By Jeremy Sole
CEO, NZ Contractors' Federation
I recently saw a draft copy of research data from a Canterbury University study on productivity in the civil construction industry. The systems schematics showing industry productivity drivers was almost an exact match of a similar study carried out by a federation subcommittee looking at how local government organisations procure civil construction work.
We analysed the drivers of a healthy industry and developed a Contractors’ Federation healthy industry statement to guide us in our work, and to inform other stakeholders of the direction we are looking when we advocate initiatives to create and stabilize a healthy industry environment, for all those involved in civil construction outputs.
While we have been able to develop an explicit statement about what we believe is the necessary formula to construct a healthy industry environment, I, for one, have found it problematic when I sit down to describe how to apply standard measures of productivity to the industry and make any claim to whether it is actually productive or not. Sure it is productive in the sense that it is producing something, however if you take the economist’s view that productivity is the labour inputs divided by the sector outputs, you immediately come unstuck. There is such a variety of work going on in the civil construction sector, with some projects being people intensive and other being materials and physical structure intensive.
Putting these diverse activities together in one pot and applying the productivity formula is just not going to give you a number that makes any sense – in fact if you take that number to a coffee shop with an extra $3.50 you should just about be able to buy a cup of coffee – and that is about all the value it has.
The thing about the civil construction industry is that while it is a prime mover for an effective and productive economy, it needs a different efficiency and effectiveness measure for itself.
For us, the real indicator of how well the industry is performing and contributing is in the quality of the relationships between principals, consultants and contractors, and in how these relationships are creating smoother, better informed and higher quality projects (or not) – which ultimately leads toward highest overall value for money that can be achieved from individual projects.
In this relationship, the responsibility of the contractors is to ensure they have highly skilled machine operators and project managers, strong leadership at all levels, and technical knowledge and skills, which are often only available through industry qualifications. Interestingly, I have seen in both this and other industries, that the larger the firm and the more ‘degrees of separation’ there are between owners or senior managers and those at the coal face, the more requirement there is for formal training and qualifications in the business.
There is it seems to be an inverse square law operating whereby each degree of separation has the potential to exponentially increase the potential for miscommunication and error, and lack of understanding of what the firm is trying to achieve and what the key levers are to drive this.
Large firms simply cannot function effectively without high quality leadership and supervision. Of course, this is one area which does actually have a specific impact on productivity. As Henry Ford was fond of saying, “No one ever made any money out of doing a job twice when they should have got it right the first time”.
What amazes me is that so many civil construction contracts are still let on lowest price tenders, which currently can be up to a third cheaper than the engineer’s estimates, and then clients find themselves surprised when some contracts have low quality outcomes as a result of poor systems and poor supervision.
That’s just madness, when you see how much rework is being done around the country. Another aspect of this that would not be captured in a standard productivity analysis is the lifetime costs of unscrupulous operators using under spec materials in an effort to claw back some of the profits given away in the tender process.
If local authorities applied some of their savings to greater supervision on low priced contracts, as the NZ Transport Agency does, then they may get a real fright and start to rethink the wisdom of practices that lead the industry to drive prices to unsustainably low levels – and which result in low lifetime value for money – and which impacts directly on productivity! Even some of the NZTA regional offices may want to take a closer look at this.
A healthy civil construction industry
A healthy civil construction industry is one where skilled and qualified clients, consultants and contractors collaboratively produce innovation and whole-of-life value for money and mutually acceptable prices.
A healthy civil construction industry is the result of forward planning, fair and consistent procurement strategies, competition in the supply stream, and growth opportunities for those at any level who are willing and able to take up the challenge.
Contractor Vol.34 No.4 May 2010
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