deliver projects. And I'm Jason and I help build software that construction projects use to deliver their projects.
00:00:18
Speaker
Are you Carlos? Yeah, not too bad. Thanks. How, uh, how was Sydney? Uh, Sydney was good. I, yeah, I got the pleasure of going visiting a bunch of different projects. I got some site tours. Um, and then I also got my one, uh, night out of drinking for the quarter. That's kind of says a rarity for you, isn't it? Yeah. If you're drinking once a quarter, surely the hangovers are like 10 X worse than the average person.
00:00:46
Speaker
I don't know, I didn't drink that much and I still had a, like, it reminded me of, I probably could have, this isn't a podcast about drinking, but, um, yeah, but like, it was a bad one. Yeah. And you have to show up for a meeting at eight o'clock or nine o'clock the next morning.
00:01:02
Speaker
It just keeps smiling and it'll be fine. Right, so a few weeks ago, we had a chat about the Australian market.
Exploring the UK's Construction Market
00:01:10
Speaker
So we went through a report, some sort of industry insights and trends around, I think it was Australia and New Zealand. Today, we're going to be chatting about a report called How We Build Now, surveyed by a company called Procore, who we all know in the construction management space, that covers UK technology insights and trends.
00:01:29
Speaker
So first up, hard to ignore. The report suggests that the UK market is super confident on the next 12 months. So like market conditions in general, sort of positivity. If you couple that with some of the stories that we've spoken about recently, which is HST have been delayed, projects being over budget. I mean, that's usually the case. They can't like five major schemes. I'm talking 200 million plus just in the last 12 months.
00:01:58
Speaker
A bit strange. I definitely, I think like, uh, that doesn't seem consistent with what anecdotally it feels like, I guess on the ground. Um, I think from memory, the stats, uh, or not from memory, I'm just trying to look it up. Yeah. So the, uh, in the UK and Ireland, 36% of respondents to this were very confident about the future.
00:02:25
Speaker
Maybe they're very confident because they think it's bottomed and therefore the current way is up. So maybe it's like a, it's a relative term. Maybe that's the, uh, yeah, yeah. Can't get any worse. I actually have a suspicion.
00:02:38
Speaker
Procore's not exactly commonly used in this market or in this region. They have a few building contractors that they work closely with and they've got some use within infrastructure. Do you think that results could be skewed because it's going to building and building's quite a booming market?
00:02:57
Speaker
I don't know, I've been looking through the document quite closely. Like I guess first up, it would be nice if the document was in a similar format to the one in other regions so that you can actually compare the results, but it's not.
00:03:09
Speaker
Yeah, so like a note, if anyone from Procore or whatever, actually listens to this. Like if it was consistent questions in format, that'd be awesome. Yeah, in my head, I was trying to work out what the, when it was, when the survey was undertaken and also like how many respondents, because in the previous one that we looked at in Australia, they disclosed both of those figures and showed the split across like infrastructure building.
00:03:37
Speaker
It's not just Procore, they've partnered with a consulting firm or like a professional like research and industry research firm. But yeah, the short answer is I don't know. And I don't think any of the data in the report gives us clarity as to whether it's over indexing in building or not. Yeah. It's definitely not in the same sort of level of depth.
00:04:03
Speaker
But let's assume it's timely because it's only been released recently. So I'd imagine the survey has been, oh, here we go, over the past three to six months. So it's relatively recent, so it's not out of date. And let's presume they've taken a similar methodology to what they've taken in other regions. Was there anything in there of interest to
Data Integration Benefits in Construction
00:04:26
Speaker
you?
00:04:26
Speaker
There was one that was actually quite, I was just, I guess, surprised about. So one of the questions was around construction firms investing in like capturing, integrating and standardizing data. And then we had this sort of the top benefits that they believe that would bring to the organization. Second and third made sense. It was improved visibility and improved employee experience. Great.
00:04:55
Speaker
The number one was enhanced security.
00:04:59
Speaker
To bring software into a business, I get IT and CIOs and certain people thinking about security. I'm super surprised that that came first, that you want to adopt this digital technology because of security. That doesn't make sense to me. I honestly think that it's hard to understate the impact of the changing rules around cyber essentials and plus, and the fact that a lot of bodies are requiring that as a minimum standard.
00:05:27
Speaker
Uh, and we've seen like increased demand from, you know, in, from an affects wise around certain security features and stuff like that. So that I think is hard is, is my gut feeling is that's driving some of this because anyone wanting to get.
00:05:45
Speaker
compliant to that standard, um, we'll hit the same set of requirements that everyone else is hitting. Again, it's like a, most people don't really know what most of the words mean. And so they think it's, you know, I need this, that and the other to meet some box that needs to get ticked, right? Yeah.
00:06:01
Speaker
I actually thought if I step back and try to take away at a high level what I've found from the UK and Ireland one versus the Australian one from a few months ago, I guess at a high level, the Australian New Zealand biggest issues that respondents pointed out were kind of like market force.
00:06:22
Speaker
So getting people, getting materials and another one was tender competitiveness. They were the three biggest issues in Australia and New Zealand. Whereas in the UK, it was like some really basic things that were like really interesting to see. So the first one was like paying subcontractors and disputing with subcontractors.
00:06:44
Speaker
The second thing was getting paid by the clients and disputing with the clients. And the third biggest issue was doing things right the first time and not having to do rework, which I feel like very, um, fundamental things. They're not something that would have like snuck up on you, you know, like the businesses like getting paid, paying people and, and try not to build the same thing three times. Do you think that's an indication on the UK market where.
00:07:11
Speaker
like with very contractually minded at the moment, margins are non-existent. It's tough, tough guy winning jobs and yeah, whereas Australia seems more delivery focused, just sticking to what they know and delivering schemes. Well, I don't know. It does. Like I don't want to force fit the numbers to like some narrative, but, um,
00:07:35
Speaker
But what was interesting is, so raw materials were the main issue in both regions and the cost of raw materials. Like that's a shortage in every industry around the world, right? Whereas the second biggest issue when I was in New Zealand was getting the right people to deliver the work they need to deliver.
Labor Market Comparisons: UK vs. Australia
00:07:53
Speaker
Bearing in mind that the UK and Ireland showed significantly higher confidence about the industry than Australia and New Zealand. Australia and New Zealand, the second biggest issue was getting people. Whereas in the UK at the same time, it's like, where was the stat?
00:08:13
Speaker
Yeah, 92% of UK respondents are confident that they have the labour that they need to deliver the work going forward. So in one region, it's the number two issue, and in UK and Ireland, it's 92% feel like they're totally fine with getting the labour.
00:08:32
Speaker
Um, so that's like a striking difference, right? And you could force fit that to, well, there's less work. So, you know, like work is getting pulled back and stuff's getting canceled and therefore there's more labor available and stuff. Whereas in Australia, there's like a lot of projects, uh, underway and, and people are fighting for the people.
00:08:52
Speaker
But I don't know if I'm force-fitting a narrative to some uncorrelated statistics. It's quite difficult to produce the narrative because it is so surface level in terms of the stats that we've got given. It's quite hard to actually dig into that to any sort of level where we're not putting assumptions on top of assumptions.
00:09:15
Speaker
Another one that was similar to Australia was 44% of BAM's plan to introduce construction management platforms in the next 12 months. We had that discussion last time. Like, why now? It seems really strange. It's always like the survey was a prompt.
00:09:27
Speaker
One stat was if data was efficiently captured and integrated, firms could save on average 25% on each project. That's wildly high in terms of a number. But if you think about how much construction companies actually spend on technology, which is like sub 1% of revenue, it doesn't really make sense if they have their very contrasting thoughts.
Data Management and Productivity Gains
00:09:51
Speaker
So the 25% savings is obviously it's going to be tied to productivity.
00:09:57
Speaker
Yeah, I don't like, you know, we've both done business to get technology purchased by construction contractors. And even the most, even the most like, I am clad return on investment calculations, uh, are looked on, I guess, you know, like healthily skeptical way.
00:10:14
Speaker
I think that like 25% of costs could be improved by better data structure, I think, or whatever that that was. Yeah. Even I probably go, I don't, I don't know if I can stomach that in a, in a, in a business case. Yeah. That's a, it's some creative accounting.
00:10:36
Speaker
Yeah, absolutely. Finally, I think it's worth touching on. So there's one step between 1997 and 2019 productivity drops, drops on average 0.6 per annum. So I'd guess, and this again, I'm guessing that regulations and processes are getting tighter, but they didn't have technology to make those things like efficient in terms of delivery. That is just a bit of a hunch.
00:11:03
Speaker
Yeah, this is, this is a topic that I'd like to dig into in the future, uh, in a future, um, in a future discussion. Gosh, for sure. There's, I was talking to people when I was in Sydney about this exact topic, you know, other projects getting more complex. Are we adding paperwork on top of what, on top of what we currently do? I'd love to dive into that more. I think that 0.6% number is sort of a rehash or another way to look at that same graph that everyone, you know, the McKinsey graph, which has got like.
00:11:30
Speaker
It's just a, it's a, it's a, it's a similar, um, yeah. The data ends in 2019. So they haven't even bothered to like, yeah, the McKinsey report was either 18 or 19 or something. Um, the last thing to note that I, that I saw in there is, uh, again, looking for things that are like wildly different in different regions, um, uh, in, uh, the Australia, New Zealand region.
00:11:59
Speaker
I think it was on average one in eight hours were, uh, lost to rework. So I'm like 12 and a half percent. Um, in which region average Oz, Oz, New Zealand, Oz, New Zealand. And then in UK and Ireland, uh, on average rework was at, or over 25%. So one in four hours.
00:12:25
Speaker
I'd spend redoing things that were built to like, I don't know about structured data, but there's 25% right there. And that feels like a really important 25% to tackle. Cause if every time it's literally four steps forward, one steps back, which is like, if you got any worse, you're right on the actual saying of two steps forward, one step back. Like.
00:12:50
Speaker
Yeah, which is actually, but anyway, just go. If you couple that with the art you covered earlier, which is, um, Australia made more of a noise about material availability. We're over the UK doing everything twice. And apparently that's still not a key issue. So it's something's not right. I don't understand how you have plenty of labor when, uh, one in four of the hours of the labor are doing something again. But, uh, yeah, so that I.
00:13:18
Speaker
Either that stat is a bit suspect or that is the major issue in the entire report that I read.
00:13:28
Speaker
But yeah, thanks for sharing that, Carlos. I think the other thing that if I was to jump onto this second topic is I wanted to ask you about something that you posted maybe like the other week on LinkedIn.
Self-Delivery vs. Subcontracting in Construction
00:13:40
Speaker
And for those that don't follow you on LinkedIn, I'll read the post out. So here's some of your very tight pros. This week I got chatting to a commercial director about self-delivery versus subcontracting.
00:13:54
Speaker
According to him, there are three major reasons why self-delivery is the way forward. One, it gives you direct control over every aspect of the project from schedule to cost. Two, it reduces the risk of miscommunication or delays associated with subcontracting. And three, it gives you the flexibility to adapt when unexpected changes arise.
00:14:15
Speaker
That kind of got me thinking about whether if I was like in charge of a new infrastructure or a building project, you know, what method or approach would I favor and like, why, how would I justify an approach? So I'm really interested to dive into that more and understand what you think are the pros and cons of it and what you would choose if you had to, you were put in charge of a new project tomorrow and had to construct the delivery model.
00:14:46
Speaker
Yeah, so I'm sort of biased towards thinking about it from a commercial point of view, obviously, as an XQS. Self-delivery, obviously that director was, it was all about basically controlling your ability to be agile because you're not screwing around with contracts, you're just, you're in full control of your team materials and everything else. Self-delivery scares me because
00:15:09
Speaker
You've got nowhere to go, nowhere to hide. You don't have these contracts there, which are effectively de-risking or sort of safeguarding your position to an extent. And it was actually someone commented on this, raising a very valid point, which is all even risk lies in your estimating. Because if your production rates are wrong, you're like, you really are screwed because you can't leverage a subcontractor, have any sort of mechanism to get out of here, you just have to.
00:15:37
Speaker
probably innovate your way through it and reduce your production rates if you've undercooked whatever you did at Hetenda.
00:15:45
Speaker
So for me, I'm maybe naturally biased towards subcontractor, probably half because I've only worked on jobs where everything was subconjected. But you are de-risking your own works. And there's a lot you can do with a contractor to make sure that you're sort of back to back and looking into like subrogation and how you like tire aspects of the contractor to make sure that you're not going to lose out in a claims situation with, say, insurers or something like that.
00:16:14
Speaker
You can bring in specialists, so why not sub out works to people who have more knowledge on you, on how it's done. They do it all the time. They're local, things like that. So you're not just relying on in-house resource and
00:16:29
Speaker
I've been on jobs where the project manager of a section doesn't really have experience in that section because they had the most experience in the company. And yeah, time back to price. Ultimately, if the company's got the price wrong, they have to deliver it anyway. You've got that small risk of things like subbies going under and going into administration.
00:16:49
Speaker
you should be aware of those risks anyway if you procure to supply chain well and you should be monitoring that and keeping your top of things and most contracts have the ability for you to step in, take their works and as long as you haven't overpaid them, you shouldn't be at like a catastrophic disadvantage. It's obviously going to be a bit of a shit store. So that's my gut. But if you go back to like the risk that you said around like tendering or like the cost risk,
00:17:17
Speaker
Like, or even the flexibility risk, a lot of those things are only less flexible if you don't want to pay for them. So like, I think a lot of the subcontracting advocacy comes down to like, we want the somebody to pay for the job or like finance.
00:17:32
Speaker
Like we want to push some errors down out of our court and into their court and be back to back. So we're just like a middleman collecting a flip on the way through type. A lot of that inflexibility is only inflexibility because you don't like, maybe you don't want to send them an instruction or a variation that says this is different.
00:17:52
Speaker
Obviously there's a different, cause if you're self-delivering and there is that issue and something needs to change, you're going to pay for it because your folks have to do the work. We have to buy the additional material. So like, I don't know why people take like a such a different view to subcontracting.
00:18:07
Speaker
Where it's like, if I was self-delivering this, it's my cost, I've clearly made the error. But because I'm subcontractor, all of a sudden I want to like jam that risk down to the subcontractor all the time. Yeah. I think like when I was thinking about it, if I was to like attach a principle to how I would decide.
00:18:28
Speaker
At a company level, I think that each construction contractor should clearly understand their core competency. If you're a rail expert, go after rail projects, use your expertise in rail to leverage that. If you're a road expert, you try to win a lot of the road work with your core competency in that area.
00:18:50
Speaker
Um, and, you know, maybe if you, maybe if you're, I've got a project that's like 60% rail, 40% road, or, you know, that type of thing off rail and a bunch of some other system that you don't ex you don't have expertise in. That would be a good thing to try and subcontract because you don't have that more competency in house. And some companies, their strategy or their expertise.
00:19:16
Speaker
their core competency is contract management. So if you think of something like a Bechtel, they're really good at structuring their contracts so that, not to say they never lose, but I think everyone needs to have a core competency, a way that they deliver projects and really try to make sure everyone understands that and almost double down on that. Because I think of where folks have got into trouble or contractors have gotten into trouble is where
00:19:46
Speaker
They try to play every project, like sort of as it lies. So you've got a bunch of people from a previous project itself delivered a, you know, by the last projects were road projects. And now they kind of be subcontractor managers on a, um, some other type of project. You know, I wouldn't, I wouldn't dress up and pretend to be a developer tomorrow. Like just because that there's a contract out for that. Um, so I think, I think like.
00:20:13
Speaker
Each, and this really ties back to the company, not like the, you know, what project you win. It's, I think each company needs to know they're called competency. It's probably a bit of a hybrid. If you know, you call competency, let's just say you're building across our station. If your bread and butter is concrete.
00:20:30
Speaker
You could self-deliver the frame and then sub out the pit out. Yeah. Like that makes a lot of sense. Um, so you have that, yeah, that hybrid model where like just sub out where you're not an expert and get someone else to do it. That makes, that's a very. Yeah. Uh, there is like a lot of that that happens, but then like people go, uh, you know, like, but this is a big contract and we pretend, you know, like.
00:20:55
Speaker
I think like everyone has that at their core ideal, but then when it comes down to it, they'll try and win. When it comes down to just trying to win a project. But yeah, it was an interesting question. So I don't know. I hope you post about that again. Yeah, definitely. Take the flip side. So I ask you a question on it. As an engineer, do you prefer self-delivery because you've got
00:21:22
Speaker
You are actually in control and subcontract management is more administratively heavy. Subcontractor management is like the boringest job in the world, in my opinion, because you never do anything. Yeah. A hundred percent self-delivery. Otherwise you come, you, you almost.
00:21:41
Speaker
I think in some projects, if everything is subcontracted, you almost become like that, um, you know, as folks that go like Fox news and just criticize what the government does all day.
00:21:52
Speaker
Um, you know, you don't have to actually solve anything yourself. You can just turn up and criticize everything that was done. So in my opinion, self-delivery is like a way better project to be on. You learn way more if you're like getting, if you're trying to, uh, develop as a, as a sort of younger engineer. Um, I would, I would go and work on a self delivery, self-delivered project every day of the week.
00:22:15
Speaker
Yeah, I used to wind up the engineers on previous projects when I built that. I'm like, don't you mean X built that? Like, yeah, yeah, they, they suffer contract X builds it. You sat in the office and approved their payments. Yeah. Yeah. Yeah. You read that program and loaned about it each week. That's it. That's rough coming from a QS as well. I do the same thing. I'm not, I feel, I feel panics at station.
00:22:40
Speaker
It's probably the flip side, right? For a QS, if you're wanting to develop as a QS, you probably want to go onto a subcontractor project. Sounds a bit boring. You're just monitoring deliveries, quantities that you've installed for payment. You're looking at timesheets. It's dreadful. The important part is tender because you have to get that right.
00:23:05
Speaker
Um, subby bashing is one of my favorite things in the planet. I hate you anyway. That's it for today. Yeah, absolutely. Um, yeah, we'll call it there. Thank you very much. Everyone for listening. Thank you.