Civil engineering has not benefited as much from the recovery as other areas of construction. BARRY MCCALL reports.
The civil engineering sector has long been a key indicator of the overall economic health of the country. Historically, it has been the first to feel the impact of any downturn as governments throttle back on spending in response to falling tax revenues and the private sector recalibrates its longer-term investment plans.
It should, therefore, be a cause for some concern that the sector is seen by many of its leading players as lagging behind the rest of the industry when it comes to recovery and growth.
“I am very worried about it,” says Pat Lucey, President, CIF, and Managing Director, Civils Ireland, John Sisk and Son. “Civil engineering is still in recession. The Ulster Bank PMI Index shows the civil engineering sector has contracted over the last 10 months, and it is in a poor place right now. The biggest problem now is the lack of new work. The CIF has been saying this for some time. More investment is needed in infrastructure.”
Project Pipeline Needed
Martin Lang, Director, Main Contracting, CIF, agrees.
“The serious concern is the lack of a pipeline and the time it currently takes to bring a project to pre-construction stage,” he says. “Unless radical action is taken to address poor productivity in the pre-construction stages, this critical infrastructure deficit – fundamental to any successful economy – will be an impediment to our future.”
John Cradock, Managing Director, John Cradock Ltd, also says the sector is not doing as well as building generally.
“Labour shortages and the nature of public sector contracts are critical issues for the industry, John Cradock says. “The National Development Plan is obviously a big plus, but, in my view, the contracts should be more collaborative by design to achieve better outcomes.
It is recognised internationally that collaborative contracts give the best results. The current forms of contract are almost adversarial. Some improvements are coming, and that is welcome news. But design development at pre-tender stage presents problems.
“Labour is another issue,” John Cradock adds. “We are at full employment, and there are shortages. That applies right across the board from professionals to the people on the ground.”
Contractors Being Careful
John G Murphy, Managing Director, Murphy International, and incoming CECA President, takes a slightly more optimistic view.
“It is busy,” he says. “It’s certainly got a different feel to it than last year. Contractors got so badly damaged in the recession that funding is probably still an issue, so the industry is not expanding as quickly as it might. Contractors are naturally being more careful.”
Gordon O’Regan, Chief Executive Officer, Keating, also has a more positive outlook.
“Notwithstanding the challenges we’re facing, I think the sector in Ireland is in a strong, healthy position,” he says. “The civils sector as a whole is almost unrecognisable from where it was just 10 years ago. Some factors have contributed to this positive change, including changing cultures, adoption of digital construction technology, increased focus on safety and wellbeing, and the move towards greater diversity within the engineering workforce.”
The vital issue for Pat Lucey is the slow start of the National Development Plan.
“Having come through an incredible recession, where the economy fell off a cliff, contractors tried to hold on to their people, took lower margins and broke even at best on projects,” he notes.
“The industry has been waiting fairly patiently for the public capital programme to begin again. We knew it would start slowly, but we are seeing slippages everywhere. We are very concerned about National Development Plan projects that will be delayed in the planning process. Our planning process is unpredictable, and you need to have projects that can slot in if others are held up.”
Pat Lucey cites the example of the frequently promised M20 Cork-Limerick motorway as a case in point.
“The problem is not enough work being done to bring projects to the shovel-ready stage,” he says.
“It’s a four-year process to get from initial concept to construction readiness with everything going well. The four years’ work required to get the M20 through planning and ready for construction will cost €15m. That’s for a project which will cost between €1.1bn or €1.2bn, maybe. The preparation work will not be done by our members. It will be done by planners, surveyors, archaeologists, consulting engineers, and so on. Everyone recognises that we need this, and it should be done.”
Capital Works Management Framework
The other key issue is the nature of public works contracts, which see the vast majority of risk carried by the party least able to manage it, namely the contractor.
“When a contract is so one-sided, it rewards the lucky and the litigious,” says John G Murphy. “If you’re lucky, the job goes well. If you’re unlucky, all the risk is passed to you as the contractor, and you have to try to get out of it. In those cases, you feel obliged to go to third party resolution. A lot of Irish contractors prefer working in the private sector or overseas as a result. Working for multinationals can be a far less risky than working for our Government.”
Having said that, John G Murphy welcomes recent progress on the issue.
“Positive things are happening as well,” he comments. “There is a realisation that the contract in its current form was fundamentally ill-conceived. We are paying for that now in terms of contractors struggling to stay in business. The Government would never have done that to any other major sector of the economy. Thankfully there is now a recognition of the unintended consequences of the contract.”
The progress he mentions is the launch in March by Paschal Donohoe, TD, Minister for Finance and Public Expenditure and Reform, of a review of procurement policy for public works projects. The review is aimed at delivering significant changes to the Capital Works Management Framework (CWMF) over the coming years. The process will involve extensive engagement both with industry stakeholders and with the public bodies charged with the delivery of projects on a broad range of issues and will extend over the next 12 to 18 months.
“I think we can have far better contracts,” says Pat Lucey. “We see it happening overseas in many countries where the public client wants a sustainable industry that is there when needed. They have contract terms and conditions that are fair to both sides. Unfortunately, in Ireland, the terms and conditions are adversarial and completely unfair to the contractor. It’s all about defending claims and leads to an incredible misuse of valuable resources. It’s done far better in other countries. We can see all the lessons there, but we are poor at taking them on board.”
Philip Crampton, Chairman of the CIF’s Procurement Tendering and Contractual Matters sub-committee (PTCM) is heartened by the review.
“We particularly welcome the commitment made by the Minister to develop optimum procurement and contracting strategies and appropriate risk transfer for public works projects. We also welcome the intention to reform further public works contracts to ensure that they are fair and balanced, conforming to modern international standards.”
Construction Cost Inflation
Construction cost inflation remains a cause for concern for John G Murphy.
“It’s running at 7.6% at the moment, and it is as high as 12% in Dublin,” he notes. “The nature of contracts means it can be a year after a tender before a project goes ahead, and there is no mechanism to allow for inflation there. Every contractor knows that inflation is running high at the moment and they should build that into current prices, but they didn’t know two years ago what the level of inflation would be now. I hope to see that fixed.”
Innovative work practices and workplace cultures are required for the industry to prosper, according to Gordon O’Regan.
“In terms of changing culture, there is much more focus on Lean, and how Lean principles are adopted by companies working within the engineering and construction sectors, Gordon O’Regan notes. “Companies must foster a culture of continuous improvement to maximise value while minimising waste – we must meet our customers’ needs while using less. And we do that through production management principles, managing workflow streams, our commitment to project management, involving supply chain management and collaboration; and working closely with our partners to bring added value benefits to our customers.
“The increased adoption of technology is leading to improvements within the sector, from cost to carbon reduction,” he adds. “Digitisation of the construction and engineering process is essential for improving quality and reliability.”
Innovation is hard-wired into the sector, according to Pat Lucey.
“We are lucky that a lot of innovation came about when the National Roads Authority (NRA) moved to Design and Build contracts. We simplified those projects – that’s what contractors do. A lot of the elements are pre-cast off-site as a result. We now have some of the foremost pre-cast facilities in the world – to the extent that we are exporting a lot of the output. If you give Irish civil engineering contractors a problem, they will solve it. Innovation plays a big part in that, it’s what we do day to day.”
Recruitment and Retention
Staff recruitment and retention is a growing challenge, particularly when other sectors are expanding rapidly.
“Ireland is competing globally for talented and skilled workers. The retention and supply of expertise is a challenge that the industry will continue to face in the coming years,” says Gordon O’Regan. “In tandem with this, firms are trying to procure talent in a sector that has somewhat of a reputation for unsociable working hours, remote locations of work, and has traditionally been male-dominated and less attractive for female engineers.”
Gordon O’Regan proposes two actions to meet this challenge.
“Firstly, with current talent, we must provide the resources necessary for upskilling and promoting professional development. Secondly, with prospective talent, we need to drive diversity and inclusivity in the industry, to make it attractive and accessible to all.
“At Keating, we work hard to attract and nurture young talent and work jointly to support all individuals to reach their full potential,” he adds. “Our people strategy is focused on establishing Keating as an employer of choice, and building a sustainable employment and skills infrastructure with people to meet today’s and our future business needs.”
John G Murphy cuts to the heart of the issue and points to another interesting potential solution.
“Labour is a key issue, and part of the solution is having a sustainable industry,” he says. “160,000 people left the industry between 2008 and 2012, and they are reluctant to come back. Credibility is a factor when it comes to the construction industry. We’ve had long term plans before, but we need to build resilience by ringfencing money in boom years to spend during downturns. We need to have that conversation.
“You attract people by having a healthy industry,” he continues. “In the last boom, civil engineering graduates were coming out of all the colleges and the industry was well supplied. That dropped to almost nothing in the recession, and it will take a few years for numbers to pick up again. But by that stage, historically, another recession starts. So, we need to act now.”
Attracting people back from abroad will present its own challenges and problems.
“If you do succeed in attracting them,” John G Murphy says, “we’ll have to build houses for them so that they can build homes for others. To provide 50,000 beds for new construction workers would account for two years of housing production – that’s the irony of the boom-bust cycle.”
But John G Murphy suggests there are opportunities to fill the gaps, particularly as a result of Brexit. “There are a few hundred thousand eastern European workers in the UK construction industry at the moment. They are English-speaking, used to the western European industry and its standards, and could easily come here post-Brexit. If you were an eastern European living in the UK, would you buy property there? It’s too unstable.”
A challenging environment, yes, but the positive signs in evidence from the National Development Plan and the Government’s procurement review point to better times ahead.