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AECbytes Viewpoint #4 (April 14, 2004)

Labor Productivity Declines in the Construction Industry: Causes and Remedies

Paul Teicholz, Ph.D.
Professor (Research) Emeritus, Dept. of Civil and Environmental Engineering, Stanford University

The productivity of the construction industry, as measured by constant contract dollars of new construction work per hourly work hour, has gradually declined (with some modest exceptions) over the past 40 years at an average compound rate of -0.59%/year (see Figure 1). This is particularly alarming when compared to the increasing labor productivity in all non-farm industries, which have experienced an increasing productivity of 1.77%/year over the same time period. Over the past decade, this trend has slightly improved but the decline in construction labor productivity relative to the rest of the industry has continued.

This is a serious problem which indicates that over the past 40 years, construction projects have required significantly more field work hours per dollar of contract. In other words, the construction industry seriously lags other industries in developing and applying labor saving ideas and in finding ways to substitute equipment for labor. While there are a number of construction tasks that have been made more productive through the use of labor saving equipment, it is clear that, looking at the whole industry, there is a significant productivity problem. Why is this the case and what can be done about it? First, let's review the productivity data shown in Figure 1.

Figure 1. Labor productivity index for US construction industry and all non-farm industries from 1964 through 2003.

The above graphs represent an average for the entire construction industry. The US Bureau of Labor Statistics data for field work hours and US Dept. of Commerce data for contract dollars of new construction has been used, which does not permit breaking this data into finer segments because these agencies do not use the same method to categorize their data. Only at the total industry level can they be compared and used to calculate overall field labor productivity.

The major causes for lack of progress in field productivity are, in my view, the following:

  • The design-bid-build (DBB) business model fragments responsibility for a design and construction project and reduces the potential benefits gained from investments in productivity enhancing methods, i.e., the potential gains are often seen as not worth the added risk and initial costs. The owner is usually not in a position to develop, implement or assume the risk of new methods, and thus is reluctant to insist on their use for a given project. The DBB business model separates the design and construction phases of a project, which means that construction knowledge cannot be fully considered during design. This often leads to increased field costs. It also frequently leads to more changes and conflicts during construction that cause delays, claims and extra cost.

  • Despite the fact that there has been a significant adoption of new information technology (IT) by the construction industry over the past 35 years, these applications tend to run in a stand-alone mode that does not permit improved collaboration by the project team, e.g., each designer uses a separate CAD/CAE system, CPM is independent of cost control which is independent of project changes to the drawings and specs, etc. Thus, while computers now generate much information, they ultimately produce a paper output, which then must be manually reviewed so that relevant data can be entered into another program, e.g., CAD drawings are plotted so that estimators can use them for making a cost estimate. This fragmentation causes increased effort and time and has greatly reduced the ability of the project team to respond quickly and effectively to changes in scope, site conditions, delivery delays, etc. Thus, despite the widespread use of IT, it has not had a significant impact on overall performance.

  • The building industry is characterized by a large number of small clients, vendors, designers, general contractors and sub-contractors who are often not in a position to provide leadership for the adoption of new technology and practice (see Figure 2). In other industry segments where this is not the case, e.g., process and power, there has been more rapid change and a significant increase in the productivity of both design and construction, e.g., the capital cost per KWH of output from a power plant has steady declined over the past decade. This opposite is true in areas such as commercial building or home construction.

Figure 2. Distribution of construction company size by number of employees, 1996.

  • There is a very low (less than 0.5% of contract volume) investment in R&D by the construction industry as a whole and by the government agencies that work with this industry. A 1992 study of R&D in the construction and related industries by the Civil Engineering Research Foundation (CERF) found that R&D expenditure for all areas of civil engineering by federal and state agencies, universities and private industry was only 0.5% of industry contract volume ($2.1B in R&D with $452B in contracts for 1992). Of this research, only 7% was related to construction practice, or just 0.035% of 1992 contract volume. In contrast, the average for all industry was 3.5%. The construction industry places little emphasis on long-term investments in R&D because of its perceived high cost and risk. New methods are often limited to individual projects. This leads to a slower rate of adoption of new technology and less interest by students in the industry (the lower pay relative to many other industries is another factor contributing to reduced student interest).

  • Construction workers are paid relatively low wages that are declining over time on a constant dollar per hour basis. This means that there is less pressure to substitute labor saving equipment for labor work hours (see Figure 3).

Figure 3. Average hourly wage rates (excluding benefits) for hourly workers in the construction and manufacturing industries, 1982$, 1964-2000.

Reviewing the above possible causes of declining productivity, it is clear that no one "fix" will change industry performance. However, there are potential areas for improvement.

  • Improved use of IT including the use of 3D CAD during design and the use of the Internet to improve team productivity is a clear area for improvement. It is now possible to link a project team to all of the information required for a project. The designer(s) can work with intelligent 3D CAD models that can be viewed and shared using browsers. Emerging data modeling standards being developed by the International Association for Interoperability (IAI) and related groups will allow rapid and error-free sharing of data among many computer applications. As these capabilities are exploited, owners will find that very significant savings in costs and time can be achieved if the team members use information tools that support these data standards. These same requirements will also help to ensure that the electronic files created during the project will more accurately reflect "as-built" conditions so that they can be used for facility management functions after the project is completed. Thus, there will be a much larger benefit realized from the database created by a project team.

  • The design build (DB) business model is gaining acceptance in both public and private construction. It has inherent advantages over the DBB model for those projects where the client/owner can define project requirements, quality levels and scope prior to design. This will allow the DB contractor to integrate design, construction and possibly maintenance knowledge early in the design phase and produce an agreed upon project in a significantly shorter time. In addition, this business model greatly reduces the owner's risk since the owner's responsibility for project oversight is greatly reduced. Finally, the DB model increases the benefits of using new IT to support collaboration since there are increased benefits from information sharing among the project team. Successful DB firms will exploit these benefits to gain competitive advantages.

  • The government agencies (federal and state) that support R&D for the construction industry need to place a higher emphasis on this vital and large component of our economy. The significant benefits from a more efficient construction industry would more than pay for the additional R&D costs. In addition, it would induce faster adoption of new technology within the industry.

  • Additional worker training would provide a more effective and safe work force. This would help attract more and younger workers and invigorate an aging workforce.

In summary, it is clear from the above graphs that the construction industry suffers from structural productivity problems that will not be rapidly cured. The slow erosion of labor productivity, the aging of the construction work force, the slow rate of change in field practice and the current lack of student preference for civil engineering education are serious indications that new approaches are needed to revitalize and bring fresh ideas into this industry. Nevertheless, there are significant steps that can be taken that will produce real benefits over time. The most important of these is the introduction of 3D object-based CAD that will allow improved design, team collaboration, construction bidding, planning and execution, and real owner value at all stages of the life cycle. We should not expect construction productivity improvements without a significant change in the information tools and collaboration strategies used for design and construction.

About the Author

Dr. Paul Teicholz was the Founding Director of the Center for Integrated Facility Engineering (CIFE) at Stanford University from 1988 to 1998. He is currently Professor (Research) Emeritus at the Dept. of Civil and Environmental Engineering, Stanford University, and also works as an independent consultant to the AEC industry and related service providers. Before his academic tenure at Stanford, Paul worked for over 25 years as a consultant and director of IT in the construction industry. He has won several academic and professional awards, including the Construction Management "Man of the Year" awarded by the American Society of Civil Engineers in 1985, and one of the most significant Innovators to "Technology and Materials" in the construction industry over the past 125 years, awarded by Engineering News Record magazine in 1999. He can be reached at pteicholz@msn.com.

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