Construction: service or product?

The Office for National Statistics lists the construction industry as part of the service sector. This makes some sense in that we provide bespoke facilities to customers rather like a restaurant provides meals. However, our output is not a transient meal but delivers a very concrete asset which needs looking after for its whole life, a service we do not provide except reactively. We treat our output like a product, leaving the buyer to look after it. Owners are not often expert at this, generating waste and depreciation. Our landlord and tenant legislation dumps repair and maintenance responsibility on unskilled tenants, charging them to restore the property to its original state on departure or pay ‘dilapidations’.

 

One school of thought in considering the future of the industry is that it should be more of a manufacturing one, producing ‘products’. This supposes that one of our problems is the sheer flexibility of design and sitework to produce bespoke results. Standard products, potentially customised, would be far more cost-effective to make, goes the argument, faster, cheaper and of higher technical quality from offsite factories.

What the debate between champions of product and of service models misses is that industrial products are now hybrids of product and support service or have become entirely services to rent. ‘Servitisation’ is the term used. Transport products have led the way, with jet engines leased as power-by-the-hour, train sets paid for by performance contracts and cars leased on a monthly basis. The pressure for buildings to be provided as services is emerging from both demand and supply sides.

 

On the demand side, office tenants are attracted to co-working spaces where they have neither facility management responsibilities nor a long commitment. Tenants of Build-to-Rent apartments can get hotel-like service with all appliances thrown in. Government is now seeking delivery of ‘outcomes’, with the provider rewarded for performance in use against the business case. Value-based procurement will move us away from the idea of a conventional capital contract.

 

On the supply side, some providers of specialist technologies are offering ‘power-by-the-hour’ models. Philips provides light, not lighting, with customers renting the installation for charges which include the capital cost but also all operation, maintenance and replacements. The economy of LED lights makes the charges reasonable and the supplier recaptures materials on a circular economy basis. Siemens offers to do the same with Building Automation Systems. They will configure, install and manage a system with the economy it delivers making the cost attractive. Solar power systems are offered the same way. In each case, the suppliers are overcoming customer reluctance or shortage of capital by providing the funds and the kit, recovering it from the savings these innovations deliver. Some interiors and furniture suppliers lease their products too, reclaiming materials for reuse. One virtue from the suppliers’ point of view is that they now gain an income stream and share in value added, instead of competing for capital sales where margins are pressured.

Buildings are not really single artefacts but systems of systems. Apart from the long-lived structure and envelope (sometimes), the engineering services and fitout are relatively short life and incur high operation and maintenance costs. Servitising these elements, especially as they are part of the connected Internet of Things and become software-controlled, allows suppliers to monitor, maintain and upgrade them easily whilst demonstrating performance to the customer.

 

The convergence of demand and supply cannot be far off. An ‘integrator’ could put together a servitised offer for occupiers, assembling all the technology systems and linking them up to deliver the required outcomes. The integrator would need less capital to do this, paying only for the parts still bought outright. The occupier would get a managed space with optimised performance and lower whole life cost. Suppliers would have a stake in the success of the occupier enterprise, receiving performance-related income. They would thus be incentivised to understand better how they create value, feeding a cycle of continuous improvement and the circular economy cycle of recaptured elements.

 

In 1992 the government created the concept of the Private Finance Initiative (PFI) to get public buildings paid for by private finance and with the asset leased to the public sector for 25 or more years, complete with maintenance. This novel approach took public buildings off the hard-pressed Treasury balance sheet and supposedly harnessed the talents of the private sector to innovate to reduce whole-life costs. In practice the PFI became discredited as arrangements were cumbersome and commercially naïve with design undervalued. Private finance was comparatively costly, and maintenance had never been fully funded or understood by the public sector, leading to shock at the level of revenue cost required. The idea of servitised buildings could be a new approach to the same challenge but in the digital age. Capital is now far cheaper and operation and maintenance more sophisticated. We still have to develop a whole-life culture but that must come if we are to achieve a zero-carbon built environment. ‘Construction as a Service’ is a promising scenario.

Published in JCT News 2020.

SVS note – JCT news – should we be linking all those JCT articles to their page (possibly crate some visual tool to denote this type of resource content)

Resources
What you get versus what you give to get it. Value means far more than cost, embracing all the benefits over time and all forms of impact on natural, social, human and manufactured capital.
  • Be Valuable: A guide to creating value in the built environment

    ‘Be Valuable’ is the report of a working group of ‘Be: collaborating for the built environment’. This ginger group, chaired by Richard, was the successor to the Reading Construction Forum and the Design-Build Foundation and is one of the earliest studies of the true value of built assets.

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  • A Question of Values

    Each year the Worshipful Company of Architects (the Architects’ Company) holds a public lecture, initially called the Milo Lecture after the first Company Clerk. The Masters of other Livery Companies are invited to attend. In my year as Master (2005-06) I gave the lecture myself. The subject was the tension within the profession between the roles of artist and of professional. The lecture was delivered at RIBA Headquarters where I was Vice President at the time.

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  • The Well Advised Client: improving project effectiveness through strategic advice.

    The success of any construction project depends on the client. However good the rest of the team is, the knowledge, strength and wisdom of the client are decisive for the achievement of goals. This is well evidenced by the difference between the results achieved by ‘professional clients’: developers, large companies and some universities, and those produced by clients who do not build continuously or have standing, expert teams. This group are by far the majority however. How are they to get what they need from the construction industry?

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  • The Value Agenda

    We all want to make our investments in building deliver the outcomes we seek. Yet for many clients there is not sufficient time or resource to begin the project on a sound basis. Too many projects discover what they should really be like after they are well on the way, with inevitable effects on cost and time and many disappointments as goals are missed. The importance of starting well cannot be over emphasised.

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  • Towards Value-based Procurement

    I return to this topic again as it advances continuously. Government struggles with its procurement policy as forces pull in opposite directions. On the one hand, established practice is to seek lowest capital cost for design and construction in order to spread available resources over the most constituencies possible. On the other hand, there is growing awareness that processes seeking lowest first cost tend to produce poor value. Value is not just price, but a more complex concept embodying benefits and costs created for stakeholders over the life of an asset. These benefits can be economic, but also social and environmental. Lowest first cost can be at the expense of whole-life cost as so-called ‘value engineering’ downgrades specification to hit Capex targets or make more profit than is possible at the bid price. Low capital cost can also be at the expense of environmental performance standards, with building regulations still being a low bar to cross and nowhere near ‘Net-Zero’. Social value is increasingly a focus in procurement, defined as benefit to the community in which a development is planned, creating local jobs, skills and amenities.

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  • The size of the Built Environment sector

    The scale of the construction industry is regularly understated in statistics as they omit professional services, manufacturing, materials extraction, and embodied energy. The more important understatement is that construction is a narrow definition of the services providing our built environment. This is a blend of property, design, manufacturing, construction, and management services with an annual share of GDP of over 17%. Most recent RICS figures, before the distortions of 2020, suggest the following:

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An overriding theme has been the way that the built environment industry may change as new thinking takes hold. There have been many reviews pointing to its dysfunction, but limited success in reform. These are constructive thoughts.
  • Thinking About Building

    NEDO commissioned BDP to create a client guide to the procurement of design and construction, based on the NEDO research report ‘Faster Building for Industry’. It included a gameboard of options for assembling the team, together with a scoring approach to help choose an option. 

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  • The JCT Povey Lecture: Vision for the Industry

    Introduction

     

    On Wednesday, 29th October 2003 Richard Saxon CBE, Vice-President of the RIBA, Director of BDP and Chairman of Be gave the following lecture entitled ‘Vision for Industry (formerly known as construction)’ to invited guests of The Joint Contracts Tribunal at the Jarvis Hall, Royal Institute of British Architects.

     

    This lecture was the inaugural JCT Povey Lecture, an event by way of a public acknowledgement and tribute to Philip Povey, who served the JCT for over fifty years.

     

    The JCT Povey Lecture is to be an annual event at which an eminent person will be invited to give his/her thoughts on significant matters that are relevant to the construction and property industry.

     

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  • Integrated Project Delivery: the new Plan of Work

    The American architectural profession has discovered Integrated Project Delivery (IPD) and is enthused by it. At the recent AIA Convention in Boston there were numerous meetings about it and its closely related subject, Building Information Modelling (BIM). The AIA has just published its guidance on IPD at www.aia.org/ipdg

     

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  • Is Offsite Construction the Answer?

    The construction industry is heading for the buffers. Capacity is draining out as skilled tradesmen retire and few enter as apprentices. The go-to supply of EU migrant tradesmen is likely to be restricted soon and is already less interested as the pound falls. Construction quality is declining in the housebuilding world. Mark Farmer’s message: Modernise or Die, is clear that a major move to offsite construction is needed to keep the industry from decline. The core problem is low productivity growth in construction, globally under 1% per annum when manufacturing achieves 3.6%. There are many causes of this, but the making of buildings on site, in all weathers, is one of them.

     

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  • Re-Integration

    The collapse of Carillion is probably another nail in the coffin of the current UK model of main contracting where virtually all the trade work is subcontracted. Over fifty years in the industry, I have seen the change from traditional contractors with their main trades in-house to the current, unsustainable pattern. The vertically integrated contractor was brought down by recurrent business cycles which punish employers. Once the idea spread that trade specialists could be hired in just when needed, taking them off the contractor’s books, that approach spread fast. Tier Two firms could be left with the work of recruiting and training people, innovating in their specialism and managing the risk handed down to them. They could also provide working capital to the main contractor by accepting slow payment for their work. Most of the business cycle impact became ‘subcontracted out’. In practice, with Tier Two firms bidding at low margins to win work from the Tier One contractor, the scope for innovation and proper training was driven out. One of the stubborn failures of the industry since this pattern became the norm has been the lack of any productivity growth. Scratch teams, built up per project, learn nothing from experience and waste considerable resources in the procurement process. The critique of the method reads:

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  • Lucky 13?

    Construction is many industries within one classification. It stretches from the mammoth to the minute, from infrastructure work like HS2 to household repair tasks. Any critique of construction therefore needs to recognise the part of the industry to which it refers. The statistical classification of the industry also fails to include its clients and consultants, essential parts of the cultural and economic system of the built environment. All that having been said, new initiatives at one end of the scale spectrum could create momentum for change across much of the industry.

     

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  • Professional Futures

    Every part of the construction industry is challenged by rapidly evolving threats: stagnant productivity, falling human resources, failing business models, climate change, globalisation, advancing computer power, to name some of them. Most attention is paid to the plight of contractors and specialists, but the world of consultancy also faces these same issues. Professionals additionally face falling credibility and authority as respect for expertise declines. Their professional institutions seem powerless to communicate the value of the professional contribution to the public, to clients and to government.
     

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  • The Question of Quality

    When a construction client signs a contract to deliver a project, they usually have three targets in mind: to deliver the required facility on budget, on time and to required quality. Cost and Time have proved relatively manageable, with objective evidence and increasingly clever tools with which to manage. Quality has never been so simple. There is a perceived degree of subjectivity about it and it is quite hard to monitor the progress of work to ensure that all standards are being maintained. The result has been that whenever there is pressure on cost or time, it’s usually quality that suffers. Value Engineering has become an ironic term as it usually means cost reduction by reducing the quality that delivers required value.

     

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  • Construction: service or product?

    The Office for National Statistics lists the construction industry as part of the service sector. This makes some sense in that we provide bespoke facilities to customers rather like a restaurant provides meals. However, our output is not a transient meal but delivers a very concrete asset which needs looking after for its whole life, a service we do not provide except reactively. We treat our output like a product, leaving the buyer to look after it. Owners are not often expert at this, generating waste and depreciation. Our landlord and tenant legislation dumps repair and maintenance responsibility on unskilled tenants, charging them to restore the property to its original state on departure or pay ‘dilapidations’.

     

    Continue Reading
  • Construction’s new Playbook

    You may not know that I have been a long-time fan of American Football. The game is sometimes called ‘violent chess’ as it’s based on pre-planned ‘plays’ by one side’s offence team and the other’s defence team. The plays are radioed into the quarterback, the leader of the offence, by a coach on the side-line and the whole team must remember the moves implied by the coded name of the play, then execute it flawlessly. All the team’s plays are set down in their playbook, a secret document that team members must learn by heart and practice continuously. New plays are devised all the time too. No wonder the game originated in colleges.

     

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  • Changing our Industry: three Horizons, four Capitals

    A generation has passed since the excitement of the 1990s as first Latham and then Egan called for radical change in the construction industry. Initiatives seemed to pour out of both government and the industry, yet here we are still with an industry which seems much the same, racked by cost pressures, defensive, risky, unsustainable and unattractive to the workforce that it needs. We seem to live in Groundhog Day, repeating the traditional process with scratch teams, collaborating weakly and producing poor results.

     

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Here are articles covering the impact of concern for the natural environment and for societal matters in the creation of built environment. The term ESG has been used to embrace these issues, but I leave the Governance subject to others.
  • High Street Schools

    Britain is building or rebuilding all its thousands of primary and secondary schools to fit them for today’s needs. Many new schools are being founded, especially in areas of population growth. The location and design of these schools is not however being considered as part of the drive to more sustainable communities. This article looks at what could and should be happening.

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  • Valuing Sustainability

    Sustainability is the greatest challenge faced by our civilisation, in that, as other speakers in this distinguished series have said, and as Sir Nicholas Stern’s report has recently demonstrated, its current trajectory cannot be indefinitely sustained, economically, environmentally or socially. The transition to a sustainable path is however beset by barriers, of which the most entrenched is the perception that long-term environmental sustainability, the most urgent issue, is not achievable without short-term economic loss and politically unacceptable lifestyle change. Whilst the triple-bottom-line concept of Sustainability implies that economic and social sustainability cannot exist without environmental sustainability, the reverse is also true. We cannot hope to achieve a sustainable environment unless we can afford it, through continuing economic success and increasing social equity across the planet. This suggests a concentration on seeking low-cost techniques to reduce emissions and on increasing our economic ability to fund less affordable methods.

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  • Just the Facts: article on Sustainable Energy – without the hot air, by David J C MacKay

    “Have you read David MacKay’s book? It’s great and so useful,” said one of the several fellow sustainability enthusiasts who pressed me to take it in. So, I did and it is. And I thought you should know about it too. It helps a lot with sorting the myths from the wishful thinking and the really good ideas.

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  • Going Soft

    We need to be harder on ourselves as an industry and admit that most of our new buildings reach the end of their defects liability period without ever delivering the performance that they promised. BREEAM ratings at design stage do not predict carbon emissions commensurate with the grading. Sometimes, the certificated building burns several times the expected energy consumption. And typically, we don’t go back to analyse the performance, nor the workability of the design for the purpose intended. We move on to the next project. Clients rarely complain, as their expectations were never high, nor clearly stated.

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  • Is a sustainable built environment possible?

    The Extinction Rebellion movement has certainly rekindled the awareness of everyone that climate change is real, and that drastic action is essential. But what can we in the built environment do differently other than the slow, incremental changes that are in train? Recent books point the way and give rise to some optimism.

     

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  • Australia sweeps Test series

    No, this isn’t about cricket. Its about learning from Australia how to deliver buildings that perform as specified. In October 2017 I wrote about the ‘Soft Landings’ concept as a way for designers and builders to incorporate facility management needs into their process and ensure that buildings perform properly. This tool is part of the Government’s version of BIM Level 2, but not widely understood or used beyond that. We remain a country with published aspirations to achieve high physical performance in buildings but with a woeful record of underachievement. Why is this?

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  • Might building performance become contractual?

    At present, building contracts are designed to manage the completion of a capital project on budget, on time and without defects, dealing with failures should they arise. The new situation, driven by concern for climate change and for occupant safety, is that buildings must also perform as promised, over time.

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  • Net Zero: harder than it looks

    The push to decarbonise the built environment by mid-century can be portrayed as simply going all-electric and relying on the grid to become carbon free. But that does not consider the difficulty of meeting the resultant electricity demand from net-zero sources. UK FIRES (ref) estimates that electricity demand by 2050, from industry, transport and buildings, would be double the level of potential net-zero supply if expected usage patterns duly emerge. Ramping up carbon-free power supply from all sources is happening at a good rate, but it is not credible that this growth rate can be raised much more in the next 29 years. Even generating green hydrogen as a fuel competes at peak hours with using more efficient carbon-free power directly.

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Information management is a current topic as digital technologies impact the way we plan, design, build, operate and manage built assets.
  • Growth Through BIM

    Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

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  • One Building or Two?

    The conventional client for a construction project has focussed on achieving success in getting their requirements delivered to quality, on time and on budget. It has been a capital project mind-set, measuring achievement over the period up to the final account. Those clients who own the building tend to change the accounting status and the leadership involved at the end of the capital phase, handing the facility manager, who is rarely involved before this point, a bundle of information from the contractor to help them start to set up the Operation and Maintenance system they will need. Those who sell the building on after completion and letting have even less interest in the life of their creation, passing responsibility to the investor and tenants to make the best of it.

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  • BIM for Construction Clients

    In 2016 the RIBA’s then-subsidiary, NBS, published Richard Saxon’s book, BIM for Construction Clients, to mark the start of the UK government mandate that government projects should use BIM. The book explains the advantages of BIM in client terms and provides case studies of pioneering projects. The content is based on the UK provisional standard PAS 1192 and the then-current concept of Level 2 BIM. In 2019 this standard was replaced by an international one, ISO 19650. This was founded on PAS 1192 but changed a lot of the language and some of the assumptions. Extensive guidance to the use of the ISO standard was then published as the UK BIM Framework. The book is therefore no longer a useful guide to current practice, though it does give a picture of the pioneering stage of UK BIM.

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  • Briefmaking for Better Information Management: adding information matters to the briefing process

    The architectural process starts with extracting the brief from the client and related stakeholders. Traditionally briefmaking has concentrated on the design requirements for the building, plus the time and cost issues to be met. Now we have a further dimension to manage, the information requirements which will enable the client and team to benefit from using digital Information Management (IM). This article offers an approach to gathering the information brief which fits onto the familiar matrix of briefmaking.

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  • The Digital Twin: why, what and how

    The built environment is officially regarded as an enabler of the economy and of our quality of life. By the ‘built environment’ I mean the complex of economic sectors which plan, regulate, develop, design and build, operate and maintain the physical fabric of our civilisation, its buildings and infrastructure. These sectors total between 15 and 20% of the total economy and the current government view is that the success of built environment investments should be measured by the outcomes they support for the economy and society.

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  • BIM and JCT Contracts.

    JCT is in favour of BIM. It can reduce risks and disputes whilst increasing effective collaboration on projects. But it does have to be applied with knowledge and skill. A new guidance document from JCT attempts to fill a gap identified in the skills of clients and their advisers, moving us towards the goal of making BIM ‘business as usual’.

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  • Better Information Management

    Readers may be familiar with my interest in Building Information Modelling or BIM. Since the turn of the century, I have been involved with the concept, helping to spur the government to make it their policy to mandate its use. In 2012 I was commissioned to produce a report for what is now BEIS on ‘BIM for Growth’, the potential effect on economic growth of the uptake of BIM in the UK. I became ‘UK BIM Ambassador for Growth’ in 2012-13. A place on the Steering Committee of the BIM Task Group was also provided as it evolved what became BIM Level 2 and the PAS 1192 set of draft standards in 2013. British BIM shot forward and became the world leader as the government mandate arrived in 2016.

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  • Disappointed Party

    ISO 19650, the world standard for using BIM, is a great UK achievement. The guidance produced by the UK BIM Alliance on how to use the standard is also excellent, except for one area where it leaves me gasping, taking jargon to new depths of obscurity.

     

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  • Right First Time: a major payback from Better Information Management

    Construction project teams shoot themselves in the foot all the time. A minority of projects come in on or below cost and time targets. Errors cost them far more than the typical industry profit margin. The Get It Right Initiative (GIRI) (1), an industry group focussed on the error issue, reckons that 5% of project cost is directly down to mistakes, with 21% in total after indirect costs, unrecorded waste and latent defects are counted. The top ten causes of this mayhem are listed as:

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  • Information Management: What, Why and How

    You have heard of BIM, but what is IM or Information Management? And why has it replaced BIM as the focus of digital processes for the built environment? Thirdly, how do you use IM to deliver the desired outcomes?

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  • Taming The Tsunami

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    ‘Taming the Tsunami’ is the Deploi client guide to information management for projects and assets. 

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The idea of indoor courtyards and streets is over 200 years old. Richard wrote the two seminal books on this building type.
  • Book : Atrium Buildings – Development and Design

     
    During the 1970s Richard became interested in the newly revived concept of the atrium building, one where space is arranged around an indoor courtyard. Travels and research showed that the idea had a complex history and many influences. The 1983 book maps these influences and considers the technical challenges of designing stimulating and safe atrium buildings. The book was revised in 1986 for a second edition.

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  • Book : The Atrium Comes of Age

    The first book was in black and white only. Many spectacular atrium buildings were created in the 1980s and the second book provides colour images of the most important examples, grouped by building use. There is also a stronger historical background, updated fire safety advice and a gazetteer of the best examples worldwide. This book was also re-published in the US and Japan.

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photo: BDP
photo: BDP
photo: BDP
Royal Albert
Hall. BDP
2000
National Maritime
Museum. BDP
1999
From 1986 the City of London became the setting for much of Richard’s career.
2030
Channel Tunnel
terminal. BDP
1992
Taming The Tsunami
2023