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CHAPTER 1
The Need to Improve

Need to Modernise

4. Nevertheless, the industry recognises that it needs to modernise in order to tackle the severe problems facing it, not least that:

• it has a low and unreliable rate of profitability. Margins are characteristically very low. The view of the Task Force is that these are too low for the industry to sustain healthy development and we wish to see those companies who serve their clients well making much better returns;
• it invests little in research and development and in capital. In-house R & D has fallen by 80% since 1981 and capital investment is a third of what it was twenty years ago. This lack of investment is damaging the industry's ability to keep abreast of innovation in processes and technology;
• there is a crisis in training. The proportion of trainees in the workforce appears to have declined by half since the 1970s and there is increasing concern about skill shortages in the industry. Too few people are being trained to replace the ageing skilled workforce, and too few are acquiring the technical and managerial skills required to get full value from new techniques and technologies. Construction also lacks a proper career structure to develop supervisory and management grades;
• too many clients are undiscriminating and still equate price with cost, selecting designers and constructors almost exclusively on the basis of tendered price. This tendency is widely seen as one of the greatest barriers to improvement. The public sector, because of its need to interpret accountability in a rather narrow sense, is often viewed as a major culprit in this respect. The industry needs to educate and help its clients to differentiate between best value and lowest price.

Client Dissatisfaction

5. Under-achievement can also be found in the growing dissatisfaction with construction among both private and public sector clients. Projects are widely seen as unpredictable in terms of delivery on time, within budget and to the standards of quality expected. Investment in construction is seen as expensive, when compared both to other goods and services and to other countries. In short, construction too often fails to meet the needs of modern businesses that must be competitive in international markets, and rarely provides best value for clients and taxpayers.
6. The under-achievement of construction is graphically demonstrated by the City's view of theindustry as a poor investment. The City regards construction as a business that is unpredictable, competitive only on price not quality, with too few barriers to entry for poor performers. With few exceptions, investors cannot identify brands among companies to which they can attach future value. As a result there are few loyal, strategic long-term shareholders in quoted construction companies.
7. Discussions with City analysts suggest that effective barriers to entry in the construction industry, together with structural changes that differentiated brands and improved companies' "quality of earnings" (i.e. stability and predictability of margins), could result in higher share prices and more strategic shareholders. We believe such a change towards stability of profit margins would be at least as highly valued by the City as a simple increase in margins.

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