Construction Economics
Sir John Egan’s report Rethinking Construction [1] was accepted as the policy guidelines for the construction industry in the United Kingdom. Due to Government backing and the fact that the Public Sector is the largest client of the construction industry in UK, the recommendation of the report were eagerly followed by the industry, not only to win public sector business but also to stay competitive.
The result is that five years after Egan’s Report, the industry was able to report major advances in the use of modern methods of construction, 25% reduction in energy consumption in inputs for construction, 65% improvement in energy efficiency of the buildings, 18% reduction in water consumption and 30% reduction in construction waste [2]. These are impressive figures. Egan’s report recommends gradual annual efficiency improvement targets and there is no doubt that the economic necessity of reduction in cost will help the industry post even more impressive improvements in future.
Egan’s report cited lack of competitiveness, failure to modernize, poor safety and health record and inefficient management practices; both by the industry and its major clients, as impediments to improvement. Egan argued that other industrial sectors had been exposed to market pressures and had benefited as a result. He insisted that the major clients must demand improvement and implement policy changes to force the construction industry into being more competitive.
Egan’s Report: Threat and Opportunities for the Construction Industry
Sir John Egan chaired a Committee (task force) commissioned to look into the reasons for the poor performance of the Construction Industry. The report was prepared by the best brains in the business who themselves had proved to be the innovators in the otherwise slow to change sector.
Egan pointed out that the major client of the industry, the public sector, was managing the supplier by an archaic system. Placement of orders by competitive tendering will force the industry to modernize its construction techniques to be more competitive. The report argued that committed leadership was required to demand improvement and provide targets to be achieved by the sector. In absence of a proper policy, projects such as those built in 1960s [2] and demolished within 25 years due to construction and social problems will continue to be built.
Egan report specifically cited advances made by other industrial sectors such as automobile, steel, offshore exploration and even the grocery-chain industries where competition forced these sectors to be more efficient to survive. The energy price rises of the 1970s forced the energy consumers to use more energy efficient equipment and processes while the construction sector continued to use energy inefficient methods, which resulted in high energy consumption in building materials input building maintenance and operation.
Egan Task force compared the safety standards prevalent in construction industry with the improvements achieved in the other industries and insisted that similar standards could be achieved in construction too. The report rejected the notion that the construction industry was somehow different and needs to be treated differently. It was stated that as much as 80% of inputs into buildings are repeated. Egan Task Force insisted that forward thinking construction companies had demonstrated the efficiencies being recommended by the Report. They argued that an integrated approach was required to achieve the efficiencies recommended in the report.
The most important demand of the report was perhaps the commitment required from the clients, regulatory bodies and the construction companies. The Report recommended major investments in demonstration projects and government commitment as a client of the construction sector to provide incentives, changes in its housing sector construction policies and insistence on high safety standards to force the reforms on the industry.
Egan’s report forcefully pointed out the opportunities in efficiency improvements and hence construction cost reductions. It warned that failure to implement these changes would increase the housing sector costs, force the own house buyer’s out of the market and result in continued risk to health, safety and environmental aspect of the industry. It demanded that the changes required to make the industry more efficient be introduced through demonstration projects, incentives, injection of capital, regulatory changes and by using the buying power of the public sector as a major client of the construction industry.
Egan’s Report was very well received by the industry. What is more important is that the government chose to follow this report sincerely and is continuously monitoring the progress against the targets proposed in the report. In many areas the industry has been able to exceed the targets [3].
Lessons for Students of Construction Economics
Study of reports of this type shows that theoretical analysis and comparison with the search of state-of-the art techniques can help us in finding cost effective improvements for an economic activity. It also needs to be appreciated that the potential for improvements needs to be introduced at a realistic pace to allow the changes to be implemented and not result in a catastrophic failure. Eagan chose to recommend moderate and realistic targets on annual incremental basis. This did not cause a panic in the industry and it was able to achieve and even exceed the targets.
The comparison of construction industry with the other industrial sectors also shows that economic activities do not take place in isolation. Economic development activities and management of economics can and does act across the sectors. Improvements in technology in one sector can often be adapted to another. The economic management techniques practiced in one sector are certainly applicable in many other sectors.
The study also shows how improvements on a microeconomic level affect the economy at a macro level. An improvement in safety in construction on each construction site reduces overall injury rate and savings in the insurance, health and national liability costs on a macro-level can be measured in billions.
Since 1970s, the cost of operating steam and hot water boiler forced major changes in design of these equipment and industries under the pressure of market forces benefited from these changes to obtain as much as 40% reduction in fuel consumption. The construction industry, however continued to use antiquated single-pass design resulting in high energy bill for the domestic consumer. When we realize that households using the boilers number in millions, we can appreciate that this minor change will save billions at a macro-economic level.
The magnitude of change resulting from Egan’s Report also helps us understand the importance a concise and to the point reports. Egan Report’s format of numbered paragraphs and an executive summary holds attention of an otherwise busy executive. Deputy Prime Minister, the intended recipient of the report certainly can not be expected to digest huge reports with bundles of statistics hiding the critical recommendations.
Conclusion
Egan’s Report has become the guideline for development of construction industry in the UK. While we can appreciate the benefit of the report, we must appreciate that commitment to its implementation is a major factor in the improvement in the industry. Continued support to positive ideas, commitment to stay the course, and provision of the required resources such as funds, provision of required training, financial and other incentives and regulatory pressures were necessary prerequisite to the results.
References
Egan, J., ‘Rethinking Construction’ Report of the Construction Task Force to the Deputy Prime Minister (UK), Retrieved from Internet on 17 October 2005
Speech by the Deputy Prime Minister (UK) to the Better Building Summit, Retrieved from Internet on 17 Oct 2005
Development since Egan’s Report, Retrieved from Internet on 17 October 2005
Tags: construction, economics, John Egan, opportunities, policy, report, UK
