Notes

Outline

Slide 1

WHAT IS FIEC ? FIEC is the European Construction Industry Federation - 32 national member federations in 25 countries - Representing firms of all sizes - Practising all kinds of construction activity - « Sectoral Social Partner » in the European Social Dialogue - Associate member in CEN Participant in the European Construction Forum

THE SECTOR Total construction 2000 (EU 15): 852 billion EURO - 10% of GDP; 48,9% of Gross fixed capital formation - 1,9 million enterprises - 11 million operatives - Europe’s largest industrial employer - 26 million workers depend, directly or indirectly, on the sector - Multiplier effect (1=2)

Today’s presentation in 3 parts Backround to the Competitiveness of the construction industry in Europe A benchmarking pilot study The relevant efficiencies of Europe’s national construction processes

Slide 5

THE COMMISSION ’S PRIORITIES FOR THE CONSTRUCTION SECTOR to improve quality in construction to improve the regulatory environment to improve education and training to reorient and reinforce research and development

THE CEC/ INDUSTRY/ MEMBER STATES WORKING GROUPS abnormally low tenders application of IT to the construction process training and image of the sector sustainable construction

EUROPEAN COUNCIL PRESIDENCY CONCLUSIONS LISBON 24 MARCH 2000 « The Union has today set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge – based economy in the world capable of sustainable economic growth and more and better jobs and greater social cohesion »

VARIOUS EUROPEAN INITIATIVES Research : Information Society Technologies programme (IST) - action line 2.1.5 E-Europe GoDigital Getting Europe on-line and doing e-business - Grants for organising European, national, regional and sectoral GoDigital conferences and workshops Website:http://europa.eu.int/ispo/ecommerce/godigital Competitiveness of the construction industry. - WG « IT »

Slide 10

Slide 11

EU Pilot Construction Benchmarking Study Aims  Demonstrate the feasibility and benefits of benchmarking  Select and define Key Performance Indicators (KPIs)  Examine the feasibility of the collection and analysis of data at the individual enterprise level  Facilitate the comparison of performance  Determine best practice levels of performance  Provide the basis for a permanent system of     benchmarking

Proposed  Headline KPIs  Construction Process Time Cost Quality H&S Value Added

Slide 14

"“Benchmarking .....it’s NOT..."  “Benchmarking .....it’s NOT a single event it’s a long change journey, …………..”

Slide 16

"Benchmarking externally," Benchmarking externally, both nationally and internationally, also enables: Better understanding of  your competitors  customers and their needs  your industry status An improved reputation

PART 3 Which European Country has the most efficient construction process?

GOLDEN RULES FOR CONTRACTORS WORKING ACROSS NATIONAL BORDERS ð CHECK THE NATIONAL SYSTEM OF LIABILITY FIRST ! ð ALMOST EVERYTHING ELSE DEPENDS UPON IT ! ð LIABILITY IS THE « KEYSTONE » OF THE CONSTRUCTION PROCESS IN ANY COUNTRY !

BENCHMARKING EUROPE’S NATIONAL CONSTRUCTION INDUSTRIES In 1993, the FINANCIAL TIMES published a report prepared by Bernard Williams Associates. It showed that in Europe: Britain’s construction industry was the most INEFFICIENT. Belgium’s construction industry is the most EFFICIENT. But Bernard never really found out WHY !

INDEX OF LABOUR COSTS PER HOUR (source: BWA – 1991) (assuming 3:1 gang rate)

INDEX OF MATERIAL PRICES: high specification buildings source: Bernard Williams

EU TYPICAL BUILDING COSTS: estate housing, 1991 source: Bernard Williams

EU TYPICAL BUILDING COSTS source: Bernard Williams

INDEX OF CONSTRUCTION EFFICIENCY: International Standard Office Buildings

Slide 26

Construction exports (average 1994-1998) in terms of volume of new overseas contracts expressed as a percentage of national construction turnover in 1999 in € million Source: FIEC-EIC (percentages indicative only)

LESSONS FROM HISTORY:

Distribution of construction output and employment, 1998

Distribution of contruction ouput in 1965 and 1998

THE CONSEQUENCES OF WAR the Martello Towers Barrack building encouraged innovation ! From separate trades contracting to « contracting in gross » and « joint ventures » Alexander Copland « Emperor of barrack builders » « Pioneer of General Contracting » 1776 – 1806 Chelsea to Channel Islands Woodbridge to Isle of Wight 1 ½ million pounds of contracts !

THE CONSEQUENCES OF PEACE    « Separate Trades    Contracting » continued    for a while : - Buckingham Palace - Windsor Castle    Architects accused of    wasting public money    with gay abandon     Whilst the « measure     and value system »     operated by the     surveyors became     bogged down in    disputes

The « 1828 Committee » and the « great revolution » in contracting Parliament decided to end « separate trades contracting » in England in favour of « contracting in gross ». With the exception of France, Germany and Luxembourg the rest of Europe followed.

The dramatic and momentous events of 1834: Palace of Westminster destroyed by fire « Great Revolution » followed by « Great Schism » The architects divorced themselves from the surveyors who they perceived as being involved exclusively in the obnoxious commercial aspects of construction !

The distinguishing characteristics of the British construction process: A system of professional liability that: reserves the design function to the employers’ professional advisers (architects, engineers, etc); and reduces the function of the constructor to that of simple execution of drawings, specifications and instructions And consequently is inherently prone to conflict; and denies contractors any real opportunity to INNOVATE !

"And possibly even worse:" And possibly even worse: Great Britain has suffered the lowest level of labour productivity of all the European member states; and The most dramatic shake out of labour in the early 1990’s recession: Finland (worst affected country) lost 40% of industry turnover and 40% of its labour force. UK lost 10% of industry turnover and 30% of its labour force ! ð LESSON: low labour costs = low productivity !

"Further exascerbated by:" Further exascerbated by: A system of liability operating in a « competitive vacuum » at the design stage which tends towards over-design by architects and engineers; and A system of cost planning in Great Britain developed by the quantity surveying profession which tends to set budgets which in the first instance are too high (much easier than too low!) No wonder that Latham and Egan have asked for a 30% cost reduction. But how will they get it ?

FRANCE, BELGIUM AND LUXEMBOURG Legal systems based on Napoleonic Code Decennial liability systems Insurance systems which remove risks for contractors participating in design functions So contractors INNOVATE with impunity; and Present alternative technical offers (« VARIANTES »)

FRANCE « Control system » for 60 or 70 years « Loi SPINETTA » 1978 Compulsory system applicable only to buildings « inspection agency » (SOCOTEC/VERITAS) must be engaged All parties (architect, engineer, contractor) must be (separately) insured All parties jointly liable in « eyes of the law »

FRANCE Advantage Insurance claims are paid quickly Weakness Competition over fees between « inspection agencies » compromises quality of inspection and consequently quality of works and increase risks of failure Bankrupted insurance companies in France; bailed out by the french state

BELGIUM 5 unique features: No legally binding construction codes « qualified architect » must be employed for all works « qualified contractor » must be employed for all (public) works No legal requirement for technical inspection bodies (e.g. building inspector) All contractors are required by law to pay 0,1% of turnover to the Belgian Building Research Institute + In common with Spain, Portugal, Italy and Greece A legally regulated system for the « Qualification of Construction Enterprises »

BELGIUM (continued) Following a series of accidents, failures and bankruptcies in 1934, SECO was founded by Prof. Gustave MANGEL (Ghent University) SECO is non-profit organisation owned by the industry Only about 10% of construction projects are actually controlled. All parties (architect, engineer, contractor) are insured under a single insurance policy.

BELGIUM (Continued) SECO is normally engaged by owners from project inception to completion Single point of insurance promotes INNOVATION especially by contractors and construction costs are correspondingly reduced Promotes a « coherent construction team » with shared interests System avoids many root causes of conflict

CONCLUSIONS UK SYSTEM: Kills INNOVATION Reduces contractor to simple execution of works Is inherently conflictual Suffers from low labour productivity Producing expensive buildings Poor value for money Latham/Egan reforms to reduce costs by 30% unlikely ever to be achieved

LESSONS LEARNED Cheap labour does not produce cheap buildings ! A highly skilled labour force of coherent teams produces better value for money (ie. Competitive) It is better to «  qualify the actors »  rather than to « control construction activities » Modified contractual and liability insurance arrangements must increasingly promote innovative solutions by contractors

A VISION FOR EUROPE’S NATIONAL CONSTRUCTION INDUSTRIES A CONSTRUCTION PROCESS USING SINGLE POINT LIABILITY SYSTEMS; LEADING TO integration of the design and construction processes; innovation by contractors; reduced litigation; better value for money.

REALISING THE VISION (1) Clients should take the lead. Insurance industry has crucial role to play. Through the provision of new insurance products for latent defects.

REALISING THE VISION (2) Building control will have a dual role. Protection of the public, safety, building regulations, etc. Protecting the underwriters interests. Possibility of (partial) self-certification by contractors.