4. Labor, Material and Equipment Utilization
4.1 Historical Perspective
Good project management in construction must vigorously pursue the efficient utilization of labor, material and equipment. Improvement of labor productivity should be a major and continual concern of those who are responsible for cost control of constructed facilities. Material handling, which includes procurement, inventory, shop fabrication and field servicing, requires special attention for cost reduction. The use of new equipment and innovative methods has made possible wholesale changes in construction technologies in recent decades. Organizations which do not recognize the impact of various innovations and have not adapted to changing environments have justifiably been forced out of the mainstream of construction activities.
Observing the trends in construction technology presents a very mixed and ambiguous picture. On the one hand, many of the techniques and materials used for construction are essentially unchanged since the introduction of mechanization in the early part of the twentieth century. For example, a history of the Panama Canal construction from 1904 to 1914 argues that:
[T]he work could not have done any faster or more efficiently in our day, despite all technological and mechanical advances in the time since, the reason being that no present system could possibly carry the spoil away any faster or more efficiently than the system employed. No motor trucks were used in the digging of the canal; everything ran on rails. And because of the mud and rain, no other method would have worked half so well.
In contrast to this view of one large project, one may also point to the continual change and improvements occurring in traditional materials and techniques. Bricklaying provides a good example of such changes:
Bricklaying...is said not to have changed in thousands of years; perhaps in the literal placing of brick on brick it has not. But masonry technology has changed a great deal. Motorized wheelbarrows and mortar mixers, sophisticated scaffolding systems, and forklift trucks now assist the bricklayer. New epoxy mortars give stronger adhesion between bricks. Mortar additives and cold-weather protection eliminate winter shutdowns.
Add to this list of existing innovations the possibility of robotic bricklaying; automated prototypes for masonry construction already exist. Technical change is certainly occurring in construction, although it may occur at a slower rate than in other sectors of the economy.
The United States construction industry often points to factors which cannot be controlled by the industry as a major explanatory factor in cost increases and lack of technical innovation. These include the imposition of restrictions for protection of the environment and historical districts, requirements for community participation in major construction projects, labor laws which allow union strikes to become a source of disruption, regulatory policies including building codes and zoning ordinances, and tax laws which inhibit construction abroad. However, the construction industry should bear a large share of blame for not realizing earlier that the technological edge held by the large U.S. construction firms has eroded in face of stiff foreign competition. Many past practices, which were tolerated when U.S. contractors had a technological lead, must now be changed in the face of stiff competition. Otherwise, the U.S. construction industry will continue to find itself in trouble.
With a strong technological base, there is no reason why the construction industry cannot catch up and reassert itself to meet competition wherever it may be. Individual design and/or construction firms must explore new ways to improve productivity for the future. Of course, operational planning for construction projects is still important, but such tactical planning has limitations and may soon reach the point of diminishing return because much that can be wrung out of the existing practices have already been tried. What is needed the most is strategic planning to usher in a revolution which can improve productivity by an order of magnitude or more. Strategic planning should look at opportunities and ask whether there are potential options along which new goals may be sought on the basis of existing resources. No one can be certain about the success of various development options for the design professions and the construction industry. However, with the availability of today's high technology, some options have good potential of success because of the social and economic necessity which will eventually push barriers aside. Ultimately, decisions for action, not plans, will dictate future outcomes.
4.2 Labor Productivity
Productivity in construction is often broadly defined as output per labor hour. Since labor constitutes a large part of the construction cost and the quantity of labor hours in performing a task in construction is more susceptible to the influence of management than are materials or capital, this productivity measure is often referred to as labor productivity. However, it is important to note that labor productivity is a measure of the overall effectiveness of an operating system in utilizing labor, equipment and capital to convert labor efforts into useful output, and is not a measure of the capabilities of labor alone. For example, by investing in a piece of new equipment to perform certain tasks in construction, output may be increased for the same number of labor hours, thus resulting in higher labor productivity.
Construction output may be expressed in terms of functional units or constant dollars. In the former case, labor productivity is associated with units of product per labor hour, such as cubic yards of concrete placed per hour or miles of highway paved per hour. In the latter case, labor productivity is identified with value of construction (in constant dollars) per labor hour. The value of construction in this regard is not measured by the benefit of constructed facilities, but by construction cost. Labor productivity measured in this way requires considerable care in interpretation. For example, wage rates in construction have been declining in the US during the period 1970 to 1990, and since wages are an important component in construction costs, the value of construction put in place per hour of work will decline as a result, suggesting lower productivity.
Productivity at the Job Site
Contractors and owners are often concerned with the labor activity at job sites. For this purpose, it is convenient to express labor productivity as functional units per labor hour for each type of construction task. However, even for such specific purposes, different levels of measure may be used. For example, cubic yards of concrete placed per hour is a lower level of measure than miles of highway paved per hour. Lower-level measures are more useful for monitoring individual activities, while higher-level measures may be more convenient for developing industry-wide standards of performance.
While each contractor or owner is free to use its own system to measure labor productivity at a site, it is a good practice to set up a system which can be used to track productivity trends over time and in varied locations. Considerable efforts are required to collect information regionally or nationally over a number of years to produce such results. The productivity indices compiled from statistical data should include parameters such as the performance of major crafts, effects of project size, type and location, and other major project influences.
In order to develop industry-wide standards of performance, there must be a general agreement on the measures to be useful for compiling data. Then, the job site productivity data collected by various contractors and owners can be correlated and analyzed to develop certain measures for each of the major segment of the construction industry. Thus, a contractor or owner can compare its performance with that of the industry average.
Productivity in the Construction Industry
Because of the diversity of the construction industry, a single index for the entire industry is neither meaningful nor reliable. Productivity indices may be developed for major segments of the construction industry nationwide if reliable statistical data can be obtained for separate industrial segments. For this general type of productivity measure, it is more convenient to express labor productivity as constant dollars per labor hours since dollar values are more easily aggregated from a large amount of data collected from different sources. The use of constant dollars allows meaningful approximations of the changes in construction output from one year to another when price deflators are applied to current dollars to obtain the corresponding values in constant dollars. However, since most construction price deflators are obtained from a combination of price indices for material and labor inputs, they reflect only the change of price levels and do not capture any savings arising from improved labor productivity. Such deflators tend to overstate increases in construction costs over a long period of time, and consequently understate the physical volume or value of construction work in years subsequent to the base year for the indices.
4.3 Factors Affecting Job-Site Productivity
Job-site productivity is influenced by many factors which can be characterized either as labor characteristics, project work conditions or as non-productive activities. The labor characteristics include:
The project work conditions include among other factors:
The non-productive activities associated with a project may or may not be paid by the owner, but they nevertheless take up potential labor resources which can otherwise be directed to the project. The non-productive activities include among other factors:
Each category of factors affects the productive labor available to a project as well as the on-site labor efficiency.
Performance analysis is a common tool for assessing worker quality and contribution. Factors that might be evaluated include:
These different factors could each be assessed on a three point scale: (1) recognized strength, (2) meets expectations, (3) area needing improvement. Examples of work performance in these areas might also be provided.
Project Work Conditions
Job-site labor productivity can be estimated either for each craft (carpenter, bricklayer, etc.) or each type of construction (residential housing, processing plant, etc.) under a specific set of work conditions. A base labor productivity may be defined for a set of work conditions specified by the owner or contractor who wishes to observe and measure the labor performance over a period of time under such conditions. A labor productivity index may then be defined as the ratio of the job-site labor productivity under a different set of work conditions to the base labor productivity, and is a measure of the relative labor efficiency of a project under this new set of work conditions.
The effects of various factors related to work conditions on a new project can be estimated in advance, some more accurately than others. For example, for very large construction projects, the labor productivity index tends to decrease as the project size and/or complexity increase because of logistic problems and the "learning" that the work force must undergo before adjusting to the new environment. Job-site accessibility often may reduce the labor productivity index if the workers must perform their jobs in round about ways, such as avoiding traffic in repaving the highway surface or maintaining the operation of a plant during renovation. Labor availability in the local market is another factor. Shortage of local labor will force the contractor to bring in non-local labor or schedule overtime work or both. In either case, the labor efficiency will be reduced in addition to incurring additional expenses. The degree of equipment utilization and mechanization of a construction project clearly will have direct bearing on job-site labor productivity. The contractual agreements play an important role in the utilization of union or non-union labor, the use of subcontractors and the degree of field supervision, all of which will impact job-site labor productivity. Since on-site construction essentially involves outdoor activities, the local climate will influence the efficiency of workers directly. In foreign operations, the cultural characteristics of the host country should be observed in assessing the labor efficiency.
The non-productive activities associated with a project should also be examined in order to examine the productive labor yield, which is defined as the ratio of direct labor hours devoted to the completion of a project to the potential labor hours. The direct labor hours are estimated on the basis of the best possible conditions at a job site by excluding all factors which may reduce the productive labor yield. For example, in the repaving of highway surface, the flagmen required to divert traffic represent indirect labor which does not contribute to the labor efficiency of the paving crew if the highway is closed to the traffic. Similarly, for large projects in remote areas, indirect labor may be used to provide housing and infrastructure for the workers hired to supply the direct labor for a project. The labor hours spent on rework to correct unsatisfactory original work represent extra time taken away from potential labor hours. The labor hours related to such activities must be deducted from the potential labor hours in order to obtain the actual productive labor yield.
Example 4-1: Effects of job size on productivity
A contractor has established that under a set of "standard" work conditions for building construction, a job requiring 500,000 labor hours is considered standard in determining the base labor productivity. All other factors being the same, the labor productivity index will increase to 1.1 or 110% for a job requiring only 400,000 labor-hours. Assuming that a linear relation exists for the range between jobs requiring 300,000 to 700,000 labor hours as shown in Figure 4-1, determine the labor productivity index for a new job requiring 650,000 labor hours under otherwise the same set of work conditions.
Figure 4-1: Illustrative Relationship between Productivity Index and Job Size
The labor productivity index I for the new job can be obtained by linear interpolation of the available data as follows:
This implies that labor is 15% less productive on the large job than on the standard project.
Example 4-2: Productive labor yield
In the construction of an off-shore oil drilling platform, the potential labor hours were found to be L = 7.5 million hours. Of this total, the non-productive activities expressed in thousand labor hours were as follows:
Determine the productive labor yield after the above factors are taken into consideration.
The percentages of time allocated to various non-productive activities, A, B, C and D are:
The total percentage of time X for all non-productive activities is:
The productive labor yield, Y, when the given factors for A, B, C and D are considered, is as follows:
As a result, only 41% of the budgeted labor time was devoted directly to work on the facility.
Example 4-3: Utilization of on-site worker's time
An example illustrating the effects of indirect labor requirements which limit productive labor by a typical craftsman on the job site was given by R. Tucker with the following percentages of time allocation:
Inefficient work methods
Labor jurisdictions and other work restrictions
In this estimate, as much time is spent on productive work as on delays due to management and inefficiencies due to antiquated work methods.
4.4 Labor Relations in Construction
The market demand in construction fluctuates greatly, often within short periods and with uneven distributions among geographical regions. Even when the volume of construction is relatively steady, some types of work may decline in importance while other types gain. Under an unstable economic environment, employers in the construction industry place great value on flexibility in hiring and laying off workers as their volumes of work wax and wane. On the other hand, construction workers sense their insecurity under such circumstances and attempt to limit the impacts of changing economic conditions through labor organizations.
There are many crafts in the construction labor forces, but most contractors hire from only a few of these crafts to satisfy their specialized needs. Because of the peculiar characteristics of employment conditions, employers and workers are placed in a more intimate relationship than in many other industries. Labor and management arrangements in the construction industry include both unionized and non-unionized operations which compete for future dominance. Dramatic shifts in unionization can occur. For example, the fraction of trade union members in the construction industry declined from 42% in 1992 to 26% in 2000 in Australia, a 40% decline in 8 years.
The craft unions work with construction contractors using unionized labor through various market institutions such as jurisdiction rules, apprenticeship programs, and the referral system. Craft unions with specific jurisdiction rules for different trades set uniform hourly wage rates for journeymen and offer formal apprenticeship training to provide common and equivalent skill for each trade. Contractors, through the contractors' associations, enter into legally binding collective bargaining agreements with one or more of the craft unions in the construction trades. The system which bind both parties to a collective bargaining agreement is referred to as the "union shop". These agreements obligate a contractor to observe the work jurisdictions of various unions and to hire employees through a union operated referral system commonly known as the hiring hall.
The referral systems operated by union organizations are required to observe several conditions:
- All qualified workers reported to the referral system must be made available to the contractor without discrimination on the basis of union membership or other relationship to the union. The "closed shop" which limits referral to union members only is now illegal.
- The contractor reserves the right to hire or refuse to hire any worker referred by the union on the basis of his or her qualifications.
- The referral plan must be posted in public, including any priorities of referrals or required qualifications.
While these principles must prevail, referral systems operated by labor organizations differ widely in the construction industry.
Contractors and craft unions must negotiate not only wage rates and working conditions, but also hiring and apprentice training practices. The purpose of trade jurisdiction is to encourage considerable investment in apprentice training on the part of the union so that the contractor will be protected by having only qualified workers perform the job even though such workers are not permanently attached to the contractor and thus may have no sense of security or loyalty. The referral system is often a rapid and dependable source of workers, particularly for a contractor who moves into a new geographical location or starts a new project which has high fluctuations in demand for labor. By and large, the referral system has functioned smoothly in providing qualified workers to contractors, even though some other aspects of union operations are not as well accepted by contractors.
In recent years, non-union contractors have entered and prospered in an industry which has a long tradition of unionization. Non-union operations in construction are referred to as "open shops." However, in the absence of collective bargaining agreements, many contractors operate under policies adopted by non-union contractors' associations. This practice is referred to as "merit shop", which follows substantially the same policies and procedures as collective bargaining although under the control of a non-union contractors' association without union participation. Other contractors may choose to be totally "unorganized" by not following either union shop or merit shop practices.
The operations of the merit shop are national in scope, except for the local or state apprenticeship and training plans. The comprehensive plans of the contractors' association apply to all employees and crafts of a contractor regardless of their trades. Under such operations, workers have full rights to move through the nation among member contractors of the association. Thus, the non-union segment of the industry is organized by contractors' associations into an integral part of the construction industry. However, since merit shop workers are employed directly by the construction firms, they have a greater loyalty to the firm, and recognize that their own interest will be affected by the financial health of the firm.
Playing a significant role in the early growth and continued expansion of merit shop construction is the Associated Builders and Contractors association. By 1987, it had a membership of nearly 20,000 contractors and a network of 75 chapters through the nation. Among the merit shop contractors are large construction firms such as Fluor Daniel, Blount International, and Brown & Root Construction. The advantages of merit shops as claimed by its advocates are:
By shouldering the training responsibility for producing skill workers, the merit shop contractors have deflected the most serious complaints of users and labor that used to be raised against the open shop. On the other hand, the use of mixed crews of skilled workers at a job site by merit shop contractors enables them to remove a major source of inefficiencies caused by the exclusive jurisdiction practiced in the union shop, namely the idea that only members of a particular union should be permitted to perform any given task in construction. As a result, merit shop contractors are able to exert a beneficial influence on productivity and cost-effectiveness of construction projects.
The unorganized form of open shop is found primarily in housing construction where a large percentage of workers are characterized as unskilled helpers. The skilled workers in various crafts are developed gradually through informal apprenticeships while serving as helpers. This form of open shop is not expected to expand beyond the type of construction projects in which highly specialized skills are not required.
4.5 Problems in Collective Bargaining
In the organized building trades in North American construction, the primary unit is the international union, which is an association of local unions in the United States and Canada. Although only the international unions have the power to issue or remove charters and to organize or combine local unions, each local union has considerable degrees of autonomy in the conduct of its affairs, including the negotiation of collective bargaining agreements. The business agent of a local union is an elected official who is the most important person in handling the day to day operations on behalf of the union. The contractors' associations representing the employers vary widely in composition and structure, particularly in different geographical regions. In general, local contractors' associations are considerably less well organized than the union with which they deal, but they try to strengthen themselves through affiliation with state and national organizations. Typically, collective bargaining agreements in construction are negotiated between a local union in a single craft and the employers of that craft as represented by a contractors' association, but there are many exceptions to this pattern. For example, a contractor may remain outside the association and negotiate independently of the union, but it usually cannot obtain a better agreement than the association.
Because of the great variety of bargaining structures in which the union and contractors' organization may choose to stage negotiations, there are many problems arising from jurisdictional disputes and other causes. Given the traditional rivalries among various crafts and the ineffective organization of some of contractors' associations, coupled with the lack of adequate mechanisms for settling disputes, some possible solutions to these problems deserve serious attention:
Currently, the geographical area in a collective bargaining agreement does not necessarily coincide with the territory of the union and contractors' associations in the negotiations. There are overlapping of jurisdictions as well as territories, which may create successions of contract termination dates for different crafts. Most collective bargaining agreements are negotiated locally, but regional agreements with more comprehensive coverage embracing a number of states have been established. The role of national union negotiators and contractors' representatives in local collective bargaining is limited. The national agreement between international unions and a national contractor normally binds the contractors' association and its bargaining unit. Consequently, the most promising reform lies in the broadening of the geographic region of an agreement in a single trade without overlapping territories or jurisdictions.
The treatment of interrelationships among various craft trades in construction presents one of the most complex issues in the collective bargaining process. Past experience on project agreements has dealt with such issues successfully in that collective bargaining agreements are signed by a group of craft trade unions and a contractor for the duration of a project. Project agreements may reference other agreements on particular points, such as wage rates and fringe benefits, but may set their own working conditions and procedures for settling disputes including a commitment of no-strike and no-lockout. This type of agreement may serve as a starting point for multicraft bargaining on a regional, non-project basis.
Improvement of Bargaining Performance
Although both sides of the bargaining table are to some degree responsible for the success or failure of negotiation, contractors have often been responsible for the poor performance of collective bargaining in construction in recent years because local contractors' associations are generally less well organized and less professionally staffed than the unions with which they deal. Legislation providing for contractors' association accreditation as an exclusive bargaining agent has now been provided in several provinces in Canada. It provides a government board that could hold hearings and establish an appropriate bargaining unit by geographic region or sector of the industry, on a single-trade or multi-trade basis.
4.6 Materials Management
Materials management is an important element in project planning and control. Materials represent a major expense in construction, so minimizing procurement or purchase costs presents important opportunities for reducing costs. Poor materials management can also result in large and avoidable costs during construction. First, if materials are purchased early, capital may be tied up and interest charges incurred on the excess inventory of materials. Even worse, materials may deteriorate during storage or be stolen unless special care is taken. For example, electrical equipment often must be stored in waterproof locations. Second, delays and extra expenses may be incurred if materials required for particular activities are not available. Accordingly, insuring a timely flow of material is an important concern of project managers.
Materials management is not just a concern during the monitoring stage in which construction is taking place. Decisions about material procurement may also be required during the initial planning and scheduling stages. For example, activities can be inserted in the project schedule to represent purchasing of major items such as elevators for buildings. The availability of materials may greatly influence the schedule in projects with a fast track or very tight time schedule: sufficient time for obtaining the necessary materials must be allowed. In some case, more expensive suppliers or shippers may be employed to save time.
Materials management is also a problem at the organization level if central purchasing and inventory control is used for standard items. In this case, the various projects undertaken by the organization would present requests to the central purchasing group. In turn, this group would maintain inventories of standard items to reduce the delay in providing material or to obtain lower costs due to bulk purchasing. This organizational materials management problem is analogous to inventory control in any organization facing continuing demand for particular items.
Materials ordering problems lend themselves particularly well to computer based systems to insure the consistency and completeness of the purchasing process. In the manufacturing realm, the use of automated materials requirements planning systems is common. In these systems, the master production schedule, inventory records and product component lists are merged to determine what items must be ordered, when they should be ordered, and how much of each item should be ordered in each time period. The heart of these calculations is simple arithmetic: the projected demand for each material item in each period is subtracted from the available inventory. When the inventory becomes too low, a new order is recommended. For items that are non-standard or not kept in inventory, the calculation is even simpler since no inventory must be considered. With a materials requirement system, much of the detailed record keeping is automated and project managers are alerted to purchasing requirements.
Example 4-4: Examples of benefits for materials management systems.
From a study of twenty heavy construction sites, the following benefits from the introduction of materials management systems were noted:
Against these various benefits, the costs of acquiring and maintaining a materials management system has to be compared. However, management studies suggest that investment in such systems can be quite beneficial.
4.7 Material Procurement and Delivery
The main sources of information for feedback and control of material procurement are requisitions, bids and quotations, purchase orders and subcontracts, shipping and receiving documents, and invoices. For projects involving the large scale use of critical resources, the owner may initiate the procurement procedure even before the selection of a constructor in order to avoid shortages and delays. Under ordinary circumstances, the constructor will handle the procurement to shop for materials with the best price/performance characteristics specified by the designer. Some overlapping and rehandling in the procurement process is unavoidable, but it should be minimized to insure timely delivery of the materials in good condition.
The materials for delivery to and from a construction site may be broadly classified as : (1) bulk materials, (2) standard off-the-shelf materials, and (3) fabricated members or units. The process of delivery, including transportation, field storage and installation will be different for these classes of materials. The equipment needed to handle and haul these classes of materials will also be different.
Bulk materials refer to materials in their natural or semi-processed state, such as earthwork to be excavated, wet concrete mix, etc. which are usually encountered in large quantities in construction. Some bulk materials such as earthwork or gravels may be measured in bank (solid in situ) volume. Obviously, the quantities of materials for delivery may be substantially different when expressed in different measures of volume, depending on the characteristics of such materials.
Standard piping and valves are typical examples of standard off-the-shelf materials which are used extensively in the chemical processing industry. Since standard off-the-shelf materials can easily be stockpiled, the delivery process is relatively simple.
Fabricated members such as steel beams and columns for buildings are pre-processed in a shop to simplify the field erection procedures. Welded or bolted connections are attached partially to the members which are cut to precise dimensions for adequate fit. Similarly, steel tanks and pressure vessels are often partly or fully fabricated before shipping to the field. In general, if the work can be done in the shop where working conditions can better be controlled, it is advisable to do so, provided that the fabricated members or units can be shipped to the construction site in a satisfactory manner at a reasonable cost.
As a further step to simplify field assembly, an entire wall panel including plumbing and wiring or even an entire room may be prefabricated and shipped to the site. While the field labor is greatly reduced in such cases, "materials" for delivery are in fact manufactured products with value added by another type of labor. With modern means of transporting construction materials and fabricated units, the percentages of costs on direct labor and materials for a project may change if more prefabricated units are introduced in the construction process.
In the construction industry, materials used by a specific craft are generally handled by craftsmen, not by general labor. Thus, electricians handle electrical materials, pipefitters handle pipe materials, etc. This multiple handling diverts scarce skilled craftsmen and contractor supervision into activities which do not directly contribute to construction. Since contractors are not normally in the freight business, they do not perform the tasks of freight delivery efficiently. All these factors tend to exacerbate the problems of freight delivery for very large projects.
Example 4-5: Freight delivery for the Alaska Pipeline Project
The freight delivery system for the Alaska pipeline project was set up to handle 600,000 tons of materials and supplies. This tonnage did not include the pipes which comprised another 500,000 tons and were shipped through a different routing system.
The complexity of this delivery system is illustrated in Figure 4-2. The rectangular boxes denote geographical locations. The points of origin represent plants and factories throughout the US and elsewhere. Some of the materials went to a primary staging point in Seattle and some went directly to Alaska. There were five ports of entry: Valdez, Anchorage, Whittier, Seward and Prudhoe Bay. There was a secondary staging area in Fairbanks and the pipeline itself was divided into six sections. Beyond the Yukon River, there was nothing available but a dirt road for hauling. The amounts of freight in thousands of tons shipped to and from various locations are indicated by the numbers near the network branches (with arrows showing the directions of material flows) and the modes of transportation are noted above the branches. In each of the locations, the contractor had supervision and construction labor to identify materials, unload from transport, determine where the material was going, repackage if required to split shipments, and then re-load material on outgoing transport.
Figure 4-2: Freight Delivery for the Alaska Pipeline Project
Example 4-6: Process plant equipment procurement
The procurement and delivery of bulk materials items such as piping electrical and structural elements involves a series of activities if such items are not standard and/or in stock. The times required for various activities in the procurement of such items might be estimated to be as follows:
Requisition ready by designer
Inquiry issued to vendors
Vendor quotations received
Complete bid evaluation by designer
Place purchase order
Receive preliminary shop drawings
Receive final design drawings
Fabrication and delivery
As a result, this type of equipment procurement will typically require four to nine months. Slippage or contraction in this standard schedule is also possible, based on such factors as the extent to which a fabricator is busy.