WORLD ECONOMIC FORUM
Context and Objectives of the Report
This report is the first publication of a multi-year project for guiding and supporting the Engineering & Construction (E&C) industry during its current transformation. The report describes the industry’s present state, assesses relevant global trends and their impact on the industry, and devises an industry-transformation framework with key areas for development and action. It also features many best practices and case studies of innovative approaches or solutions, and offers a view – at different levels, such as at the company-, industry- and sector-level – of how the future of construction might look. The project’s subsequent phases and reports will deal with specific topics or will explore the subject in depth by geographical region.
The project as a whole, and this report specifically, builds on the findings of an earlier World Economic Forum project – the four-year Strategic Infrastructure Initiative. That initiative identified and described the key government measures needed to close the infrastructure gap, by such means as improving the prioritization of projects, enhancing public-private partnership (PPP) models, improving the operations and maintenance (O&M) of existing assets, and better mitigating risks.1 During that research, it became evident that important contributions can also be made from the supply side – the E&C industry – in the form of improvements to and innovations in project delivery.
This report is aimed at all firms active along the construction value chain, including suppliers of building materials, chemicals and construction equipment; contractors; and engineering, architecture and planning firms, as well as project owners and developers. Governments are another target audience, as they not only have an impact on the industry via regulation but also act as the main procurer of most infrastructure projects. Finally, this report is also aimed at members of academia and civil society, in view of the socio-economic importance of the construction industry. The industry will rely on effective collaboration with all stakeholders for its future success.
The Engineering & Construction (E&C) industry strongly affects the economy, the environment and society as a whole. It touches the daily lives of everyone, as quality of life is heavily influenced by the built environment surrounding people. The construction industry serves almost all other industries, as all economic value creation occurs within or by means of buildings or other “constructed assets”. As an industry, moreover, it accounts for 6% of global GDP. It is also the largest global consumer of raw materials, and constructed objects account for 25-40% of the world’s total carbon emissions.
Multiple global megatrends are shaping the future of construction. Consider just two developments: first, 30% of global greenhouse gas emissions are attributable to buildings (at the same time, the UK government has set a target for 2025 of 50% reduction in today’s level of greenhouse gas emissions in the country’s built environment); second, the population of the world’s urban areas is increasing by 200,000 people per day, all of whom need affordable housing as well as social, transportation and utility infrastructure. Such trends pose challenges but also offer opportunities; either way, they require an adequate response from the industry as a whole.
Compared to many other industries, the construction industry has traditionally been slow at technological development. It has undergone no major disruptive changes; it has not widely applied advances in processes such as “lean”. As a result, efficiency gains have been meagre. In the United States over the last 40 years, for example, labour productivity in the construction industry has actually fallen.
Given the sheer size of the E&C industry, even a small improvement would provide substantial benefits for society. To capture such potential, this report presents an industry transformation framework (Figure 1) listing 30 measures, supported by many best practices and case studies of innovative approaches. Some of the measures can be adopted by private companies on their own, while others require collaboration with their peers or with other companies along the construction value chain. In addition, some of the measures can be adopted by government, acting both as the regulator and as the major owner of infrastructure projects.
Substantial improvements are already within reach for companies
Companies themselves should spearhead the industry transformation. Tremendous opportunities are available through the application of new technologies, materials and tools. New technologies in the digital space, for example, will not only improve productivity and reduce project delays, but can also enhance the quality of buildings and improve safety, working conditions and environmental compatibility.
Building Information Modelling (BIM) plays a central role here, as it is the key enabler of and facilitator for many other technologies: the building of a bridge, for example, can be greatly facilitated by combining robotics and 3D printing via a parametrically designed 3D model. Another extremely powerful lever for innovation is that of construction materials; the associated solutions are numerous and wide-ranging – from incremental innovation of traditional materials and existing characteristics to radically innovative materials with entirely new capabilities. Although many innovative solutions are already being applied on a small scale or in a few countries, the industry still needs a large-scale application or better adaptation of current technological developments.
To unlock the potential inherent in new technologies, materials and tools, the industry also needs to adopt the relevant respective processes. For instance, the benefits of BIM are reinforced if companies exploit the new ancillary opportunities it offers – notably, a new way of collaborating and sharing information between stakeholders. Large productivity improvements can be achieved by optimizing existing processes: the broader use of “lean” principles and methods, for instance, could reduce completion times by 30% and cut costs by 15%. Another core lever is early project planning. To improve such planning, companies should promptly draw on the knowledge of all stakeholders, and should explore new contracting models. A minimal increase in upfront costs of about 2% to support optimized design will lead on average to life-cycle savings of 20% on total costs.
Every change has to be driven and supported by the people involved, so E&C companies must focus on attracting, retaining and developing talent, and establishing a company culture conducive to innovation and improved skills. This is all the more necessary as the industry is traditionally regarded as not particularly attractive to new talent and, at the same time, it is in increasing competition for talent with other industries. To compound matters, it has an ageing workforce.
Cross-company collaboration is pivotal
E&C companies cannot realize their full potential on their own. The industry is one of the most fragmented in the world and relies on a seamless interplay of all participants along the value chain and throughout a project’s life cycle. Companies need to enhance coordination and cooperation across the value chain, and jointly define standards and agree on common goals. Australia is duly pioneering the standardization of project alliance agreements and is adopting a model of cooperative partnership to reduce initial costs.
To gain the support of society at large, the industry again needs to work collectively, along multiple dimensions. For example, it should promote itself as an attractive employer, and it should engage local communities by means of participatory planning and ongoing community-involvement initiatives during operations. A good example in that regard is the Considerate Constructors Scheme, a non-profit, independent organization founded by the United Kingdom’s construction industry to improve its image, share best practices and strengthen public awareness of the impact of construction on the environment.
The industry is also very much affected by politics and regulation and thus needs to optimize its interactions with the public sector. Here again, companies should cooperate in their efforts, to ensure constructive communication with public agencies, to monitor political developments accurately and to implement an effective advocacy strategy. In the German “National Initiative on Energy Transition”, for instance, the construction industry coordinated well with the German government in developing a strategy on climate change.
As both regulator and major client, the government too needs to take action
In any given country, the public sector, and in particular the national government, can enhance competition and productivity by simplifying and harmonizing building codes and standards. By setting and enforcing time limits for construction permits and environmental approvals, governments can greatly reduce project delays. Ideally, governments should also minimize barriers to competition at an international level. And they should provide appropriate support to academia and companies for developing technological innovations in construction. The British government, for example, recently put the construction industry on the national agenda, in the hope of eventually positioning Britain at the forefront of global construction: among the specific targets to reach, for instance, is a 33% reduction in both the initial cost of construction and the whole-life-cycle cost of assets.9
Governments can also shape the industry by their actions as key project owners. The Crossrail project in London, for instance, systematically generates, captures and replicates innovative ideas and eventually translates them into practical innovations and industry standards. It also aims to raise the bar for other construction projects by making these ideas, technologies and practices available to the industry as a whole. Finally, the issue of corruption on construction projects can only be resolved by creating a corruption-resilient procurement environment, by implementing fair and transparent procurement procedures, and by establishing clear practices regarding the prosecution of corruption – practices that address both the supply and demand sides of corruption.
About the World Economic Forum
The World Economic Forum, committed to improving the state of the world, is the International Organization for Public-Private Cooperation. The Forum engages the foremost political, business and other leaders of society to shape global, regional and industry agendas. It was established in 1971 as a not-for-profit foundation and is headquartered in Geneva, Switzerland. It is independent, impartial and not tied to any special interests. The Forum strives in all its efforts to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance. Moral and intellectual integrity is at the heart of everything it does.