PETER STAFFORD analyses the latest report into the construction industry from Forfás.

As part of the Government’s Action Plan for Jobs 2012, Forfás was asked to develop a national strategy for the construction industry, following engagement with stakeholders including the professional bodies. The report, ‘Ireland’s Construction Sector: Outlook and Strategic Plan to 2015’, published in July of this year, describes the current state of the construction industry, assesses what a sustainable and dynamic construction industry could look like, and makes recommendations to help achieve that vision of success. Those recommendations are listed elsewhere in this article.

Short-term projections and recommendations

In the absence of action to accelerate a return to sustainable levels of output, and based on current activity levels, over the short term to 2015 the sector will continue at well below optimum performance.

Thus, the purpose of the report is to make recommendations on how the sector’s output can bridge the gap between its current size (less than 7% of GNP) and its optimum size of 12% of GNP during a period of austerity, reduced exchequer receipts and limited private investment. The report notes, and the sector largely agrees, that this recovery needs to be based on sustainable demand rather than artificial market stimulation.

The report foresees further constraints on public capital expenditure, including a scaling back of new works, the cancellation and deferral of proposed projects (a return to stopstart funding), and challenges in securing private financing to support public investment in physical and economic infrastructure. Within the private sector, it is likely that the current constraint in the availability of finance will affect many diverse parts of the industry, including personal indebtedness negatively affecting the home repairs and extension sector. Many developers face significant financial difficulty and thus are unable to raise new capital to fund completing existing projects or commencing new ones. Private investors are beginning to renew their interest in the Irish market, although this may not have any material positive impact on new construction works.

The planning system and the costs of development are seen as creating unnecessary process rigidity within construction, undermining new development and halting the commencement of multi-use developments. Furthermore, the current procurement process and industry practices can create unnecessary inefficiencies in the delivery of construction projects. The report notes the role of development contributions and other taxes on the construction and transfer of ownership of property – as well as the recent annual residential property tax and commercial rates – as factors that may limit the value of construction output.

Maintaining competitiveness

The report notes the need to maintain capability and competitiveness. Irish construction firms are already witnessing increased competition from overseas businesses, so it is recommended that effort is made to drive domestic businesses to invest in new products and processes to ensure that innovation is not lost. This will also help Irish firms to compete for work internationally. The report is concerned with the relatively low levels of information and communications technology (ICT) investment in Irish construction firms, which places them at a disadvantage compared to firms that are using new process models. This is linked to a need to ensure that third-level construction courses are equipping new entrants into the sector with trades required by clients. Among managers, greater support should be given to those who run and manage businesses, to help them to cope with the vastly changing economic and business environment.

In the short term, Forfás sees opportunities for Irish firms to develop greater links into the international markets and the important domestic energy retrofit sector. The report suggests that more Irish firms could get involved in international work if a critical mass of activity could lead to clustering, where companies that are already working overseas could attract others in a similar field to join them.

Implementation

To oversee the implementation of these measures, Forfás recommends the creation of a Construction Enterprise Clearing House to bring together key officials from Government, as well as the construction professional bodies and other stakeholders. This Clearing House should analyse data to help facilitate effective monitoring of construction sector output with reference to optimum sustainability levels. The Society has already requested membership of this Clearing House.

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Peter Stafford
Peter is Director of Policy and Public Affairs,
Society of Chartered Surveyors Ireland.