UK MMC and Manufactured Housing Failures

How not to promote Modern Methods of Construction 

In Australia, Canada, the UK and parts of the US there are problems associated with low levels of new house construction, high prices, rising rents and decreasing affordability. Although modern methods of construction (MMC) cannot solve these problems on its own, it could make a significant contribution if restrictions on its use were relaxed, and governments developed effective policies to expand the market and promote its use. 

 

The UK Government has been a leading producer of industry policies for construction since the 2011 launch of the construction industry strategy, with an updated version following in 2016. Some parts of the strategy have been successful, developing the BIM Framework and BS 19650 standards and increasing the use of BIM with a public sector mandate (discussed in a previous post here) in particular. Also, between 2019 and 2022 the Transforming Construction Challenge completed 68 projects.

 

In contrast, the UK policy to promote manufactured affordable housing has been a notable failure. Over 2022-23 MMC companies that collapsed were Ilke, House by Urban Splash and Modulous, and L&G closed its housing factory (in image above). In late 2023 the UK House of Lords Built Environment Committee started an inquiry into manufactured housing, and this post is based on the report from the inquiry and transcripts of evidence given. The report (in the form of a letter to the Secretary of State for Levelling Up, Housing and Communities) provides some insight into an agency that has not published any data on the twin policy objectives of increased supply of affordable housing and increased use of MMC. 

 

Background

 

In 2017 the Government committed to increased housing supply using MMC by supporting the growth of the industry. MMC describes a wide range of non-traditional building systems and in the UK is divided into seven categories, from completely built offsite (Category 1) to completely built onsite with some automation (Categories 6 and 7). The policy to promote MMC was supported by the Construction Innovation Hub and the Advanced Industrialised Methods for the Construction of Homes (AIMCH) project, which both ran for three years over 2020-22 funded by UK Research and Innovation through the Industrial Strategy Challenge Fund.

 

The agency responsible for increasing use of MMC was Homes England, established in 2018 to fund new affordable housing (replacing the Homes and Communities Agency set up in 2008). The Strategic Plan 2018-23 described Homes England as ‘a new non-departmental public body, sponsored by the Ministry of Housing, Communities and Local Government … to accelerate the delivery of housing across England, except in London’ and explained ‘Our mission is to intervene in the market to ensure more homes are built in areas of greatest need, to improve affordability. We’ll make this sustainable by creating a more resilient and diverse housing market.’ There were six objectives in the Strategic Plan, the third of which was to improve construction productivity by supporting MMC:

 

We must embrace change to improve productivity and reduce the impact of the declining workforce. MMC has the potential to be significantly more productive than traditional methods of construction and greatly increase the pace of delivery. It can also improve the quality of construction, address labour and materials shortages and deliver a number of additional benefits such as improved energy efficiency and health and safety. As a result, developers are already introducing MMC. However, the MMC industry is currently immature with limited production capacity and supply chains. It requires stimulus if it is to evolve further.

 

We will support the uptake and development of MMC through a range of interventions. We’ll incorporate MMC into our building lease disposals to demonstrate a range of MMC products by supporting pilot projects on Homes England land. We’ll also encourage partners to use MMC through our provision of development finance to developers. Our Local Authority Accelerated Construction programme will also encourage more widespread use of MMC to help increase the speed of construction and build out.

 

 

Inquiry Report

 

After the collapse and closure of the two major Category 1 MMC businesses, Ilke Homes and House by Urban Splash, in late 2023 the UK House of Lords Built Environment Committee started an inquiry into MMC in housing ‘to explore the potential reasons for these failures, especially considering the support provided by the Government to the industry.’ 

 

The inquiry made some pointed observations. Homes England could not provide data on the extent of MMC across its portfolio, despite that being its measure of success, and has not developed an evidence base or published research on MMC as promised. An MMC Taskforce, which was expected to work on data and standards, has never met. Some key points from the report were:

 

‘we have been told … Category 1 housing is, or could be, more expensive than homes built using traditional construction methods … we heard that MMC homes are cheaper. These two statements cannot both be true’ (p. 3).

 

‘We have limited confidence that a coherent plan to encourage the use of MMC is in place and, owing to the absence of its publication, have found it challenging to scrutinise the Governments activity and spending’ (p. 4) 

 

‘It remains unclear both how Homes England is assuring itself that Affordable Homes Programme (AHP) providers in receipt of grant are meeting the pre-manufactured value (PMV) requirements and when this data will be published’ (p. 7). PMV measures how much of a project’s gross construction cost is derived from pre-manufacturing with all seven MMC categories contributing to a higher PMV. 

 

‘The current approach taken through the AHP does not stipulate the use of Category 1 and 2 MMC. The requirement for 55 per cent of the PMV of the home to be MMC allows many housing associations to use MMC from Categories 3 to 7 … the majority of MMC delivery has a low pre-manufactured value’ (p. 8)

 

‘We were particularly disappointed by the attitude of insurance providers and the warranty providers towards MMC. The extensive time periods it can take to obtain warranties and the reticence of insurance providers to accept compliance with building regulations as sufficient is having a detrimental impact on the delivery of MMC homes’ (p. 13).

 

'Homes England made significant investments from the £4.5 billion 2015 Home Building Fund which directly supported Ilke Homes (£60mn) and House by Urban Splash (debt facility of £26.9mn and equity of £3.1mn). Homes England expects limited recovery of its investment into Ilke Homes and full recovery of its loan to House by Urban Splash, though not the equity’ …  'it is still unclear why Homes England chose these two companies and what its selection criteria and objectives were’ (p. 15).

 

‘It is also unclear why the Government is not allowing experienced international MMC companies to apply for procurement processes and stipulations. Volumetric MMC housing is successfully delivered in other countries. The Government should ensure that its procurement practices do not limit the ability of successful MMC companies from around the world in moving into the UK market’ (p. 16).

 

‘we came away from our inquiry with the impression that the Government had too easily accepted that undirected and nonstrategic investment of public money was the obvious way of providing this assistance. We say that because the Government has not set out clear objectives for the investments and funding it provided. Nor did Homes England give us any clear metrics as to how success (however defined) was to be measured and over what timescale’ (p. 18).

 

The report also pointed out that ‘MMC has been commercially successful in other sectors and blocks of flats, as illustrated by build to rent and student housing’ (p. 3). In evidence given by industry to the inquiry affordable housing is not a viable market segment for MMC because traditional methods are cheaper in some parts of the country and volume manufacturing requires an  sustained high level of demand, so for the failed companies the ‘level of investment expended relative to the demand was the fundamental flaw’. Examples given of successful MMC projects in the UK were medium and high-rise buildings, hospitals, prisons, detention centres and defence housing. 

 

Conclusion

 

What does this tell us about Homes England’s MMC policy and implementation? There are a few basic principles for industry policy. The first is to be technology agnostic, meaning the funding should be allocated on the basis of meeting the policy objectives, not on the basis of a preferred technological solution. In this case there was no good reason to prefer Category I MMC builders over Categories 2 – 5, and there was no evidence that the final cost of Category I volumetric buildings were cheaper that alternative MMC builds. 

 

The second basic principle is to avoid picking winners. If funding is to be provided it should be available to any firm that can meet the criteria set and policy objectives. Making equity investments in firms, as Homes England did, is not appropriate and has a long history of failure. Typically, industry policy funding is through either credit support or incentives, rarely a combination of both, as many studies of policies in different countries for specific industries have shown.

 

Finally, industry policy funding will be most effective when used to stimulate demand. Homes England contracted a total of £137mn to local authorities to deliver 9,969 homes using MMC in Categories 1 to 5, although the inquiry was unable to establish how many had been delivered. The Affordable Homes Programme made funding available to housing associations using MMC through strategic partnerships, long-term deals under which partners must build at least 1,500 homes and deliver 25 per cent of those homes using MMC. However, the inquiry found the majority of AHP houses had a low PMV with a lot due to Categories 6 and 7. Here the objective of increasing offsite manufacturing was undermined by accepting onsite work as MMC. 

 

UK manufactured housing provides a good example of how not to do industry policy for construction. The ‘undirected and nonstrategic investment of public money’ was both wasteful and probably ineffective (given the lack of data on outcomes). Homes England did not develop standards or provide data that would have encouraged insurance and warranty providers to support MMC, and excluded international firms with experience with MMC from entering the market that could ‘help improve the maturity of the market, and provide the data and evidence called for by warranty and insurance providers’. 

 

The concluding paragraph of the inquiry’s report pointed to the complex interplay of factors involved in unblocking supply of housing in general and increased use of MMC in particular:

 

It is possible that real barriers exist in the form of resistance by planning officers and undue risk aversion on the part of warranty providers, insurance companies and banks. Our short inquiry did not establish clear evidence to make that case, but we believe the Government should look more carefully at how these parts of the housebuilding ecology are working, as well as taking a greater interest in overseas examples of success with modular construction. 

 

This situation is not unique to the UK. Australia, Canada and parts of the US all have similar problems associated with low levels of new house construction, high prices, rising rents and decreasing affordability. Although MMC cannot solve these problems on its own, it could make a significant contribution if restrictions on its use were relaxed. Demonstration sites where examples of modular building are on show could be established. Some publicly owned sites could be recycled and reserved for modular buildings to create a market. An independent agency could collect data on costs and performance. Lending and valuation guidelines could incorporate energy savings from modular buildings. Local governments could be given incentives for allowing new modular buildings and/or extensions to existing houses. Social housing could be required to use MMC. A levy on embodied carbon in building materials would favour modular building, which typically has less waste and lower use of cement and concrete. 

 

MMC is not only Category 1 3D buildings. It includes panellised and structural systems, pre-assembled floor and wall cassettes, kitchen and bathroom pods, and manufactured components such as facades and windows. Many of these are already widely used outside residential construction, and given the opportunity can be used to increase the supply of new housing that is so urgently needed in many places. The focus in the UK on failures of manufacturers of single houses has obscured the success of MMC in medium and high-rise residential buildings and for a wide range of commercial and institutional buildings. 

 

 

Note. Homes England lost another £9mn invested in Stewart Milne, a house builder that failed in January. 

 

 See also https://gerard-de-valence.blogspot.com/2022/09/comparisons-of-construction-to.html 

Comparisons of Construction to Manufacturing Use Flawed Data

 

Construction productivity has been negatively compared with manufacturing (e.g. McKinsey), and the comparisons are typically between all of construction and all of manufacturing. The problem is that both are averages of extremely varied economic activities of firms, based on data collected by the standard industrial classification (SIC) system. This makes useful comparisons between the two difficult, as this post using UK data argues. The post first breaks down industry statistics on UK construction and manufacturing to show the structural differences, and then compares construction to the car industry, showing a comparison between the two requires including repair and maintenance with vehicle manufacture. Lessons from other industries and their production methods and processes can be useful and informative, however, comparing performance between industries is very difficult without adjustments to make the subjects comparable.

 

The production of building elements and components somewhere other than the construction site has been variously called prefabrication, pre-cast and pre-assembly construction, and offsite manufacturing (OSM). The degree of OSM and preassembly varies from basic sub-assemblies to entire modules, and the use of OSM varies greatly from country to country. Types of offsite construction are panelised systems, volumetric systems with partial assembly of rooms, units or pods offsite, and factory built modular components or homes. Offsite manufacture is used to describe factory production and preassembly of components, elements or modules. Prefabrication is used to describe offsite production of components that are installed onsite. The idea that OSM and prefabrication are the solution to problems of poor quality and low productivity in construction became central to the movement to ‘reform’ construction by making it more like manufacturing.

 

Advocates of industrialized building argued for construction to adopt similar production practices to manufacturing, particularly car manufacturing. However, while there are some factory made buildings, the number and type of standardized buildings is limited, whereas opportunities for producers of standardized construction products are widespread. Onsite production is organized around those standard parts and materials but manufacturing, in contrast, is organized around standardised products and continuous production runs. 

 

In UK construction the largest grouping by number of enterprises and employment is specialised construction, typically single trade contractors (there are 17 individual industries or trades under SIC 43). The largest group by turnover is building contractors, including residential and non-residential building with only two SIC sub-categories. Civil engineering contractors have the smallest number of enterprises and employment but the highest average number of employees and highest average turnover per enterprise. Civil engineering work is typically of larger scale compared to building work.

 

Table 1. UK Construction turnover 2019

Source:  Meikle, J. and de Valence, G. 2022. Construction products and producers: One industry or three, in Best, R. and Meikle, J. (eds.) Describing Construction: Industries, projects and firms, London: Taylor and Francis. Data from ONS Annual Business Survey 2018.

 

Data on construction turnover by size of firm includes the value of subcontracting and construction work by non-contractors. The distribution of construction turnover by number and size of firm and average turnover per firm is: 99% of construction firms have less than 50 employees and are responsible for just over 50% of turnover; and 94% of firms have less than 10 employees and are responsible for around 35% of turnover. At the other end of the size scale, less than 1% of firms, those with 50 or more employees, are responsible for the other 50% of turnover. Around 0.1%, a few hundred, are responsible for around 30% of turnover and each of these has an annual turnover averaging around £275 million. The structure of the construction typically takes this form.   

 

Table 2. Construction firms by employment 2019

Source:  Meikle, J. and de Valence, G. 2022. Construction products and producers: One industry or three, in Best, R. and Meikle, J. (eds.) Describing Construction: Industries, projects and firms, London: Taylor and Francis. Data from ONS Annual Business Survey 2018.

 

Although the SIC groups all construction firms into a single category, that is for statistical convenience based on conventions developed originally for classifying manufacturing. The exclusion of design from construction output while included in manufacturing and the inclusion of R&M in construction but not in manufacturing is one result.[i] Another is the view of construction as a single industry, producing and maintaining buildings and structures, despite their many different types and the differences in the producers and processes used in their delivery. 

 

Manufacturing in the UK comprises 24 two-digit industrial groups (SIC 10 to SIC 33), for example, food products (SIC 10), manufacture of paper and paper products (SIC 17) and manufacture of motor vehicles, trailers and semi-trailers (SIC 29); and 325 individual industries.  Manufacturing of fabricated metal products except machinery and equipment (SIC 25) is the largest two-digit group with 22 individual industries, 26,301 total group enterprises and total group turnover of  £23.6 billion; the smallest is the single industry group of manufacture of tobacco products (SIC 12) with nine enterprises and a turnover of £12 million.  Manufacturing is not only relatively large but extremely diverse and industry policies have reflected that by targeting specific industries such as IT and automobiles for example.

 

The table below shows that total UK Construction turnover is less than 50% of Manufacturing turnover, although it is much larger than any individual manufacturing industry.  Manufacturing has 21% of firms that are small and medium size, construction has 6%, and manufacturing turnover is more concentrated in the larger firms.

 

 

Table 3. UK construction and manufacturing compared by size of firm

Source: Meikle, J. and de Valence, G. 2022. Construction products and producers: One industry or three, in Best, R. and Meikle, J. (eds.) Describing Construction: Industries, projects and firms, London: Taylor and Francis. Data from ONS Annual Business Survey 2018.

 

The largest UK manufacturing industry in 2018 was motor vehicles, with 22% of construction turnover and 5.5% of construction employment, and it is manufacture of motor vehicles that is often compared with construction and used as the example to be followed in OSM. Based on turnover per employee (an imperfect but indicative measure of productivity), vehicle manufacturing (&07,965) is over three times as productive as construction (197,902). This might be the case, or it may be a statistical illusion, created by the framework of the SIC.

 

 

Table 4. Comparing UK construction and vehicle manufacture 2018

Source: Meikle, J. and de Valence, G. 2022. Construction products and producers: One industry or three, in Best, R. and Meikle, J. (eds.) Describing Construction: Industries, projects and firms, London: Taylor and Francis. Data from ONS Annual Business Survey 2018.

 

 

Table 5 breaks down construction to its main components and adjusts manufacturing by including both the manufacture and repair and the maintenance of motor vehicles.  All construction includes both new construction and the repair and maintenance of existing buildings and works. The manufacture of motor vehicles does not. In order to adjust for this, maintenance of vehicles (SIC 45.2) should be added to manufacture of vehicles (SIC 29.1) to make the groups more comparable. When vehicle maintenance is added to manufacture, turnover increases by 58% but employment increases by almost 180%.  

 

This allows a more realistic comparison and reveals that motor vehicles and their maintenance (SIC 29.1 plus SIC  45.2) has almost the same turnover per worker  (1.6mn) as building construction (1.4mn), twice that of specialist construction (0.9mn) but less than engineering construction (2.1mn).  Turnover per worker is a metric of productivity and, on this basis, all construction is less productive than all manufacturing and much less productive than motor vehicle production. However, when repair is added to manufacture, the car industry is on a par with building, the largest part of construction. 

 

 

Table 5. Turnover and employment by SIC division 2018

Source:  Meikle, J. and de Valence, G. 2022. Construction products and producers: One industry or three, in Best, R. and Meikle, J. (eds.) Describing Construction: Industries, projects and firms, London: Taylor and Francis. Data from ONS Annual Business Survey 2018.

 

With the differences in these industries in terms of firm size, turnover and employment, it is difficult to draw clear conclusions from a comparison of their structure, economic performance or productivity. Vehicle manufacture and, to a lesser extent vehicle repair and maintenance, are capital intensive businesses. Construction, generally, is not, although a few activities like tunnelling and prefabricated housing are. Comparisons between manufacturing and construction based on the figures from the SIC are not helpful or accurate without adjustment.   

 

Nevertheless, on the basis of these comparisons, for the last three decades advocates for applying production methods from car manufacturing to offsite manufacturing in construction have argued this is necessary to improve construction productivity and products. Despite the distinctly different characteristics of manufacturing and construction there have been and are many attempts to industrialize construction. However, after decades of efforts to promote OSM, the market share of OSM remains small, estimates are low single digits of total construction work in the UK, US and Australia. Success elsewhere is restricted to specific markets such as fast food outlets and hotels, or house manufacturers like the Japanese and Scandinavian firms Sekisui and Ikea. 

 

The US and UK governments have both supported OSM, with the UK government funding research, publishing case studies and promoting OSM in construction for decades.[i] In the US a Technology Roadmap for Advanced panelised construction was produced in 2003 for the Department of Housing and Urban Development as a Partnership for Advanced Technology in Housing (PATH[ii]). Despite these efforts, offsite production is not industry practice in either country. Although pre-cast concrete and panelised construction are widely used, OSM has not led to significant advances in mechanization or required a thorough reorganization of project management methods.  

 

OSM markets exist mainly in housing and institutional building, wherever it is the most effective or efficient piece of technology available and there is a lot of repetition from project to project. This manufacturing-centric view of progress in construction, endorsed by numerous government and industry reports, was the end point of the development trajectory from the first to the third industrial revolutions. Despite all efforts this has not become the primary system of construction of the built environment because OSM does not deliver a decisive advantage over onsite production for the great majority of projects. Instead, construction has a deep, diverse and specialised value chain that resists integration because it is flexible and adapted to economic variability.

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[i] Farmer, M. 2016. Modernise or die, London: Construction Leadership Council.

[ii] PATH, 2004. Technology Roadmap: Advanced panelised construction, 2003 Progress Report. Partnership for Advanced Technology in Housing (PATH), Department of Housing and Urban Development, Office of Policy Development and Research, Washington, D.C.

[i] Despite the importance of repair and maintenance, only Canada has an annual business capital and repair expenditures survey. Between 2006 and 2016 construction R&M by firms averaged nine percent of their total capital expenditure, or around 1.2 percent of GDP, ranging between one percent of GDP in 2006 and 1.3 percent in 2012. Statistics Canada. Table: 34-10-0035-01 Capital and repair expenditures, non-residential tangible assets

Construction Industry Policy and Industry Culture

 

In a time of rapid urbanisation and great social and environmental challenges, the built environment and associated housing, infrastructure and urban policies havebecome central issues in public policy. The quality of the built environment is a major determinant of the quality of life. Further, cities are at the centre of themodern economy and, in a fundamental sense, how well cities function depends on how well the many and diverse industries, firms and organizations across thebuilt environment sector can design, deliver and operate the projects required. The resilience of cities to climate change is being tested as temperatures increaseand fires and floods become more intense. However, because of the range and complexity of these issues it is difficult for governments to develop and implementcoordinated built environment industry policies that address these issues satisfactorily.

Industry policy was out of favour for a couple of decades before the financial crisis in 2007-08 in the US, UK and Australia, although the European Union (EU)and many Asian countries followed well developed national strategic plans. This was partly ideological, a view that policy is another government economicintervention that requires picking winners, and partly because some issues traditionally addressed by industry policy like tariffs and market access moved intonegotiations around trade policy, at both the global level and in the increasing number of regional and bilateral trade agreements.

Following the financial crisis governments looking for sources of economic growth and employment creation began focusing on specific sectors in manufacturingand services where they saw opportunity in global value chains. Environmental standards and policies supporting renewable energy were developed. Industrieslike pharmaceuticals and biotechnology, semiconductors, aerospace, IT, AI, cars and steel have featured in industry policies in many countries. Any policyintervention intended to strengthen the economy is an industry policy, and governments regularly establish priorities and target industries. Countries protect orfavour industries with legislation for many reasons but some of them are strategic and long term, like innovation programs with their associated challenges,roadmaps and milestones, and many of these programs currently involve digitization and automation in some form.

These is little practical difference between a country’s industry policy and national industrial strategy. They are both typically framed around competitiveness andproductivity, focus on innovation and R&D, and follow pathways and roadmaps through scenarios and scoping studies. Some industries like agriculture, steel andautomobiles are regarded as strategic and have always been surrounded by rules and regulations and subject to government intervention. Governments’ havescience and technology policies that influence industrial structure and macroeconomic policies that affect economic development. For many countries theemphasis in industry policy has shifted to industry 4.0 technologies and AI, as governments and industry respond to these technologies.

Government policies like these that target supply side issues are not as high profile as others, they don’t get regular updates like monthly unemployment orquarterly GDP statistics and capture attention like announcements of interest rate changes. Because productivity has become the measure used for industryperformance, despite the statistical questions that raises, it has often been the target for government policy. However, many of these policy measures will onlyaffect productivity in the long run, examples are education, training, infrastructure, innovation, R&D, capital expenditure subsidies, and pilot or demonstrationprojects. Therefore, results take time and thus take longer than the electoral cycle to develop, so there is often little benefit to the government of the day even if apolicy is working well.

When the intention of such policies is to influence a country’s economic structure and industry development they can be described as industrial strategy or industrypolicy. What history generally does show is that it is hard to get an industry strategy right and implementation is difficult. Traditionally manufacturing was thefocus for industry policy, but after 2007 the approach became more about coordinating a wide range of policies to achieve both economic and social objectives.[i]Climate change and environmental issues have become a focus for a range of industry policies aimed at reducing emissions.[ii] The rollout of protectiveequipment and vaccines during the Covid pandemic in 2020-21 both tested and accelerated this new approach.

Construction Industry Policy

As well as common industry policies targeting innovation, training or business investment, construction of the built environment is also subject to many othergovernment regulations, legislation and policies. On the demand side interest rates, taxes, public infrastructure spending, urban development and housing policiesare all important, but are also external to the built environment sector itself and are determined by a wide range of factors beyond the sector. Then there are theeffects of planning and environmental regulations and restrictions limiting the supply of new housing or infrastructure, an issue that has featured in recent debatesin many countries and spills over into other issues around the affordability of housing and the location and cost of major projects. The number of differentgovernment departments and agencies involved in regulating the built environment is often a major barrier to innovation because coordination is difficult and thereare many opportunities for incumbents to delay or derail progress when reforms are proposed.

The public sector in many countries is collectively the largest client for construction, but the expenditure is spread over departments like health, education,transport and defence, and there is unrelenting pressure from public sector clients for the lowest possible cost of work. In practice, there are significant institutionalconstraints on government buying power. Although reports in many countries have recommended leveraging public procurement of buildings and structures topush industry reform this is not widely used, despite being common practice in Asian countries like Singapore and Japan.

While it is a fact that governments can have major impacts through regulation, tax, training,  innovation and R&D policies, their effect is uneven and can be hardto discern. For example, large firms in capital intensive industries like cement respond to industry policies differently to large contractors, as do professionalservice SMEs compared to construction trade SMEs. Two areas where governments have had some success in promoting industry development are discussed inprevious posts: BIM mandates and building standards and codes.

Industry Policy and Industry Culture

Contractual relationships were the focus of much of the reform agenda of the 1990s and 2000s. In the UK the Simon Committee report in 1944 on buildingcontracts called for cultural change, as did the Latham Report 50 years later. Egan in 1998 introduced benchmarking against best practice to improve productivityand Constructing Excellence documented demonstration projects. In their book on UK Construction Reports Murray and Langford thought the ‘demands on theindustry cannot be met and so lead to an industry that cannot attract staff to deliver buildings on time, with increased costs and questionable quality.’[iii] Othercritics attacked the reform movement for its technocratic and managerial approach[iv]and the language used. By 2011, when the new UK industry strategy waslaunched, there had been little change in the industry, clients awarded projects to the lowest bidder while contractors offloaded risks and maximised profits.

That a series of UK reports were required, averaging over two a decade for 50 years (many others were not included in Murray and Langford), shows howineffective they were in developing policies to address the issues raised. The explanation for this policy ineffectiveness offered by Latham and Egan in theirreports was industry culture, broadly seen as the custom and practices underlying the business model in UK construction. Latham focused on procurement andcontractual relations with recommendations to change an adversarial culture, calling for more collaboration between clients, contractors, subcontractors andconsultants, and more cooperative practices. He recommended ‘Partnering’ between clients and contractors to realise this.

Culture is clearly important, but it is also clear that culture is not malleable and does not change easily or quickly. A better explanation for the lack of impact ofthese reports and their recommendations, and the ineffectiveness of public policy in reforming construction is required. Is the problem the policy making process,resistant to evidence and subject to ministerial whims and churn, with issues becoming politicised once they enter public debate? In a technocratic system ofproduction like construction regulatory proposals often lack a convincing evidence base, and can be poorly integrated with impact assessment and policydevelopment processes. The generic ‘problem-inspired’ industrial strategies developed by central policymakers also have to be interpreted by the ‘problem-solving’ implementers responding to nuances of local context and capability.

Construction is better viewed as three industries when the differences between residential building, non-residential building and engineering construction are takeninto account. Within the broad culture of construction they have their own permeable but distinct subcultures, based on differences in processes, products andmarkets. If the culture in each of the three industries is different, recommendations and policy directed at construction as a single industry are unlikely to berelevant across them and will thus be disregarded by many firms and clients. Clients are also different and can be generalised as households, businesses and thepublic sector, and their relationships with contractors varies accordingly. Another example is design, where house builders have pattern books, commercialbuilding uses architects, and infrastructure is designed by engineers.

These structural differences between the three industries affects the way clients, contractors, designers and suppliers will interact, thus each industry has developedindividual characteristics over time within the broader culture of construction that become that particular industry’s subculture. The specific nature of theseindustry subcultures often makes recommendations and policy directed at construction as a single industry ineffective. With separate industries and separatesubcultures, separate policies are required. A broad industry policy of the sort that targets construction as a single industry will be challenged by three deeplyentrenched subcultures with limited, though important, similarities. Research and reports that treat construction as a single industry share this problem.

The UK government mandate on use of BIM on public projects has been much more effective in the last 10 years than the previous six decades of exhortations andrecommendations to change industry culture. Recognising this, the provision of clauses covering contentious issues in construction contracts (such as intellectualproperty and data ownership) worked with rather than against industry practice and culture. The BIM Framework provided a roadmap for the firms and clients andthe development of standards provided a toolkit. Also, local governments, universities, regulators and industry bodies were all given significant but looselyspecified roles in these policies to support industry engagement.

The UK construction strategy applied to all firms involved in public projects, and thus included designers, consultants and suppliers as well as contractors andsubcontractors. The strategy targeted technology adoption not the ‘construction industry’, which is really three separate industries of residential building, non-residential building and engineering construction each with distinctive characteristics.[v] The differences in the subcultures of these separate industries accountsfor the differing rates of uptake of BIM found across firms in the UK since the launch of the strategy.

Industry culture is a complex outcome of social, institutional and economic factors. Because of the range and dynamic interplay of those factors it is not anappropriate target for industry policy, as the history of construction reform efforts that argued cultural change was necessary for industry improvement in the UK,documented over decades in a series of reports, clearly shows. When a new construction strategy was launched in 2011 the focus shifted from using publicprocurement to foster cultural change to requiring BIM on public projects, and over the next decade succeeded in increasing the use of BIM to around half of firmsand the majority of public projects. Despite all the claims made for BIM changing industry culture and increasing collaboration, if it were to come about it wouldbe as a consequence not a cause of industry improvement from the new construction strategy. Recognising this, the provision of clauses covering contentiousissues in construction contracts (such as intellectual property and data ownership) worked with rather than against industry practice and culture.

Another aspect of construction industry culture is that the nature of the work attracts many people with technical skills who use ‘technological thinking’ to findsolutions to the various problems a project will encounter between inception and delivery. Technological thinking is essentially problem-solving through trial anderror. 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. Basing policies to improve industry performance and the quality of buildings ontechnocratic measures like ISO accreditation and BIM use levels works with industry culture.

References

[i] Chang, H-J. and Andreoni, A. 2020. Industrial Policy in the 21st Century, Development and Change, 51(2): 324–351. [ii] Acemoglu, D., P. Aghion, L. Bursztyn, and D. Hemous. 2012. The Environment and Directed Technical Change. American Economic Review. 102(1): 131-166. [iii] Murray, M. and Langford, D. 2003: 7. Construction Reports 1944-98, Oxford: Wiley-Blackwell. [iv] Green, S.D. 2011. Making Sense of Construction Improvement, Oxford: Wiley-Blackwell. [v] Although there is an economic activity called construction in the SIC the characteristics of the three divisions makes them different industries. The manufacturing SIC includes glass, wood products, steel, plastics and concrete, but they are regarded as separate industries and are not grouped together under a construction products SIC. An industry policy for the steel industry is not thought to apply to plastics or concrete because it is not relevant to those industries. The same applies to the differences between residential building, non-residential building and engineering construction.