21 pain points in the Construction Sector | by Aydın Fevzi Özçekiç – DataDrivenInvestor

Feb 28
I want to talk about the main bottlenecks in the construction sector. I have been working in the construction sector for 15 years in different regions. I saw the same kind of problems again and again. Everybody is talking about the change, but the reality is so different. Governments, owners, and investors should force the transformation.
1- Standardization
One weakness of traditional management processes is a lack of standardization; there is no single set, single standard to follow. Most project managers are chosen based on their previous experience-and end up keeping the same procedures they used on previous projects, regardless of how applicable these methods are. There is often too much variation in a company due to this typical practice — sometimes, every department or team ends up doing their own thing and the whole organization suffers. The first step is to admit when a process is broken.
As a result of the lack of standardization, it is harder for teams to communicate. They often use different devices and software, relying on paper notes and memories. By adding each additional device or piece of software, your team’s data becomes less reliable and less useful. Integrating every bit of information under one roof streamlines and simplifies the process because it forces everyone on your team to communicate using the same language, the same format, and the same tools.
2- Temporary Production
As a nature of the construction sector, the construction sector uses project-specific temporary teams. Unlike permanent teams, temporary teams lose their importance once the project is accomplished.
In construction, teams are often formed by members of different organizations. This can create a lot of conflicts, since the members, and the organizations to which the members belong to, not necessarily share the same interests. When building complex projects, it is necessary to sort out power struggles and reveal personal agendas, so that conflicts can be sorted out. Though, this can be challenging in the world of construction since every construction project is a temporary project. This means that all members of the group will be separated within a few years. Putting money into team building can thereby seem like a waste of money and time, but lots of research shows that the effectiveness of the team will increase with team building. One reason for that is that a team without trust will have a hard time reaching its full potential. Teamworking is for most parts about establishing interpersonal relationships, which will lead to better communication, trust, and a better working environment. Thus, making it a better place to work and making the team more efficiently.
3- Human Resource Shortage
The skills shortage in construction has been a growing concern for construction companies, and as more time goes by, the problem becomes more pressing. One of the main reasons for the UK skills shortage — specifically in the construction industry — is an ageing workforce. As construction workers reach retirement age, fewer people are entering the industry to replace them.
The UK Government had pledged to build 300,000 new homes each year, but PPE specialists Vizwear suggest the workforce is not large enough to deliver such a high target. The lack of suitable, qualified candidates will directly affect the industry fulfilling projects.
The UK job board, CV-Library, saw that, in Q3 of 2020, construction vacancies increased by a huge 213.4%. Despite the massive number of job postings coming from the industry, the construction sector had a quarter-on-quarter 53.9% decline in applications per vacancy.
The primary effect of the skills shortage in construction is cost. Difficulties in sourcing staff come with increased recruitment costs, as construction companies must increase their efforts and spend to try and find workers. In turn, this can mean a rise in inflated salaries, as businesses need to overpay to secure skills that are in short supply.
Paying over the odds for staff is also an issue in temporary staffing situations. While waiting for a long-term solution, companies often have no choice but to pay a much higher rate for temporary staff as a stopgap. Short-term gaps have cost UK organizations an additional £2.2 billion in 2020 versus 2019. There is also the associated cost of training workers hired at a lower level to bring them up to the desired level of qualification.
Turning down work has major consequences for construction companies but accepting contracts they are then unable to fulfil has repercussions to their reputation in the industry. The skills shortage in construction can result in a project going over time and over budget, so both projects and construction companies are affected.
4- Low entry barrier
Currently, the barriers to entry in construction are low, creating a saturated marketplace with heavy competition. This competition is shrinking profit margins and constraining essential reinvestment in innovative technology and better business practices.
Stagnant construction labour productivity is compounding this problem. While other industrial businesses have benefited from a 100% increase in labour productivity, productivity within the construction industry has remained stagnant over the last 50 years.
Why is productivity stagnation? According to a Construction Owners Association of America (COAA) study, 63% of direct labour time on mega-construction projects is spent waiting for materials and equipment, travelling to the area, taking early breaks, and planning how to do the work.
This lack of productivity is reflected in the bottom line, where typical margins for construction companies range between 2 and 8%. Consequently, construction companies find themselves trapped between shrinking profit margins and stagnant productivity, unable to generate the profit necessary to invest in critical technology.
5- BIM as a requirement
When a company, or rather a manager, asks to implement BIM without understanding what that means, just because they have heard that it is the future or what is “in”, it usually does not end well.
This is the most important challenge faced by BIM implementation projects. Even though companies are well informed about the general benefits of this new way of managing the construction business, clients do not fully understand the real scope and implications of the methodology on the way companies work.
Without strong leadership that understands the true dimension of BIM and takes steps to bring all employees into the project, success is much more difficult.
Getting the maximum benefits from BIM technology is related to the ability to maximize the collaboration of all project members. No matter who the leader is, the fact that all key participants are involved offers the most benefit to the entire team.
It is necessary to incorporate BIM in the right measure for the objectives of the company, without falling short, which would prevent the expected benefits, nor in excess, producing more BIM than users can handle, which is clear waste.
6- Contracts
Recent research and industry experts have indicated that inappropriate risk allocation through disclaimer clauses in contracts is a significant reason for increasing the total cost of a project. There is no possibility to completely eliminate all the risks associated with a specific project. All that can be done is to regulate the risk allocated to different parties and then to properly manage these risks carefully. Groton pointed out that when lawyers seek to negotiate “the best deal” for their clients in the construction industry, they often craft contract provisions that unrealistically and unfairly allocate risks to project participants who are unable to handle the risk, often creating problems of a far greater magnitude than those they sought to solve (Groton, 2007)
However, in an owner-contractor relationship at least, a common goal of owners appears to be to avoid risk as far as possible by allocating as many risks as it can to the contractor (Gransberg et al., 1997).
Disclaimer clauses are usually used by many owners to shift risks to contractors. Such clauses attempt to transfer one party’s risk (which may be a legal liability) to another by contractual terms (Hartman, 2000). In other words, these clauses are intended to exclude an owner’s liability in the contract and also often in tort for cost incurred by a contractor (Goldsmith, 1995).
Studies were conducted to examine the five most common disclaimer clauses in construction contracts that include (1) Uncertainty of work conditions, (2) Delaying events, (3) Indemnification, (4) Liquidated damages, and (5) Sufficiency of contract documents.
Study results have found the process of risk allocation through disclaimer clauses does not encourage any creative ways of doing business between
the contracting parties and destroy the level of trust between them. Above all, the existence of a disclaimer clause in any contract would affect the relationship negatively and make both contracting parties work on different sets of personal objectives instead of common ones (Zaghloul & Hartman, 2002).
7- Budgeting
Over budget is a common problem in the construction scene. Apart from project delays, most contractors foresee construction cost overrun as an inevitable situation. In fact, in the past three years, only one out of three projects can achieve 10 percent of their original budget plan. Furthermore, data showed that big construction projects like airports or hospitals exceed as much as $400–700 million of the budget.
While most blame the contractor’s poor construction project management, in reality, project owners have their share in the responsibility too. Some would spend extraordinarily little time in checking the construction project plan and other documents before they give their go signal.
But as early as the project bidding, contractors should’ve already been accurate with their quotations. Most owners reference their actual budget in the quotation during the bidding. To win, some contractors lower their quotes to impress the owner with how they can deliver complex projects at such a low cost.
8- Big Tech Companies
There is a strong interest and need to take advantage of newer construction-centric technologies, but only if they’re easy to use, easy to deploy or access while on a job site and improve productivity almost immediately.
Big companies use the expectations of customers to develop technology products. Although products are useful, the product-centric approach dilutes the technology strategy of construction companies. The strategy should come first, and software products should be just tools to implement the strategy.
9- Tech Selection Problems
A common approach for companies is to let their employees try new products at will, hoping the best solutions will “float to the top.” However, this usually results in chaos. Typically, every employee has a different favorite tool, creating a cacophony of patch-together solutions. Furthermore, having competing systems in play results in data being limited to the project level rather than being funneled to corporate decision-makers, eliminating the opportunity for those systems to provide high-level insights and enable more comprehensive planning. Investing in multiple systems can cause costs to get out of control too.
Information overload is one problem, as more and more technology startups hit the market. Construction and power companies may also experience the “fear of missing out,” which is heightened if there is also concern that missing out translates to a loss of competitive edge. It is important to remember, too, that much of what tech companies say about their products are embellished and can be misleading. Similarly, competitors may appear to have everything figured out, but in reality, most are still discovering how technology fits into their workflows. Understanding what is real and what is marketing hype can be a real challenge.
As with most business endeavors, planning, communication, and documentation are the secret to success. A solid pilot program can put any company on the path to successful technology adoption.
10- Vision
Rising customer sophistication and total-cost-of-ownership (TCO) pressure. Customers and owners are increasingly sophisticated, and the industry has seen an influx of capital from more savvy customers. From 2014 to 2019, for example, private-equity firms raised more than $388 billion to fund infrastructure projects, including $100 billion in 2019 alone, a 24 percent increase from 2018. Client demands are also evolving regarding performance, TCO, and sustainability: smart buildings, energy and operational efficiency, and flexibility and adaptability of structures will become higher priorities. Expectations are also rising among customers, who want simple, digital interactions as well as more adaptable structures.
Digital technologies can enable better collaboration, greater control of the value chain, and a shift toward more data-driven decision making. These innovations will change the way companies approach operations, design, and construction as well as engage with partners. Smart buildings and infrastructure that integrate the Internet of Things (IoT) will increase data availability and enable more efficient operations as well as new business models, such as performance-based and collaborative contracting. Companies can improve efficiency and integrate the design phase with the rest of the value chain by using building-information modeling (BIM) to create a full three-dimensional model (a “digital twin”) — and add further layers like schedule and cost — early in the project rather than finishing design while construction is already underway. This will materially change risks and the sequence of decision making in construction projects and put traditional engineering, procurement, and construction (EPC) models into question. Automated parametric design and object libraries will transform engineering.
Using digital tools can significantly improve on-site collaboration. And digital channels are spreading to construction, with the potential to transform interactions for buying and selling goods across the value chain.
11- Low Productivity
Poor productivity in construction today is the result of a multitude of factors. Although there are large players around the world, construction also has a large number of low-productivity small firms. The way many contracts are set up is confrontational, which means that disputes and changes to the project specifications are all too common. Regulation is complex and, in many countries, there is a high level of informality and sometimes corruption. Exacerbating low productivity in developed countries is the fact that the share of renovation and repairs rather than new builds is rising. This means having to negotiate complex building sites: consider the headaches (and delays) when a public-transit system shuts down for repairs.
Underinvestment in technology is another root cause of low productivity. There is robust evidence of the link between the level of digitization in a sector and its productivity growth. The U.S. construction industry has invested 1.5% of value-added on technology, compared with 3.3% in manufacturing, and an overall average in the economy of 3.6%. In the United States, construction is the second-least digitized sector after agriculture.
12- Short Tem Mindset
Shortermism as a major barrier as a result of the industry being so exposed to economic pressures. Short term cash flow targets are affecting long term sustainability targets.
13- Experience
Yes, experience is important. Unfortunately, in the construction sector experience-oriented solution approach is a bottleneck to create a company knowledgebase. Experienced team members solving problem by heart without any objective decision system and this approach is increasing chaos in the construction site.
14- Data Collection Problems
A construction project is generally chaotic, and production is temporary. Hence it is not easy to prevent mistakes and increase productivity. Furthermore, experience plays a crucial role in the construction site. If the experience is critical, we have to find a way to model this experience.
Thanks to new software technologies, digitalizing of design, document, and planning logic has been achieved. Especially Building Information Modelling (BIM) carried data collections from design to a new point.
Main data sources of a project include Design, Machinery, Employee, Contracts, Planning Tools, ERP, Specifications, and Handbooks. Of course, the number of these sources may change depending on the project.
As I mentioned, design information has become accessible with the help of technologies such as BIM and document management software.
Machine information can be reached in real time with the help of IoT. In addition, high-level data flow can be achieved with robotic technologies.
Contracts, specifications, handbooks can be managed as searchable via document management software.
Planning and ERP are already built on structured data systems. The data in these systems can be easily analyzed.
In my opinion, the most critical point is to reach the data generated by the employees. Unfortunately, we have extremely limited access to this data.
Basically, they produce data about the experience, know-how, performance, the issues they face, the solutions they find and coordination problems. There is a data stream in the sector that consists of only reports and notes. For this reason, the sector loses some of its experience and know-how in each project.
15- Low Personnel Development
Traditionally, the sector has tended to focus on making incremental improvements. But this will no longer do. Projects are ever larger and more complex. The growing demand for environmentally sensitive construction means traditional practices must change. And the shortage of skilled labour and supervisory staff will only get worse. These are deep issues that require new ways of thinking and working
16- Corruption
It is difficult to determine precisely the value of losses through corruption, but estimates tend to range between 10 and 30%. The experience of the CoST programme suggests that a similar amount could be lost through mismanagement and inefficiency. This means that by 2030, unless measures are introduced that effectively improve this situation, close to $6 trillion could be lost annually through corruption, mismanagement and inefficiency.
Losses on this scale cannot be tolerated in any sector, but losses in infrastructure investment have particular significance. This is because infrastructure underpins almost every aspect of economic growth and human development. It is a vital component of the most pressing global challenges that we face, including eliminating poverty, achieving food security, rebuilding the global economy and dealing with the effects of climate change. Put simply, unless we rapidly improve the efficiency of infrastructure investments, our efforts to meet the great global challenges of our era are less likely to succeed.
So, what is it that makes the construction industry so corrupt? Niell Stansbury of the Global Infrastructure Anti-Corruption Centre has identified 13 features that make construction particularly prone to corruption. They include:
17- Supply Chain Management
All construction companies, be they client, main contractor, designer, surveyor, sub-contractor, or supplier are therefore part of a supply chain. Because of the project-based nature of construction and the way that procurement normally operates, they are usually members of different supply chains on different projects. Each company in the chain has a client — the organization to which the services are provided — but an integrated supply chain will have the objective of understanding and working wholly in the interests of the ‘project client’.
In traditional procurement, the companies may only be linked by contracts that have been procured at the lowest price against fixed specifications. The supplier is asked to deliver the specified product or service as cheaply as possible. There is no motivation to work in the client’s interest. In some cases, the supply chain is not even linked by contract. Designers and contractors often have separate contracts with the client, for example. Modern procurement methods are moving to the appointment of integrated supply chains where the parties in the supply chain have a long-term objective to work together to deliver added value to the client. These long-term relationships enable the power of supply chain management to be fully realized.
18- Subcontractor Selection
The selection of the best sub-contractor is a vital process in construction projects. There are many factors that must be taken into consideration when selecting subcontractors. Improper selection of sub-contractors might lead to many problems during work progress. These include shoddy quality of work and delay in project duration.
19- Quality Management
Meeting a high standard of quality is a key issue for the construction industry — in fact, it’s estimated that poor quality is costing the industry more than the combined profits of all the companies within it. Research by housing charity Shelter found that over half (51%) of new-build homeowners in the UK have experienced major problems with their properties, such as construction issues, unfinished fittings, and faults with utilities.
At the very least, poor construction quality affects the usability and/or aesthetics of a building — but in some cases, it can seriously impact the health and safety of those that live and work in poorly built constructions. We saw the devastating effects of poor design quality when Grenfell Tower caught fire in 2017, which lead to the deaths of 72 people.
This tragedy, along with the closure of 17 Edinburgh schools due to structural concerns in February 2017, prompted the Chartered Institute of Building (CIOB) to launch a Construction Quality Commission (CQC) in 2017.
20- Safety Management
Labor in construction companies is often associated with a high risk of injury and, therefore, occupational safety is an important element of production efficiency in this area. The injured workers lost working days and financial costs affect the social and economic efficiency of the construction industry.
21- Sustainability
The construction industry has a huge environmental impact, from energy use to emissions to waste. Equipment often relies heavily on fossil fuels, and fabrication and shipping of materials are responsible for a large amount of carbon emissions.
According to the UK designing buildings Wiki:
There are some real challenges or barriers for construction firms that are interested in taking a sustainable approach, too. One is that there is still overall a lack of market demand, while first costs to enter the scene are perceived to be high. Almost 40% of UK firms surveyed reported that affordability was their greatest challenge for adopting sustainable practices. Meanwhile, 34% reported client demand for sustainable construction practices, so firms are often caught in the space between demand and cost.
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