Construction is vital both to the UK economy and in shaping the built environment in which we live, work and play. The country’s one million construction firms employ 2.4 million people, and achieved £113bn output in 2017, according to the most recent government statistics.
In this article, we’ll examine some of the issues that have surrounded UK construction and look to the bright future that’s emerging for it. We reveal four opportunities for construction firms investing in their future and a fantastic source of funding that has been hiding in plain sight.
Construction productivity – an industry’s growth at risk
Construction has been through a prolonged period of growth since 2013, which is positive and unusual for the industry. But construction productivity has been on average 21% lower than that of the wider economy since 1997. The reasons for this gap are not straightforward. They include:
- the cyclical nature of projects;
- the uncertainty of pipeline work;
- lack of cross-sector collaboration;
- the struggle for funding;
- the cost of raw materials;
- supply-chain complications; and,
- shortages of skilled labour.
Everybody in construction will be familiar with these challenges, so just what does the sector have to do to maintain growth? Identifying and overcoming the following issues will result in a faster, safer, more rewarding and sustainable future for construction. Here’s how.
1. Financial issues in construction
It’s impossible to budget for raw materials when prices keep increasing. Especially as construction firms have been left without easy access to the capital they need to make competitive bids and grow their business.
In the ten years post economic downturn, established financial services lenders have squeezed their commercial lending criteria. More recently, Brexit uncertainty choked investor confidence and experiments with crowdfunding and invoice finance have not been as successful as some thought.
Bad debts have been rife, liquidated customers paying off only small portions of their liabilities in Company Voluntary Arrangements (CVAs). There were high-profile casualties as a result of these financial failings. For example, insolvencies in UK building firms increased 20% after Carillion’s collapse.
2. Equality and diversity in construction
Construction will only be able to meet its challenges if the sector is able to re-skill a workforce which is ageing and one of the least diverse. The government’s Construction Sector Deal says that a third of workers are over 50 years old and only 10% are under 25. 86% are male, and 94% are white. Given this dynamic, how do you inspire bright youngsters to build structures rather than video games?
Apprenticeship schemes are important factors in young people considering career opportunities. One of our clients, a household name in glass manufacturing, has used their R&D tax credit to help fund a successful apprentice program. It has given them a production line of young artisans, each flourishing in the company’s experimental glass-blowing room. This culture of innovation is a joy to behold.
Talk to the experts
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3. Construction supply chain management
Time-, resource- and labour management are all complex and interdependent challenges in construction. Missed project checkpoints can lead to missed deadlines and a potentially harmful domino effect on other projects. Downtime, delays and even site closure can be caused by external factors beyond even the best contingent planning.
Yet some of it is avoidable. Supply-chain issues like double handling, misallocation, waiting on site and even assets going AWOL, can be attributed, at least in part, to a failure to adopt more efficient emerging ways of working.
It is thought that infusing technology into construction could realistically and massively improve procurement and supply-chain efficiencies, leading to better onsite execution. One theory, from McKinsey’s Route to Higher Construction Productivity, estimated that productivity could be improved (a whopping) five to ten times what it is now, if construction simply adopted more digital manufacturing-type technologies.
Funding construction programmes
In the same year, RDEC — the government research and development incentive for large companies — was given a 2% increase in benefit rate (to 12%). This rate is subject to Corporation Tax so the benefit for large companies is 10% in real terms. This increase in generosity underlines the government’s commitment to R&D tax credits as a means to increase overall productivity in the UK.
Positive economic impact
In fact, the government wants to increase total research and development (R&D) investment to 2.4% of GDP by 2027. As an established source of government funding, (see our timeline of R&D tax credits) the incentive is here to stay.
That’s because R&D tax credits stimulate private sector investment in innovation. In a working paper from HMRC on the impact of R&D tax credits, it estimates that for every £1 awarded to innovative businesses via R&D tax credits, between £1.53 and £2.35 is stimulated in additional R&D expenditure.
R&D tax credits are especially good news for the construction sector. We’re talking about a cash windfall, often for what you might consider to be just everyday construction projects. The average claim made by an SME is worth £53,876, and by a large company £272,881. You can claim R&D tax credits each year and so they are a reliable source of funding that can be used strategically to grow your business.
Whether you use it to pay for expensive building materials or to invest in the latest digital technology: R&D tax credits will effectively take the pressure off when it comes to making commercial decisions.
The incentive also helps firms attract, train and retain people with science, technology, engineering and mathematics skills. Having more of these technicians — who are the sector’s lifeblood — will ensure that the future of construction is built on strong foundations.
Importantly, R&D tax credits are not reliant on EU funding in any way and even in times of uncertainty, investors love R&D tax credits.
Innovation in construction industry
In its Industrial Strategy white paper, the government points to innovation as the key to its long-term plan to increase productivity and earning power in the UK. By investing in world-leading research and highly-innovative businesses, it believes today’s biggest industrial and societal challenges will be solved.
The definition of research and development, for the purposes of claiming R&D tax credits,is purposefully broad so that it applies equally to businesses of all different sizes, across sectors. For that reason, construction firms – and in particular specialist contractors – sometimes find it difficult to identify their work as R&D.
In short: R&D may include something new, something better, something done differently.
This doesn’t mean you need to be changing the world to be rewarded with R&D tax credits. Projects that develop or improve products, processes or services could qualify.
8 ways your everyday work might qualify as R&D
- Creating, or experimenting with, new materials?
- Integrating new or improved technology into buildings?
- Solving technical problems that arise during or after construction?
- Modifying existing components and fittings into bespoke projects?
- Meeting new regulatory requirements e.g. fire, health & safety, sound and thermal?
- Developing new or improved equipment used in construction?
- Redesigning to improve performance, reliability, quality, safety and life-cycle costs?
- Developing Buildings Information Management (BIM) capabilities?
Let’s take a look at some of the areas where construction industry innovation is both having a transformative impact and qualifying for R&D tax credits. We believe this represents a significant opportunity for construction firms.
Greener — sustainable construction
Greener construction means reduced environmental impact. Taking measures to avoid contamination. Reducing carbon intensity of products and processes in the build phase. Then lowering the carbon footprint of completed buildings.
The government target is to halve energy use of new buildings by 2030. They’re calling it the Clean Growth Grand Challenge and it covers both during construction and throughout the building lifecycle.
Better performing buildings, built quicker and at a lower cost. Lower energy use from homes and workplaces in the near, not distant, future. If you’re being asked by your client to deliver a project in a more energy efficient way, you’re probably doing qualifying R&D.
R&D tax credits have an important role to play in helping UK construction firms maximise the advantages from the global shift to clean growth. Driving this improved environmental performance are new cleaner technologies.
We recently worked with a property developer investing in such green technologies. They had built 30 bespoke homes with lots of cutting-edge green features. Server devices converted the homes into smart homes to be more energy-efficient. Connected components included a fresh-air ventilation system tailored to each home’s layout. Solar panels were embedded into the roofs themselves, rather than held on a frame above the roof. This project secured them a £120,000 tax credit.
Faster — lean construction
The Centre for Digital Built Britain and the technology roadmap developed by the Infrastructure Industry Innovation Platform (i3P) consortium are encouraging a full-blown digital transformation in the sector.
Construction supply-chain management is improving with innovations like offsite manufacture; supply-chain management software, and BIM. The connection of operational technology and information technology is creating new efficiencies of construction manufacture too.
There’s increasingly better visibility into full asset inventories. Digital asset tracking, including telematics for construction vehicles, is making full use of assets throughout their lifecycle, while also improving consignment certainty and security in transit, and accuracy of jobs billed. These innovations are the result of someone’s project to improve their supply chain and would likely qualify for R&D tax credits.
Offsite manufacturing is another important way in which the construction industry is building more quickly and with less impact.
Safer — secure construction
After the Grenfell Tower tragedy in June 2017, Dame Judith Hackitt’s report examined the regulatory framework for design, construction, maintenance, and use of (initially high-rise) buildings.
It concluded that the existing regulatory framework wasn’t fit for purpose and made 53 recommendations. This report asks contractors to question the building techniques they’ve been using and take a different approach. From an R&D perspective, if you’re investing in improving fire safety, it’s likely your project might qualify for a valuable cash boost. But more broadly, if you’re trying to safeguard your labour on site by developing improved safety equipment, this type of project could be eligible too.
One such project that we worked on was for a construction firm who fits metal decking. The purpose of their safety innovation project was to prevent edge trims (steel panels used to give concrete its intended shape whilst setting) falling from height.
They devised a tethering device and introduced a small hole in the corner of the edge trim which it could clip to. The clips and steel tether itself were already commercially available, though had not been combined and used for this purpose previously. The project earned an R&D tax credit of £62,000.
Cheaper – affordable construction
If you’ve been asked to make a bid more competitive by reducing your costs, you’re likely to achieve this by using an alternative material or alternative building techniques.rnrnOffsite manufacture can offer cost efficiencies too and includes:rnrn
- Volumetric construction, where manufactured parts, rooms or indeed even small buildings are assembled offsite in controlled factory settings then transported to the building site as a fully-fledged product.
- Offsite frame manufacture and construction and indeed, modular offsite construction
- Component panels of brickwork, glazing etc which can be brought to site then assembled in different combinations, as per the designs
Offsite manufacturing projects are the sort of highly skilled and bespoke technical projects that often contain R&D. For example, an engineering firm client of ForrestBrown performs structural-, mechanical-, electrical- and façade engineering. They were tasked with delivering a curved building for their client, comprised of varying and unusual angles.rnrnIn order to develop the most efficient build process, they developed a system of pre-casting and stitching together concrete components of the build. They created a puzzle-like structure that could be pre-cast offsite, ahead of schedule. This was more efficient than pouring each concrete strut in situ and having to wait for the concrete to ‘go off’ before the next stage. This development in off-site manufacturing resulted in significantly reduced construction time for the developer.rnrn
A culture of innovation
Read how ForrestBrown helped Dartington Crystal to fund an apprenticeship programme using R&D tax credits.
Get the credit you deserve
Don’t let construction R&D tax credits pass you by, whatever innovation looks like in your construction firm.
Not everyone can be expected to understand the minute details of R&D tax credits, but we do. R&D tax credits is what we do, day in day out. It means that we know how to make your R&D tax credit more rewarding.
We also optimize your record-keeping to enhance future claims. And advise where R&D tax credits could be invested to perform better for you year-on-year.
So, if you want the full R&D tax credit claim that your work deserves, speak to ForrestBrown.