Business 160

The final stage will be a key battle between the American and European models of contracting. It will also be a clash between two of construction's biggest personalities: Virginia Carter-Jones, chief executive of Bechtel Beatty, and Marek Zemlinski, chairman of Prima. The rivalry goes back many years: both were in the class of '11 at the Harvard Business School. But there the similarity ends: Oxford graduate Carter-Jones is a strategy consultant by training, and this is her first job in construction; by contrast, Zemlinski has been in the industry ever since he arrived in London as a teenage illegal immigrant in 1998, with (famously) £10 in his pocket, no work permit and precious little English.

The stakes are high. Stanhope BAA has a reputation as a demanding client that goes back to the 1980s. The practices they pioneered 30 years ago (project-based insurance, earned-value analysis, internet-based procurement) are now mainstream, but it remains at the cutting edge by using psychometric tests to select management teams and nanotechnology to reduce its buildings' whole-life costs. And whoever wins this job will be well placed to bid for follow-up work on a string of airport and office projects that go out to tender later this year at Bucharest, Nanjing, San Jose and Bangalore.

If this article is ever written, the construction industry has a lot to do in the coming decades. Needless to say, were Building's readers in 2033 to travel back 30 years they would find today's construction firms incredibly old-fashioned, and wonder why things were ever done this way. But you don't need a time machine to find people who consider today's construction industry backward: they exist all around us. In order to see how much construction will change in the years ahead, we need to look at five key ways in which it is out of date at the moment.

First, contractors have an outdated view of who they are. They have always seen themselves in military terms: the client sets them an objective, and they attain this by mobilising, organising and disciplining large armies of workers. Second, executives are at the tail-end of management thinking, copying ideas about lean production and risk management from more advanced sectors and failing to take time out for MBAs. Third, construction is one of the last industries where most of the workforce are white males. Fourth, the management structure remains hierarchical – the "them and us" division between executives and site workers is strong. And fifth, construction is more restricted than most industries by national boundaries – although many practices have offices around the globe, we have yet to see a construction firm with the global reach of BP, Ford or Microsoft.

How will things change? Quickly – global business is advancing fast, and construction is starting from a long way behind, so it has to run to catch up.

The outline of the new thinking about what a contractor is and does is being sketched now by a few top clients. The main idea is that contractors should leave the procurement and management of labour to agencies. Rather, they should offer a comprehensive design-to-demolition solution to a client's accommodation needs. Elements of such a solution are present today in different places, for example in construction management, design-and-build procurement and design-build-operate PFI schemes. The problem is that CM necessarily limits a contractor's involvement, design-and-build has (let's face it) become associated with putting up bad buildings, and the PFI is constrained by the public sector and its poor public image. What clients want is for contractors to supply them with a team of multidisciplinary brainboxes who plan and construct their building according to standard criteria, helpfully supplied by key performance indicators, and devise strategies to meet a range of eventualities once the building is operational.

Take the fictional example of our *8bn LondonOne office. This is a landmark building (in case you were wondering, it's a huge spiral of shimmering platinum in East Ham). It is also a huge commercial risk for its developer. From the very start of the design process, the contractor will have to have devise and implement a set of strategies to understand, quantify, minimise and price that risk. This will be the job of teams dealing with everything from contaminated soil to movements in the commercial leasing market. So, while one team is brainstorming soil remediation with underwriters, another is gaming the relationships between market demand and space configuration with concept designers and leasing experts. More groups will handle disputes, health and safety, subcontractor relations, legal documentation and so on. At the centre of the project web will be the top team, which will have the job of pulling the solutions together into one internally consistent project plan. And at the apex of that zenith is the person with the most important job of all: doing lunch with the client …

If the contractor is evolving, so too is the client. The biggest will be increasingly global, and will want to make their life easy by dealing with one equally global construction partner. New types of global client will emerge. Governments have traditionally resisted the foreign ownership of airports and utilities, often on spurious national security grounds. Cross-border takeovers are beginning in these sectors; by 2030, they will be advanced.

And, while we're on the subject, airports will provide a steady stream of megaprojects. The Airbus A380, with a record-breaking capacity of 555, goes into service in 2006, and Boeing is preparing a rival design that carries fewer people but travels just below the speed of sound. Both developments will accommodate a tripling of passenger numbers. Airports will be internodal transport hubs served by trains above and below ground, motorways, and nearby hotels. And watch out for magnetic levitation (maglev) trains – the world's first, linking Pudong Airport to downtown Shanghai, opens in 2004, and if it succeeds, more will follow worldwide.

The great unknown that could scupper clients in the airlines sector, and elsewhere, is energy costs. Oil fields won't be drained to the dregs in 2030, but they might be down to about 80 years of proven reserves [People energy time, page 47]. For civil engineers, harnessing power from the wind, waves and sun will no longer be a trendy sideline – it will be a core business. The government's energy white paper, published earlier this year, calls for renewable sources to provide 10% of Britain's electricity by 2010 and 40% by 2050. Amec was ahead of the game when it bought a wind farm specialist and renamed it Amec Wind in 2000. Possible energy shortages are particularly important because the growing middle classes in the developing world, increasingly able to afford cars and air-conditioning, will consume energy with the thirst of western Europeans, or even – heaven forbid – Americans.

A new outline of what a contractor is and does is being sketched by a few top clients

Indeed, the upwardly mobile developing world will be the main source of clients in the decades to come. Rich countries will be lucky to sustain annual GDP growth in the 2-4% range, whereas China and India will easily manage double that. Construction firms will have to do business there if they want to be included in the framework deals of global clients. But it won't be easy – they will have to deal with corrupt officials, technically insolvent local banks, unreliable legal systems and local site managers who think safety means remembering to wear a hard hat when inspectors visit. That said, developing countries will be a lot better in 2030 than they are now.

Back in Blighty, the government will remain the biggest client, but it will become much more businesslike, partly because most senior civil servants will be recruited from the private sector. The population will grow older, so we will need fewer schools and more hospitals. Demographics will also mean that construction's biggest growth area will be in retirement homes – McCarthy & Stone won't have the market to itself forever, as is becoming apparent.

In order to understand their clients better, companies will second employees to them – a practice that is already common among commercial law firms. Most secondees will come back with the vital ability to see things from the client's point of view. Some won't come back at all, but that's a good thing – management consultants, such as McKinsey, have long realised the value of seeding organisations with former employees.

This change will be a relatively minor part of the revolution that will transform the people side of the construction industry. Today, industry bigwigs are aware of the skills shortage and the under-representation of women in construction, but they have been incredibly slow to see the connection between the two. In the future, new-paradigm contractors will not be able to live without women – nor will they want to.

By 2030, a new ethnic minority will have appeared on London sites: white Britons. Many of their colleagues will be from the south and east of the European Union. Today, Slavonic languages are more common that English on many sites. If you played a word association game with construction managers today, "immigrant" would often be associated with "illegal". Thanks to EU accession, however, workers from 10 countries including Poland will gain the freedom to work in Britain as early as next year; over the next couple of decades, as the EU's labour shortage grows, that could be extended to citizens of every country in Europe.

No doubt the Daily Mail is dreaming up worst-case scenarios on the back of this trend. Large sites like Terminal 5 will include accommodation for thousands of site workers. The prospect of so many young men living in isolated conditions is worrying enough, but how are we to prevent close-knit groups from becoming close-knit gangs, complete with vendettas and struggles for the drug market?

At the other end of the great chain of corporate being, a new breed of corporate supremos will emerge. During the recent furore over fat-cat pay, it was painfully obvious to the chief executives of construction firms that they earned less in a year than some of their FTSE100 counterparts do in a week. That's because they generally have limited international experience, little formal management education, and tend to stay in their sector. Come the new paradigm contractor, all of that will change. Firms will be led by top business school graduates who will strive to extract big returns on capital employed from turnover on several continents. And they will expect to be paid accordingly. Skilled craftsmen, on the other hand, will see their wages drop as an influx of legal immigrants and women alleviates the skills shortage. Expect the ratio of chief executive's pay to that of the average worker's to go from 20:1 to about 100:1. Boards will have some trouble explaining this to the increasingly powerful corporate social responsibility lobby. Share prices are largely determined by the views of asset managers, and a growing number of them practise ethical investment: they look at issues such as the diversity of a company's workforce and its impact on the environment as well as its financial performance. As firms like Skanska and Bechtel try to build global brands, they will need to work very hard to maintain and enhance their ethical credentials – otherwise they could be on the receiving end of a "Stop Esso"-style campaign [Carillion, page 41].

Ethical business is all very well, but what construction really needs to do to impress the City is triple its profit margins. It can be done – contractors in the USA work on margins of at least 6% or 7%. The industry will also become a more sophisticated user of what the City (and Wall Street) has to offer. There are three ways for a company to raise money: a bank loan, equity, or bonds. British firms have done only the first two. In the past, contractors' incomes were too unreliable to take out bonds, but that was before 30-year PFI projects …

Some things will still be the same in 2030. There will still be economic cycles; we will still be obsessed with house prices, and Britain will still be rainy. That is actually a serious point – nobody can predict what sort of climate change we're in for, but the storms and floods of recent years are likely to be repeated, with major repercussions for weather-related delays, flood defence programmes and building in flood plains such as the Thames Gateway [Environment160, pages 38-42].