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C An International Perspective on Construction Competitiveness and Productivity Carl Haas, P.E., P. Eng., Ph.D. Canada Research Chair and Professor in Civil and Environmental Engineering University of Waterloo, Ontario, Canada Abstract This paper synthesizes some of the information that exists around international construction industry productivity and competitiveness metrics as well as innovation strategies in order to help inform strategic planning for improving the U.S. construction industry. It focuses on comparing Canada, South Korea, Japan, the United Kingdom, the European Union, Sweden, and the United States. Information was acquired from the literature, the Internet, reports, and consultations with international experts. International benchmarking and metrics efforts are reviewed, and principles are developed for conducting metrics comparisons between programs. Some productivity metrics for different nations are compared. Then, the remainder of the paper is focused on a description and comparison of innovation and improvement strategies. It is observed that a high productivity level for a nation probably does not impede that nation from improving even more at a high rate. Innovations are being shared almost immediately internationally by way of academic and business links partially facilitated by the Internet. And, since innovative ideas are quickly shared, what differs from nation to nation is emphasis. INTRODUCTION Advancing the competitiveness and productivity of the U.S. construction industry is a tremendous challenge. In approaching this challenge it is useful to consider an international perspective. Many studies have been conducted that compare productivity between nations or regions within nations. Fewer studies compare the competitiveness of construction industries between nations, and even fewer studies compare innovation strategies. To generate an international perspective on construction competitiveness and productivity, a synthesis of what information does exist is required. A review of specific national innovation strategies will also shed some light on what is perhaps one of the key drivers of competitive advantage between nations. The objective of this paper therefore is to synthesize some of the information that exists around international construction industry productivity and competitiveness metrics as well as innovation strategies in order to help inform strategic planning for improving the U.S. construction industry. The focus is on economically advanced countries, because evidence exists that the construction industries in less affluent countries are generally much less productive and less competitive from an exporting perspective. Countries and regions referenced in this paper include Canada, South Korea, Japan, the United Kingdom (UK), the European Union (EU), Sweden, and the United States. Information for this paper was acquired from the literature, the Internet, reports, and consultations with international experts. Consultations occurred in person, over the phone, and on the Internet with experts around the world in the weeks leading up to the Workshop on Advancing the Competitiveness and Productivity of the U.S. Construction Industry of the National Research Councilâs Board on 55
56 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY Infrastructure and the Constructed Environment. Those who provided information and influenced the thoughts in this paper are included in an acknowledgments section at the end of the paper. In terms of methodology, it is important to keep a particular paradox in mind. While distinctive national, legal, cultural and infrastructure characteristics certainly exist, the paradigm of competition among nations may have to be partially relaxed considering the reality of our highly integrated and âflatâ (Friedman, 2005) world, in which knowledge moves quickly and experience is mobile, thus rendering borders less significant and differences between countries less distinct. At the same time, the socioeconomic dynamics and characteristics of âmega-regionsâ (Florida et al., 2007) may be more distinctive than those related to national boundaries. For example, data show that variations in productivity among regions of a country can be greater than [those] between the countries themselves (Harrison, 2007). The structure of this paper reflects the objectives and scope described above. International benchmarking and metrics efforts are reviewed, and principles are developed for conducting metrics comparisons between programs. Then some productivity metrics for various nations are compared. The remainder of the paper is focused mostly on a description and comparison of innovation and improvement strategies, briefly preceded by a discussion of innovation theory as related to the construction industry. Finally, some observations based on the preceding synthesis are made. BACKGROUND Concepts of productivity, performance, competitiveness, and metrics have evolved over time and differently in different countries, although it appears that they may be converging. In this section, this evolution is briefly reviewed. Perspectives on the process of innovation in construction are then reviewed. Productivity, Performance, Competitiveness, and Metrics Dozens of studies and publications on construction benchmarking and metrics exist. A few are particularly relevant to issues surrounding international comparisons, including Costa et al. (2006); Meade et al., (2006); Sawhney et al. (2004); Walsh and Sawhney (2007); Harrison (2007); Flanagan et al. (2007); Rao et al. (2004); and Momaya and Selby (1998). Harrison compares construction productivity in Canada with that of 20 other nations, focusing particularly on the United States (Harrison, 2007). He provides an excellent review of deflators based on cost of inputs and price of outputs and points out their relative advantages and disadvantages in a clear and concise way. It is noted that evidence of task and activity productivity gains contrasts with estimates of industry declines for the United States. Failing to incorporate quality-based deflators may decrease productivity estimates unfairly. Harrison follows with discussions of model price indexes and how construction productivity is estimated in Canada and concludes with a critique of possible sources of measurement error. Harrison (2007) should be read as a primer by anyone who is interested in measuring construction productivity in North America. Costa et al. (2006) discuss benchmarking programs in the construction industry in Brazil, Chile, the United Kingdom, and the United States (Costa et al., 2006). They analyze the benchmarking initiatives in these four countries, which include the following: (1) Key Performance Indicators (KPIs) in the United Kingdom; (2) the National Benchmarking System for the Chilean Construction Industry (NBS- Chile); (3) the Construction Industry Institute Benchmarking and Metrics program (CII BM&M) in the United States; and (4) the Performance Measurement for Benchmarking program in the Brazilian Construction Industry (SISIND-NET Project). Three main issues were analyzed for each benchmarking initiative: (1) type of benchmarking, (2) scope of the performance measurement system, and (3) implementation of the initiatives. Meade et al. (2006) summarize benchmarking efforts in the United Kingdom, the United States, Canada, and Japan. This is with the intent of placing the efforts of the Canadian Construction Innovation
APPENDIX C 57 Council (CCIC) in the context of other national-level efforts. CCIC focused on performance benchmarking rather than on productivity. Recently, Fayek et al. (2008) report on the new Performance and Productivity Benchmarking program initiated by the Construction Sector Council (CSC) in Canada that is focused on the human resource elements that affect construction productivity. Also in Canada, the Industrial Research Assistance Program (IRAP) of the Canadian National Research Council (CNRC) has initiated a program of research focused on the effect of technological innovation on construction productivity. This group can be likened to the National Institute of Standards and Technology (NIST) in the United States. Flanagan has for many years pioneered an approach to comparison of construction internationally involving âcompetitivenessâ rather than more prosaic measures such as labor productivity, or cost and schedule growth (Flanagan et al., 2007). He says that, âcompetitiveness may be described as something that is multi-defined, multi-measured, multi-layered, dependent, relative, dynamic and process related.â Metrics categories for competitiveness include factors conditions, demands conditions, government, industry characteristics, firm strategy and management, and human resources. This approach has gained more and earlier credibility in the EU than in North America and Asia. In a study funded by the Swedish construction industry, the following competitive factors were compared among Finland, Sweden, and the United Kingdom: profitability, predictability, relationships, innovation, applicants to construction-related courses, wages, health and safety, business ethics, environmental performance, and extent of whole-life planning (Flanagan et al., 2005). Abdel-Wahab et al. (2008) have published an article on the impact of training on construction productivity in the United Kingdom. They find that construction productivity, measured in gross value added (GVA) per worker, has generally been flat from 1995 to 2006. Review of their graphs indicates that it increases during periods of stable employment and decreases during periods of rapid employment growth. The authors conclude that organizational and management practices have influenced productivity more than training. Most importantly is that quality or value of the workforce (human capital) is measured by percent of National Vocational Qualifications (NVQs) and by participation rates in training. Sloan Center and Construction Industry Institute (CII) research has focused on formal apprenticeship training certifications as a measure of human capital as well, and on training rates as a practice metric. The International Council for Research and Innovation in Building and Construction (CIB TG61) group builds on the concepts described in all of the preceding paragraphs to focus on macroeconomics for construction.1 The group is led by Professor Les Ruddock of the Research Institute for the Built and Human Environment at the University of Salford in the United Kingdom. The group holds annual meetings and workshops, and its scope includes, among other items, international benchmarking of construction. The director of CIB, which is headquartered in the Netherlands, is Dr. Wim Bakens. Table C.1 summarizes and compares the efforts described in the preceding paragraphs. MEASURING PERFORMANCE Metrics and innovation in construction are closely intertwined. Evaluating the impact of particular innovations and of progress in construction requires metrics. An approach to comparing international benchmarking and metrics programs is developed in this section, and then a few of those programs are compared. 1 Information about the International Council for Research and Innovation in Building and Construction may be found at its Web site (http://www.cibworld.nl/website/).
58 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY TABLE C.1 Studies Involving Comparison of International Construction Benchmarking and Metrics Measures Researchers Countries Performance and productivity Costa et al. (2006) Brazil, Chile, United Kingdom, and United States Performance Meade et al. (2006) Canada, United Kingdom, Japan, and United States Productivity Walsh and Sawhney (2007) Many countries Productivity Harrison (2007) Canada and United States, then many countries Productivity and competitiveness Flanagan et al. (2007) Australia, Canada, Finland, France, Italy, Japan, Netherlands, United States, and West Germany Productivity Rao et al. (2004) Canada and United States Competitiveness CIB TG61 Various Competitiveness Momaya and Selby (1998) Canada, Japan, and United States Principles for Comparing Construction Benchmarks and Metrics Construction project management and engineering researchers and experts have for decades been trying to create standards to enable fully integrated and automated processes and practices. A very early effort by Charles M. Eastman published in the now-defunct AIA Journal described a working prototype âBuilding Description System,â according to Jerry Laiserin in his introduction to the BIM Handbook: A Guide to Building Information Modeling for Owners, Managers, Designers, Engineers, and Contractors (Eastman et al., 2008). Now there is a Building Information Model (BIM) for buildings, International Organization for Standardization (ISO) 15926 for industrial construction projects, BrIM for Bridge Information Modeling, CIM for City Information Modeling, and several other related âstandards.â The purpose is to enable (1) interoperability, (2) integration, (3) sharing, and (4) information transfer. Where standards do not exist at all, achieving the above functions requires that translation and transformation routines be developed. Even when such standards are defined, and where existing applications (such as computer-aided design [CAD] or data analysis programs) are too expensive to completely rebuild immediately, enabling the above functions between different applications may require staged development, including the following: 1. Establishing interoperability with file sharing via standard formats, 2. Developing real-time intra-operations between applications, and 3. Creating independent data and information persistence between applications. Similar issues exist for comparing international construction metrics. In this case, the information model consists of metrics definitions which, much like the industry foundation classes (IFCs) that make up BIMs, may include detailed building assembly definitions. These definitions make up building indexes such as those described in a report on the Web site of the Bureau of Labor Statistics (BLS)2 entitled Producer Price Index Introduced for the Nonresidential Building Construction SectorâNAICS 236221, and which are defined in the Statistics Canada3 disaggregated building construction price indexes. CII has its own related hierarchical set of definitions referenced in following sections of this paper. They might be termed a hierarchical set of âwork packages.â The result is that at the national level 2 See http://www.bls.gov. 3 Statistics Canada is Canadaâs national statistical agency. Additional information available at http://www.statcan.gc.ca/start-debut-eng.html.
APPENDIX C 59 in the United States and other counties, productivity metrics data can be shared and integrated nationally but not internationally, since these standards differ among countries. Within the industrial construction sector, the use of the CII standards allows the CIIâs member companies and the members of the Construction Owners Association of Alberta (COAA) to integrate and share data, but the data cannot be shared between this sector and the national agencies whose standards differ yet again. The World Bank has recently established its own set of standard work packages for comparing construction labor productivity between countries for its purchasing power parity (PPP) program, but these have not yet been officially released and may not be released soon. Beyond work package definitions for adjustment indexes and productivity metrics, performance and practice metrics definitions also differ between national benchmarking and metrics programs. Translating between some performance and practice metrics may be almost impossible in practice; however, for key performance metrics such as cost and schedule growth it may be possible by coincidence or forethought. In some cases, the above-referenced and other construction benchmarking and metrics standards exist for different industry sectors, different countries, and at different levels of aggregation and for different purposes, and yet they overlap in many ways. Just as there is an effort within FIATECH4 to âharmonizeâ the BIM, ISO 15926, and other standards, such an effort may be required in the international construction benchmarking and metrics domain. In summary, there are essentially five dimensions that define the information space across which construction metrics must be compared, and for which purpose transformations may be required: 1. Performance (including productivity, schedule, cost, safety, competitiveness, and so on); 2. Work package (precisely defined and hierarchically aggregated scopes of work); 3. Practice (including project management practices, training, automation, and so on); 4. Environment (project complexity, labor market, weather, and so on); and 5. Time (frequency, phase, and duration). Three of these dimensions are illustrated in Figure C.1. The key issues then, for the purpose of enabling future international comparisons, are to what extent there is a desire to adopt existing standards versus the extent to which there is a desire to engage in harmonization, translation, and transformation exercises. Performance (productivity, schedule, cost Work Package growth, etc.) (or level of aggregation) Practice (measurement, training, etc.) FIGURE C.1 Three dimensions for construction metrics comparisons. 4 Additional information is available at http://www.fiatech.org.
60 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY Comparison of National Construction Benchmarking and Metrics Programs Many construction benchmarking and metrics programs exist in several countries. These are in addition to national-level productivity tracking efforts such as Statistics Canada and the BLS in the United States as well as international productivity tracking efforts such as those of the World Bank and the Groningen Growth and Development Centre. Costa et al. (2006) have done an excellent comparison of these efforts in the United Kingdom, the United States, Chile, and Brazil. Here, their summary comparisons are modified and extended on the basis of the analysis of the additional sources of information referenced in the âbackgroundâ section of this paper. Table C.2 compares two major U.S. construction benchmarking and metrics programs. Table C.3 is adapted from the Costa et al. (2006) comparison of four programs by adding three more programs and editing the original table. Table C.3 describes and compares seven international programs in terms of leading and lagging measures. In addition, the evaluation by Costa et al. (2006) of the programs in the United Kingdom, Chile, the United States, and Brazil identified several positives and challenges as common to those experiences. Generally positively received were online software for users, usersâ groups or clubs, annual training, annual reports, and visits to sites. Common challenges that were noted were (1) the lack of a link between the benchmarking program and practice improvement programs and project management functions, (2) too much focus on lagging indicators, and (3) keeping the companies committed for the long term. It must be noted that at least one private organization exists that focuses on international benchmarking and metrics in the industrial construction sector. Independent Project Analysis (IPA) is a private, international construction benchmarking and metrics corporation founded in 1987 and headquartered in the United States. IPA consults on project evaluation and project system benchmarking. Its Web site claims about 140 project and research analysis professionals at seven offices on five continents who serve hundreds of clients. The clients primarily include large oil companies, chemical producers, pharmaceutical companies, minerals and mining companies, and consumer products manufacturers. IPAâs data and methods are proprietary.5 TABLE C.2 Comparison of Two Major U.S. Construction Benchmarking and Metrics Programs Construction Industry Institute (CII) Bureau of Labor Statistics (BLS) â¢ Construction productivity metrics system (CPMS) â¢ Introducing new output price indexes â¢ Mostly industrial sector â¢ Measured in materials per unit cost and in installation-cost per unit of a building assembly â¢ Hours per unit of work â¢ A typical BLS building assembly corresponds to â¢ Hierarchical and detailed work structure second or third tier of CPMS, and while they do â¢ Do not adjust with input cost indexes not appear identical on an initial review, this should be investigated more thoroughly. â¢ Focused on industrial sector 5 Additional information is available at http://www.ipaglobal.com/inside%20pages/About_IPA/index.html.
APPENDIX C 61 TABLE C.3 Comparison of International Construction Benchmarking and Metrics Programs Scope of Measures Lagging Measures Leading Measures KPI (United Client satisfaction Kingdom) Defects Predictability cost Predictability time Proï¬tability Safety Productivity CDT (Chile) Cost deviation by project Effectiveness of planning Deviation of construction due date Urgent orders Change in amount contracted Productivity performance Rate of subcontracting Cost client Efficiency of direct labor Accident rate Risk rate CII Benchmarking Project cost growth Total ï¬eld rework factor phase cost and Metrics (U.S.) Project budget factor Factor phase cost growth (owner data only) Project schedule growth Phase duration factor Project schedule factor Construction phase duration Total project duration Project health index Change cost factor Automation Recordable incident rate Integration Lost workday case incident rate CII best practices such as Project Definition Hours per unit output (labor productivity) Rating Index SISIND-NET Cost deviation Percentage of plan completed (Brazil) Time deviation Construction site best practice Degree of client satisfaction (user) Supplier performance (subcontractors, Degree of client satisfaction (owner) material suppliers, and designers) Average time for selling unit Number of nonconforming audits Contracting index Degree of employee satisfaction Ratio between number of accidents and total Rate of training courses man-hour input Rate of employees trained Nonconformity index in unit delivery CCIC (Canada) Cost predictability Cost in use Cost per unit Time predictability Quality Safety Scope growth Innovation Sustainability CSC/CBR (Canada) CCIC measures Best practices Hours per unit output (labor productivity) Automation (Information Technology) Integration (Information Technology) Training rate Certification rate World Bank Hours per construction component (labor productivity) SOURCE: Adapted from Costa et al. (2006).
62 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY Role of Levels of Aggregation in Comparing Benchmarking and Metrics Programs Levels of aggregation for construction work packaging for productivity benchmarking were mentioned above in relation to dimensions for benchmarking and metrics comparisons (Figure C.1). Aggregation can enable international comparisons or make it more difficult if such systems do not harmonize. Chapman and Butry (2008) suggest three levels for measurement of construction productivity: 1. Task (e.g., on-grade concrete slab) 2. Project (e.g., building) 3. Industry (e.g., nonresidential building construction sector) Park et al. (2005) describe the CII system, which has three tiers below the project level: 1. Element (e.g., carbon steel small bore piping) 2. Subcategory (e.g., small bore piping) 3. Category (e.g., piping) Meade et al. (2006) suggest five levels for measurement of construction project performance: 1. Task 2. Project 3. Organization 4. Industry 5. National economy To this, one might add trading blocks such as the EU, economic tiers such as developed and developing world, and even megacity regions. Harmonizing levels of aggregation among systems is required for effective comparison. This has not been attempted in any deliberate manner yet. Role of Adjustment Indexes in Comparing Benchmarking and Metrics Programs One purpose of adjustment indexes is to adjust input and output numbers so that productivity calculations can be compared over time and between industry sectors and countries. Therefore, adjustment indexes are important to understand for the purpose of this paper. In fact the reason that the United States has not tracked the productivity of the construction industry until recently is that it did not have a good output price index. Harrison (2007) describes the following index types: â¢ Input price indexes (e.g., Engineering News Record building and construction cost indexes) â¢ Output price indexes (see Table C.4) âDisaggregate âAggregate â¢ Quality indexes â¢ Hedonic indexes â¢ Wage rate indexes â¢ Industrial product indexes
APPENDIX C 63 Comparison of National Construction Productivity Analyses Harrison (2007) calculates U.S. construction productivity at the national level based on the National Economic Accounts and Industry Economic Accounts of the Bureau of Economic Analysis (BEA). He estimates that between 1961 and 2005, construction productivity in the United States declined at 1.44 percent annually. He notes that construction labor productivity growth was positive for Canada in the same period (Table C.5), but he also points out that within Canada, the construction labor productivity growth rates vary substantially from province to province, by as much as 2 percent per year, and compared to Canadaâs average construction labor productivity, rates vary by as much as plus 18 percent and minus 33 percent depending on the province. Harrison (2007) also points out that underestimates of output quality (via deflators) may shave almost half a percent per year from the true construction productivity growth rate in Canada in the past two decades. Teicholz (2001) estimates a compound decline in the United States of 0.48 percent annually between 1964 and 1996 based on BLS and U.S. Department of Commerce data. His estimates vary slightly based on period. Goodrum et al. (2002) estimate a compound improvement in the United States of labor productivity of between 0.80 percent and 1.80 percent annually between 1976 and 1998, based on task level data from three sets of estimating manuals and 200 tasks. Clearly, uses of different sources of data, periods of analysis, levels of aggregation, and price indexes used as deflators make international comparisons difficult when measurements of only the two countries discussed vary so widely. Skepticism of any measurement system is therefore in order. At the industry level, Chapman and Butry (2008) suggest continuing the BLS practice of using the North American Industry Classification System (NAICS) as a basis on which to assess U.S. construction productivity in the future. The BLS does keep labor statistics, but owing to output measurement problems it does not track construction industry productivity. However, the U.S. Census Bureauâs Economic Census includes the value of construction work in terms of value added, every five years by NAICS code, so according to Chapman and Butry (2008) it is possible to generate industry-level metrics for each construction industry NAICS code, and they suggest a method for doing this. Harrison (2007), however, points out that Statistics Canada does not use the NAICS to estimate construction-sector productivity. Gross output for construction in Canadaâs System of National Accounts is based on types of construction rather than industrial class. Thus, comparing Canadaâs estimates at the national and sector levels to U.S. estimates of productivity may be problematic, if the NAICS is used in the United States. A paper that analyzes the general business-sector labor productivity gap between the United States and Canada shows that Canada lags the United States by a factor of 0.82 to 1.00; however, construction stands out as an exception (Rao et al., 2004). Data selected from the paper for the United States and Canada are presented in Table C.6. Construction is one of the few industries in which Canadian capital intensity is close to the United States. Generally it lags substantially. Additional sources of data exist that compare productivity and productivity growth rates across a large number of countries with advanced economies (Table C.7). It does not appear that any conclusions can be drawn based on those data concerning the relationship between growth rate and absolute level of productivity. Or, put more positively, it appears that having a high productivity level may not impede a country from improving even more at a high rate.
64 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY TABLE C.4 Comparison of Canadian and U.S. Construction Price Indexes Indexes Canada United States Hedonic Census single-family houses under construction index (CSFHUCI) Aggregated New housing price index (NHPI) Disaggregated Apartment building New warehouse building construction (2005) construction price index New school building construction (2006) (ABCPI) New office building construction (2007) Nonresidential building New manufacturing and industrial building construction (2008) construction price indexes Nonresidential electrical contractors (2008) (NRBCPI); (warehouse, Nonresidential plumbing, heating, and air-conditioning shopping center, school, contractors (2008) office, light factory) Nonresidential roofing contractors (2008) Nonresidential concrete contractors (2008) SOURCE: Adapted from Harrison (2007). TABLE C.5 Some Comparisons of U.S. and Canadian Construction Productivity Growth Rates from Various Sources and Over Different Periods Source of Estimate Data Dimension Canada United States Harrison (2007) Construction labor productivity 1.09%a â1.44%b improvement rates (1961 to 2006) for Canada and (1961 to 2005) for United States Harrison (2007) Construction labor productivity 1.8% (1961 to 1981) improvement rates per period for 0.53% (1981 to 2006) Canada Harrison (2007) Construction labor productivity growth 0.40%c â0.84%c rates (1979 to 2003) Teicholz (2000) Construction labor productivity growth â0.72%d rate (1964 to 2000) Goodrum et al. (2002) Construction labor productivity growth 0.80-1.80%e rate (1976 to 1998) a Based on Statistics Canada Labour Force Survey and System of National Accounts data. b From the Bureau of Economic Analysis National Economic Accounts and Industry Economic Accounts. c From Groningen Growth and Development Centre, 60-Industry Database. d From Bureau of Labor Statistics and U.S. Department of Commerce data. e Based on data from R.S. Means, Richardson, and Dodge estimating manuals. TABLE C.6 Construction Productivity Comparisons Between Canada and the United States, 1997, 1999, and 2001 Data Dimension (United States = 1.00) 1997 1999 2001 Relative multifactor productivity in Canada 1.15 1.19 1.28 Relative labor productivity in Canada 1.15 1.20 1.29 Relative capital intensity in Canada 1.00 1.04 1.04 SOURCE: Data from Rao et al. (2004)
APPENDIX C 65 TABLE C.7 Construction Productivity Comparisons Among Countries Relative Productivity in the Construction International Labor Productivity Growth Rates Sector from the Swedish Construction in Construction Industry, 1979 to 2003 Country Federation (United States = 100) Groningen Centre Data (Harrison, 2007) Belgium 62 1.63 Finland 39 0.71 France 41 1.68 Greece 19 0.68 Ireland 48 1.64 Italy 38 0.95 Norway 56 1.40 Spain 44 1.54 Sweden 76 0.79 United 20 1.92 Kingdom United 100 â0.84 States Canada 120a 0.40 South Korea 2.56 Austria 2.43 Portugal 1.78 Australia 1.33 Denmark 1.24 Netherlands 1.21 Japan â0.06 Germany â0.06 a From Rao et al. (2004). CHANGES AND INNOVATIONS While commonalities exist, construction industry change and innovation strategies vary significantly among different countries. Comparing different countriesâ approaches through a set of change and innovation metrics would be desirable but is beyond the scope of this paper. Instead, an anecdotal summary of the highlights of change and innovation management approaches, as well as particularly interesting innovations, is provided for several countries in the following subsections. However, first this summary is placed in context with a brief discussion of innovation in construction.
66 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY Innovation in Construction The construction industry has been characterized by its slow adoption of innovations, although it has been observed by some that the rate of adoption has been accelerating internationally in the past 10 years. In most of the nations reviewed in this paper, numerous impediments to innovation adoption are typically claimed, including the following: â¢ Human and institutional resistance to change; â¢ The perception of unacceptable additional project risk associated with innovations; â¢ Fragmentation of the industry nationally, resulting in lack of a financial mass required to pursue innovation, maintain intellectual property ownership, and manage knowledge effectively; â¢ Unique products that defy the easy adoption of mass manufacturing principles and innovations; â¢ A unique combination of delivery method, design standards, and legal structure for every project; and â¢ A focus on the short project construction phase for an economic planning horizon rather than on overall life-cycle costs. Potential solutions to these problems have been proposed, including the following: â¢ Sustaining the effort and staying focused; â¢ New business models for sharing risk, such as vendors who market innovation as a service; â¢ Shared learning frameworks within trusted networks; â¢ Better design of innovations; and â¢ Pursuing explicit innovation deployment procedures and programs. A tremendous amount of academic research has been done in the area of innovation in the construction industry. Many papers related to this subject were published in the 1970s, 1980s, and 1990s in construction research journals (for example, by Abernathy and Utterback, 1978; Carr and Maloney, 1983; Carr and Lane, 1999; Tatum, 1989; Slaughter, 1993, 1998). Recent work by Chinowsky for CII also offers some insight into the construction innovation life cycle. Although considerable strides have been made in terms of the application of a number of these innovations over the past 20 years, the adoption and acceptance of new ideas, methods, processes, and equipment are considered to happen at a snailâs pace in the construction industry compared with other industries. Several organizations have tried to tackle this problem, with varying degrees of success, including for example the Civil Engineering Research Foundation(CERF) and FIATECH. However, the overall lack of success in accelerating the adoption of innovation in the industry continues to be disappointing. Organizations such as FIATECH, NIST, CERF, and some of the successful university-based construction research programs might be considered models of how to proceed from a government or university point of view. Specific companies are also considered innovative in the industry. Something might be learned by visiting one of the large Japanese construction company research laboratories, such as Shimizu. Shimizu is extremely innovative, but it is not necessarily competitive beyond the Japanese environment. Arup is an example of a European-based construction company that is extremely innovative. While innovation cultures may exist in some companies, it is hard to identify countries whose construction industries could be considered particularly innovative. Still, it is clear that a few regions and countries have made or are making immense efforts to change this situation. South Korea is a particularly apt example.
APPENDIX C 67 South Korea South Korea, like many economically advanced nations, has a government-sponsored national construction research laboratory. In this case it is the Korea Institute of Construction Technology (KICT). With close to 600 personnel and with a scope that includes construction, structures, water resources, building science, and roads and transportation, it is similar in function to a combination of the Federal Highway Administration and NIST in the United States. Its mission includes coordinating research and development (R&D) in construction technology in South Korea and acting as a center for knowledge and information on construction technology. The Korea Institute of Construction Engineering and Management (KICEM) is a leading professional membership society of construction engineering and management professionals and corporations in South Korea with more than 3,000 members. KICEM focuses on construction-, engineering-, and management-related research projects, knowledge transfer, and consulting. University professors, researchers, and experts from industry have been involved in these projects. South Korea has a vibrant university-based national construction technology research program. Many of the professors leading this research acquired their graduate degrees from U.S. research institutions and are now leading world-class research programs. Given the level of professional distinction, the profile of the national laboratories, and the activity and quality level of the academic researchers, it is clear that construction engineering and management have a high degree of prestige in South Korea. Following are examples of current, university-based research projects and associated funding levels: 1. Construction Automation Research Projects and CALS/EC Research Projects â¢ Microelectromechanical systems-based Wireless Vibration Sensor for Tunnel Construction and Maintenance (2004 to 2009) â¢ Next-generation Construction Supply Chain Management System (2006 to 2009) 2. Technology Fusion Research Projects â¢ Intelligent Earthwork Robots (2006 to 2011)âapproximately $12 million U.S. dollars (USD) funding level â¢ Automated Construction System in Korea (2006 to 2011)âapproximately $12 million USD funding level â¢ Virtual Construction (2006 to 2011)âapproximately $16 million USD funding level Japan Japanâs construction technology reputation rose to prominence in the late 1980s and early 1990s with its leadership in construction robotics and automated high-rise construction systems such as Taisei corporationâs T-UpTM system, Obayashi corporationâs ABCTM system, and Shimizu corporationâs SMARTTM system (Haas et al., 1995). These were attempts at the complete automation and integration of processes and technology, including modularization, just-in-time delivery, use of robotics, rigid supply chain management, and innovations in connections and assembly methods. Most construction technology and management research in Japan occurs in the laboratories of its seven largest construction firms, which dominate the domestic market, and is mandated to some extent by the government as an investment of part of these firmsâ income. While these automated systems were fully implemented and deployed (in the case of the SMART system, at least three high-rises were built using this technology), the labor savings that were expected did not completely materialize. All told, these R&D and deployment efforts, which were coordinated by Japanâs Ministry of International Trade and Industry, represented a level of effort of many hundreds of millions of dollars at that time. From a business point of view, these programs would
68 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY likely be considered failures, as they resulted in virtually no new international business for the large Japanese construction firms based on these technology developments. While some useful technologies were salvaged from these efforts, the reaction to the experience as a whole has been severe. A visit to Shimizuâs corporate Web site indicates a focus on sustainability and earthquake engineering but virtually nothing on automation. It is possible that the Japanese were simply ahead of their time. For example, âstakelessâ earthmoving in the United States has been adopted at an extremely rapid pace, owing to its potential to reduce costs and improve productivity by approximately 50 percent. (Stakeless earthmoving is construction robotics by another name.) Modularization is enjoying tremendous popularity now in North America, and supply chain management has become a recent focus of many firms on the basis of the capabilities created by radio-frequency identification (RFID) tags, Global Positioning Systems, and wireless communications. The European Union Europe currently has several major EU-wide construction management and technology development efforts. Each is driving innovation in a number of key areas. ENCORD is the European Network of Construction Companies for Research and Development.6 According to the ENCORD position and strategy paper (2009), ENCORD is a network of construction industry decision makers and executives involved in R&D issues. The paper states: âENCORD currently has 20 members with head offices in 9 European countries and operations worldwide. All members are major European contractors and suppliers of construction material, and are strongly devoted to R&D for increased competitiveness and growth. ENCORDâs main objective is to be Europeâs forum for the promotion of industry-led research, development and innovation in the construction sectorâ (ENCORD, 2009, p. 2). ENCORDâs priorities for action include these: â¢ Sustainable construction, â¢ Lean construction, â¢ Virtual construction and information and communications technology (ICT), â¢ Transport infrastructure, â¢ Health and safety, â¢ Knowledge management, â¢ Implementation of research activities, and â¢ A carbon disclosure project. The European Construction Sector has developed a European Construction Technology Platform (ECTP) based on input from more than 600 industry partners as part of its strategic research agenda for achieving a sustainable and competitive construction sector by 2030 (ECTP, 2005).7 ECTPâs strategic priorities include these: â¢ Meeting Client/User Requirements 1. Healthy, Safe and Accessible Indoor Environment for All 2. A New Image of Cities 3. Efficient Use of Underground City Space 4. Mobility and Supply Through Efficient Networks 6 See http://www.encord.org. 7 See http://www.ectp.org.
APPENDIX C 69 â¢ Becoming Sustainable 1. Reduce Resource Consumption (energy, water, materials) 2. Reduce Environmental and Man-Made Impacts 3. Sustainable Management of Transport and Utilities Networks 4. A Living Cultural Heritage for an Attractive Europe 5. Improve Safety and Security â¢ Transformation of the Construction Sector 1. A New Client-driven, Knowledge-based Construction Process 2. ICT and Automation 3. High Added-value Construction Materials 4. Attractive Workplaces The European Construction Sector intends to carry out its agenda by (1) removing barriers to innovation, (2) developing a single European construction market, (3) implementing the research, (4) supporting training and education, and (5) linking with other industry Technology Platforms. The main deliverable to date appears to be a proposal for the creation of a Joint Technology Initiative (JTI) on Energy Efficient BuildingsâE2B JTI. Its overall objective âis to deliver, implement and optimise building and district concepts that have the technical, economic and societal potential to drastically cut the energy consumption and reduce CO2 emissions due to existing and new buildings at the overall scale of the European Union.â8 This JTI will be financed equally by at least nine industry members and the European Commission. For other JTIs, apparently EU member states may contribute funding as well. Assuming that these broad visions and joint initiatives represent the views and commitment of the leaders in the European construction industry, they must be considered innovations in the sense that they represent an attempt to collaborate and combine resources to become more competitive as individual corporations and internationally as an industry. However, it is impossible at this point to determine if they have had significant impact. The United Kingdom Construction innovation in the United Kingdom is impacted by some unique drivers. The United Kingdom has experienced a massive influx of Eastern European construction workers and a substantial commercial and residential building boom (only now grinding to a halt). As noted by Professor Patricia Carrillo,9 the UK government has also been pushing hard on innovation and supporting joint industry- and-government-funded research through various schemes. She points out the importance of the Latham Report (1994), the Egan Report (Strategic Forum for Construction ), and its follow-up report (Strategic Forum for Construction ), which forced the UK construction industry to look seriously at how they work together and how to improve performance. She says that the Fairclough Report (2002) adopted another approach: âIt basically said that we are not very good at learning and innovation and we need to think more strategically about how we do R&D if we want to keep ahead of the pack.â Her observation is that these efforts combined âto make the industry more productive and professional.â Professor Edum-Fotwe, an expert in the UK construction industry, made several observations:10 8 Available at http://www.ectp.org/default.asp. 9 E-mail correspondence from Professor Patricia Carrillo, University of Loughborough, United Kingdom, October 10, 2008. 10 Telephone interview with Professor F. Edum-Fotwe, University of Loughborough, United Kingdom, October 7, 2008.
70 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY 1. The delay period for acceptance of innovation has been shrinking radically in the past several years. 2. Computing power and data overload are facilitating the return of parametric data analysis, last popular in the 1960s. Perhaps this is driving data mining as well. 3. Institutions such as the University of Loughborough, which have significant construction engineering and project management educational and research programs, are developing graduates with a much broader range of skills, including management and leadership skills, than in the past. 4. Large UK construction firms are operating in a strategic and sophisticated manner. 5. Innovations in the UK construction industry may have been more at the management end of the spectrum than the technology or engineering end. Professor Alistair Gibb has pointed out the ascendance of prefabrication in the United Kingdom, closely paralleling the North American experience, due to its significant labor productivity advantage over on-site fabrication.11 Nonetheless, he notes that labor in the United Kingdom is not dominated by trade unions and that there has been a significant increase in multi-skilling in the United Kingdom in the past two decades. Perhaps some of the most significant shapers of the UK industry in the past two decades were initiatives led by Professor McCaffer at the University of Loughborough, including the establishment of the European Construction Institute (ECI). Established in 1990, ECIâs mission is to develop and maintain a sustainable, performance-based culture across the industry. It includes more than 60 organizations from the private and public sectors, representing the spectrum of the construction industry across Europe. Its member companies meet at conferences, workshops, seminars, and master classes organized by ECI, and it has produced more than 70 major reports dealing with project best practices that have helped innovative companies to move ahead. Sweden According to its Web site,12 the Swedish Construction Federation (BI) (Sveriges Byggindustrier) represents the interests of the construction industry in Sweden. BI is the trade and employersâ association of the private construction companies. Among its 3,000 member companies, there are about 20 groups with more than 100 employees. One of its companies, Skanska, is one of the top 10 constructors in the world. BI is noted in construction research circles for its active involvement internationally, led by its research director, PÃ¤r Ã hman. (BI funded the study providing the data for Table C-7 in this paper.) Swedenâs construction industry is also known for the high level of pay for its craft labor and the high level of independence afforded construction crews in Sweden. Sweden is an example of a small country that achieves global competitiveness in select industries, partly through the explicit policy and support of its government. Canada Canada has an economy several times larger than Swedenâs but 10 times smaller than the U.S. economy. Although it looks similar to that of the United States, it is significantly different in many ways. For example, the proportion of the construction workforce in the United States that is organized is about 17 percent. It is well over 40 percent in Canada (varying widely by region). In Canada, craft training is generally jointly financed by employers, the provincial governments, and the workers themselves in 11 E-mail correspondence from Professor Alistair Gibb, University of Loughborough, United Kingdom, October, 8, 2008. 12 See http://www.bygg.org/in_english.asp.
APPENDIX C 71 formal government-legislated apprenticeship programs that span open- and union-shop sectors. Canada has a construction engineering and project management research community that is very well connected and coordinated. It includes more than two dozen university professors and their programs, as well as government laboratories such as the Canadian National Research Councilâs Institute for Research in Construction (IRC), which is the leading construction research agency in Canada. IRC focuses on developing innovative solutions for the countryâs largest industry. Its capabilities are very similar to those of NISTâs Building and Fire Research Laboratory. Canada has also had several industry-led construction research groups, including, for example: â¢ Canadian Construction Institute, â¢ Canadian Construction Innovation Council, â¢ The Construction Owners Association of Alberta, and â¢ The Construction Sector Council. In addition, Canada has a national policy of matching industry funding for research with government funding, in order to leverage such efforts. The Natural Sciences and Engineering Research Council Collaborative Research and Development Grant program and the Ontario Centres of Excellence program are two such programs. It is unclear what the impact of the preceding programs and environment has had on Canadaâs construction industry productivity and competitiveness. Other than such programs, it is also not clear that Canada has been more innovative than the United States has been. United States Relatively little discussion is required of the United States, since most readers will be familiar with its approach to change and innovation in construction. There is no central authority in the United States for the construction industry or for construction research, unlike the U.S. transportation, health, and other industries of comparable size. Innovation and change are driven by the pressure of open competition and are aided by some coordinated research programs, including the Construction Industry Institute; NISTâs Building and Fire Research Laboratory; the National Science Foundation (NSF) programs; state department of transportation research programs, which often include infrastructure construction research elements; FIATECH; subcontractors associations; CPWR: The Center for Construction Research and Training; and others. FIATECH has proposed a technology road map that is widely admired, but underfunded. CII and a group of researchers have twice proposed visions for construction productivity improvement and innovation to be funded as a collaborative Engineering Research Center (ERC) among NSF, CII, and several universities (Figure C.2). These multimillion-dollar ERC proposals have failed to be funded. FINAL OBSERVATIONS In the preceding sections, international benchmarking and metrics efforts were reviewed, and productivity metrics for different nations were compared. The remainder of the paper focused mostly on a description and comparison of innovation and improvement strategies, preceded by a discussion of innovation theory. Not enough data exist to make any firm conclusions, but some observations may be hazarded: 1. A high productivity level for a nation probably does not impede that nation from improving even more at a high rate. 2. Innovations are being shared almost immediately internationally by means of academic and business links, partially facilitated by the Internet.
72 ADVANCING THE COMPETITIVENESS AND EFFICIENCY OF THE U.S. CONSTRUCTION INDUSTRY FIGURE C.2 Vision for the proposed Engineering Research Center for Collaboration, Control, and Communication in Construction (C5). SOURCE: Adapted from material in an unfunded proposal. 3. Since innovative ideas are quickly shared, what differs among nations is emphasis. 4. At the leadership level, the Europeans tend to focus on sustainability and customer satisfaction as related to competitiveness rather than on more prosaic concerns such as labor productivity. To pursue these, they have developed visionary research programs, and while their productivity in construction is increasing at a high rate, in an absolute sense it is still significantly lower than that of the United States. 5. The Japanese have radically reduced their emphasis on automation and are focusing instead on sustainability, green buildings, and earthquake engineering. The structure of their industry is still highly hierarchical, and most contracts are still negotiated. 6. The South Koreans are moving aggressively and are investing many 10s of millions of dollars into construction technology research in a very coordinated program that tends to merge the U.S. and EU topic areas. 7. The United Kingdom has a less organized workforce and more innovative project management structures than those of the United States, and it is focused on competitiveness more than on labor productivity. 8. On an international scale, some experts and economists have observed that such productivity in construction (particularly labor productivity) tends to correlate with gross national product per person
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