Study on the Competitiveness of the EU Construction Sector and Its Enterprises

Study on the Competitiveness of the EU construction sector and its enterprises

Within the Framework Contract of Sectoral Competitiveness Studies – ENTR/06/054

Draft Inception Report

Client: Directorate-General Enterprise & Industry

Team Leader: Knud Erik Hilding-Hamann, DTI

Aarhus, Copenhagen, Rotterdam and Brussels, 12 October 2009

(SCS-619 European Union) – Sector Competitiveness – Construction sector

(SCS-619 European Union) – Sector Competitiveness – Construction sector

Table of contents

1 Introduction 1

1.1 Brief sector overview and context 1

1.2 Work carried out during Inception phase (Task 0) 4

2 Analytical framework and data definition 7

2.1 Statistical definition of the construction sector 8

2.2 The elements of the analytical framework and how it will be applied 11

2.2.1 The different elements of the analytical framework 11

2.2.2 The analytical framework in relation to the five main tasks 13

2.2.3 The analytical framework applied to the three different subsectors 14

2.3 Competitiveness issues in the construction sector 16

3 Methodology and workplan 19

3.1 Introduction 19

3.2 Task 1: Literature review 21

3.3 Task 2: Collection and presentation of data 29

3.3.1 Inputs to other tasks 34

3.3.2 Deliverables 34

3.3.3 Detailed time plan for task 2 35

3.3.4 Allocation of resources in task 2 35

3.4 Task 3: Competitive position and global markets 36

3.4.1 Activities 36

3.4.2 Inputs to other tasks 40

3.4.3 Deliverables 41

3.4.4 Time plan in task 3 41

3.4.5 Allocation of resources in task 3 42

3.5 Task 4: Regulatory and framework conditions 42

3.5.1 Activities 43

3.5.2 Links to other tasks 46

3.5.3 Deliverables 46

3.5.4 Time plan for task 4 46

3.5.5 Allocation of resources in task 4 47

3.6 Task 5: Strategic outlook 47

3.6.1 Activities 47

3.6.2 Deliverables 49

3.6.3 Time plan for task 5 50

3.6.4 Allocation of resources 51

3.7 Overall deliverables 51

4 Planning of activities and risk mitigation 53

4.1 Timetable of activities and milestones 53

4.1.1 Schedule of meetings 54

4.2 Risk Mitigation 55

5 Literature and stakeholders list 57

Annex 1: Irish Literature review completion 66

Annex 2: Data availability 83

Annex 3: Minutes of Kick off meeting 93

Competitiveness of the European Construction sector 93

Commission’s comments on the proposal 93

Overall comments 93

Specific comments on proposal 95

Contractual matters 96

Project implementation 96

Role and involvement of stakeholders 96

Involvement of other DGs 96

Definition of the sector and data collection 96

Inception report 97

Involvement of stakeholders and experts 97

SC Meetings (Now Monitoring and Advisory group meeting) 97

Risks and risk mitigation strategy 98

Communication and management 98

Next steps 98

Overview of expected input from the European Commission 98

Agreed Consortium Actions: 99

(SCS-619 European Union) – Sector Competitiveness – Construction sector

1  Introduction

Referring to the request for services, dated 30 September 2009, in the context of the framework contract on Sector Competitiveness Studies (ENTR/06/054) signed between our consortium, lead by ECORYS NL, and DG ENTERPRISE, DTI together with its partners ECORYS NL and IDEA Consult is pleased to submit the inception report for the Study on the competitiveness of the construction sector and its enterprises.

The Inception report is the result of an initial inception phase and will be discussed at the coming monitoring and advisory group meeting.

1.1  Brief sector overview and context

European Construction activity

The construction sector is strategically important for Europe. With 16.3 million people directly employed in the sector, it is Europe's largest industrial employeraccounting for 7.6% of total employment and 30% of industrial employment in the EU-27 (2008).

About €1,305 billion was invested in construction in 2008, representing 10.4% of the GDP and 49.2% of the Gross Fixed Capital Formation of the EU-27 in 2008. Germany, Spain, Great Britain, France and Italy jointly represent more than 70% of the total EU-27 construction activities in 2008, and these five countries jointly represent two thirds of the total employment in construction in the EU-27 as well as two thirds of the 2.97 million enterprises in the EU-27. 95% or 2.8 million of these enterprises employ fewer than 20 workers[1].

The share of total construction activity in Europe (2008) for four of the key market sectors is shown in Table 1.1below:

Figure 1.1 Construction activity in Europe (2008) by market sectors

Market sector / Share of activities / Share in billion €
Maintenance and rehabilitation / 28% / 365
Civil engineering / 21% / 274
Non-residential / 31% / 405
New Housebuilding / 20% / 261
Total construction activities / 100% / 1305

Source: FIEC Key figures 2008

Professional services - Architects

Europe[2] has approximately 483,000 architects of which 25% are based in Italy and 20% in Germany. There are an estimated total of 130,000 practices in Europe (32 countries). Based on a survey[3] of 17 European countries the total estimated value of the architectural market for the 32 European countries is €22 billion. Two countries- Germany and the UK - jointly account for more than 30% of the total market.

Professional services – Engineers

According to a 2008 Industry review of the European engineering consultancy sector[4] the UK leads the engineering market followed by France and Germany. Jointly, these three markets totalled more than €132 billion in 2005. According to industry sources (EFCA), there are estimated to be approximately 3.5 million engineers in Europe, of whom around 1 million are estimated to be active in the engineering and technical consulting sector. Furthermore, according to the ING review from 2008 the engineering consultancy sector is active on the export market and it is estimated that on average 25% of turnover is achieved on export markets with the UK leading the rest of Europe at 35% of turnover being exported. Under professional services, this study will also cover cost consultants and building controlling bodies.

Construction materials and products producers and suppliers

The construction industry accounts for 10% of total European GDP, of which according to CEPMC[5] just under a third i.e. 3.5%, is attributable to construction materials and building products. Based on the total construction activity for EU-27 totalling €1,305, the materials and products market represents more than €400 billion in 2008. Direct employment in this industry is estimated at 2.5 million people.

In terms of construction materials we will seek to cover the main materials and product areas while the issue of raw materials will be covered as a framework condition under task 4. Here previous studies conducted under the framework contract, including studies of the metal, ceramics and glass sectors will be useful background information for this study and particularly the study of the building materials and products industry.

Equally, knowledge institutions will be covered as part of the analysis of the framework conditions in task 4. Finally, the study will cover wholesale of building materials and products as these supply the building trades directly whereas the retail market to consumers for Do-It-Yourself purposes will not be covered.

The construction sector, its different subsectors and related sectors are depicted in the Figure 1.1 below (the study will concentrate on the circled areas):

Figure 1.2 Overview of the construction sector and key subsectors

The construction sector is characterised by a complex value chain which includes basic manufacturing, supply and wholesale of building materials and a range of knowledge-intensive services provided by private enterprises and public knowledge organisations. Some of the large actors in the different subsectors currently operate across European borders and even in international markets (for instance, architects and engineering companies), while other actors in the value chain mainly operate in national or local markets. As a result, the different actors face very different challenges with regard to competitiveness and innovation. These differences will be reflected in the study by ensuring that data, case studies and interviews cover key structural differences at both national and subsector level.

The 1997 competitiveness agenda for the construction sector described the function, prospects and importance of the sector. It subsequently identified four objectives for enhancing the competitiveness the sector:

1.  To develop a coherent quality policy for the sector

Improving quality procedures and standards taking into account environmental, regulatory, employment and entrepreneurial considerations;

2.  To improve the regulatory environment

Adapting the regulatory framework in particular for public procurement, unfair competition, registration and qualification systems, health & safety and payment delays.

3.  To improve provision of education and training

To improve the education level, the qualifications of the workforce and the image of the sector, a key issue related to improving its attractiveness.

4.  To reorient and reinforce research and development

To strengthen efforts in Research and Technological Development, Innovation and knowledge deployment.

In addition, the ’97 competiveness agenda indicated an overarching objective of facilitating international expansion of all facets of the EU construction industry. An action plan was developed in cooperation with relevant stakeholders and working groups with wide participation from stakeholders at national, European and industry level were constituted to further elaborate and develop the recommended actions and implementation mechanisms.

According to the European Commission, most stakeholders have confirmed that the competitiveness agenda had a considerable “catalytic effect” on the substantial progress made in areas like:

·  increased ICT-use;

·  sustainable construction;

·  the image of the sector (both from improved quality of output and improved conditions on construction sites);

·  the development of tools for specific issues like detecting abnormally low tenders;

·  common methods for life-cycle costing.

The implementation of the ’97 competitiveness agenda has involved the following challenges:

·  it called for strong level of commitment from different actors at European, national and industry level;

·  it required coordinated implementation between these actors;

·  It called for an effective implementation system with tools and methods for steering and monitoring progress;

·  During the period it has been affected by significant changes an developments in society (eg. Enlargements of EU, globalization of markets, increased focus on energy efficiency, climate change.

This study will analyse the results and the implementation of the ’97 competitiveness agenda in order to build the experience and learning points into the development and drafting of a new competitiveness agenda and implementation plan and modalities which addresses the above challenges of the ’97 competitiveness agenda and takes into account future challenges.

1.2  Work carried out during Inception phase (Task 0)

The point of departure for the study is the development of a sector-specific analytical framework (see section 2) and on the basis of this the collection and analysis of quantitative and qualitative data. Hence, the inception phase has been used to carry out a brief pre-analysis in order to provide an initial general sector description.

Kick-off meeting and work plan

The study began with a kick-off meeting with the Commission on the 10th December. The Kick off meeting was used to discuss the expectations of the Commission concerning the study and its outcomes. At the kick-off meeting we also discussed risks and risk mitigation and the initial risk mitigation plans are presented in section 5.2 Also communication plans and scheduling of deliverables and meetings was addressed to ensure the successful completion of the study. Initial timing of milestones and deliverables are presented in section 5.1. Furthermore, we discussed the mapping of the relevant stakeholders at national and European level with the Commission and discussed how to best involve them in the study and which roles they could play in relation to the various tasks/activities of the study. Minutes of the kick off meeting and power point presentation was sent to the Commission on the 17th December.

During the inception phase we have scoped the work on the sector and drawn up a more detailed work plan in conjunction with the development of a more detailed picture of literature and data sources (see section 5). This includes an assessment of the level of analysis in the various activities (e.g. overall sector, Member states, and subsectors).

At the kick off meeting, the European Commission reaffirmed the focus of the study. The intention is to transpose the new competitiveness agenda into a Commission Communication, guiding the official policy over several years.

Key issues to be covered:

·  What are the drivers?

·  Identify demands (societal) and challenges for the sector as well as opportunities for growth (such as eco-construction);

·  Identify objectives and policy actions to inform new competitiveness agenda for the sector;

·  Identify modalities for how to implement the new competitiveness strategy for the construction sector.

The challenges and proposed policy actions should be structured according to the time perspective: Short term, Medium term and Long term. The contractor will provide a draft competitiveness agenda for the sector based on evidence and data. The competitiveness Agenda will be finalised by the Commission in collaboration with stakeholders and member states.

Inception report

As a starting point for the discussions at the monitoring and advisory group meeting, we are providing the following in the inception report:

·  A structure of the relevant industry classification and value chain;

·  A clear view on the data availability in terms of quantitative and qualitative data;

·  A comprehensive plan for consultations with stakeholders and experts during the study (including a plan for interviews with stakeholders);

·  A map of data flow and analysis through the five tasks (a conceptual representation of data flow and usage);

·  A detailed plan of work and reporting schedule within the team and with external stakeholders.

As part of the development of the inception report, we have conducted a couple of stakeholder interviews at national level to get views on the key issues and themes.


(SCS-619 European Union) – Sector Competitiveness – Construction sector

2  Analytical framework and data definition

In this section we present the analytical framework and how it will be applied to the construction sector (section 2.2). Furthermore, we define the sector and subsector in statistical terms both using the NACE Rev 2 and Rev 1.1, because during the study we will be using data on the basis of both NACE codes.