On 21^st February 2018 over 60 high level representatives of ECI were joined by colleagues at CII at the offices of Fluor in Amsterdam to debate Existential Crisis – Rethinking how capital programmes are delivered.

Delegates were welcomed by John Fotherby, Chair of ECI and Arne Siewertsen, DM Project Controls & Estimating, Fluor our hosts for the day.  Paul van Weert, Shell Global EPC Manager and Bernd de Jonge set the context for a sector that needs to change.  Paul spoke of the need to halve the costs of capital projects to enable them to do twice as many projects with the same allocated budget, not through putting more cost pressure on supply chains, but through fundamentally rethinking the delivery model.  From a client perspective they want to see more continuity and learning across projects, greater standardisation and higher levels of collaboration.  Bernd made the case for making capital programmes more affordable, investable and bankable through better utilisation of capital.  He proposed that more R&D, greater use of digital technology and more collaboration were the keys to delivering projects more effectively.

There was significant agreement amongst delegates that the sector is facing an existential crisis, with 87% either agreeing or strongly agreeing.  On the topic of whether we need to rethink capital programme delivery there was overwhelming support in the room with 96% agreeing or strongly agreeing.

Read the full report here

This week saw the collapse of Carillion – one of the UK’s largest contractors. It is said that Carillion’s financial problems were due to delays and significant losses on major Government contracts. Whatever the truth of the matter, the mantra for some time in the UK industry press has been that margins of around 2% are not sustainable.

Setting aside Carillion’s profit / loss issues, it is evident that Carillion’s biggest problem in the run-up to its demise was an acute shortage of cash.

While operating in a different market to Engineering Construction, the Carillion case provides salutary lessons for organisations engaged in this industry – owners, contractors and the supply network – current margins are far too low relative to the risks being taken, cash is king – it’s lifeblood, nobody is too big to fail and fall out from a major contractor failing is catastrophic for industry with the brunt of the impact being taken by subcontractors, vendors, service providers and distress for all the people involved and not forgetting that owners are left with incomplete projects and further significant investment to bring their projects to completion. It is in nobody’s interest for contractors to suffer the same fate as Carillion.

Let us all learn from the Carillion demise.

The latest labour market intelligence report has been published by the Engineering Construction Industry Training Board. Titled Engineering Today: the Supply and Demand for Engineers in the UK, it analyses secondary data collected from a range of sources to study the characteristics, demographics and education levels of the engineering workforce, from engineers, to technicians and the skilled trades. In addition, the report looks at the future demand and the extent to which the UK has a shortage of engineers. Unlike previous ECITB reports, this study considers the wider labour market for engineers, not just engineers employed in the engineering construction industry.

There are some interesting findings in the report, including:

• Engineers in the workforce: In 2016, there were just under 465,000 engineers employed in the UK, a 9% increase since 2009.
• Women in engineering: Almost 9% of engineers in the UK are women (2016), an increase from 5% in 2009.
• Diversity in Engineering: The industry is over 90% white. There is also evidence that BAME graduates receive lower salaries on average and have fewer employment opportunities.
• Earnings of engineers: In 2016, the average engineer’s income exceeded £42,000, 49% higher than the average earnings in the UK. Engineering graduates, from apprenticeships and higher education, earned £5,000 more than the average salary for graduates.
• Engineers in Higher Education: In 2015/16, 38.5% engineering graduates went into engineering professions, the lowest figure since 2012.
• Apprenticeships in Engineering: In 2013/14 over 90% of engineering apprentices sustained employment compared to an average of 75% for all apprentices.
• Engineering retirements: By 2026, more than 91,000 engineers, or nearly 20% of the workforce, will have retired or be close to retiring.

This report follows a report the ECITB published in November on the Economic Footprint of the Engineering Construction Industry. Both reports are published as a part of our new Labour Market Intelligence and Research Programme. In 2018, the Year of Engineering, the ECITB will continue to study and analyse the UK Engineering Construction Workforce. Later this year we will publish reports on the future skills requirements of the ECI workforce and how the 4^th industrial revolution is impacting skills needs in our industry.

If you have any questions about this report please contact Reuben Overmark, Policy Analyst at the ECITB, [email protected].

The nuclear newbuild sector faces some major challenges if its renaissance in the UK is to be successful. Therefore this year ECI and Constructing Excellence came together to progress jointly the latter’s theme group in this sector to ensure a cross-sector, construction/engineering response to these challenges. The group’s autumn meeting was hosted by EDF in Somerset last month and featured a site tour of the Hinckley Point C newbuild site. Key owners/clients in the UK, French and Swedish civil nuclear sector are participating, including EDF, Horizon, Sellafield and Vattenfall, as are the Nuclear Industry Association and the World Nuclear Association.

The theme group is led by Adrian Worker of CH2M, formerly of Amec and EDF, and is addressing the productivity challenge in this sector. It will be of no surprise to ECI members that the issues and opportunities being identified are not limited to nuclear. Indeed, when John Fotherby was consulted last week on the group’s draft first output, entitled ‘Factory Thinking’, he commented,

“While nuclear engineering / construction has its own peculiarities, the basic problems apply to all forms of major industrial / infrastructure projects – it’s a question of emphasis and focus. Further, while nuclear projects are major challenges, there are not that many of them constructed around the world – so if the problems are similar in other projects why not broaden the coverage to other areas…?”

We will be inviting some of the key players involved in the nuclear sector and specifically in this work to our event on February 21^st in Amsterdam, so that joint exploration of the issues affecting industry at large and the possible solutions might be of benefit to all. Meanwhile, ‘Factory Thinking’ should be released in December, and to be added to the distribution list for the ECI/CE nuclear theme group, please click here. Don Ward

I and many ECI members were so sad to hear that Sir Michael Latham had died last week. He was the ECI’s first president, from 2001 to 2008. Sir Michael had been a Conservative MP in the UK Houses of Parliament. Widely respected across the floor of the House, he became a household name in the UK construction sector when in 1993 the government of the day asked him to conduct a review of the industry and its troubles. With typical assiduousness he met with hundreds of delegations from all parts of the industry, produced an interim report called ‘Trust and Money’, and then in summer 1994 his final report ‘Constructing the Team’ was published. It was extraordinarily well balanced – he didn’t use the term “win-win” but wrote that he preferred the dodo’s quote in Alice in Wonderland that “all have won and all must have prizes”. For me personally, this was literally career-defining. Soon afterwards I was seconded from BRE to join the implementation team for his review, and a year later I successfully applied to be the Chief Executive of the new Construction Industry Board under his chairmanship, charged with implementing the recommendations. Along with Sir Ian Dixon, Michael provided me with the inspiration to understand, evidence and promote partnering (later collaborative working), client focus and outcomes, collaborative contracts, fair payment, adjudication and so much more into our sector as the components of successful change. He went on to chair so many industry bodies, as well as Willmott Dixon, received many honorary degrees and titles, and was rightly held in hugely high esteem by everyone I ever met. He is survived by two sons, and we send them our very best wishes at this sad time. Don Ward

What does 2018 hold for Engineering Construction. Is shareholder value likely to improve and will we be making more efficient use of capital? Probably not in 2018 but can 2018 be the year when we embark upon a revolution to fundamentally change the way we do business in Engineering Construction?

We are all investors in the industry – owners, contractors, supply network and service providers – but do we expect to enjoy the returns on our investments we believe to be commensurate with the resources, expertise and endeavours deployed and the risk taken?

For owners how certain are you that your new plant investments will be completed by the date, for the price and to the standard that justified the business case for the investment? Contractors how certain are you that you will complete your projects without incurring unbudgeted costs, be exposed to delay or performance liquidated damages or having dissatisfied clients? Vendors, suppliers, subcontractors will you be expected to deliver exceptional performance under difficult conditions for “break-even” prices?

The questions we must all address are:

Is this an industry in which we can thrive and prosper?

To do so what can and must we do differently as an industry?

What is to be learned from other industries that have undergone significant change eg, shipbuilding, aerospace, automotive etc ?

While research into and development of improved work practises have been taking place for some time, the focus has been on improving the accepted project delivery processes and practices model without considering whether that model is fit for purpose.

If we are to significantly improve shareholder value and capital utilisation so that the plants that the world requires are affordable for all stakeholders then we need a different project delivery model.

The Construction Industry Institute (CII) has embarked upon research into and development of a radically different delivery model – Operating System 2.0 (OS2). ECI/CE has the opportunity to work with CII on this venture.

As a first step ECI / CE and CII are holding a joint event in Amsterdam on 21 February 2018 that is being hosted by Fluor. While the programme detail is currently being developed the objective of the event is to bring together European Engineering Construction stakeholders – owners, contractors, supply network members and service providers – to consider the challenges confronting industry, explore the merits of OS2 and decide how to move forward.

Let’s not miss an opportunity in Europe to be part of an initiative that already has a great deal of support in the USA and growing interest around the world. So save the date, come and join the discussion – and invite your industry colleagues. The event is open to ECI members and their guests and is free of charge. We will be publishing programme details in the New Year.

It is now two months since ECI joined BRE. I am happy to report  that the transition is working well and the ECI, BRE and CE organisations are becoming well acquainted. While this has been happening we have not stood still and events planned for this year have been arranged. Please note that due to low numbers the Community of Practice Forum on 9 November 2017 has been postponed till the same day as the event on the use of technology in Engineering Construction on 7 December 2017 in central London. This event will be free of charge, but spaces are limited and therefore early registration is advisable to be sure of a place, find out more and register here. We are continuing to build our relationship with CII and we expect to be hosting jointly an event early next year in Europe  – more on this in the next Newsletter.

We have already canvassed ideas for next year – recent suggestions include further client/epc contractor round tables and developing a construction management training programme. Are these subjects that interest your organisation? What else would you like us to do? Please let us have your thoughts – remember, the ECI is there for you the members but we need your input as to what you want us to do.

Winning and executing projects that enhance shareholder value and utilise capital effectively and efficiently continues to be a major challenge  in the current market climate – at the date of writing the oil price remains below USD 60 per barrel. It is clear that there needs to be radical change to the way Engineering Construction conducts its business globally so that all stakeholders benefit from participation in projects that the world needs. The ECI, in collaboration with partner organisations can be the collective voice of industry that initiates and promotes the necessary change. But, it is you the ECI members, that are, in Europe, the industry – owners, contractors, vendors, suppliers, consultants – what change do you want to see …and what are you prepared to do to see the change implemented that you require? The next edition of the ECI Newsletter will include a regular item regarding changes that members want to see in the Engineering  Construction industry – are you and your organisation willing to contribute? Why not let us have your ideas to share with fellow members?

While it is early days, I am more than convinced that joining BRE was the right thing to do for ECI and BRE because this represents a significant opportunity for the ECI membership. However, it is for the membership to identify those opportunities and to contribute to realising them. The ECI is the catalyst and the membership is the active agent – neither can flourish without the other. I know everybody is very busy with day jobs that must take priority but, please, do take time to contribute, no matter how small, to help the ECI flourish for the benefit of you and fellow members.