A review of the Egan Report "Rethinking Construction"

John Uwins considers the Egan Report

Under the Chairmanship of Sir John Egan, the Construction Task Force delivered its report "Rethinking Construction" to the Deputy Prime Minister, earlier this summer. Inevitably, initial reaction has been mixed. At one end of the spectrum it has been suggested that an elite handful of major clients have hijacked industry reforms. Others welcome the report and say that its recommendations present opportunities for the industry.

If you skim the Task Force's report, you might think that it bashes contractors and consultants; that clients deserve value for money but seldom receive it; that manufacturing a car is no different from putting up a building and that the future of the industry lies in the hands of a few select procurers who have repeat business to offer. That reaction would be understandable. However, if you read the report carefully and then sit back and reflect, you might have a slightly different reaction.

The opening sentence in the report's summary holds the key.

"..the Task Force wishes to emphasise that we are not inviting UK construction to look at what it does already and do it better: we are asking the industry and Government to join with major clients to do it entirely differently"

A vision of the future

The Task Force vision of the construction industry involves:

• an integrated project process;
• competitive tendering replaced by a team approach based on long term relationships; and
• standardisation of components and processes.

The industry must change. Not only must it provide decent, safe working conditions but managerial and supervisory skills must be improved and performance targets introduced and met. These targets should include an annual reduction in construction time of 10%, a similar reduction in capital costs and a 20% reduction each year in defects on handover. Furthermore, effective measurement systems have to be set up to record whether performance meets these targets so that the industry is sufficiently transparent to identify the good and bad performers at any given time.

The Building vs. the Motor Car

Contrary to some people's belief, the Task Force does not contemplate that our cities of the future will comprise uniformly constructed buildings. People will not look up and say "oooh, isn't that a rather nice type 2 building" or "not sure that I like this new type 6 building". Whilst the report does stress what can be learned from the car industry, the parallel is not between the construction process and manufacturing cars on the production line; rather, the parallel is at the design and planning stage in the production of a new car model. A key factor is the use of standardised components and processes. Designers, suppliers and sub-contractors should all be fully involved in the design process. Greater use should be made of standardised components. There should be more certainty as to who is to do what, how and when. All of this seems eminently sensible. The Task Force emphasises that standardised processes and components does not mean poor aesthetics or monotonous buildings. The scope for creative architecture remains but architects should not design in abstract.

Contractors and consultants

In the construction industry profitability is low, expenditure on research and development has decreased, training is under funded and construction companies' investment in capital is poor. So, argues the Task Force, to make improvements, the industry needs a radical change in approach rather than any attempt to improve upon the current system. The Task Force wants an integrated project process.

"..the key premise behind the integrated project process is that teams of designers, constructors and suppliers work together through a series of projects, continuously developing the product and the supply chain, eliminating waste in the delivery process, innovating and learning from experience"

The Latham Report previously identified disharmony as one of the main problems within the construction industry. It stressed that relationships need to improve if the industry is to move forward. Concepts such as partnering and framework agreements could assist in the process.

The Task Force takes matters much further. Not only is it important to develop long term working relationships, those relationships must be established as part of a concept which focuses on what the client needs, i.e. the end product. In other words, construction should not be an industry which, through a staged process and chronology converts an empty piece of land into a building; rather, construction should be an industry which looks first at the required product and decides how to make that product a reality using knowledge, equipment and skills which are readily available; i.e. do not reinvent the wheel each time. To do this, the industry needs to have a blueprint for a number of generic construction products (e.g. an office; a road; a house). The blueprint is translated into a specific project, on a particular site for a particular

client using a partnered supply chain and large scale off-site component production. The blueprints themselves are continually refined and developed as indeed is the design and engineering of the components and processes.

In this new society, there will be no room for traditional types of procurement contracts or consultancy appointments. Indeed, the Task Force suggests that formalised contractual relationships could become a thing of the past and contract terms and conditions unnecessary. There is little doubt that "Rethinking Construction", if implemented, would mean moving away from construction contracts as we know them. However, different types of agreement could, and should, be put in place if not only to allocate risk in a defined way so that everyone involved in the process knows what is expected of them. Then again, lawyers would say this wouldn't they!

Farewell to competitive tendering?

The Task Force acknowledges that this is one of its more radical proposals but, of course, it is consistent with the desired concept of establishing long term relationships. From a client's perspective, fears of not obtaining value for money, if competitive tendering goes, are to be allayed by the quantitative performance data which will be available by pricing transparency and reliance on relationships established throughout the supply chain.

The Task Force invites the Government, through the Treasury and DETR, to put appropriate mechanisms in place so that competitive tendering can be a thing of the past. Of course, as we all know, economically Britain is no longer an island and in terms of our relationship with Brussels, the Task Force has set the Government an interesting problem given the EC Procurement Rules for public sector work. This is neither the time nor the place to examine how the Task Force's vision for the future fits within EC Regulations but clearly "Rethinking Construction" cannot be implemented fully without considering Britain's commitment to its European partners.

Procurers of construction services

Whilst the Task Force report is client driven, it does not seek to place the blame for all the ills of the industry at the feet of contractors and consultants. Clients are customers and, as such, entitled to value for money. They pay and, hence, have a right to receive buildings on time and within budget, provided, of course, that they do not move the goalposts too often during the construction process!

Nevertheless, the Task Force recognises that clients should focus on value, rather than on the lowest price; clients should not take all the benefits of cost savings but should share these with "all the players in the team". Construction companies should operate in an environment which enables them to make "reasonable" profits and much better returns than are made at present; and clients must be persuaded of the need for increased resources (and hence increased costs) up front, before any physical work starts on site. Contractors and consultants should be cheered by these notions. However, it is fair to say that these are by no means the focal points of the report. Indeed, you might ask whether the Task Force's idea of "value for money" means that clients should identify themselves, at the outset, as interested in BMWs or Skodas?

Repeatability and major clients

The report has been criticised as being of no relevance to one-off clients or smaller developers who would not have the clout of the more substantial procurers in the industry. The Task Force makes no secret of the fact that its report is geared towards projects for major private and public sector clients. However, there is an admission that:

"much new construction and repair and maintenance work is done for occasional and inexperienced clients, many of whom commission major projects. Such clients are often unfamiliar with the construction process and unable to provide the environment in which the industry can meet their needs efficiently. This is of great concern to the Task Force, since we wish to see significant performance improvements across the whole industry."

Whilst one can understand the wish for an industry wide change, it does seem a little unsatisfactory, on the one hand, to acknowledge the importance of the so-called occasional client and express concern as to how that client may benefit from the report's proposals. Yet, on the other hand, not to develop the thinking any further to make the occasional client feel part of the proposed reforms. To say, as the Task Force does, that any client can do things to improve performance in the construction industry "given the time, the commitment and the resources", simply illustrates the problems, i.e. the occasional client may simply not have the time, the commitment or the resources. To whom, therefore, does the Task Force suggest he should turn?

A final thought

Back to the car industry. Isn't there a significant difference between cars and construction? It's not the fact that a building is a more complex product or that a road is different from an office which is different from a block of flats. Isn't it that clients are different? Ford design and manufacture Fords. BMW make BMWs. Tesco commissions Tesco stores. But what about other construction clients? Could every other client have a branded product? Will we have a Government brand? Over to you, Mr Deputy Prime Minister.