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‘Crunch time’ for construction industry, warns CBI

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The Confederation of British Industry (CBI) has warned that the British construction industry is facing a crucial period, in which wafer-thin profit margins and an ageing workforce will clash with high demand for construction.

The demand for construction is marked with a widespread awareness of the need for sustainability in new homes, offices and transport infrastructure.

The construction industry employs 2.3 million and contributes an estimated six per cent of UK GDP. Despite this, the industry is facing some concerns; a third of its workforce are less than 15 years from retirement and the average profit margin in the industry’s largest firms is around 2.5 percent (with construction firms spending twice as much on legal services than other industries). According to the CBI’s latest report, Fine Margins [PDF], this indicates that it is “crunch time” for the sector.

According to the report, the business model used in the construction industry is not fit for purpose, plagued with issues such as adversarial relationships between clients and contractors (as well as between businesses), unfair approaches to risk allocation and procurement, and a focus on price rather than value for money. The CBI also blames years of political uncertainty for diminishing confidence and investment in the sector and “creating an operating environment that is short-termist and unsustainable”.

The report recommends that both government and businesses have roles to play in resolving these issues, such as by discouraging single-stage procurement processes and instead ensuring that major projects plan an initial, non-competitive stage during the procurement process to identify and account for risks. It also recommends that businesses should be prepared to step away from contracts where the terms are too onerous or the price too low.

The CBI argues that tackling these outstanding issues will create a more financially sustainable construction sector less likely to run behind schedule and over budget and in a better position to invest more in training and technology.

“It is business’ investment in skills, technology and innovation that will rapidly improve the industry’s impact on the environment and create a safer, future-proofed built environment,” the report says.

Josh Hardie, deputy director-general of the CBI commented: "This is a crucial time for the construction industry with the demand for new, sustainable homes, offices and transport infrastructure on the rise, and all within the scope of rapidly improving the sector’s impact on the environment.”

“By fixing the foundations of the construction business model between clients and contractors, essential new investments in skills, tech and innovation are possible and we can unleash the full potential of the industry. Adversarial behaviours built up over many decades coupled with problematic approaches to risk allocation and procurement have resulted in a business model that too often remains short-termist and unsustainable.”

Earlier this week, Historic England said that more buildings should be “recycled and reused”, rather than demolished, in order to reduce the UK’s carbon emissions. According to the public body, the built environment – including the construction industry – accounts for around 42 per cent of the UK’s carbon footprint. Refurbishing existing buildings has considerably less environmental impact than new builds. 

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