The Changing Composition of Construction Employment

 Data from Australia and the United States

 

 

One of the curious things about the construction industry is the perception of it as inefficient and technologically backward, yet it has been at the forefront of many scientific and technical advance for centuries. From Gothic cathedrals to railways and airport terminals, building and construction projects have bought together the best available resources to create increasingly complex structures using the best available technology. Demand for new types of structures with greatly improved capabilities in strength and span drove the development of the modern industry during the first industrial revolution in the nineteenth century. To buildiron-framed and steel-reinforced concrete buildings the industry had to not only master the use of these new materials but also develop the processes and project management skills the new technology required, with the roles of engineers, architects, quantity surveyors, contractors, subcontractors and suppliers becoming defined by the beginning of the twentieth century. The issue then, like today, was not the availability of jobs but the quality of skills during the adoption of new technologies by the industry. 

 

The industry has an undeserved reputation as a technological laggard and for low skilled workers. In reality, the nature of the work attracts people with technical skills who use ‘technological thinking’ to find solutions to the problems a project will encounter between inception and delivery. Technological thinking is essentially problem-solving through trial and error. Regardless of which part of construction they work in, for the vast majority of these people there is a great deal of satisfaction in doing this work well, following relevant codes of practice and meeting the required standards.

 

This post looks at data on construction employment, qualifications and occupations in the Australian and United States industries. It is not a comparison, because the data is not the same, but an attempt to relate changes in the composition of the workforce to changes in the industry, such as the volume and nature of work and the types of projects. Given the data, this analysis can only be indicative and the conclusions tentative. However, there is good evidence that the industry is neither a technological laggard nor an industry with an unqualified and low skilled workforce, and that these are common misperceptions and misrepresentations of construction. 

 

 

Australian Construction Employment Trends

 

Employment in the Australian industry has grown strongly over the last couple of decades, from 664,993 people in November 2000 to 994,283 in November 2010 to 1,363,057 in November 2024 [1], and over that period there has been both stability and change in the composition of the workforce. The percentage share of Technicians and trades has been and is around 50% of the workforce, similarly Labourers have accounted for 16-17% since 2000. During the mining boom the share of Machinery operators and drivers rose to 9% in 2012, but had fallen to 6% by 2024, the lowest share since 2000. As Figure 1 shows, the combined share of these onsite workers rose from 75% in 2000 to 77% in 2012, and was 73% in 2024. 

 

Figure 1. Australian construction workforce composition

 

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

 

It is in the other occupations that the major changes have been happening, and here the trends have been long-running and gradual. The share of Clerical and administrative workers has steadily declined from 12.5% in 2000 to 8.5% in 2024, falling by a third over that time. The share of professionals was 2% in 2000, 4% in 2012 and 6% in 2024. And the share of Managers has increased from 9% in 2000 to 12% in 2016, where it has been since. As Figure 2 shows, the increase in the share of professionals has been the most significant change in workforce composition.

 

Figure 2. Australian construction workforce composition

 

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

Putting the numbers of people employed in different occupations adds some perspective. This data does not go back past 2023 because of the introduction of a revised classification system for occupations, however over the relatively short period between August 2023 and November 2024 there were some significant changes. In particular, the number of Professionals increased from 61,900 to 81,100, a dramatic change, and the number of Community and personal service workers went from 1,100 to 3,200. The number of Managers and labourers also increased, but Clerical and Sales worker numbers both fell, as did the number of Machinery operators. 

 

Table 1. Australian construction, number employed ‘000, by occupation

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

Finally, another Australian Bureau of Statistics publication has qualifications and work by industry, and table 2 shows that two thirds of construction workers have gained a qualification after leaving school, and 14% have a bachelor degree or higher. 

 

Table 2. Construction workers by level of qualification

Source: ABS Education and Work, May 2024. 

 

The Australian Computer Society’s 2024 Digital Pulse report found Construction employed 12,512 technology workers (in information technology and telecommunications jobs), with 4,983 in management and operations, 2,970 in technical and professional, and 4,559 in ICT trades. That does not include the technology workers employed by the architecture, engineering and project management firms in the Professional, Scientific and technical services industry (possibly 10% of a total of 138,058 outside Computer system design and services).

 

United States Construction Employment Trends

 

In the U.S. the data is organised differently, and there are no qualifications by industry data available. There have been significant changes in the composition of the construction workforce, particularly in the last few years. For most years from 2000 to 2009 the Nonproduction employees share of total employment was between 22 and 23%, then from 2009 to mid-2017 it was 24% before rising to 25% at the end of 2017. In 2020 the share rose again to 26% and by 2024 was up to 27.5%. The number of Nonproduction employees in December 2000 was 1,503,000 and almost the same in 2014 at 1,553,000. From 2015 the number began increasing, to 1,903,000 in 2020 and 2,069,000 in 2022, and reached 2,284,000 in 2024 [2].  

 

Figure 3. US construction employment

 

Source: U.S. Bureau of Labor Statistics, Production and Nonsupervisory Employees, Construction, All Employees, Construction, retrieved from ALFRED, Federal Reserve Bank of St. Louis. 

 

 

Another series from the U.S. has a similar pattern, for the number of Managers employed in Construction in January. Employment of Managers was 335,000 in 2000 and 414,000 in 2013, before it started increasing and almost doubled, going from 428,000 in 2014 to 785,000 in 2024. Because this was a much larger increase than the increase in Nonproduction employees over that period, the share of Managers in Nonproduction employees went from 22% in 2020 to 26% in 2013 to 32% in 2022, and was 34% in2024 [3].

 

Figure 4. Number of managers employed in U.S. construction

 

Source: U.S. Bureau of Labor Statistics, Employed full time: Wage and salary workers: Construction managers occupations: 16 years and over, retrieved from FRED, Federal Reserve Bank of St. Louis.

 

These trends in U.S. construction employment suggest a change in the industry around 2014-15. Total construction spending was recovering from the downturn after the recession in 2008-09, when monthly spending fell below $800 million, and was back to $1 billion in 2014. By 2020 the monthly spend was up to $1.5 billion. By historical standards this was a solid recovery but not exceptional. However, between 2020 and 2024 the total spend went up to $2.15 billion, driven by a doubling of manufacturing construction to $236 million a month as a result of the Biden Administration’s industrial policies that provided subsidies to build semiconductor fabs, data centres, grid infrastructure and renewable energy sites. 

 

With that increase in manufacturing construction, the number of Nonproduction employees and construction Managers also increased. The timing of this cannot be a coincidence, and could be attributed to the complexity and scale of the chip fabs, data centres and other computer and energy projects underway due the subsidies provided by the Biden Administration. Further, the change in employment was a break in the existing trend of gradually increasing employment of Nonproduction employees and construction Managers. The inflection point was 2021. 

 

Figure 5. U.S. total construction spending, seasonally adjusted

 

Source: U.S. Census Bureau, Total Construction Spending: Total Construction in the United States, retrieved from FRED, Federal Reserve Bank of St. Louis. 

 

The U.S. Bureau Of labour Statistics has detailed occupational data for 2023, but unfortunately this is not available for earlier surveys so a comparison cannot be made. However, the 2023 data is useful because it has the number employed in construction in managerial, supervisory or technical support occupations across the industry divisions of trades, non-residential and residential building, and engineering. These total 1,030,370 people, or 13% of total construction employment in 2023 of 8,120,000, which would the other half of Nonproduction employees that are not cost estimators or doing other clerical and administrative work. Many of these employees can be assumed to have a bachelor degree, for example it is a requirement for construction and architectural managers. 

 

As Table 3 shows, the great majority are employed as trades supervisors (609,580) and construction managers (266,140). The third largest category is architecture and engineering (103,940). The fourth is computer occupations (22,080), and fifth OH&S (19,600). The others are compliance officers (5,660) and architectural managers (3,370). 

 

Table 3. Number employed by occupation and industry division in May 2023

Note 1: The number here of Managers and Supervisors combined is more than the number of Construction Managers in Figure 2 above. 

Note 2: Compliance Officers evaluate conformity with laws and regulations governing licenses and permits, and excludes Occupational Health and Safety and Construction and Building Inspectors. 

Source: U.S. Bureau Of labour Statistics, Occupational Employment and Wages. 

 

 

Trades requiring qualifications like equipment operators (321,730), electricians (558,750), plumbers (384,870) and building inspectors (13,550) employed another 1,278,900 people. Adding these trade workers to the 1,030,370 managers and professionals above gives 2,309,270 and 28% of total construction employment in 2023 of 8,120,000. There were another 2,475,690 people employed in construction trades in 2023 as bricklayers, plasterers, painters etc., and many but not all of these workers would also have a certificate or diploma qualification. When the three groups are combined, this is over half the total number of employees. The BLS number of unqualified and unskilled workers was small, there were 858,900 laborers and 174,200 construction trades helpers.

 

Change Drivers

 

What can account for these changes in the composition construction employment in Australia and the U.S.? There are three reasons that are widely agreed on. The first is increased regulation, compliance and planning leading to more people spending more time to meet those requirements. In the U.S. there is the National Environmental Policy Act (NEPA), federal environmental legislation requires agencies to produce an environmental impact statement (EIS) before the project can start. These statements can be thousands of pages long and take years to prepare, and NEPA is a frequent target of criticism and reform efforts [4]. Some stats from a Thomas Hochman post on NEPA in December:

• Average environmental impact statement preparation time is 4.2 years as of 2022 
• Average review time grew from 3.4 years in 2008 to 4+ years by 2015, increasing by an average of 37 days per year
• Average delay from environmental review publication to resolution of legal challenge: 4.2 years
• Even a "finding of no significant impact" can take extensive time and documentation (1,200+ pages in one case)
• Up to $400 million spent just on regulatory/environmental review process for major projects
• Solar projects: 64% litigation rate
• 72% of NEPA litigation initiated by NGOs

 

In Australia planning rules are highly prescriptive and complex, with zoning, other regulations, and lengthy development approval processes reducing the ability of housing markets to respond to demand. Research on apartment prices in 2020 and house prices in 2018 by the Reserve bank found planning and zoning restrictions raised prices by up to 70%. A 2021 survey by Infrastructure Australia found: ‘Contractors and investors viewed planning and environmental approval processes as an unpredictable risk to project timelines and a driver of delay. The need to coordinate across multiple layers of government to obtain approvals, and the requirement to meet increasingly onerous conditions attached to many approvals, (e.g. in relation environmental approvals) prompted concern over delivery times’ (p.44). 

 

A second reason is the digitisation of construction and use of BIM leading to increasing offsite employment and project planning. A 2023 Brookings Institute report found only 23% of U.S. jobs were ‘low digitalisation’ in 2020 compared to 52% in 2003. From 2002 to 2010 the share of occupations with a high digitalization level doubled, from 9% to 18%, and in 2020 rose to 26%. A 2021 report by RMIT University found that 87% of jobs in Australia require digital literacy skills, and the 2024 submission by Industry Skills Australia to the Commonwealth Government’s Inquiry into the Digital Transformation of Workplaces (available here with all the other submissions) predicted only 45% of construction jobs would not be impacted by digital technology by 2030.

 

And a similar argument has increasing offsite manufacturing reducing the number of workers onsite and raising the proportion of offsite workers. The actual extent of the effect is unknown, but is likely to be marginal as the point is not replacing workers but moving them offsite, and there is still substantial site preparation and assembly work involved. Offsite manufacturing also requires detailed digital design and production planning work. 

 

Conclusion

 

The construction industry is neither a technological laggard nor an industry with an unqualified and low skilled workforce. These are common misperceptions that probably are often the result of people seeing poorly organised and managed sites, which could be addressed through better site facilities and maintenance. In fact, the industry employs a wide range of skills and requires technical competence from the majority of its workers. In Australia, two thirds of the workforce have a post-school qualification, and in the U.S. it is over half. In both countries the share of unskilled labourers is small, at around 10% of the workforce [5]. 

 

There are other interesting parallels between Australia and the U.S. In Australia, the share of professionals rose from 2% in 2000 to 6% in 2024, and the share of Managers increased from 9% in 2000 to 12%. Adding the 2024 8% share of Clerical and administrative workers makes 26% in these occupations. In the U.S. between 2014 and 2020 the share of Nonproduction employees rose from 24% to 26%. In both countries the number of Managers has increased by 50%. The share of workers with a bachelors degree or higher is also the same, around 14%.

 

Why, despite the differences in scale and output mix in the two countries, is the composition of the workforce so similar? To some extent it must be because the methods and processes followed in design, development, construction and project management are similar, as is the use of machinery and equipment. There is not a lot of difference in some types of projects, such as commercial and institutional buildings and road and rail infrastructure. Another factor would be the geographical dispersion of activity, both are large countries and work is spread out across regions. 

 

The trend in both countries is toward fewer low skilled jobs, and this applies to both onsite labourers and offsite clerical and administrative workers. An increasing share of jobs requires qualifications, and more of these workers have university qualifications. This is not to suggest there will be no unskilled workers in future construction, but there is no reason to believe these trends have run their course. 

 

                                                                            *

 

[1] Discussed in a previous post Australian Construction and the Shortage of Workers

[2] Production employees include working supervisors and all nonsupervisory employees engaged in production operations. Nonsupervisory employees includes office and clerical workers, repairers, salespersons, operators, drivers, laborers and other employees at similar occupational levels. 
[3] Construction Managers: Plan, direct, or coordinate, usually through subordinate supervisory personnel, activities concerned with the construction and maintenance of structures, facilities, and systems. Participate in the conceptual development of a construction project and oversee its organization, scheduling, budgeting, and implementation. Includes managers in specialized construction fields, such as carpentry or plumbing. From the Bureau Of labour Statistics Standard Occupational Classification. 

[4] For a history and how NEPA works see Brian Potter https://www.construction-physics.com/p/how-nepa-works. For a survey of research see Noah Smith https://www.noahpinion.blog/p/the-big-nepa-roundup. For comprehensive data see Thomas Hochman https://www.greentape.pub/p/nepastats and why reform is necessary https://www.greentape.pub/p/revisiting-pro-nepa-studies  

[5]  The review of the UK's ITBs by Mark Farmer has just been released. It was done in 2023 and the data is for 2020, but it says on page 41:

"In terms of the job role make up of the construction industry, 57% are elementary level, plant or trade craft operatives. Professional, management and technical roles constitute 33% of the workforce with 10% of the workforce are in support or administrative roles.

In terms of attainment, 73% of the workforce are at level 3 and below, including 5% who are unqualified. 21% are degree level or above qualified."

Interesting because similar to Australia and the US.

https://www.gov.uk/government/publications/2023-industry-training-board-itb-review

 

 

 

Review of Ed Merrow's book Industrial Megaprojects

 

It is well known that the future is uncertain, where uncertainty is an unmeasurable or truly unknown outcome, often unique. This can be clearly seen on large infrastructure projects, which often bring into focus the issues around project selection. A remarkable number of these projects are unsuccessful, by exceeding their time and cost estimates, or inefficient because their returns and/or benefits are well below forecasts.

Major infrastructure projects and other megaproject costs and benefits are many years into the future, and any estimates of them will depend on the assumptions and type of model used. They change their economic environment, generate unintended consequences, and always have the possibility of escalation of commitment driven by earlier decisions.

Ed Merrow did the first published study on major projects costing over US$1 billion (known as megaprojects) for the US military think tank RAND Corporation in 1988, on 52 private sector projects – refineries, oil, transport, and nuclear. It looked at time and cost performance and the factors that drive the outcomes on these projects. Most met performance and schedule goals, but only four came in on budget with an average cost growth of 88%. He concluded “The larger the project, the more important is the accuracy of early estimates.” (1988: 80). This remains the key issue.

Merrow set up Independent Project Analysis to provide project research for heavy industry and the process and extraction industries. Depending on the project, between 2,000 and 5,000 data points are collected over the initiation, development and delivery stages. From this database companies can compare their project with other, similar projects, across a wide range of performance indicators. The data gives estimates on approval, design and documentation, and delivery times for the type of project, and allows for factors like location, access and complexity in costs. When Merrow published his book Industrial Megaprojects in 2011 the IPA database had 318 megaprojects, out of about 11,000 projects in total, from industries like oil and gas, petroleum, minerals and metals, chemicals, and power, LNG and pipelines.

In his 2011 book Merrow recommended a process he called front-end loading, and his best examples of project-definition reduced project timelines and cost by roughly 20 percent. He saw projects having three stages, the first evaluates the business case, the second is scope selection and development, and the third is detailed design. His argument was that there needs to be gates between the stages that prevents less viable projects from getting to authorisation. He emphasises the ‘period prior to sanction of the project.’

Using evidence from the 11,000 projects in his database Merrow argued the best form of project delivery is what he called ‘mixed’: hiring engineering design contractors on a reimbursable contract then construction contractors on a separate fixed price contract. His view was this is the most effective form of project organization, basically traditional construction procurement where consultants are appointed to do the design and a competitive tender is held for one or more contractors to execute the works against a complete design.

Merrow also argues the owner’s job is to select the right project and the contractor’s job is to deliver the project as specified, on time and on budget. In his view contractual relationships are more tactics than strategy, and cannot address any fundamental weaknesses in the client’s management of the project, in particular the client ultimately has to own the design. This crucial point became widely recognised by the private sector clients/owners of large engineering projects that Merrow studied, because they understood that significant risk transfer from clients to contractors is structurally impossible on the projects they undertake.

Design and delivery of major projects can be contracted separately to reduce project costs and risks so that, as far as possible, design and documentation is complete or nearly complete before tendering. The ‘nearly complete’ qualifier is important. A simple project can be fully specified just because it is simple. However, there is a limit to how much design can be completed in the initial stages of a major project, because the specification of a major project develop over time as the project details are refined and defined. Therefore, it is unreasonable to expect a major project to be fully specified at tender, and in most cases this would not be possible. On the other hand, it is not unreasonable for tenderers to expect the documentation they receive to be sufficient, because the extent and clarity of the design determines their project time and cost plans.

There are a number of advantages of this strategy of unbundling design and construction, particularly for major projects. Breaking a project into smaller, sequential contracts spreads the cost out over time, and does not incur interest costs if a loan is not used for design work. It makes quality control easier and more effective, by being focused on each stage, which is an important risk management tool. Separating the design stage from tendering and construction will also improve opportunities for consultation with the community and stakeholders. Most importantly, completion of design and documentation before tendering reduces contractor risk and therefore total project cost.

This argument is for design and construction of projects to be contracted separately, because this will reduce project costs and risks. As far as possible, design and documentation should be complete or nearly complete before tendering or starting the works. The key factor is therefore the extent of the specifications, on some projects there may be a limit to how much design should or could be completed upfront. For many major projects these develop over time as the project details are refined and defined. It is unreasonable to expect a complex project to be fully specified at tender, and in most cases this would not be possible. It may also be advantageous to look for innovative ideas or design options, so for these projects an incremental approach would allow contractors and suppliers the opportunity for input during the development of the design. This also has the advantage of reducing uncertainty from poor tender documentation, thus lowering risk and cost for tenderers.

To deliver better results in on-time and on-budget delivery, Merrow argues project developers or sponsors should spend 3 to 5 percent of the cost of the project on early-stage engineering and design. This is because the design process will often raise challenges that can to be resolved before construction starts, saving time and money.

If more realistic, and therefore more accurate, time and cost estimates were given for major infrastructure projects before they are approved, and during the design and development stages, there would be fewer recriminations about project performance and less incentive to find scapegoats on completion, which is typically over budget and schedule. There would be fewer of the common accusations of poor productivity, management failures or poor planning, thus lessening the atmosphere of acrimony that often surrounds major projects in their later stages

Merrow, E.W. 1988. Understanding the Outcomes of Megaprojects, RAND Corporation, Santa Monica.

Merrow. E.W. 2011. Industrial Megaprojects: Concepts, Strategies and Practices for Success, Wiley, Hoboken, NJ. Second edition 2024. 

Innovation in Australian Construction

 ABS 2023 survey of business innovation and use of information technology

 

 

The Australian Bureau of Statistics Business Characteristics Survey is an annual survey on business innovation and use of information technology. The 2022-23 survey was recently released, and this post has extracted some of the results for the Construction industry.

 

First a few definitions. The ABS defines innovation as ‘the introduction of a new or significantly improved good or service; operational process; organisational or managerial process; or marketing method.’  Innovation activity is ‘any work that was intended to, or did, result in the introduction of an innovation.’ Firms are divided into innovation active and non-innovation active. An innovation-active business is one that introduced any type of innovation, had an innovation in development or abandoned one in the two years ended 30 June 2023.  An innovating business is one that introduced any type of innovation during the two years. 

 

The Business Characteristics Survey collects data on innovation and digital activities in alternate years, and the 2022-23 survey was on innovation. Approximately 7,000 businesses were surveyed by questionnaire, with a response rate of 82.5 percent [1]. The survey covers a wide range of factors and issues, with the data given by industry, employment size, and state. The data is shown as a percent of businesses within the estimated total number of businesses.

 

Firm Size and Innovation

 

For Construction, 30 percent of businesses introduced a ‘new or significantly improved innovation’ compared to 39 percent of all businesses. However, Construction with 35 percent of innovation active businesses compares poorly to the all industries proportion of 46 percent, and out of all industries Construction has the second lowest proportion of innovation active businesses. 

The difference between large and small employers was significant, with 31 percent of Construction businesses employing 0–4 persons and 43 percent of those employing 5–19 persons innovation active, compared to 79 percent of those employing 20–199 persons and 60 percent of those employing 200 or more persons innovation active. Table 1 shows these proportions are similar for businesses that introduced an innovation or had one under development in 2023. Medium size Construction employers with 20-199 people were most likely to have abandoned an innovation [2]. 

 

Table 1. Innovation status by employment size

 

 

Innovation Activity

 

Innovation active Construction businesses reported better outcomes than non-active ones. As Figure 1 shows, they were more likely to have introduced a new product or service, and their increase in sales, profitability and productivity over the previous year was greater than non-innovation active businesses. The number of innovation active businesses reporting increased profitability and productivity was twice the number of non-active businesses. 

 

Figure 1. Businesses reporting an increase

Source: ABS 8158

 

As a side note, it is interesting that for all construction 21 percent of businesses reported an increase in productivity, and 47 percent no change. There were also 19 percent of businesses with a decrease in productivity, Therefore, the overall industry level ends up without growth as the majority of businesses with decreasing or no growth cancel out the productivity increase in the other one fifth of businesses. The number of SMEs and the low level of innovation in Construction are important factors in the lack of productivity growth [3].

 

There were 13 percent of Construction businesses that introduced a new or improved good or service. Although 31 percent of those innovations were new to Australia or the industry, 75 percent of them were new to the company. Figure 2 shows the percentage shares of that 13 percent of businesses with new or improved goods or services by employment size, with 37 percent of businesses employing 20-199 persons and 25 percent of businesses employing over 200 introducing an innovation. Only 12 and 10 percent of micro and small innovators had an improved good or service. Around half of these goods and services innovations were developed internally. 

 

Construction businesses are three times more likely to introduce a process innovation compared to a new good or service. There were 39 percent of Construction businesses that introduced a new or improved process, of which 3 percent were new to the world. Another 11 percent of those innovations were new to Australia or the industry, and 87 percent of them were new to the company. Figure 2 shows the percentage shares of that 39 percent of businesses with new or improved processes by employment size, with 73 percent of businesses employing 20-199 persons and 62 percent of businesses employing over 200 introducing an innovation. For micro and small firms with a process innovation, the percentage of innovators was 24 and 53 percent respectively. Two thirds of process innovations were developed internally. 

 

Figure 2. Innovation active businesses by type of innovation and size

Source: ABS 8158

 

Although only 15 percent of innovation active businesses reported having an innovation strategy as part of the business plan, 19 percent sought out partners to collaborate with, compared to none and 9 percent for non-active businesses. The main sources of ideas were from within the company (54 percent), clients (36 percent) and suppliers (33 percent), followed by competitors (23 percent), consultants (17 percent) and industry association (13 percent). Only 2 percent reported sourcing ideas from universities, and none reported any research collaboration with universities. 

 

Digitisation and IT

 

Differences in investment in information and communication technology (ICT) capabilities between innovation active and non-active businesses was marked.  Figure 3 shows more innovation active businesses increased expenditure on cyber security, IT and training in 2023, and only 8 percent of non-active businesses increased expenditure on ICT. Significantly, nearly 25 percent of innovation active Construction businesses increased their use of digital technologies but no non-active businesses did, highlighting the growing divide in the industry between those firms that are digitising their operations and those that are not. 

 

Figure 3. Businesses reporting an increase

Source: ABS 8158

 

The weights given to factors considered important for digitisation in construction are generally similar to other industries, particularly in access to skills and capability building. However, there is a greater knowledge gap in construction and less investment in digital technologies compared to all industries, and only 7 percent of Construction businesses had a digital business strategy, compared to 12 percent of all businesses. 

 

 

Figure 4. Digitalisation factors important to the business's innovative activity

Source: ABS 8158

 

 

Benefits and expenditure

 

The benefits of innovation for Construction businesses were found to be similar to other industries, although a reduction in costs was not as common. In Figure 5 there are, however, two benefits where construction businesses did notably better than other industries, in improved safety and environmental benefits. The safety result is no doubt due to the importance of improving safety in one of the most dangerous industries, and with 25 percent of businesses reporting and improvement this is a good indicator of industry improvement. Similarly, there were nearly twice as many Construction businesses reporting improved environmental benefits, 14 percent, compared to 8 percent for all businesses, which is probably reflecting industry efforts to reduce waste and energy consumption. 

 

Figure 5. Type of benefit from innovation

Source: ABS 8158

 

 

As Figure 6 shows, at 35 percent Construction has the second lowest proportion of innovation active businesses, Agriculture is lowest with 34 percent and Information media and telecommunications highest with 63 percent. The ABS found 37 percent of Construction businesses spent nothing on innovation, and for 50 percent of innovation active businesses expenditure on innovation was only up to $25,000. 

 

At the other extreme, 6 percent of businesses spent between $50,000 and $250,000, and 4 percent more than $250,00. Only 5 percent of Construction businesses got Government financial assistance, and most of them received it from state governments. For a quarter of businesses a shortage of funds was a barrier to innovation, and one third of Construction innovation was targeted at products or processes internal to the business [4].

 

Figure 6. Proportion of innovation active businesses

Source: ABS 8158

 

 

What Can Be Done to Increase Innovation?

 

The ABS survey highlights the many issues in Construction innovation. Only 12 percent of businesses reported having a digital culture, few innovations were new to the world, and expenditure on innovation was low. Innovations came from within the business or from clients, suppliers and competitors, not universities or research organisation. How could this performance be improved?

 

The survey did not ask specifically about R&D tax rebates, but it is unlikely these will have been claimed by many businesses because of their complexity, difficulty to substantiate, requirements for documentation, and the lack of familiarity with the rebate for accountants doing SME tax returns. This may be an area where industry associations might help by providing information, standardised forms and lists of qualified advisors and accountants. 

 

There are very many startups offering software solutions for construction, and a recent phenomenon has been the billions in venture capital going into construction technology. Setting up a demonstration and testing centre for contech is a possible area for collaboration between construction companies, with perhaps government. The centre would provide reports with evaluations of specific systems such as embodied carbon estimators, procurement platforms for materials and components, financial and timekeeping software, robotic and safety management systems. For construction firms, particularly SMEs, getting started on digitisation or choosing new software is challenging because there are so many offerings and no impartial reviews of their quality and suitability. 

 

Large firms such as tier one contractors and manufacturers could be the centre of an innovation consortium, where they coordinate the efforts of a number of smaller firms in developing and applying an innovation. This could be short-term partnership, probably one or two years, focused on a specific innovation and making it work. For example, a contractor with some subcontractors could work together on a new or improved process, or a manufacturer with some customers could work on a new or improved product. This would improve the industry’s innovation culture and increase participation in innovation activities, and might also get access to the tax rebate for SMEs.

 

A previous post argued for BIM mandates. That post concluded ‘BIM mandates are important because the use of BIM unlocks the potential of digital construction, and affects the organisation of suppliers of materials, products and services for construction of the built environment as well. The deeply embedded nature of the culture and processes of this production system, and the large number of small firms involved, slows technological diffusion and limits voluntary uptake of new technologies like BIM. Therefore, government mandates in particular and client’s mandating BIM in general are needed.’

 

BIM mandates are a blunt instrument and do not address the problems of cost, difficulty of use, and entrenching the few providers of the systems. However, large contractors doing major projects already have BIM capabilities, so making BIM a requirement on major projects is not problematic. It is an issue for SMEs and on smaller projects where the cost is not justified, although an interesting question is where the cutoff point is. Unfortunately, at present there is no alternative to BIM as the path to digitised construction. 

 

What else could government do, beside simplify the tax rebate and mandate BIM for major projects? Investment in digital capability through training and skills is needed. An example is the NSW Institute of Applied Technology that opened in 2023 as a collaboration of three universities, TAFE, Microsoft and CPB Contractors, with a microcredential stream in construction that has subjects in CAD, BIM, cloud computing, automation and robotics. 

 

More funding to develop new standards for prefabrication and modular building for the Australian Building Codes Board would be good, as this would speed up the process and help get the insurance and finance industry support needed for this part of the industry to grow and reach its potential. The June Building Ministers Meeting considered ‘a national scheme supporting the safety and reliability of building products’ and ‘noted the ongoing engagement .. with industry to support greater use of prefabricated and modular construction methods.’ Obviously still a long way to go there. 

 

Conclusion

 

The Business Characteristics Survey is a relatively new publication from the ABS, this is the second time it has run. The survey collects data on innovation and digital activities in alternate years, and the 2022-23 survey was on innovation. The results are presented as the percentage of businesses that undertook innovation related activities that resulted in new or improved goods or services or an improvement in processes.

 

Over the two years to 2023, 30 percent of construction businesses introduced a new or significantly improved innovation, 35 percent were innovation active and 50 percent of them spent up to $25,000 on innovation. Innovation active businesses increased their sales, profitability and productivity more than non-innovation active businesses. Innovation active Construction businesses were three times more likely to introduce a process innovation compared to a new good or service, with 39 percent introducing a new or improved process.

 

There are significant differences between large and small employers, with 31 percent of Construction businesses employing 0–4 persons and 43 percent of those employing 5–19 persons innovation active, compared to 79 percent of those employing 20–199 persons and 60 percent of those employing 200 or more persons innovation active. Micro and small firms also reported more difficulty in funding innovation activities and were less likely to have an innovation under development in 2023. The low level of innovation is an important factor in the lack of productivity growth in Construction, and the number of SMEs affects the industry’s level of innovation.  

 

Differences in investment in IT between innovation active and non-active businesses was marked. Innovation active businesses increased expenditure on cyber security, IT and training but only 8 percent of non-active businesses increased IT expenditure. Nearly 25 percent of innovation active businesses increased their use of digital technologies, but no non-active businesses did, highlighting the divide between firms that are digitising and those that are not. At 35 percent, the survey found Construction is the industry with the second lowest proportion of innovation active businesses.

 

 The ABS survey highlights the many issues in Construction innovation. How could this performance be improved? Access to R&D tax rebates may be an area where industry associations could provide information, standardised forms and lists of qualified advisors and accountants. A demonstration and testing centre for contech is an area for collaboration between construction companies, with perhaps government. Innovation consortiums could improve the industry’s innovation culture and increase participation in innovation activities. BIM mandates should be used on major projects. Government could increase investment in digital capability through training and skills, and funding to develop new standards. A goal of increasing innovation active construction businesses by 50 percent over a decade would take the industry from the bottom toward the top of Australian industries. 

 

[1] The ABS estimate for the total number of businesses was 1,016,252, so a survey of 7,000 is 0.7 percent. There were 193,844 construction businesses and if 0.7 percent were surveyed that would be around 1,350 in the survey sample. 

 

[2] The estimate of the number of construction businesses employing 0–4 persons was 142,242, for those employing 5–19 persons was 41,042, employing 20–199 was 8,494 persons, and employing 200 or more persons was 166. 

 

[3] A recent Reserve Bank Research Paper by Majeed, Hambur and Breunig on Monetary Policy and Innovation found ‘ monetary policy, both domestic and foreign, and economic conditions can have medium-run effects on productivity and output by influencing the amount of innovative activity that occurs.’ In the three years after an increase in interest rates innovation by SMEs was much more affected than innovation in large firms employing more than 200 people, and ‘contractionary monetary policy shocks lead to an increase in the likelihood that firms report that lack of funds is significantly hampering their ability to undertake innovation. This is almost entirely driven by SMEs, which is consistent with the evidence that SMEs have a larger decline in innovation following a monetary policy shock’. For Construction this confirms both that the low level of innovation is an important factor in the lack of productivity growth, and the number of SMEs affects the level of innovation.  

 

[4] The ABS notes that there is a high degree of uncertainty around many of the survey results, particularly for the employment size data, because of the sample size.