‘Construction Not a Scale Game’: Hutchinson

“Everyone’s lazier after Covid—even me.” Construction titan Scott Hutchinson is talking about what he deems to be the unspoken “other thing that’s f***ed up productivity” in the industry. “People aren’t as receptive to ‘We’ve gotta get on with this!’,” he says. “Times for buildings to get finished have blown out about 30 per cent. The weather’s to blame, too, of course … but people just don’t go as hard as they used to. “Absolutely, I’m lazier. I’ll admit it but I’m 65 so I’m allowed,” he quips. Getting things built, however, is critical to Australia’s economic prosperity—as the chairman of Australia’s largest privately owned construction firm Hutchinson Builders is acutely aware. And a new report from the Committee for Economic Development of Australia warns: “We are losing this ability.” “By all measures, construction has been underperforming in the productivity stakes … Australia has been slow to deliver on critical infrastructure projects and has not built enough homes to keep up with demand,” it says. “Sydney is now the second most expensive housing market in the world, while Adelaide is sixth and Melbourne is ninth. “Without improvement in this sector we will not be able to deliver on a strong economy and a strong social compact.” But it’s complicated. “There is no single driver of poor performance,” the report says, with analysis and stakeholder discussions also suggesting, “It has not been driven by some commonly cited culprits, including a lack of new technologies, measurement issues, quality improvements, growth in white collar workforce or industrial relations and conditions in enterprise-bargaining agreements”. No mention of the shift in post-pandemic workforce psyche and recalibration of work-life balance observed by Hutchinson at the coalface. ▲ Scott Hutchinson: People aren’t as receptive to ‘We’ve gotta get on with this!’. Instead, the CEDA report entitled Size Matters: Why Construction Productivity is So Weak drills into what it deems is another area that has not previously received much attention. The lack of scale in the sector and dominance of small firms—due to its structure, complex regulations and broader tax settings—being a “key driver” of the industry’s productivity woes. Of the 410,602 construction firms in Australia, 98.5 per cent have fewer than 20 employees making them critical to the sector’s overall productivity. But the report notes: “Smaller building companies are less productive than bigger firms because they can’t achieve the same productivity gains from economies of scale and scope, innovation and investment”. Its analysis of previously unreleased ABS data shows Australian construction firms with 200 or more employees generate 86 per cent more revenue per worker than those with 5 to 19 employees. “If firms in the Australian construction industry matched the size distribution of firms in the manufacturing industry, the construction industry would produce 12 per cent, or $54 billion, more revenue per year without requiring any additional labour,” the report says. “This is equivalent to gaining an extra 150,000 construction workers. “In a sector currently suffering from labour shortages that are holding back progress, this sort of increase would make substantial inroads in the ability to deliver on critical infrastructure and housing works.” Hutchinson agrees with some aspects of the report but adds: “This would be the perfect opportunity for me to be telling you it’s better to be bigger and that’s why we’re wonderful and the little builders are really inefficient. But they’re not. “They have some advantages and they have some disadvantages. “The reality, in my opinion, construction is not a scale game where the bigger you get the better you’ll dominate. “We’ve all only got quite a small share of the market ... and whenever turnovers increase, our productivity goes down and that’s pretty much across the board for all builders.” He says the main reason for the sector’s problematic productivity is “the unsteadiness of the industry and the unprecedented boom we’ve just had with the RBA pumping too much money into the system during Covid and everybody wanting a holiday home on the Gold Coast”. ▲ Hutchinson says another big increase in demand is on its way. “When there’s a mad rush of demand like that it’s the worst thing that can happen—everything just gets blown apart. “It’s quietened down a bit now, high construction costs have stopped a whole lot of jobs going ahead and things are starting to become more efficient again. But there’s another massive increase in demand coming with the Olympics [infrastructure build] bulge. “That will put pressure on things again but builders are much more wary. So I don’t think they’ll fall into the same trap. And as long as the Goldie settles down and everyone realises they’ve paid too much for their units, like they always do, it should be OK.” Rider Levett Bucknall Queensland director of programming Neal Taylor says the recent ABS data indicating falling construction industry productivity over the past decade had been reflected in the construction consultancy’s own number crunching on worker output for the same period. “Based on RLB’s analysis of construction activity and workforce over the past twenty years (from December 2003 to December 2023), the number of workers within the construction workforce has increased while output per worker has reduced,” he says. “Since 2013 there has been a 26.5 per cent increase in the number of workers within the construction workforce and on average, these people are working 2 per cent fewer hours per annum and achieved a 25.4 per cent lower output. “In the past 10 years, the output per worker for trades and labourers has fallen 19.6 per cent which is reflected in the construction index that is down both over the past 10 years (15.8 per cent) and since the year 2000 (11.1 per cent). Taylor says the data indicates the proportion of ‘professional’ workers in the construction industry has risen at a much faster rate over the past 20 years compared to ‘trade and labourer’ roles. “In 2003, professional workers accounted for 28 per cent of the construction workforce and by 2023, this had risen to 38 per cent. “Anecdotally, there are several reasons why the proportion of professional workers has grown in the Australian construction industry over the past 20 years, including increased complexity of projects, code and regulatory requirements, technological advancements, and shifting society and economic priorities, such as sustainability.” ▲ The CEDA report says there are more construction firms in Australia than needed. According to the CEDA report, fragmentation of Australia’s construction industry has resulted in a far greater number of firms than what is needed to deliver effective competition. “Our analysis shows this is contributing to the productivity problem. “Many drivers of productivity, such as technology adoption, require scale and certainty. As volatility and regulation in the sector grows, so too does the complexity and risk involved in delivering construction projects. This prevents productive firms from growing.” Australian Constructors Association chief executive Jon Davies agrees the splintering of the industry into ever smaller companies over the past 20 years has caused quite a few issues. “Some consolidation probably would have a positive outcome on productivity,” he says. But he draws the line at advocating for mass consolidation “because I do think that the supply chain actually is a great contributor to innovation and productivity in our industry”. Davies says the major stumbling block to improved productivity is the prevailing lack of financial sustainability in the industry. “If we continue to award projects based on the lowest possible price, people aren’t going to be looking at innovation and different ways of doing things,” he says. “People are just going to be looking at finding ways to reduce the price, which is usually around putting increased pressure on the supply chain, and then the supply chain is under stress. “And a lot of the smaller companies where the innovation comes from…they’re not going to be innovating, they’re just going to be running around making sure they can still keep the lights on.” Equally, he says it also has proven to be the case that no construction company is too big to fail in the industry’s challenged landscape. “Most companies are only ever one project away from failing because of the risks that they take on board and the profit margins that they expect in return,” he says. ▲ Australian Constructors Association chief executive Jon Davies: splintering of the industry into ever smaller companies has caused issues. “All of the available contingency in most of these businesses has been removed through additional costs for wet weather, Covid escalation, project risks that shouldn’t have been accepted but have been accepted. “So it’s almost a daily fight for survival and this leads to adversarial behaviours. And if we’re talking about productivity, one of the biggest productivity killers is project disputes.” Davies says one of the few positive things to come out of Covid was that it brought the industry together to collaborate in a way it never had before. “But here we are four or five years later and a lot of that good work we did has regressed again,” he says. “We need to find a way to get that collaboration back again, because that’s the only way our industry is going to address the issues that it has. “We’ve got to start thinking about how we align everyone’s interests on a project. And if we’re all getting what we want out of that project, then all of these other problems disappear.” Meanwhile, despite fessing up to feeling a bit lazier these days, Hutchinson is doing his bit to rekindle that collaborative industry approach—albeit in the spirit of his new work-life balance. On adventure in Canada recently, his travel buddy and developer mate, Consolidated Properties boss Don O’Rorke, suddenly got that sinking feeling after walking into quick sand in the wilds of New Brunswick. “He sunk straight down to his knees and was going deeper and deeper,” according to a bemused Hutchinson, who after snapping a photo to post on Instagram helped rescue him. “It was like something you’d see on [1960s TV sitcom] Gilligan’s Island … it took 10 minutes to get him out.” Good practice but no doubt somewhat less challenging than the task ahead of pulling Australia’s construction industry from its productivity sink hole.

‘Construction Not a Scale Game’: Hutchinson

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