Construction papers

Journal of Financial Management of Property and Construction

ISSN: 1366-4387

Article publication date: 8 November 2011


Wood, G. (2011), "Construction papers", Journal of Financial Management of Property and Construction, Vol. 16 No. 3.



Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

Construction papers

Article Type: Guest editorial 1 From: Journal of Financial Management of Property and Construction, Volume 16, Issue 3

I would like to join Peadar Davis in expressing my delight at being asked to be Joint Editor of the 15th anniversary edition of the Journal of Financial Management of Property and Construction. In my view, the two principle themes of real estate and construction make good bedfellows and one can only see this becoming more apparent as we move forward into an environment where construction and property management are brought closer together by the use of integrating technologies and systems, most notably through building information modelling.

The three construction papers included in this issue cover a range of subjects but are all, to some extent, linked by explicit or implicit reference to the nature of the construction industry, almost worldwide, in being made up of many, many SMEs – as much as 94 percent Olatunji tells us in Australia – and what this means for its performance, development and competitiveness.

The first paper by Robert Eadie, Srinath Perera and George Heaney reports on how a capability maturity model based on drivers and barriers to e-procurement can be developed to form key performance areas which help assess the (e-procurement) maturity level of an individual organisation. One of the interesting observations is that, based on a demand-side UK survey, only 21 percent of organisations are using e-procurement. So, whilst this is a subject area which is very much at the heart of the financial management of construction projects, it would appear that there has only been limited progress since the launch of this journal 15 years ago. It may well be that the composition of the construction industry, with its large percentage of SMEs and their capacity for e-system absorption, may be a relevant factor here. Looking forward, it will be interesting to follow Eadie et al.’s future work to see the final model for calculating the organisational maturity level of a firm. This should prove helpful to practitioners and companies engaged in the procurement of construction work in assessing their current status and identifying areas for future action. One is left wondering whether the supply side of the construction industry (contractors, sub-contractors and suppliers) is any further advanced than clients and consultants in their e-procurement practices.

In the second paper Oluwole Alfred Olatunji develops a useful model for assessing the cost of implementing building information modelling in a typical construction SME using the six cost determinants of training, hardware, software, services/technical support, recruitment, and contingencies. Based on an analysis of 32 cases in Australia, a simulation and regression models are used to show that a benchmark cost for a one-system SME would be AUD $14,000 excluding salaries, parametric BIM object databases, etc. (£9,400 at current exchange rates) with software accounting for approximately 55 percent of cost on average. Olatunji comments that other international studies have indicated that, for a wide range of reasons, SME businesses are reluctant to adopt BIM. Based on the relatively modest levels of expenditure calculated in this paper and the likelihood that software costs will reduce as BIM implementation rolls-out industry wide, one could speculate that cost is not the most significant inhibitor. Given the widely anticipated importance of BIM in the future, as it becomes an explicit requirement of companies working for many public and private sector clients, it seems there is significant scope for assisting SMEs in moving forward.

The third paper by John Lowe uses concentration ratios to identify the incidence of competition and monopoly in the UK construction sector. Lowe identifies seven input sectors to construction: construction, materials and components, professional consultancy, plant and equipment, real estate, transport and services, energy and supplies and each is categorised according to its market form. In the analysis, Lowe excludes the extremes of conventional market form classifications – “monopoly” and “perfect competition” (on the basis that they do not exist in reality) – to leave “oligopoly” and a stratified “imperfect competition” categories. Of the seven, two sectors are rated as low competition and two as oligopolistic, but when relative weightings are applied 57 percent of inputs are highly competitive, 9 percent competitive, 27 percent low competitive and only 7 percent as oligopolistic. The paper concludes that construction is one of the most competitive sectors in the economy and its input structure is amongst the least concentrated. Whilst this should lead to keener pricing and greater economic efficiency the author acknowledges that low concentration does not always lead to genuine competition. Indeed, the investigation by the Office of Fair Trading into collusion within the construction industry in England concluded that firms engaged in illegal anti-competitive bid-rigging activities on 199 tenders from 2000 to 2006 and imposed fines totalling £129M on 103 construction companies!

It may well be that in future the greater degrees of competition and transparency offered by e-procurement systems, combined with the collaboration, value sharing, integration and interoperability of sub-systems enabled by the implementation of building information modelling will create a more robust project environment that is able to take advantage of the benefits that a highly competitive, low concentrated market should bring.

Gerard WoodGuest Editor