The future of Singapore’s construction industry

Since the turn of the millennium the number of foreign workers in Singapore has grown by over 70% with recent Census figures suggesting there are now well over one million across the country, accounting for around 35% of Singapore’s overall labour force.

This reliance on foreign workers has been necessary to help support economic growth particularly in the absence of local resources as Singapore nationals enjoy high levels of employment in other sectors. However, given the rate at which these figures have risen over the past decade, and the suggestion that the use of basic skilled foreign workers is suppressing wage levels for locals, it came as little surprise when the government announced plans to introduce a quota limiting the number of foreign workers who could be employed within Singapore over the coming years.

This quota is the latest in a series of measures (higher foreign worker levy, a reduction in Man Year Entitlement) designed to tackle this issue and whilst it may have a major impact on society as a whole, it could have particularly significant implications for several key industry sectors none more than construction, the biggest employer of such workers. Currently, the industry accounts for 38% of all work permit holders (excluding domestic workers) however with the new legislation limiting the number of permits firms can apply for, there is a concern that this could ultimately lead to a shortage of basic skilled labour at a time when workload remains steady.

Since the initial announcement concessions have been made to increase the length of time that existing basic skilled work permit holders can stay in Singapore from six to ten years, yet the reality is that with labour costs already creeping upwards, a quota on foreign workers in any form is likely to perpetuate this trend. On an average construction project across Singapore today, labour typically accounts for 30-40% of the overall cost and on the short-term these latest changes are anticipated to add a further 1% onto this figure. However, if basic skilled labourers begin to find themselves in increased demand over the coming years this percentage is likely to rise and further add to the 20% uplift on labour costs that has already been seen since 2010.

A catalyst for change…

In Chinese the two characters that make up the word ‘crisis’ represent "danger" and "opportunity" and in many respects this stands as an apt metaphor for how the new Foreign Worker quota, and the other fiscal measures, could affect Singapore’s construction industry over the coming years. For whilst some firms will inevitably be concerned about maintaining their future competitiveness in the face of rising labour costs and limited manpower, other companies may use it as a stimulus to review how they deliver construction projects.

In Singapore productivity on construction projects is currently around 30% lower than in Japan and almost half as efficient as in the United States. These statistics underline that regardless of any changes in labour law or the make-up of the future workforce, there is significant scope to deliver efficiency improvements in the industry’s overall performance levels. Enhancing the industry’s productivity is a key focus of the Government particularly the Building and Construction Authority (BCA). The challenge facing companies will be to try and identify the areas where they can achieve these improvements – in some cases a job redesign may suffice, however more often than not it may require a more fundamental transformation in how these businesses are structured to deliver major programmes of work.

Some of the key areas the industry should focus on as it seeks to navigate this challenge include:

Focus on attracting the next generation into the industry:
• The government’s latest measure sends out a signal that the business community should focus on providing jobs for the local population. However, at just 2% Singapore currently enjoys its lowest unemployment figures in 14 years so the emphasis for the construction industry is less on creating additional jobs, and more on developing a long-term solution to enhance its reputation so it can compete with the more glamorous sectors such as financial services, when it comes to attracting the next generation of local workers. Economic incentives may be required however if a credible plan is in place the government could be prepared to support this push with financial backing.

Better training for existing workforce:
• Singapore’s BCA has recently launched their ‘Multi Skilling Scheme’ as part of their Construction Productivity Roadmap. The aim of the scheme is to create multi-skilled tradesmen rather than having labourers who specialise in one particular trade e.g. fixing steel reinforcement. By training each individual in a secondary trade, firms would have greater flexibility in how they deploy their available resources, enhance mobilization and reduce the number of labourers required onsite. Those labourers that complete the BCA’s skills assessment would then qualify as ‘higher skilled workers’ which would reduce the foreign worker levy that firms would be liable for.

Ensure workforce includes experienced heads:
• The need to mitigate costs on construction project could see some firms assign their quota of work permits to younger and cheaper labourers, yet this is potentially short-sighted as experienced workers are generally more productive. Employers should embrace the government’s decision to allow them to retain skilled operatives in the workforce for an extra four years and use them to train and mentor less experienced colleagues especially those who are trying to develop a secondary trade to help them become more productive.

Use of pre-fabricated components:
• The Singapore Government has already moved to support the development of pre-fabrication facilities in Singapore and the BCA’s Construction Productivity and Capability Fund (CPCF) has provided significant funding for the construction of a 19,000m2 automated production hub. Pre-fabrication offsite can reduce the volume of labour required to complete some work elements by up to 50% and in some cases, also enables a better quality finish and more pleasant working conditions than if the job was completed onsite. However, there are only certain elements of a project where pre-fabrication can be employed and the capacity of existing pre-fabricated facilities remains slightly limited.

Increased use of technology:
• The industry is increasingly moving towards more widespread use of technology particularly after the government’s recent decision to make the use of tools such as BIM (Building Information Modelling), mandatory on all government projects in the future. The elimination of waste and abortive works, standardization of design, new materials and innovative temporary support solutions all have the opportunity to deliver real efficiency savings.

The time is now…

Whilst phased arrangements have been made to ease the introduction of the quota, many of the approaches outlined above may take time and investment to implement and some may not deliver immediate benefits. On that basis it is crucial that the construction industry gets ahead of the legislative agenda and reacts to this challenge now rather than in two years’ time when the new rules are mandatory for their existing workforce, and demand for construction work has returned in line with the expected economic upturn. The nature of the industry is such that new work goes out to tender all the time and whilst it’s natural that firms want to prioritise securing a commission on these schemes, unless they plan ahead their ability to deliver new work could be severely compromised.

Richard Warburton, Area Leader South-East Asia, EC Harris