Construction – The Foundation Blocks For Built Environment
“Today, the construction sector in India continues to grapple with many adverse challenges, especially in synchronising its achievements as compared to its targets laid down in the Eleventh Five Year Plan. But is the situation as dire as it is made out to be?” The barriers and way ahead in front of the stake holders of this sector have been highlighted by Sachin Sandhir, Managing Director & Country Head, Royal Institution of Chartered Surveyors (RICS).
The construction sector has seen phenomenal activity over the last couple of years. Considered as the building blocks of development, construction has played a vital role in the transformation of India, catering to its infrastructural needs, housing requirements and transportation solutions. Government emphasis on infrastructure has been crucial in fuelling construction activity. The sector has also made inroads in engineering and design, building materials, and equipment to keep pace with the growing demands of the country.
The importance of the sector is further highlighted by a few key facts. Construction is the second largest employer and contributor to GDP, accounting for nearly 7% of the GDP in the country, second only to agriculture. In fact, as per the economic survey, the rate of growth at factor cost on prices levels of 2004-05, construction has grown at 6.5% in 2009-10.
Additionally, of the total investment in infrastructure 65% is accounted for by construction activity. In 2009, Indian construction was the ninth largest market in the world estimated at $246.5 billion and accounting for 3.3% of global market share, as per the Global Construction 2020 report by Oxford Economics. From 2014-2020, India is pegged to be the second largest market with an estimated CAGR of 8.9%.
However, the sector continues to be plagued by challenges in relation to capacity constraints, lack of trained and skilled manpower, loopholes in contract procurement and processing mechanisms, cost overruns, antiquated laws and policies, lack of enforcement and implementation of reforms etc. In fact, so grave was the situation at one point that the sector had to be awarded the ‘Industrial Concern Status’ under the Industrial Development Bank of India (Amendment) Act, to provide much-needed impetus in terms of availability of finance.
Today, the construction sector continues to grapple with these challenges, especially in synchronising its achievements as compared to its targets as laid down in the Eleventh Five Year Plan. But is the situation as dire as it is made out to be? To gain a better perspective on this front, it is essential to understand and evaluate some important parameters that play an integral role in the development process.
The Commencement Stage – Construction Contracts
Lack of standard contract documents are increasingly seen as a major hindrance in implementation and execution of construction projects. Contract procedures for procurement are highly cumbersome and costly for both project owners and contractors. As per some estimates, cost of procurement comprises 16% of total construction costs for certain projects. After adding supervising and monitoring expenses of about 6%, total cost of procuring, supervising and monitoring works out to ~22% of the cost of asset created.
To counter this trend, internationally there has been a shift towards adoption of standard contract forms. Contract documents like FIDIC and Standard Bidding Documents, though in use for government and other funded projects have seen acceptability, their private implementation has been found lacking, even when international experience has shown that such documents have improved project implementation.
In India, issues prevail in interpretation of such contracts due to ambiguities in contract definitions. Additionally, changes in costs and legislation affect adoption and applicability of these forms locally. Even in cases where these contractual agreements have been adopted, they have not been rigorously followed, while these continue to be heavily loaded in favour of owners/clients.
So to make matters simpler, some local governments have reformed processes for dealing with construction permits. Computerization and greater administrative efficiency have accelerated approvals for building permit applications by 25 days on average. Bengaluru, Gurgaon, and Hyderabad have introduced effective single-window systems for building permit applications.
Initiating Change – Moving Towards Cost Control & Timely Project Delivery
The Indian construction industry is faced with high operation, maintenance, and financial costs. This aspect is further exacerbated by inadequate access to institutional finance, especially for small contractors who execute over 90% of the total construction works. Additionally, despite the global meltdown construction costs are still increasing by ~4-5% in the country.
Things are gradually starting to look up, with labour costs being on the decline by an estimated 15% since the beginning of 2009. This trend is mainly attributable to several Indian workers previously employed in the UAE having returned home in the backdrop of the Dubai property crisis, with most projects in the region being cancelled. Another encouraging aspect is the willingness of contractors to be more open to negotiations over contract prices in terms of overhead and profit levels.
Project Management Services (PMS) are also increasingly being looked upon to help the construction sector in managing their costs and ensuring that projects are completed within specified time frames. This practice, which is widely prevalent in international markets, is only gradually finding awareness and a foothold in pre and post construction activities in India. Implementation of PMS can result in cost effectiveness by careful value engineering, compliance to standards and project management.
With global markets being intrinsically linked, there is a need to meet liquidity requirements and maintain profits to sustain businesses through economic troughs and crests. This has encouraged the adoption of a more professional approach to construction activities.
PMS helps contractors define the construction process from conception to completion, which includes monitoring projects to ensure that cost, quality and performance objectives and timelines are adhered to.
Some of the pre-construction activities that help achieve these goals include defining of project objectives and constraints, site evaluation, development of preliminary budgets, risk identification and mitigation and review construction and contract parameters. On the post construction front, PMS includes obtaining information on the built environment, ensuring that all certifications in relation to the construction are obtained and to co-ordinate and attend inspections of facilities created.
New Equipment, Technologies & Materials Add Credibility to the Sector
As infrastructure and construction sectors are undergoing dramatic changes contractors are acquiring sophisticated equipment to execute projects. As the most important feature governing the choice of material and form of construction is ‘structural integrity’, there is an increasing emphasis on environmental durability, embedded energy, fire resistance, safety etc.
However, safety during construction is still evolving in India. But with market dynamics changing and greater emphasis on quality and adherence to building codes, the trends are changing gradually. Increasingly construction companies are inclined towards compensating for environmental and occupational health and safety.
On the materials and equipment front, while manufacturing of new materials has been undertaken at an aggressive pace, the emergence of new equipment has been restrained. Despite this, the construction equipment industry has gone ahead and built up huge capacities due to the boom in infrastructure. With the market currently at $2.5 billion, it is expected to reach between $12-13 billion by 2015.
Some of the initiatives taken up by the sector in relation to materials and construction strategies include corrosion resistant steel, pre-engineered buildings, engineered steel guard rail systems, pre-cast piers etc. Cost effective construction technologies such as rat-trap bond walls, brick arches, filler slabs, and compressed earth blocks have also been utilised to reduce the energy impact of construction and buildings on the environment, leaning towards a greener and cleaner property market.
In relation to IT, newer international technologies such as digital modelling which allow architects, designers and engineers to visualise, simulate and analyse construction are still far from implementation in the country, as we continue to use 2D methodologies for construction engineering and design. But there are other IT based applications such as implementation of ERP’s like SAP that are being deployed by early stage construction companies, which cater to better control over operations.
Increasing awareness, skills and training are critical to sustain growth
There is a huge shortage of trained and skilled resources across levels. As per CIDC figures, shortage of specialised workforce in the construction industry is approximately 33 per cent. Separate industry estimates indicate that shortage of senior level manpower is more acute at 60 per cent. Civil engineers and architects who form the backbone of the built environment are estimated to be in short supply by ~200 per cent and 50 per cent respectively.
CIDC data also suggests that the construction industry engages approximately 33 million people, which has grown from 14.6 million in 1995. However, only 20 per cent of this population is skilled. In the recent past, shortage of skilled resources has been responsible for slowing down the construction activity by an average of six months to a year. Despite the enormous size and potential of the sector, apart from civil engineering, town planning and architecture, the current education set-up does not adequately provide for specific curriculum requirements and specialised courses for construction.
Barring a few institutions, which cater to a very small percentage of the people employed in the sector, no professional training and certifications are available.
As a result, most people employed in the sector learn fundamentals of business on the job and hence, the quality of professionals employed and the quality of work delivered, leaves a lot to be desired.
Given the constraints and hurdles the construction sector faces, stakeholders are reassessing their roles and responsibilities to overcome existing deficiencies in the system. With an improved economic outlook, infrastructural development is set to pick up pace through 2010 which will have a direct bearing on construction activity. With increased global competition and customers demanding world class quality and amenities there is a genuine need to enhance and strengthen capabilities, project management skills, and execution timelines. With the ability of the sector to adapt to change and cater to demand, it seems likely that the construction sector will live up to the expectations of stakeholders in achieving its infrastructural goals.