Labor-Productivity Declines in the Construction Industry: Causes and Remedies (Another Look)

Nine years ago, Dr. Paul Teicholz, Founding Director of CIFE at Stanford University, wrote an article for AECbytes on the topic of labor productivity. During the intervening years, there have been many changes in the AEC industry that have had the potential to impact labor productivity, and in this new article, Dr. Teicholz takes another look to see what, if any, changes can be detected from the national statistics about the industry. The major changes include the increasing use of BIM technologies and the lean collaborative processes it supports, and the recent very significant boom and bust in the industry.


2 thoughts on “Labor-Productivity Declines in the Construction Industry: Causes and Remedies (Another Look)

  1. My comments speak to the difficulties of reality-based measurement of labor productivity and are not in opposition or criticism of the article.
    1. Deaths and injuries are not part of the equation (not measured in the inputs or outputs) but increased emphasis on safety (and resulting reduction in deaths and injuries) clearly has a labor cost. I know of no way to quantify the impact, but it is obvious on every site that being safe slows construction down through meetings and impact on work methods.
    2. The measured input is field labor, not total embedded labor. In this context prefabrication leads to apparent outsized increases in productivity because it reduces field labor. Typically prefabrication increases material cost (the prefabbed item is way more expense than the unfabricated material it replaces) and slightly reduces project cost because field labor is reduced. Input (labor cost) goes down much more than total output (cost of structure). (Thought experiment: think about “labor productivity” of walls with cast-in-place, tilt-up, and precast.
    3. Is the quality of plan documents a constant over the time period? Some observers think that design fees have been squeezed (therefore less architect hours goes into them) while buildings and codes have gotten more complex and consequently plans have become worse data from which to build. If true, this would reduce productivity in the field.
    4 Thanks for an interesting article.

  2. Paul Teicholz’s article on labour productivity in the construction industry is important and insightful. The fact that Constructing Excellence, in 2010, described similar trends in the UK industry suggests that the phenomenon may not be restricted to the US.

    Professor Teicholz attributes the problem of low productivity in construction to a combination of factors: the unique nature of individual projects; declining real labour prices; large proportion of small firms; procurement based on competitive, rather than collaborative teams; poor use of paper-based data in fragmented teams; and the large proportion of maintenance and repair work in the industry.

    There is no doubt that each of these, in one way or another, is part of the explanation. However, as with improvement initiatives such as Latham / Egan in the UK, by postulating such a wide-ranging and seemingly unconnected set of causes, he presents the industry with an effectively insuperable challenge; there are simply too many things to get right.

    In our discussions about construction and its strengths and weaknesses, it’s really important to remember that our industry exists as a part of the real economy. The most important single force in this real economy is price competition in free markets. Competition has two roles: first, to ensure that the customer gets the optimum balance of cost and quality in his or her purchases; and second, to ensure that suppliers strive continuously to win their customers’ business by constantly improving their products and their methods of production.

    The main reason why labour productivity has increased in non-farm industries is because price competition has been very effective in compelling suppliers in those industries continuously to improve their production processes, year after year. The main reason why labour productivity has failed to improve in construction is because, in this industry, price competition fails.

    The fundamental problem with construction is that, of necessity until recently, we have tried to create buildings – hugely complex products – using primitively poor quality, drawing-based information; information that is inherently untrustworthy, intrinsically un-computable.

    Drawing based tender documentation cannot be used effectively to select the best constructor from amongst a set of bidders for a given project. Inconsistent, uncoordinated documents, hugely prone to inaccuracies, omissions, clashes and basic technical errors, simply cannot reliably convey the detailed scope of a significant package of work. Demonstrably comparable, definitive bids are impossible to derive from this sort of material.

    The result is that contractors interpret the scope as they wish; bid low, deliberately or inadvertently, win the job and spend the duration of the project scrambling for the extras on which their profits depend. The upshot is an industry in which the force of competition plays out, not between contractors’ operational capabilities, but between their marketing, estimating and claims management capabilities. Contractors compete to win work, not to deliver projects. This is a crucial and crippling feature of the construction industry. And it is this, more than anything, else that explains Professor Teicholz’s productivity problem.

    BIM based design, that is, design based on correctly used parametric component based 3D modelling systems, changes all that. BIM can generate information for tender and construction that is fully trustworthy and inherently computable – effectively perfect information. With perfect information, tenders can be transparent, complete and accurately comparable. With perfect information claims opportunities can be eliminated – as early adopters of BIM are already demonstrating. With BIM, contractors finally get to compete on the basis of their ability to construct buildings efficiently. Nothing else will matter – production methods will be transformed, productivity will soar.

    To appreciate the broader significance of this it helps to consider the way in which effectively perfect information has transformed other industries: CAD / CAM in manufacturing, EPOS in retail, SCADA in process industries, and many others for which no convenient acronym exists.

    James Cortada, an American historian of computing, estimates that up to 80% of the modern American economy has undergone this sort of transformation. He calls it the Digital Revolution. Construction is the only major sector unaffected by these processes – to date. But with BIM, I think our time has come. BIM is the Digital Revolution for construction.

    There are many lessons that we can learn from those industries which were earlier to the Digital Revolution. At a technical level, we can perhaps learn from them how to overcome problems like interoperability. In the commercial arena we can learn from their experience in re-designing individual businesses and business-to-business relationships, to dramatically re-configure industry supply chains. And, at an operational level, we can learn how to use labour, as well as the other factors of production, to best effect.

    Hope this will help to keep this important and interesting discussion going.

    7th April 2013

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