Chapter 1: Construction Industry
1.0 Introduction
The construction industry is vast and unique compared to other industries, such as manufacturing. This chapter introduces the construction industry in general, including its nature and key stakeholders. The industry deals with different types of construction, including buildings and infrastructure. The chapter expands its focus on the building sector among various construction sectors. It provides a closer view of the Australian and New Zealand building construction, where the cost planning activities in this book are focused.
1.1 Overview of the construction industry
The construction industry encompasses construction, demolition, renovation, maintenance, and repair of building and civil engineering works, including various associated services ranging from planning, designing, controlling and managing. The construction industry inherits unique characteristics, given its nature.
1.1.1 Construction industry characteristics
The construction industry is heterogeneous, which means each product/type is customised. Construction projects involve a huge range of inputs, including materials, labour, plant and equipment. They are also affected by a range of other factors, such as site conditions and market conditions. The industry is also fragmented, where raw materials, suppliers, manufacturing plants and construction sites are scattered across the globe. Even though the construction industry can be characterised as unique, complex, high cost, and high risk, which complicates innovations, the industry flourishes with technological advancements and impressive achievements across the globe, including stunning cityscapes, skyscrapers, massive infrastructure and sustainable construction every day. Its pragmatic, resilient and responsive characteristics enable rebuilding the industry for steady and rapid growth amid disruptions from disasters such as the COVID-19 pandemic and natural hazards.
1.1.2 Stakeholders in construction
The construction industry consists of a range of internal and external stakeholders. They can also be known as direct and indirect stakeholders. This categorisation can be varied based on the nature of the construction project and its type of contract. Key direct internal stakeholders in a construction project are the client, contractor/builder and consultant. Subcontractors and suppliers are also categorised as direct stakeholders. Some examples of indirect stakeholders are local, state and federal government departments and agencies, local communities, financing entities, industry associations and advocacy groups. The end users are considered indirect stakeholders in typical projects, who ultimately use or occupy the building or infrastructure. A few examples are employees who work in a new office building and drivers who use a new highway. However, their needs are important considerations for a construction project.
Interesting facts
- In some projects, ‘end users’ can be considered direct stakeholders. For example, in large mixed development projects where different spaces are leased to various end users, interior fit-outs are designed and installed as per the requirements of those end users. There can be individual interior fit-out projects within the large development where end users become direct stakeholders.
- The government is an indirect stakeholder in typical private sector projects, but the government will be the client for many public sector projects.
The roles and significance of key direct internal stakeholders are discussed in this section and will be referred to throughout the book.
Note: In Australian and New Zealand Standard Forms of Contracts, the client is referred to as ‘Principal’.
(Standards Australia, 1997; Standards New Zealand, 2023).
Note: The contractor carries out the actual construction. In this part of the world, the term ‘Builder’ is used interchangeably with the term ‘Contractor’.
Note: In different parts of the world, Standard Forms of Contracts refer to the client’s representative using different terms:
- ‘Superintendent’ in the ‘Standards Australia’ Forms of Contracts (AS 4000-1997)
- ‘Standards New Zealand’ Forms of Contracts (NZS 3910: 2023) specifies 2 roles – ‘Contract Administrator’ as the client’s representative and ‘Independent Certifier’ as the neutral party
- ‘Engineer’ in the International Federation of Consulting Engineers (FIDIC) Construction Contract (2nd ed., 2017 Red Book, reprinted 2022 with amendments)
The client may engage one or more consultants in different project stages depending on the project’s complexity and requirements.
Professional consultants can be Project Managers, Architects, Engineers, Surveyors, Cost Managers and Legal Advisors.
1.1.3 Economics in construction industry
The construction industry is one of the major industries which significantly contributes to a nation’s economy. According to Research and Markets (2022), the expected growth in the global construction industry is estimated as $10.5 trillion by 2023 and the growth rate is 4.2% from 2018 to 2023, where the largest share of the growth takes place in China and Asia-Pacific region (Craig, 2022). The global construction industry market is expected to grow at a rate of 9.8% until 2026 (The Business Research Company, 2022).
1.2 The construction industry in Australia and New Zealand
Australia and New Zealand are unique in their construction industry characteristics. This section provides some country-specific information, including industry contributions to countries’ economies, professional bodies and industry standards.
1.2.1 Australian construction industry
The construction industry is one of the fastest growing industries in Australia with a significant influence on the country’s economy. The Australian construction industry contributes to 9% of country’s gross domestic product (GDP), with an annual growth rate of 2.4% projected from 2022 to 2027 (Parker Brent, 2022).
According to Australian Construction Industry Forum (ACIF) 2022 updates, the industry has been attaining a rapid recovery with unexcepted industry growth after the significant disruptions faced during the pandemic.
1.2.2 New Zealand construction industry
The construction industry plays a major role in New Zealand’s national economy. According to the Ministry of Business, Innovation and Employment (2023) [PDF], the construction sector accounted for 6.7% of GDP in 2022, with a 4.3% growth rate over the last few decades. A comparison of the GDP growth of total industries and construction in New Zealand can be seen in Figure 1.1.
Interesting facts
In Australia and New Zealand, a larger percentage of construction businesses consist of small traders. For example, small traders account for 98% of the Australian construction industry (Master Builders Australia, 2021), and in New Zealand, 94% of construction-related enterprises have less than 10 employees (Statistics New Zealand, 2022).
1.2.3 Professional bodies
Professional bodies provide leadership and guidance related to a profession in an industry. These can be professional regulatory bodies, and other bodies such as professional associations each serve different functions. Regulatory bodies have the legal authority to enforce laws and regulations related to a particular industry or profession. They act with the intent of protecting the public interest. However, professional associations act with the intent of serving the interests of their members. Professional bodies promote the professional development of the respective professions in the construction industry and establish professional standards for technical and ethical competence. These bodies also contribute to educating and developing the skills of professionals, thereby ensuring that the professionals’ contribution to the industry is up to the acceptable level to meet the industry requirements.
Some professional bodies in Australia and New Zealand are introduced in this section.
Australia
Standards Australia is Australia’s leading standards organisation, which represents the International Standards Organization for Standardization (ISO) and International Electrotechnical Commission (IEC). This organisation aims to establish standards, engage in the creation and acceptance of various international standards, and evaluate and sanction other entities to formulate Australian standards.
Australian Building Codes Board (ABCB)
ABCB is a standard writing body responsible for the National Construction Code (NCC), WaterMark and CodeMark Certification Schemes, and regulatory reform in the construction industry. It ensures safe and sustainable building and plumbing industries through regulatory and non-regulatory measures.
Master Builders Australia is a national body which represents the interests, viewpoints and contributions of all sectors in the construction industry, to promote best practices in building and construction.
Australian Institute of Building (AIB)
AIB promotes excellence in the construction industry through education, training and professional development of construction managers and other professionals involved in the building and construction industry.
Royal Australian Institute of Architects (RAIA)
RAIA promotes excellence in architecture through education, training and professional development of architects in Australia.
Australian Institute of Quantity Surveyors (AIQS)
AIQS is a peak professional body which sets standards, codes and ethics and provides education for professionals working in the fields of cost planning, quantity surveying, cost estimating, contracts administration and construction management.
Engineers Australia is responsible for setting standards for engineering education and professional practice. It provides accreditation for engineering education programs.
Green Building Council of Australia (GBCA)
GBCA is a non-profit organisation established to lead and promote the sustainable transformation and environmental practices of the built environment. GBCA developed the Green Star rating system, which is a voluntary certification program that measures the sustainability of buildings and developments.
New Zealand
Ministry of Business Innovation and Employment (MBIE)
MBIE is a New Zealand ministry focused on growing New Zealand’s economy and businesses, improving government policy, providing public services, creating regulations and sharing advice.
Standards New Zealand supports creating standards, codes and practices for products and services. This organisation also created different types of Standard Forms of Contracts for buildings and civil engineering construction such as NZS 3910:2023, NZS 3917:2013, NZS 3915:2005.
New Zealand Institute of Building (NZIOB)
New Zealand Institute of Building is a charitable trust representing the construction industry in order to improve its performance, research, innovation and development of individual professionals.
New Zealand Institute of Quantity Surveyors (NZIQS)
NZIQS regulates and supports professional development of members such as quantity surveyors, estimators and cost managers.
New Zealand Institute of Architects (NZIA)
This organisation represents most of the registered architects and promotes architecture in New Zealand.
Building Research Association of New Zealand (BRANZ)
Building Research Association of New Zealand is a science-led organisation. It was set up under the Building Research Levy Act in 1969 to support research to create a building system that delivers better outcomes for all.
This organisation represents builder firms and advocates for standards for construction trade practices in New Zealand.
Association of Consulting and Engineering
This non-profit membership organisation aims to support consultants as a collective group, improve preparedness and uphold the professionalism of consultancy firms.
New Zealand Green Building Council (NZGBC)
This is a non-profit organisation dedicated to improving the use of green building practices in the construction industry.
Engineering New Zealand is a non-profit membership association. It is dedicated to promoting the interests of engineers and engineering professionals by actively engaging in relevant discussions and representing its members’ viewpoints on current matters.
Masterspec supports design practices by providing specification systems for New Zealand’s construction industry.
This organisation supports maintaining health and safety in construction and high-risk industries through research, training, consultancy and auditing services.
1.2.4 Standards
Standards are formulated by groups of experts in order to codify best practices, methods and technical requirements of an industry. Standards help maintain professional and public interests.
Australia
National Construction Code (NCC) is Australia’s primary standard that provides guidelines for the technical design and construction provisions of buildings. NCC encompasses minimum performance requirements that should be fulfilled when constructing buildings in relation to the structure, fire safety, access and energy efficiency, health and amenity, etc. All buildings in Australia should comply with the requirements mentioned in NCC.
Australian Standards (AS) is a set of voluntary documents developed and maintained by Standards Australia, that consists of specifications, procedures and guidelines for the Australian Construction industry. They have developed Standards Forms of Contracts for building and construction such as AS 4000-1997 General Conditions of Contract and AS 4902-2000 General Conditions of Contract for Design and Construct (D&C). Some examples of other industry standards are AS/NZS 1170: Structural design actions; AS/NZS 3500: Plumbing and drainage and AS/NZS 3000: Electrical installations.
New Zealand
In New Zealand, all work related to buildings must comply with the New Zealand Building Code. These codes help maintain the safety, health and durability of the occupants and users. The building code is enforced by the Building Act 2004. Building consent authorities assess the plans and specifications and check if they comply with the building code. When building consent authorities are satisfied that the proposed building meets the regulations, building consent is given. The building consent confirms that the building plans meet building code requirements (Ministry of Business Innovation and Employment, 2023).
Construction projects in New Zealand should also comply with Standards New Zealand like Construction Contracts Act 2002, Building Regulations Act 1992, and Construction Contracts Amendment Act 2015.
Interesting facts
There are other guidelines and manuals published by professional bodies to guide industry best practices.
For example, the Australian Cost Management Manual (ACMM) has been published by the AIQS and endorsed by the Australasian Procurement and Construction Council Inc. (APCC) for cost management practices in construction projects. Similarly, the NZIQS has published an elemental analysis of the costs of building projects.
Currently, Australian and New Zealand professional bodies are working in collaboration to publish industry guidelines. For example, a strategic alliance between Australian and New Zealand professional bodies has published the Australian and New Zealand Standard Method of Measurement of Building Works (ANZSMM) and Australia and New Zealand Building Information Modelling (BIM) Best Practice Guidelines.
1.3 Building sector
According to the Department of Economic and Social Affairs of United Nations (2008), buildings are one of the complete products in the construction industry. Among different types of construction, the scope and the purpose of a building are mainly human occupancy, in contrast to a non-building which is a structure developed for other purposes. Buildings are predominately categorised as ‘residential’ and ‘non-residential’. The scope of building projects varies from a single-storey residential dwelling/commercial warehouse to a skyscraper.
According to The Business Research Company (2022), the building sector acquires a major portion of the global construction market, accounting for 48.1% of the total market in 2022. Development of the building sector has been promising, with a 10.6% growth rate predicted from 2021-2026.
Reflection task
Consider the following questions to review what you have learned in this chapter.
- Which different forms of contracts mentioned in this chapter did you already know about? What new ones did you learn?
- What are the similarities and differences in the construction sector that you can identify in both countries under the following topics?
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- size of the industry
- professional organisations
- standards.
