Sector Skills Insights: Construction

IntroductionThe UK Commission is working to transform the UK’s approach to investing in skills to help secure jobs and growth. Key to our ambition is the need to encourage greater employer ownership of skills, working to secure long term sustainable partnerships.

This slide pack and accompanying evidence report present the case for more employers in this sector to invest in the skills of their people. It does so by presenting real-life, skill-based business solutions that have been used by leading employers to tackle the performance challenges they face and by drawing on examples of the investments being made by the UK Commission through its investment funds.

There are several determinants of employers’ skills needs and training behaviour including firm size, strategy and location but it is by sector which the strongest variations appear. Hence this work focuses on the Construction sector. Slide packs and reports are also available for a number of other sectors from: www.ukces.org.uk Each of the sectors are important to the economy in terms of employment, productivity or their future potential.

For information about this slide pack and accompanying report please contact:Zoey Breuer (zoey.breuer@ukces.org.uk

Source information can be found in the notes section of each slide

Storyboard

What are key skills challenges in

the construction sector?

The importance of construction sector today

Tackling these performance

challenges: Growth through skills

Performance challenge (3)

People management

Performance challenge (4)

Attracting talent

Performance challenge (2) Investing in

workforce skills

3

Benefits to business

Performance challenge (1)

Strategic management

Imagine where the sector could be

tomorrow

4

What is the construction sector?SIC 41, 42, 43 and 71

The sector covers a wide variety of activity, from building HS2 and skyscrapers, to housing estates and routine repair and maintenance:

• Infrastructure• Housing• Commercial• Industrial• Repair and maintenance

The variety of activities gives rise to multifarious skill needs, including:

Skilled trades in:•Heating and ventilation•Plumbing•Electrical engineering•Welding / metal workers•Glaziers•Bricklayers•Carpenters

Professional and managerial skills related to:

•Civil engineering•Structural engineering•Construction management•Surveying•Financial planning•Architecture

What Key Skills Challenges are being Faced Overall

The sector is highly cyclical – after every recession the sector tends to lay off skilled workers who then prove difficult to recruit during the recovery period. This gives rise to skill shortages and wage inflation which, in turn, can inhibit recovery. Cyclical effects are exacerbated by the high levels of self-employment in the sector.

A key challenge for the sector is to maintain its supply of skills, especially during periods of weak demand. The signals to individuals are generally positive – that skills acquisition in construction skills is associated with relatively high rates of return. The evidence suggests that employers recoup their training investments quite quickly once apprentices complete their training. Investing in training is a win-win for employers and employees.

Whilst the evidence should not be exaggerated, the age profile of the sector suggests that there are relatively fewer younger people in the workforce, and that the number of entry level training positions has declined following the recession. The key challenge, therefore, is to even out the supply of, and demand for, construction skills - the importance of this should not be under-estimated given the significance of the construction sector to economic recovery.

Construction mattersThe sector today

• Third largest UK sector by employment, 2.9 million workers (9% of UK workforce)• Value of output 81 billion in 2008 almost double the figure in 1999 (6% of UK GDP)

• One of the largest construction sectors in Europe (by employment, enterprises, and gross value added)

• Skills of the workforce and wages higher than national averages• Relatively high levels of self-employment at 38% and accounts for 15%

of business start-ups. • Productivity has risen by over one third between 2002-

2009, £58,000 GVA per head (£37,000 whole economy)• Productivity per employee is higher than France and

Germany but trails the US. Weaknesses in productivity are apparent in some sub-sectors e.g. engineering construction

• Investment per head employed (£4,400) higher than European average

• UK companies have been successful in capturing export markets - export value £1.22 billion (2010) - but more services were imported than exported. There is potential to expand into export markets [Case Study]

Construction Matters:The Recession and Prospects for Recovery

The recession has hit the industry hard...

• The sector peaked in 2009 at almost 2.9 million but fell by six per cent to just under 2.7 million in 2010. This fall was by far the largest in absolute and percentage terms across all sectors.

• The sector’s reliance upon self-employment tends to make employment sensitive to the economic cycle

• There is evidence that employers have tried to avoid laying off skilled workers in order to retain capacity (leaving them well-placed for recovery)

• There has been a fall in training levels and a drop off in Apprenticeship starts and completions

• Wages and profits have been squeezed due to:• competition between job applicants• competition between firms• price of materials

• In previous recessions skills have constrained the eventual recovery

... but the medium-term prospects are encouraging

Construction is central to policy initiatives which are designed to bring about economic growth in the economy more generally (e.g. infrastructure projects)• But the recovery is more drawn out this time...

– ...and skill shortages could constrain future growth if training investments are not made now

– Employment and output not expected to recover to pre-recession levels until after 2014 [Chart]

– In the recovery period, construction will need to rise to a number of performance challenges

However, the global market is forecast to

grow from 4.5bn to 7.5 trillion by 2020... and UK Construction must be ready to capture its share...

The Performance Challenge:Challenges for Construction

SustainabilityDifferent materials for

new builds, retro-fitting, etc. require

enhanced skills and new skills. Low

energy requirements introduces increased need for specialist,

technical and professional skills.

Technological Change

Modern methods require upskilling, reskilling and

multi-skilling. Use of more off-site construction brings about a shift in the

mix of skills required. Automated tools requires

new skills and makes some redundant.

GlobalisationIncreased

international competition and in turn demand for

higher skills. Globalisation has

driven up supply of labour and skills.

Provides increased export market for

goods and services.

Demographic Change

Ageing workforce. Key skills can be lost through retirement.

Young entrants need to be attracted to the

industry.

Investing in the workforceAll the challenges point towards a need for continued investment in skills at all levels and

investment in new skills in response to technological developments. Higher level skills especially will be needed to meet the complexity of the competitiveness challenge

(skills + technology + globalisation).

Construction matters: Imagine where it could be tomorrow

• A world leader in the development and adoption of new technologies with relatively high levels of working in partnership with innovators in, for example, higher education

• The sector which leads the way in the transition to a low carbon economy

• A sector which has acquired strategic management skills to manage innovation, supply chain relationships, and entry into international markets, etc.

• Starting from a strong base, the sector utilises high performance working to consolidate the sector’s position as one of the strongest in Europe

• A sector which has developed the people management policies and practices which will attract and retain a wide pool of talented people

• Firms and individuals invest optimally in their skills• The sector recognises talent as a source of competitive advantage. The sector provides

clear career pathways which allow people to develop their careers within it at all levels of the organisation

• Employers collaborate on, lead and own skills solutions to the sector’s performance challenges in pursuit of mutual gain

The performance challengeStrategic management

Management quality in the construction sector has

been improving - in 2007, 14% of management had no

qualifications whilst in 2010/11 just 7% had none

Strategic Challenges:• Low carbon skills need to be embedded across the sector, the primary driver being the Green Deal but

also the opportunity to compete globally - Case Study• Innovation requires investments in R&D and establishing effective R&D partnerships• Technological change has implications for development and management of supply chains• Operating in an international market introduces challenges to work across different national territories

Requires quality and capacity of strategic management to :• Make informed decisions on investment in R&D and new technologies• Develop strategic alliances to bring about effective R&D (e.g.

partnerships with higher education)• Develop supply chain relationships and manage the procurement

process – including those across international boundaries• Capture export markets• Plan for and manage the resulting changes to human resources and

skills

Employers continue to develop their managers

with more than half providing training or

development for managerial staff over the

last year (2010/11)

Much of the future demand will

be for construction managers and professionals,

especially new job openings.

Small firms have a key role in construction yet they are

reluctant to take on trainees when output demand is

uncertain.Strategic leadership is

needed to manage supply chain skills as well as the pipeline of skills within

firms – case study

Case study – ModCellInternational markets

The companyModCell specialises in modern methods of construction - in particular the production of straw bale, pre-fabricated panels, which allow for the construction of large scale, zero-carbon buildings.

The timber frame panels are filled with locally sourced straw or hemp and are constructed off-site in ‘Flying Factories’, often in farmer’s barns close to the build projects. The panels provide better thermal insulation than their more traditional counterparts, resulting in up to 80 percent reduction of heating bills.

The ambitionWith the green agenda becoming more prominent globally, and with ModCell’s development of a system designed for large-scale use, it was obvious that the company’s UK success could be emulated oversees. The US was identified as a key market and the company started to formulate plans to establish international licences for its modular design panels.

The approachIn 2010, ModCell engaged with the Passport to Export programme which includes a skills assessment and skills-based programme to tailor training, planning and support to company need.

In 2012, ModCell® was awarded the Britweek UKTI Design Innovation

Award at a event celebrating British contributions to California.

After just three years of trading in the UK, Bristol-based green technology firm, ModCell, launched an office in

San Francisco in 2011.

Case study – StepnellSkills strategy for a supply chain

CompanyStepnell Ltd, a family owned building and civil engineering contractor with a 140 year history. Stepnell Ltd, who place a great importance in employing trained, progressive and competent individuals has come together with key West Midlands partners to participate in this training initiative and create a model of best practice in terms of developing and delivering skills.

ApproachStepnell is registered with ConstructionSkills and is working towards accreditation with Investors in People.

The Minster College Training Initiative is the first ‘Mini Academy’ scheme of its kind to be run in the West Midlands and aims to:

Part of The Minster College Training Initiative is to help our entire supply chain, not just those

involved with the Minster College Project, identify training needs

and source that training.

Stepnell understands that our Supply

Chain deliver our promises and

maintain our reputation as

"best in class".

• have a fully qualified Supply Chain to CSCS or equivalent standard

• provide work experience and other career related opportunities to the

Minster College students and the wider community.

The performance challengeInvesting in workforce skills

Typically the technical skills needs comprise the traditional skills associated with each sub-sector, BUT technology will bring:

o changes in the production process o greater complexity and sophistication in the design of buildings

This will result in required on-site skills changing: e.g. piecing together ready-made components, ensuring sophisticated systems work, using new materials

The sector has a strong demand for skills at Level 3 and above. Indeed, the share of workers with NQF 3 or above has increased whilst the share with NQF 2 or less has fallen.

Only the share of skills shortages and skills gaps for skilled-trade workers are disproportionately high compared to the economy as a whole. The share of skills shortages and skills gaps for all other occupations are closer to UK levels.

Skilled trades, typically at Level 3, are the single biggest occupation in the sector and will continue to do so over the medium-term.

But , it is also apparent that economic downturns constrain investments in skills in construction. Could this be storing up problems for the future?• Nearly all employers indicated that at least one employee will require training in the

next 12 months• Potentially, the high levels of self-employment constrains training activity• Employers report issues with the relevance and appropriateness of training

The performance challengeInvesting in workforce skills

The evidence on training investments is mixed:• In the past 12mths the percentage of employers providing training is below average:

– But, regulation is a driver, 72% of training employers provided H&S /first aid training.

• Looking at who received training, in the past 12mths, 52% of employees did not receive training, higher than the economy average.

• But where training is provided the indicators of quality are good:– Of the employers who provided training 47% train towards a qualification (43% whole

economy), and the spend per employee and per trainee is higher than average.– More construction employers have, offer or plan to offer Apprenticeships than the whole

economy average. However, Apprenticeship starts have been shrinking.

But, where employers invest in skills they have strong messages about their benefits:• National employers are proud of their skill development programmes, including

Apprenticeships [Case Study] and engagement with the National Skills Academy [Case Study]

• Where employers invest in Apprenticeships, the upfront costs may be high, but employers can recoup these investments quickly once the apprentices complete their training

• The signals to individuals are positive too with relatively high returns to individuals who obtain Level 3 qualifications in construction

Apprenticeships are a WIN-WIN for individuals and employers

Whole economy

Construction

59

53

41

47Trainers Non-trainers

Case Study – Barratt Developments PlcInvestment in workforce skills

The Company

Barratt Developments Plc is one of the nation’s largest housebuilders with more than 4,000 direct employees and 25 divisions throughout Britain.

Back to Challenge

This training has resulted in more efficient sites

with reduced abortive costs.

Apprenticeship Awards – Highly

Commended Large Employer of the

Year 2011

The BenefitsAs a result, the company has experienced recruitment and selection cost savings and their apprentices regularly contribute to achieving NHBC Awards. Its programme shows a clear progression pathway with some of their apprentices achieving Director status.

Academy training programmes have equipped managers to work with greater confidence and enabled them to deal with the unexpected situations that arise on site daily. Site managers have developed a calmer approach, have become more aware of how they are perceived on site, and consider the broader pictures when making decisions, developed improved communication skills and are able to motivate the teams on site more effectively.

The ApproachIn response to a shortage of skilled trades and the need for future talent, Barratt, together with ConstructionSkills, has invested in and developed ‘The Barratt Academy.’

HOUSES

Firms in the UK that don’t invest in training.......

Are on averagetwice

as likely to fail

In the Construction

sector are four times

as likely to fail

In the Transport &

Comms sector are

twice as likely to fail

In the Manufacturing

sector aretwice as likely to

fail

In the Retail & Wholesale

sector are twice as likely to fail

In the Hotels & Restaurant sector are

nine times as likely to fail

Training raises firm survival and

performance rates

Costs of skills mismatches

Despite the substantial investments in skills, skill mismatches continue to adversely affect the sector• Skills gaps among existing staff

are reported by employers to lead to increased workload for other staff (78%), increased operating costs (45%), difficulties meeting quality standards (40%) and difficulties introducing new working practices (38%).

• Where employers experience hard-to-fill vacancies the knock-on effects reported by employers in the sector include: increased workload for other staff (82%), lose business to competitors (50%), increased operating costs (50%), delays in developing new products/services (44%) and have difficulties meeting customer service objectives (42%)

Though much is being done, more needs to be achieved to avoid the further damage to this important sector

The performance challengePeople management

• Skills utilisation matters. Employees with skills gaps is below average, however, 42% of employers report employees who are over-qualified or over-skilled for their role, affecting 17% of the workforce.

The strong messages about the relatively high returns to employers and employees investing in skills is good news for the sector – but this can only be capitalised upon in the context of good people management practices to provide an attractive environment in which to work. People managers are key to:• Attracting a diverse range of talent• Providing good working conditions (not just about compensating wages)• Providing and supporting career paths• Investment in skills development at both initial and continuing vocational education and

training.

Construction companies

have demonstrated

this can be achieved

[Case Study]

Effective management can contribute to skill utilisation• Establishments with formal processes for identifying ‘high potential’

individuals is half that of the all economy average (7% compared with 14%)• However, on other indicators of high performance working (variety, discretion

and flexibility) the scores for construction are above the all economy average• Effective resource and people management have been found to be critical

success factors in collaborative research and development projects in construction.

Case study – Costain Group PLCNurturing talent to develop people and support progression

The Company - Costain is an international engineering and construction group focused on providing intelligent solutions to meet national need.The Approach – Costain seeks to develop skills and build awareness within the workforce, from managers to site operatives and runs several highly successful initiatives, including:• programmes to identify future leaders and develop their talents • progress for ALL staff using the performance and talent management cycle• information to support progression through talent and development programmes.

The Benefits Creating an environment where skills development is genuinely valued has, in turn, led to employees becoming increasingly proactive about their professional development. Training has improved employee satisfaction and engagement as employees feel they can develop their career.

Staff turnover in 2011 was

only 7%

“This makes us an attractive employer to join, and motivates our team members to continue with us, as they feel they have a clear career path, and opportunities for internal promotion. Our senior managers

act as role models for junior staff, especially the fact that two of the current Executive Board joined Costain as graduates, and have worked their way to the top of the company.” (Costain)

Better training contributed to a

35% reduction in accidents in 4 years (08-’11)

Overall, by 2010,the number of people

employed from the local area increased from 100 to 249

Increase in internal

promotion - 166 in 2010

In 2011, staff engagement

increased by

2%

Costain actively incentivises skills development , for example the annual ‘Celebrating Success’ awards to reward staff and a financial reward scheme for employees achieving key milestones within their careers.

In 2011, 442 employees engaged in further study from NVQs to MBAs.

The performance challengeAttracting talent

Given the age structure of the sector, it is not surprising that the majority of these prospective job openings are explained by the turnover of older employees• While the age structure is similar to the all economy average, 80% of construction workers

are between 25-59 years and, as such, replacement demand is expected to be 38% of base employment .

There is a need to consider how the sector can become a destination of choice for a more diverse range of people than currently to ensure choice and quality of applicants . Women, for instance, are under represented in the sector at 13%, especially in high skill roles

The outlook for the sector is 1.3 million job openings (2010-2020) • This includes a growth of 300K new jobs at high and intermediate skill levels.• Demand for intermediate skills, particularly in skilled trade roles, is expected to

continue in the medium term

Vacancies as a proportion of employees are the same as the economy average (2%).• However, the share of these vacancies which are hard to fill is much higher for the

construction sector, 40 % compared with the economy average of 23%• Migrant labour has been an important source of labour supply which has offset

skill shortages, but this is a potentially unreliable source over the medium term.

The focus on the pipeline of skills, particularly younger workers, coming into the sector is therefore of growing importance – case study.

Recruitment of YP is below average 22% (24% whole economy)

The CompanyOver the past ten years, Beard’s turnover has grown from £18m per annum to £46m per annum. In spite of the recession Beard is maintained a 20% return on shareholders’ capital. They achieved their growth with the same core management team, and only a small increase in staff.

The ApproachConstruction company Beard has used Investors in People for ten years to help them get a total view of the business and work on the most important areas. From originally taking three attempts to achieve the Standard, Beard excelled and achieved Investors in People Gold. Beard increased the range of training on offer, including management and customer care.

The BenefitsThey believe that Investors in People has helped them to achieve a much higher discretionary effort from their people, which has contributed to their growth and improved their customer retention. Beard also believes that IiP and the practices this has instilled in the company has helped them withstand the changing conditions of the recession.

Case study – IiP at Beard ConstructionAttracting talent, investing in skills and progression

“The expectation is that you’re going to remain with the company. And we’ve

become a magnet for good people.”

Mark Beard

Staff turnover has fallen from around 15% to an

average of 8%.

“Our staff see that we’ve made an effort and that Beard is a

good place to work. So, for example, because they know project delivery is central to our

success, they will work weekends and work late to make

sure they deliver.”Mark Beard

The talent pipeline into the sector is being improved through:• A training levy collected from employers which is returned to the industry through training grants• A de facto licence to practice operates in many parts of the sector with respect to skills (e.g. the

ConstructionSkills Card Schemes which many employers abide by)• ConstructionSkills provides a number of products and services including:

• The National Construction College - the largest construction college in Europe, providing quality and affordable training to 30,000 workers each year.

• Supports apprentices – matching them with an employer and training them at flagship colleges throughout the UK. Apprenticeship programmes had a 10% higher completion rate than the national average. Last year, 77% ConstructionSkills apprentices completed their framework.

• Delivers the National Skills Academy which is a project-based training concept that is tailored to helping clients and contractors to get the right skills where they need them - on site.

• BIS case study research of the net benefits of Apprenticeship found the typical pay-back period for a level 2+3 Apprenticeship in construction was 2years and 3 months (10 case studies), with the total indicative cost around 45K but the net cost 23K (or 26 when accounting for dropout)

•Growth Review implementation update – to stimulate and enable growthMeasures include: support for demand through tax rules, release of public sector land, reforms to public sector procurement and regulation requirements for zero carbon homes; and then wider measure such as publishing long-term plans to help inform employer investment in skills.

Growth through skillsSecuring future success

23

Growth through skillsSecuring future success

• Across the sector, raising skills is key to raising performance, but while there is no silver bullet, a mix of actions which push and pull in the same direction can help.

• Employer leadership in the development of solutions and then taking ownership of those solutions is fundamental to their success and sustainability.

Sources of investment are available to support the implementation of solutions led by business on behalf of the sector. • The Employer Ownership pilots offers all employers in England direct access to up to £250

million of public investment over the next two years to design and deliver their own training solutions.

• The Growth and Innovation Fund (£9 million invested so far, £29 million to invest in 2012-13) gives priority to solutions for the sector e.g.:• Employer commitment and investment in Apprenticeships• Creation of employer networks to overcome skill problems• Employer-backed proposals for other skills solutions such as: management and leadership;

professional standards; high performance work practices incorporating people development (e.g. Investors in People).

• Information and business advice is also important as a solution.

Ultimately this is trying to catalyse sustained investment in the development of the sector’s workforce led by employers which lies at the heart of an enterprising and dynamic nation.

Investors in People provides a framework in which employers can develop workforce skills which has proven to be a success in construction. The example of Beard Construction illustrates the benefits of IiP.

The Key Messages

• The construction industry is large in terms of employment and output, and fulfils an important functional role in the development of the built environment and, more latterly, meeting the low carbon agenda.

• The sector will be central to the UK’s recovery from the 2008/9 recession through its role in bringing infrastructure projects to fruition.

• Challenges facing the sector include: the low carbon agenda; need to drive up productivity to retain and build on its share of UK and world markets; to lead on innovation and manage change; and meet regulatory standards.

• Technological change and the green agenda will continue to impact on the skills needs in construction. Modern methods of construction and the implementation of low carbon systems and materials will require new skills and adaption and upgrading of the skills of people working in the sector.

• Skills can help the sector to step-up to these challenges, through: – investment in management skills– attracting and retaining talent– investing in workforce skills, especially self-employed workers.

Meeting these skills requirements will leave the UK construction sector well-placed to capitalise on the opportunities presented.

• To help with labour supply planning in construction, the Government is signalling upcoming infrastructure projects to provide a more stable environment in which employers might make investments in physical and human capital.

• Work with employers to transform the UK’s approach to investing in skills of its people to secure growth and prosperity. More information about the UK Commission’s investment funds is available here.