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MASTER BUILDERSAND CONTRACTORS ASSOCIATION

A Strategy for the Construction Industry: Construct 21

Contents

Introduction ............................................................................................. 4

Background .............................................................................................. 5

Construction within the context of the Irish Economy ....... 6

A global construction opportunity ................................................ 7

Strategic Review and theForum for the Construction Industry ........................................... 8

Recommendations ............................................................................... 9

Appendices ............................................................................................12


Introduction

The Master Builders’ and Contractors’ Association (MBCA) is a constituent association of the Construction Industry Federation (CIF) and is comprised of main contractors and building contractors, large & small, throughout the country. MBCA members, who bid for work by competitive tender to the State and to private sector clients, are responsible for delivering public and private commercial buildings, including educational, healthcare, retail, leisure and FDI facilities, and infrastructure such as roads, public transportation, water and waste water treatment plants, bridge structures, harbours and sea defences.

These companies, who have developed the capacity to deliver complex buildings within strict cost and time parameters, are concerned that the present economic circumstances will result in the loss of their professional project management expertise and skills. The Association believes that sooner or later the country will again require sophisticated construction services and would like to work with Government and Forfas and all appropriate State bodies to ensure that the necessary management expertise, skills and experience are available to meet future demand.

MBCA calls for a national strategy to nurture the construction industry to ensure that it will be able to meet the requirement for social and economic infrastructure as well as the needs of indigenous and inward direct investment clients.

Against this backdrop, MBCA initiated an examination, with reference to international experience, of what the interface between Government and Ireland’s construction industry could look like in order to advise on the appropriate overall enterprise governance and policy framework for the sector.

This Report sets out the key findings and recommendations arising from this examination. It is not intended as historic analyses of industry output and trends but rather as a forward-looking identification of the issues which must be addressed to secure construction’s future.


Background

One of the legacies of the past 15 years was the creation of a world-class construction industry in Ireland, capable of delivering major infrastructure programmes such as the Inter-Urban Motorways, buildings like Dublin Airport’s Terminal 2, IFSC, the Aviva, the Criminal Courts Complex and the National Convention Centre, and the major regeneration of areas throughout our cities and towns. The ability to deliver these projects did not happen by accident - it was the result of sustained investment in people, plant and systems in response to the growth needs of the Irish economy.

Whilst acknowledging that the construction sector grew too large, a proportion of the economy at its peak [mostly in respect of home building and support infrastructure], especially over the period 2004 to 2007, the industry has now overcorrected. Construction activity this year is forecast to be <7% of economic activity and to fall to 5% in 2012. This is leading to the erosion of essential management skills and capacity and undermining the entire fabric of the sector, which is based around a vibrant culture of innovation and competition.

Since 2007, over 180,000 direct construction jobs have been lost to the economy and many large and small firms have ceased trading.

The overcorrection in the sector is occurring despite the fact that sooner or later the economy will recover and sustainable construction output will again be required at levels consistent with developed economies worldwide, which will represent up to 12/13% of Irish GDP. Rebuilding an effective, functioning construction industry, capable of meeting the medium-term growth needs of the economy, should therefore form a core objective of Government enterprise policy. However, reflecting historical weaknesses in the governance of the construction sector, and in the interface between policy makers and industry, this does not appear to be the case.

Additionally, it appears that there isn’t a sufficiently robust and comprehensive policy framework in place to formulate and implement policy aimed at ensuring the sustainability of the construction sector, and maximising its contribution to the economic life of the country.

Construction within the context of the Irish Economy

Construction investment is, for a combination of reasons, of particular importance for the Irish economy. This investment has low import content and is employment intensive. Construction is also a key enabler of social and economic advancement in Ireland through the provision of necessary infrastructure that directly supports existing and new enterprises, particularly in the export sector, and helps drive productivity growth, improved competitiveness and long-term job creation.

Despite its overcorrection and on-going contraction [180,000 have already lost their jobs], the industry still directly employs over 100,000 people in the Irish economy today and supports substantial employment in related sectors and through the investment multiplier effect. Operating closer to its medium-term equilibrium level, the industry would provide direct employment for an additional 80,000 people. In contrast however, the industry is currently exerting a major drag on employment and economic activity, accounting for half of the total employment drop, and two-thirds of the male employment drop, in the Irish economy in the year to date. Long-term unemployment amongst young males has already taken hold as a result of the construction downturn and will become a significant structural problem in the Irish economy over the short- to medium-term.

The underlying weaknesses in the sector clearly also have a substantial bearing on Exchequer finances and the medium-term fiscal framework. Stability in the sector would, conversely, give more scope for fiscal measures to promote economic activity and job creation, and in turn support further progress.

Significant infrastructure gaps remain in Ireland, which is reflected in a poor perception internationally. The World Economic Forum’s competitiveness report 2010/2011, for instance, ranked Ireland 69th in the world and 31st out of 34 OECD members in terms of quality of infrastructure. The decline in public capital investment and the stop in private investment will see Ireland slip further in international rankings and substantially harm the country’s attractiveness for investment.

At the same time, Ireland is facing a demographic imperative in terms of infrastructure development planning. Census 2011 outlined that our population grew by 341,000 in the period since 2006, an annual growth rate of 1.6%. The Census also revealed an ‘additional’ 100,000 people in the country that have not been factored into any assessment of Ireland’s immediate or future demand for infrastructure. In addition, Ireland has the highest birth rate in the EU at over 17 births per 1,000 of the population. According to recent forecasts, Ireland is expected to see the strongest population growth in the EU over coming years, increasing at nearly twice the average for the EU-27 as a whole . Ireland will require additional infrastructure to support this population expansion.

Addressing Ireland’s accumulated capital infrastructure deficit will be a major challenge for the Irish economy, made decidedly more difficult by the diminution in construction capacity and capability.

Measures are therefore needed. It is imperative to minimise the further loss of capacity in the construction sector and to maximise its contribution, over the medium- and longer-term, to the economic and social advancement of the country.

A globalconstruction opportunity

Despite the current economic difficulties, the country’s leading building, civil engineering, mechanical and electrical, and specialist contracting firms represent a key competitive advantage for the Irish economy and an opportunity to develop a global construction services centre in Ireland. The potential return to the Irish economy can be measured by the fact that, globally, today’s construction market is worth an estimated ™5.51 trillion or 13.5% of total GDP. Already, in many European countries up to 50% of total construction turnover is accounted for by exports .

By 2020, the global market in construction services will be worth an estimated™9.5 trillion.

The internationalisation of Ireland’s construction industry is underway. Over recent years, we have seen a refocusing within the industry on overseas construction services, particularly amongst high-end contracting firms, which, it must be acknowledged, has been supported by Enterprise Ireland.

Already FDI companies operating in Ireland use Irish construction expertise for building facilities abroad.

However, firms are being hindered in their attempts to internationalise both by the growing fragmentation and break-up within the home market, which is acting as a major constraint on the ability of firms to exploit identified opportunities abroad, and by systematic problems such as, for instance, the demonstrable market failure in the provision of construction bonds as a result of the economic/credit crisis.


Strategic Review and the Forum for the Construction Industry

In March 1996 the Minister for the Environment and Local Government agreed to a request from the construction industry to formulate, in partnership with Government, a development strategy for the construction industry up to the turn of the century and beyond.

To formulate the strategy the Minister established the Strategic Review Committee (SRC) whose report ‘‘Building our Future Together’’ was approved by Government and published in June 1997.

The report contained 86 key recommendations with the following broad objectives:

• to improve efficiency and productivity in the construction industry;

• to promote the competitiveness of the Irish industry in the domestic and international markets;

• to secure, as far as practicable, reasonable stability in construction demand;

• to ensure fair, transparent and efficient procedures, including competitive construction tendering, in accordance with EU regulations;

• to reduce conflict between the parties to the construction process and reduce the cost of dispute resolution; and

• to secure a regulatory environment which will promote quality and safety in building design and construction by the most cost effective means.

In October 1997, the Minister established the Forum for the Construction Industry (FCI), with the responsibility for overseeing and advising on the detailed implementation of the SRC’s recommendations. The FCI was broadly representative of private and public clients, the building professions, contractors, the trade unions and the construction products manufacturers.

Why the FCI Failed

Size: while having a formal structure, the Forum, its Sub-Committees and Task Forces were too large, unnecessarily overrepresented, and often unwieldy.

Focus: often the motive of participants was to protect individual self-interests rather than to secure joint objectives.

Authority: the Forum itself and its representatives didn’t have the authority or wouldn’t take the responsibility to take or approve decisions/ implement action.

1) Establishment of an Enterprise Focus on Construction with a Government Department/Identification of Ministerial Responsibility

The Minister for Jobs, Enterprise and Innovation and his Department, should have responsibility for achieving a sustainable and diverse construction sector, contributing fully to Ireland’s domestic and export economies.

It is striking that, given both the importance of construction as a component of domestic economic activity in Ireland and its centrality to the achievement of longer-term economic, social and environmental policy objectives, there is no enterprise focus on the sector within a particular Government Department to complement the existing regulatory and procurement oversight provided by, inter alia, the Department of Environment, Community and Local Government, the Department of Finance, and the newly formed Department of Public Expenditure and Reform.

It is a key recommendation therefore that an enterprise focus on the construction industry be established within the Department of Jobs, Enterprise and Innovation. As part of this process, responsibility for the achievement of a dynamic, sustainable and diverse construction sector, contributing fully within the context of Ireland’s domestic and export economies, should be vested in the Minister for Jobs, Enterprise and Innovation.


Recommendations

Recommendations (continued)

2) Construction Enterprise Council

Since the lapse of the Forum for the Construction Industry, no formal interface exists between those vested with responsibility for policy relating to construction and the industry itself.

A Construction Enterprise Council, driven by the Department of Jobs, Enterprise and Innovation and comprising experts from wider government, the construction industry, business and economics, should be established to contribute to the formulation and implementation of a national enterprise strategy for the sector.

The establishment of the Construction Enterprise Council would provide a basis for the shared recognition of and response to the need for necessary change in the strategy, management and operations of Ireland’s construction industry.

The Council should comprise Ministerial appointees representing Government, industry, business leaders, and academia. Government appointees should be at Assistant Secretary Level or higher; Managing Directors of leading construction firms, which ideally have an international dimension; and principals in the areas of private finance, economics, spatial strategy, FDI, and the materials supply chain. The Chair should be appointed by the Minister on the basis of proven experience and expertise in all areas of business and enterprise (Appendix 1).


3) An Enterprise Strategy for the Construction Industry

The Department of Jobs, Enterprise and Innovation should, through a joint initiative with industry (outlined herein), formulate a medium- and long-term sustainable enterprise strategy for the industry - CONSTRUCT 21, which provides clarity around the range of Government commitments and targets for the sector, signposts the future direction of public policy, and which harnesses construction’s potential to support the achievement of overall national priorities relating to both the domestic and export economies (Appendices 2 & 3).

Appendices

Appendix 1: Proposed Composition of Construction Enterprise Council

Learning the lessons from past mistakes, the establishment of a Construction

Enterprise Council on the following lines is recommended:

CONSTRUCTION ENTERPRISE COUNCILA strategy for business, reform, growth

Membership: 15 Ministerial Appointees

Government (5) Construction Industry (5) Business/Specialist Expertise (5)

Chair Construction Industry Business Leader

FDI Business Leader

Jobs, Enterprise & Innovation

Construction Industry Business Leader

Spatial Strategist

Public Expenditure and Reform


Private Sector Finance

Environment, Community and Local Government


Building Materials (Export) Industry

Finance Design/Project Management Business Leader

Independent Economist


Appendix 2: Construction Enterprise Council Operations

• Establish current size, composition, and capacity (including skills base) of the domestic industry.

• Establish current nature and size of construction export industry, including building works, design/project management services, materials.

• Obtain submissions from industry trade associations, professional bodies, government agencies, and other stakeholders.

• Assess the effectiveness of existing forms of contracts and contract procedures in delivery of best long-term value and best in class projects

• Assess medium and long term capacity requirements for public and private works.

• Explore measures for alternative finance of infrastructural projects.

• Meet (at least once yearly) in open forum with industry participants and stakeholders.

• Establish working groups/committees and, as necessary, sub-committees (with focused balanced representation) to support the work of the council.

• At the end of the first year, issue a report of findings, interim recommendations, and an action plan to address particular issues.

Appendices (continued)

Appendix 3: Construct 21 - Objectives

The overriding objective of the Construction Enterprise Strategy should be identification of the measures needed to ‘maximise the contribution of the construction industry to the rebuilding of Ireland’s economy and to the creation of the future conditions for enterprise to flourish’.

A number of key objectives flow from this, including:

• Sustainable domestic construction output in line with the growth requirements of the Irish economy and the sector’s medium- and long-run equilibrium levels

• Development of a vibrant global construction services centre in Ireland, building upon the country’s key competitive advantages in the design, financing, management and construction of complex building, civil engineering, and mechanical and electrical processes

• A competitive and efficient construction industry through:

• Implementation of best in class procurement and planning systems

• Reduction of costs through procurement innovation and efficiency in delivery

• Further enhancements in quality and safety in building design and construction

• Promotion of energy efficient, low carbon construction processes

• A regulatory environment that promotes quality and safety in building design and construction by the most cost effective means

MBCA IS A CONSTITUENT ASSOCIATION OF THE CONSTRUCTION INDUSTRY FEDERATION

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