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Improved productivity in engineering construction sector will secure industry’s future, review says

News Release issued by the COI News Distribution Service on 01 December 2009

Issued by the News Distribution Service on behalf of the Office of Mark Gibson

The UK’s engineering construction industry has great opportunities if it can improve its productivity and industrial relations according to an independent review report entitled Changing to Compete, out today.

Mark Gibson, Chief Executive of the Whitehall and Industry Group (WIG) and his Review team described the opportunities for the engineering construction industry to grow over the next 10-15 years. These will stem from the anticipated increased investment in nuclear and other power generation, carbon capture and storage, biofuels and other low carbon technologies in the UK. The current stock of plant in these sectors and in oil and gas and chemicals will also continue to need investment for repair, maintenance and upgrading.

To make the most of these opportunities will need a concerted response by the industry, with Government support. For example, the Review found that the productivity between UK projects was very variable. There was a large gap between the best and worst performing projects (+/- 30%). This was much greater than the productivity gap between the UK and other countries, for example the US Gulf Coast where projects were 11% more productive than similar projects in the UK.

The Review also found that recent unofficial disputes have lowered productivity and damaged the reputation of the UK industry

Mr Gibson said:

"I was asked to carry out this review by Lord Mandelson, the Secretary of State for Business, Innovation and Skills, shortly before I joined WIG in March 2009.

"This is a very important sector of UK industry, vital to the building of our future national infrastructure and to our move to a low carbon economy.

"My report is a thorough and independent piece of analysis which I hope can contribute to its success going forward. I have tried to make the review a practical and constructive process, engaging with as many in the industry as possible and visiting sites in the UK, France, Germany and the United States.

"I have produced recommendations for change based on this consultation and am delighted that there has been agreement on many of my proposals.

"One is for the setting up of a Forum involving clients, contractors and trade unions to oversee implementation of the recommendations. I am delighted that Ian Marchant, Chief Executive of Scottish and Southern Electricity, has agreed to chair the Forum. I wish Ian every success and will of course be available should my assistance be required."

The Review found that where a project under-performed in productivity terms compared to the average in the UK or to other countries, this was likely to be due to the way in which the project was managed. Although clients and contractors knew about good practice in project management, they did not always use it. The Review recommends an increased focus on using and sharing knowledge about good practice. Clients and contractors should talk to each other about this more than they currently do and should look outside the industry to learn from others such as automotive and aerospace.

The Review found that the UK industry is highly skilled. A UK engineering construction welder, for example, is likely to be as skilled as one anywhere in the world. This reflects long term investment in quality training by the industry.

However, the Review recommends that employers and Government need to invest more in training if the industry is to address the projected large shortfall in numbers of skilled people in the future. In particular more funding is needed for apprenticeships (the average age of the current workforce is over 50).

The Review has found no evidence of deliberate mis-application of the national rules on pay and conditions or evidence of foreign contractors undercutting UK ones on price or skill levels. In some cases, projects have benefited from the use of foreign contractors and labour.

Poor industrial relations in recent years are due to a breakdown in trust between employers and employees, the Review found. So-called “un-procedural actions” which damage productivity are one manifestation of this. The Review concludes that employers and employees need to work harder on effective engagement with one another.

Specific recommendations include:

* Engineering construction clients to establish a leadership forum to drive improvements in the performance of UK projects
* The Engineering Construction Industry Association (ECIA) to expand its remit to promote the use of best practice on productivity and establish a programme of activities with contractors.
* The workforce, trade unions and shop stewards to recognise the essential role they play in improving productivity in the sector and respond by complying with agreed procedures and demonstrating by their individual and collective efforts that the industry is capable of high levels of productivity.
* The Engineering Construction Industry Training Board (ECITB) to establish clear career pathways for different occupations in the industry which are actively promoted to the current workforce, as well as young people, women and black and minority ethnic employees.
* The number of apprenticeships to be doubled from 500 on-site apprentices in 2009 to 1000 by 2011 plus increases in other trainee numbers particularly graduates. Government to commit £4.5 million per year, partly matched by an increased industry contribution
* The industry’s training levy to be extended to overseas contractors not established in the UK
* Employers should engage more strongly with their workforce to build commitment to the project and employer. This involves developing the capabilities of all managers to engage with individuals and treat them with respect.
* There should be a collaborative look sooner rather than later at how the National Agreement for the Engineering Construction Industry (NAECI) could be developed
* A Forum of clients, contractors, trade unions and other industry bodies to be established to oversee implementation of these recommendations, to catalyse action and promote change

Ian Marchant, Chief Executive of Scottish and Southern Electricity, has agreed to chair the Forum,
Ian Marchant, said:

"The UK's engineering construction industry needs more people with more skills and better productivity if it is to play a full part in the transformation of the UK's power stations, oil refineries and chemical plant that we will see over the next two decades.

One of the key risks to the overhaul of the country's asset base is that it lacks the engineers to do the work. Over the next 18 months, I expect the new Forum to set out a practical and comprehensive plan to turn this risk into an opportunity for the UK to improve skills, create jobs and provide work for a growing number of successful engineering construction companies."

Michael Hockey, Managing Director of the ECIA, said:

"This Report provides us with a valuable opportunity to improve our industry’s performance and to address our skills issues."

David Edwards, CEO of the ECITB, said:

"It is very welcome that the engineering construction industry has been reviewed and found to have a significant contribution to make to the future economy. Increasing investment in and strengthening training routes will need innovation and collaboration by all the stakeholders. We have successes to build on and I am confident the challenge will be met."

Tom Hardacre, National Official, Unite Union, said:

"I welcome the publication of the report and that Government is taking seriously the fact the UK engineering construction industry is critical to the UK's future investment in vital infrastructure, not least the planned programme of new build nuclear power stations. “In my opinion it is vital that we have a good stable industrial relations framework that should support security of employment for the workers who will play a major role in the success of future major projects.

"I also welcome the recommendation for the Forum. We intend to collaborate fully with all stakeholders to ensure that the UK has an engineering construction industry that is fit for the 21st century and able to deliver the infrastructure on which the rest of the UK economy is reliant."

Ends.

Notes to editors:

1. Terms of reference of the review:

* Asses the state of productivity in engineering construction in the UK
* Identify the key inhibitors to productivity, including skills
* Compare productivity levels wit those experienced on overseas sites
* Identify changes in practice and factors influencing success for UK-based companies bidding for UK and foreign, especially other European Union, engineering construction contracts (over the last 6 years)
* Make recommendations on:
- Ways to improve skills and productivity in the UK engineering construction industry
- What steps small firms can take to compete and to develop new skills and technologies in process
- Strengthening the links between procurement of major public projects and provision of training through methods such as contracting
- How procurement practices can be geared to support productivity on UK firms.

2. The Review team conducted interviews with over 50 clients and contractors in the UK and visited 10 major project sites in the UK as well as sites in Germany, France and the United States.

3. A commissioned research report by Independent Project Analysis Inc is published alongside the Review. This undertook quantitative analysis of a large sample of engineering construction projects in the UK, US and Europe.

4. The National Agreement for the Engineering Construction Industry is a detailed, voluntary collective agreement on pay and conditions. A two year deal has recently been finalised (see http://www.njceci.org.uk/ for details)

5. There is an industry training levy on UK established firms managed by the Engineering Construction Industry Training Board. This levy together with Government support funds apprentices and other training in the industry. See www.ecitb.org.uk for details

6. Mark Gibson is now Chief Executive of The Whitehall & Industry Group, an independent, not-for-profit organisation which exists to promote better understanding between business and Government in the national interest. It has existed for 25 years and has a membership base of FTSE and professional services companies, as well as Government departments, agencies and local authorities. See www.wig.co.uk for more information. He was formerly the Director General for the Enterprise and Business Group in the Department for Business, Enterprise and Regulatory Reform (BERR).

7. BIS press office is acting as a first point of contact for calls regarding the Gibson Review. Please call 020 7215 5951.

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