Farmer Review: Not waving but drowning

Anyone expecting the review of the UK construction industry that the government commissioned from consultant Mark Farmer to be the usual cautious exercise in ruffled-feather-avoidance is going to be in for quite a surprise.

The Farmer Review comes in a long tradition of attempts at industry reform, from Sir Michael Latham’s 1994 review, to Sir John Egan’s effort in 1998 and the 2013 industrial strategy. But it’s clear from the title – Modernise or Die – that this review is not the standard dry tome rehearsing well-worn themes about collaboration and innovation while identifying best practice. Whereas the industrial strategy, Construction 2025, pulled together by former chief construction adviser Peter Hansford, begins by praising UK construction’s “strong competitive edge” and “world-class expertise”, Farmer’s introduction to his review pulls no punches. “I am very clear that if we do not address in short order how the construction industry operates and delivers,” he warns, “we will see a long-term and inexorable decline in its fortunes.

“This is not just another ‘must do better’ school report where the industry and its clients shrug their shoulders and carry on as normal, this review warns of potential marginalisation and deterioration that might not be recoverable.” It’s life or death.

Farmer’s stark analysis is that long-term demographic changes (likely to be exacerbated by Brexit) mean the problems of low productivity, low investment and adversarial relationships that have dogged the industry for decades, now pose an existential threat. Speaking to Building before the report’s publication, Farmer says he is unapologetic about creating “a bit of a burning platform” to try to shake the sector out of inaction. “It is as serious as that,” he says.

Few involved with the industry escape criticism. “It does not make for comfortable reading,” admits Andrew Wolstenholme, chief executive of Crossrail and chair of the body that jointly commissioned the review, the industry-government Construction Leadership Council (CLC), in the foreword to the report. In the introduction, Farmer says he only accepted the challenge once he was “clear in my mind that this had to be an exercise that led to change”. So what does the review think can be done about the crisis facing construction, and is there any chance the industry will take heed this time?

Diagnosis

The report adopts a medical analogy to the problems facing construction, and while its assessment of root causes will be familiar to many, they are no less damning for that. Symptoms include stubbornly low productivity – which has flatlined in construction during two decades, whereas manufacturing productivity has increased 50% in the same period – and poor predictability for clients, with only a third of high-rise buildings completed on time. The industry is split, with low margins, financial fragility, adversarial relationships, poor investment in innovation, a bad public image and no coherent leadership.

We must make this the moment when the recognition that we cannot go on as we are reached its tipping point

Andrew Wolstenholme, Crossrail

Industry bodies are “fragmented”, serving only their own “particular subsets” of the industry; and the government doesn’t escape criticism either. The government-commissioned CLC, reviewed by the Cameron government only last year, lacks private client representation and either a mandate or the dedicated executive necessary to lead on behalf of the “collective industry and its clients”. Hence there is a “fundamental lack of collective responsibility for change and improvement across all stakeholders”, which makes Hansford’s industrial strategy targets “look impossible to achieve”.

Worse still, the government acts as a fragmented client, and the Cameron administration’s focus on home ownership above all other tenures locked it into an unhealthy reliance on major housebuilders which are not inclined to reform construction practices. In this sense, while the review was commissioned under the Cameron government, the creation of a new administration has clearly given Farmer an opportunity to be even more hard-hitting.

Demographic disaster

So much, however, we already know – though, as Wolstenholme admits, it is rarely stated so plainly. What makes this moment different, Farmer concludes, is the scale of the skills crisis faced by the industry. Analysing recruitment, training and demographic trends, the report concludes that the industry “could see a 20-25% decline in the available labour force within a decade,” primarily due to the rate at which older workers are predicted to retire. “This scenario has never been faced by construction before,” the report says. During the last major skills crunch in the early 2000s, thousands of Eastern European labourers filled the void created by the lack of trained UK workers, but following the Brexit vote, the report describes the need to find a home-grown solution as “crucial”.

The analysis suggests that a “dysfunctional” training model is failing to staunch the decline in trained staff, partly because of the CITB’s bureaucratic procedures that end up seeing the biggest firms benefiting from training grants while smaller companies get little help, and partly because the overall level of the levy, which raises £180m to pay for training in a £100bn industry, is just insufficient. Farmer tells Building that “people don’t see the value in what is delivered by the CITB. And loads of people are doing great stuff but can’t access CITB grant”.

Without industry reform, this skills crisis will undermine the UK’s ability to deliver critical social and physical infrastructure, the report says. “The medical comparison is unfortunately apposite as this review concludes many of the features of the industry are synonymous with a sick, or even a dying, patient.” The threat is such that despite the report’s implied rebuff, CLC chair Wolstenholme endorses its findings and calls for the industry to “make this the moment when the recognition that we cannot go on as we are reached its tipping point”.

Off-site opportunity

However, the other issue that Farmer believes makes 2016 different is the opportunity posed by technical innovation to reform the way that construction is carried out. Simplistically, this means greater use of various modern methods of construction, which Farmer lumps in together as “pre-manufacture”, that reduce the requirement for skilled on-site tradespeople. “It’s the coming together of these demographic issues combined with the technical opportunity, that creates a very different set of circumstances,” Farmer says. He’s not suggesting that people will stop using traditional methods of construction, but that the additional capacity required by the need to deliver predicted housing and infrastructure pipelines, will only be possible through widespread use of pre-manufacture. “It’s not about one or the other,” he says. “It’s about shoring up the traditional part of the sector, alongside future-proofing the industry with pre-manufacture and the multi-skilled people needed to staff that.”

Farmer, though, is acutely aware that modern methods of construction have been hailed as the future of the industry before, and that current interest in the topic could just be a function of recent price rises in traditional construction, which ebbs as market pressures fade.

Treatment

Farmer’s solution to avoid this encompasses 10 separate recommendations that together attempt to put the industry in a form of “special measures” to initiate reform (see The 10 Recommendations). This starts with a “tripartite covenant” between the government, the industry, and its clients to initiate change, underpinned by a reformed CLC. “On past evidence,” the report says, “industry will not change itself unilaterally at scale. It needs to be led by clients expressly changing their needs and commissioning behaviours or government to drive positive disruption.”

Many of the features of the industry are synonymous with a sick, or even a dying, patient

Farmer Review

This reform should include a wide-ranging innovation programme, including demonstrator projects, centres of excellence, work with funders and new pre-manufacture protocols to aid uptake, all sitting alongside a revamped industrial strategy. But this alone will not be enough. The report says the government must use its existing programmes and policies to influence the uptake of pre-manufactured methods. The report suggests this could be done by linking support for either the nascent build to rent sector, or existing subsidy for affordable housing, to the use of pre-manufacture. Likewise, it could use its direct commissioning programmes to encourage pre-manufacture, and give pre-manufactured schemes advantages in the planning process. With these incentives, Farmer says the housebuilding industry should then be able to deliver 50,000 “pre-manufactured” homes a year.

In this sense, the influence of Farmer’s report has been evident even before its publication – with the Conservative Party conference pledge by communities secretary Sajid Javid to pump £5bn of public funds into housing linked to greater use of off-site construction. Exactly how and how much funding is predicated for off-site construction is not yet clear, however.

Skills reform

For this to have a chance of succeeding, the report suggests, the CITB also needs root and branch reform in order to create a fit-for-purpose sector. While Farmer’s report avoids being prescriptive about exactly what should be done, he lays out the principles that should guide it. Firstly, the report finds the levy should continue – in fact, it should be expanded to parts of the sector, such as M&E training, that currently sit outside it. While continuing to support traditional apprenticeships, it should be able to fund training in BIM and digital skills as well as non-traditional jobs suited to the emerging pre-manufacture sector. There should be a “step change” in ease of application and support for SMEs, and crucially, the report says, the CITB should also be able to use levy funds to encourage innovation as well as simply training.

While this will be controversial, there are already signs others will support this finding. Suzannah Nichol, chief executive of construction trade body Build UK, speaking before publication of the report, said: “The skills structure we have isn’t delivering what we need. We have to change the system.” Vitally, Wolstenholme’s foreword makes clear the CLC supports this conclusion specifically, saying the council would like the review of the CITB “to be radical.” “The changed industry that we need requires a changed organisation,” he says.

But even if this is done, the report concludes, influencing the way clients commission work in order to encourage use of pre-manufacture will remain difficult, particularly given that – as Farmer makes clear – “there is not a big pot of money to be thrown at it”. Egan’s Rethinking Construction report used a specially formed Construction Task Force to line up major clients behind “driving forward the modernisation of the construction industry” – but still only achieved limited success. “The biggest challenge no doubt will be influencing the private sector clients,” says Farmer. “We’ve already had innovation programmes and demonstration projects and exemplars. It has to happen at scale, not by a few isolated clients.”

Client levy

Hence, his report includes a final nuclear option to be called upon if the other measures aren’t on their own achieving wholesale change: a levy on all construction clients which they can avoid paying only if they support industry modernisation. The report calls it a “play or pay” mechanism, which would reward clients for certain behaviours such as commissioning pre-manufactured construction, procuring in a collaborative fashion, or using BIM. The levy should be no more 0.5% of the value of construction work, and whether the measure is introduced should be decided within five years by reference to progress against industrial strategy targets. “The important thing,” says Farmer, “is that the levy is collected directly from clients. It’s helping industry to help clients in the long term.”

The government’s reaction to this final proposal looks likely to be key to the success of the document in changing long-established behaviours – even if simply held as a realistic threat.

Industry minister Jesse Norman says: “This government is determined to support more housebuilding, more quickly and in the places people want to live. Given the launch of the £3bn Home Building Fund, Mark Farmer’s important review in this vital sector is very timely. It makes a strong case for change in the industry, identifies areas where it needs to improve, and sets out areas for action. We will now carefully consider his recommendations.”

Clearly, however, not everyone will agree with this approach, or his bleak assessment. “There’s a danger the report will be seen as too negative,” Farmer admits. “I recognise there will be people who don’t feel the same as me, who think the industry is good enough and don’t want to change it, but the industry does need to have a reality check.”

As the author of an independent review, Farmer has not been told what the government’s specific response will be, though he says discussions with officials have been positive. He is hopeful, however, the government will use the Autumn Statement in November to start taking concrete steps to support its conclusions. “It’s a fantastic opportunity for a new government, as there are things that can be done in the Autumn Statement. I’m hopeful government can help,” he says.

Build UK’s Nichol says the evidence of specialists, contractors and clients teaming together within Build UK gives hope too. “The industry is in a better place to do this than it has ever been. We’re now in a position to start changing,” she says. While others in the industry will be desiring the same, there will no doubt be many expecting Farmer’s review to fail. The future of the sector depends upon the outcome.