Egan Report Rethinking Construction

[edit] Background

The construction industry in the UK has consistently performed in a way that is thought to be wasteful compared to other industries. There is a general impression that it does not deliver good value for its customers. In part this is due to the unusual nature of the industry, where, unlike a production line, each building is a one off. But in addition, the nature of contracting arrangements means that it can be an adversarial industry with significant potential for disputes.

A succession of reports have considered how to tackle these issues, including; ‘Reaching for the Skies’ in 1934, the Simon Report in 1944, the Banwell report in 1967 and the Latham Report 'Constructing the Team' in 1994, in which Sir Michael Latham described the industry as ‘ineffective’, ‘adversarial’, ‘fragmented’ and ‘incapable of delivering for its customers’.

In 1997, the then Deputy Prime Minister John Prescott set up the Construction Task Force, chaired by Sir John Egan. In 1998, the task force published ‘Rethinking Construction, The report of the Construction Task Force to the Deputy Prime Minister, John Prescott, on the scope for improving the quality and efficiency of UK construction’. It is generally referred to as the Egan report.

[edit] Rethinking Construction

In the report, Sir John Egan suggested that ‘the industry as a whole is under-achieving’, and called for ‘dramatic improvements’. He proposed that this would be possible ‘…if we focus all our efforts on delivering the value that our customers need, and if we are prepared to challenge the waste and poor quality arising from our existing structures and working practices’.

Egan stated that ‘…we are not inviting uk construction to look at what it does already and do it better; we are asking the industry and Government to join with major clients to do it entirely differently’.

The report identified five drivers of change:

committed leadership
a focus on the customer
integrated processes and teams
a quality driven agenda
commitment to people

It proposed:

integrated project processes
decent and safe working conditions
improved management and supervisory skills
replacing competitive tendering with long term relationships
that leading public sector bodies should become best practice clients

The report set very ambitious targets of annual reductions of 10% in construction cost and construction time and a reduction in defects of 20% per year.

[edit] Tendering

Within the report, Egan insisted that the industry must replace competitive tendering with long term relationships based on clear measurement of performance and sustained improvement in quality and efficiency. Chapter 4: paragraphs 67 to 72 deal with the establishment of long-term relationships. Specifically:

An essential ingredient in the delivery of radical performance improvements in other industries has been the creation of long-term relationships or reliance through the supply chain of mutual interest. Alliances allow co-operation and are enable the team to learn and take a stake in improving the product.
The industry must go to a stage beyond partnering and develop long-term alliances that include all those involved in the process to deliver valuable performance improvements.
The criteria for the selection of partners is ultimately about best overall value for money, not about lowest price. All players in the team share in success with proper incentive arrangements to enable cost savings.
There must be an end to the reliance on contracts.
Bringing discipline to relationships between clients and their suppliers, based on the introduction of performance measurement and competition against clear targets in relation to quality, timelines and cost. Such relationships are much more demanding than those based on competitive tendering.
Reduced reliance on tendering - the most immediately accessible saving from alliances and partnering comes from a reduced requirement for tendering.
Competitive tendering promotes cut-throat price competition and inadequate profitability that benefits no-one.

[edit] Impact

The Latham report led to the creation of the Construction Industry Board (CIB) in 1995 to oversee reform. The CIB was replaced by the Strategic Forum for Construction in 2001, chaired by Sir John Egan. In September 2002 the Strategic Forum for Construction published a report on its first year of activity 'Accelerating change: A report by the Strategic Forum for Construction', chaired by Sir John Egan. In it, Egan stated 'I have been greatly impressed by the industry's efforts to apply 'Rethinking Construction' principles'.

In 2002, the Rethinking Construction Group Ltd, chaired by Alan Crane, published Rethinking Construction 2002: Achievements, Next Steps, Getting Involved. The report offered a further update on progress as well as outlining a strategy for the following two years.

A number of other organisations were established following the Egan Report:

These organisation united to become Constructing Excellence in 2003.

Since then, there have been significant moves in government procurement to encourage collaborative working and foster partnering, and it is generally considered that construction has become more efficient and safer (ref Constructing Excellence and Glenigan: Industry performance report).

However, the Egan report was not entirely welcomed by the industry, and there was some perception that applying experience in manufacturing to an industry as different as construction was unrealistic. In May 2008, ten years after publication of Rethinking Construction, Sir John Egan stated that ‘we have to say we’ve got pretty patchy results. And certainly nowhere near the improvement we could have achieved, or that I expected to achieve…..I guess if I were giving marks out of 10 after 10 years I’d probably only give the industry about four out of 10’ (Ref. Egan: I’d give construction about 4 of 10.)

In 2009, 'Never Waste A Good Crisis' - A Challenge To The UK Construction Industry was written by by Andrew Wolstenholme of Balfour Beatty Management for Constructing Excellence. It was intended to assess the progress that the industry has made since Rethinking Construction and concluded that, ‘Since 1998 we could have had a revolution and what we've achieved so far is a bit of improvement.’

In 2011, the Government Construction Strategy, made a damning assessment of the industry, similar to that of the Egan report, suggesting amongst many criticisms that:

the UK does not get full value from public sector construction
there is broad consensus, spread both across the industry and its customers, that construction under-performs
(there are) poor and inconsistent procurement practices… leading to waste and inefficiency
(there are) low levels of standardisation, and fragmentation of the public sector client base

Like the Egan report, the Government Construction Strategy states an intention to achieve significant savings (15 to 20%).

Given that despite all of these reports, the perception of the industry as wasteful and adversarial remains, and that significant savings continue to be projected if the industry reforms, it might be inferred either that; under the circumstances the industry operates more effectively than it appears from the outside; or that expectations are unrealistic; or that recommendations have been consistently poorly implemented.

It is worth noting that criticism of construction is not peculiar to the UK, and that for example similar assessments have been made in the USA (Ref. Constructing the team: A US Perspective, King 1996).