Introduction
The construction industry is one of the key sectors of the UK economy, covering not only the production of buildings and structures but also their repair, maintenance and improvement. The importance of the construction industry to the UK economy cannot be underestimated. It not only contributes directly through the income and employment generated but it also contributes indirectly through enabling other areas of the economy with facilities such as housing, schools, hospitals, offices, shops, factories, warehouses and a variety of different infrastructure (Gruneberg and Francis, 2019). To be able to fully understand the construction industry, it is vital to appropriately define and be able to measure the size, structure and fluctuations in construction. However, measuring the construction industry is more complex than for other sectors of the economy for a variety of reasons.
Many sectors of the UK economy, such as basic manufacturing, produce a standardised product, such as the number of a certain type of automobile. This is known as the volume and is easily measurable over a period of time, often on a daily or weekly basis. The number of units of production can then be compared over time to see how the rate of production may have changed over time. The value indicates either the change in the cost of production over time or the change in selling price. However, construction is often more complex, and the majority of construction is a process making a bespoke product on every occasion. It covers a vast array of areas from housing and commercial buildings to infrastructure and industrial buildings with specific needs for the client based around both new and existing facilities.
Construction covers many different types of products and services with teams of different types of firms that are brought together for only one specific project or programme of projects. It includes the services needed to design facilities, the production of materials and building components, the trades and management needed to assemble buildings and structures on site. A broad definition of construction also includes the employment of architects, surveyors, civil and structural engineers, plant and tool hire, construction product manufacturers and their distribution networks. The construction sector is often seen as one sector but, in fact, it covers a wide variety of work across many different areas.
In addition, activity is often sub-contracted out to smaller and specialist contracting firms, which adds an extra layer of complexity, when measuring construction activity within a particular period of time. For instance, a contractor will know the value of contracts it has won and will need to deliver. However, this is only an early indicator of activity on the ground, as not all projects go ahead. However, despite the difficulties inherent in measuring the UK construction industry, it is essential to be able to measure the activity within construction to be able to fully understand it.
Defining the UK construction sector
Construction is a process involving architects and professionals, contractors, merchants and distributors, plant and tool hire in addition to construction materials and product manufacturers. Product manufacturers produce all the materials and products that go into the construction of a facility. Buildersâ merchants and distributors act as wholesalers and retailers of building materials and products as well as offering finance and credit. Tool and plant hire firms exist to provide additional capacity for heavy machinery or tools that are needed on-site to complete projects but are not owned by the contractor or sub-contractors, as they may be too costly for a contractor to own if they are likely to be underutilised resources when firms are working on other types of projects afterwards.
On large projects, there may be more than one major contractor operating as a member of a joint venture due to the large scale of production involved and the necessity to spread the burden of risk. The major contractors are likely to sub-contract work out to those with skills in specific areas, specialist contractors and civil engineering firms. As with machinery and tools, direct employment of those with specialist skills would mean significant periods of unproductive inactivity when these skills were not required. Subcontracting out specialist skills and activities ensures that the main contractors do not suffer the burden of unproductive cost when there is a period of inactivity. At the same time, it frees up the specialist firms to find work with other main contractors, which is an efficient way of using the resources of construction firms by making it possible to have continuity of work instead of periods of idleness. The nature of construction and the reliance on subcontracting to deal with risk and the potential for underutilised resources depending on the project means that the construction industry is dominated by a large number of small firms, which are taken on with other subcontractors as well as sub-subcontractors working for subcontractors working on large projects.
For some construction products, used in large quantities, main contractors may purchase products directly from manufacturers in order to take advantage of economies of scale or savings of size. Economies of scale exist where the purchaser can obtain a product at a lower price by purchasing large quantities through buying in bulk to reduce the cost per unit.
UK construction data
Many private sector organisations such as trade associations, which are membership organisations, or economic research consultancies provide monthly or quarterly trade surveys and data in the construction industry. However, these surveys tend to suffer from several issues for those wishing to conduct research on the size and structure of the construction industry as well as monitoring, analysing and forecasting activity within it. First, the surveys from independent organisations tend to only cover the change in activity within a specific part of the construction sector such as small and medium-size enterprises (SME) contracting, civil engineering or construction product manufacturing. Second, these surveys do not measure the size of the sector but tend to focus only on changes in activity within a specific area. Third, these surveys often only cover a small sample of firms within the part of the construction supply chain they are covering, and responses are often skewed towards larger firms that have greater resource available to fill in response questionnaires on a regular basis. Fourth, the surveys tend to measure and report a net balance of firms, which is the number of firms reporting an increase after subtracting the number of firms reporting a decrease. As a result, it is not reporting the extent of the change. Rather, it is using the net number of firms reporting an increase to indicate the direction of change overall for the sector and using that change as a proxy for the extent of the increase or decrease. A proxy is a variable that is used to represent a similar variable that is difficult to measure. By using the net balance of firms, all firms are given an equal weighting, and this can be problematic. If, for example, the industry contains two construction firms, with one firm enjoying an increase in construction activity of ÂŁ100 million and with the other firm enduring a fall in activity of ÂŁ1 million, the net balance of firms would indicate that activity had remained flat whereas industry activity had, in fact, risen ...