Podcast Episode - Dual Mic
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Darren Richards: [00:00:00] Welcome to the Industrialized Podcast, where today we're joined by Mark Farmer from Cast Consultancy. Hi, Mark

Mark Farmer: Good morning, Dan

Darren Richards: Tell us a little bit about yourself, Mark. I know you don't really need an introduction, but for the formality of the podcast, it'd be great to, uh, understand a bit about you and what you do at Cast.

Mark Farmer: Uh, yep. So I'm the founder of Cast Consultancy. We're ten years old actually, uh, this, this year. So, um, I've been, uh, part of this setup for, for a decade now. Um, before that, I spent twenty-five years at what was EC Harris, quite a large consultancy that now is part of the Arcadis, um, uh, group. Uh, my background, my professional discipline is in quantity surveying, so I'm a chartered surveyor by background, and have spent most of my career, um, in cost and project management, um, both in the UK and internationally, which, um, has been a very rewarding experience.

Um, and clearly in the last decade, probably more well known for work I've been doing in relation to industry leadership, government reports, et cetera.

Darren Richards: And on that point, we're a [00:01:00] decade on from Modernize or Die or the Pharma Review as, uh, a lot of people refer to it as. Uh, it'd be interesting to start the conversation by, uh, getting your perspective really on, um, whether the industry has modernized enough. Are the original warnings that you gave ten years ago still current today?

Um, and whether y- you know, you feel that what the report originally set out to do, which I think was to be very frank and tell the industry, "If it doesn't change, you're gonna be in trouble." Um, did it listen, and have we moved on?

Mark Farmer: Look, a lot's happened in the last ten years, um, good and bad, I think it's fair to say. And, and the brutal reality, and I probably, um, knew it at the time I was authoring the report, is that, you know, this modernize or die challenge is not a binary one. I wasn't really talking about the industry at large.

You're always gonna have a construction industry, so the industry is not gonna die. What I was really trying to do was set out a challenge to individual businesses that sit within the industry, that, [00:02:00] uh, that everyone has a choice, um, as to how they deal with the increasingly challenging, um, uh, circumstances that at that time were facing the industry, and I would say continue to face the industry, if not in greater measure.

So what we've seen over the last decade is unfort-unfortunately, we have seen modernization. I think that's the positive. The industry has moved forward, but we've also seen lots of dying going on in the corporate sense. We've lots... seen lots of business failures. We've seen lots of, um, established businesses, but also startup nascent businesses who are looking to do things differently fail.

Um, and that really, uh, for me, um, is the sort of reality check that when you're looking to change things and you're looking to progress an industry, um, or a sector of the economy, um, there are so many externalities that define or, or dictate success, um, that the reality is it's always gonna be a mixed bag.

And I would point-- there's one thing I would say over the last ten years that has [00:03:00] defined where the industry is now for ten years on from modernize or die, and that is the economic backdrop. So I, I look back on progress that was made, has been made, um, backward steps, and they all pretty much correlate with the economic cycle that we have seen.

So for the first, um, six years of, uh, since after twenty sixteen, we were in a pretty positive cycle of the economy. And I, you know, that you might think, "Well, that includes COVID." Actually, COVID, um, was a short-term interruption to what was a positive cycle of construction output. And if anything, just after, during the back end of COVID and after COVID, we had a boom Where it all started to derail was 2022, Liz Truss' mini budget, um, interest rate hikes, loss of economic confidence.

We have now been in four years of probably, my, my view, the deepest construction downturn since the early 1990s. And what that has done, [00:04:00] unfortunately, is derail a lot of positive progress, a lot of industry momentum towards embracing many of the things that I was talking about in Modernize or Die. So the, the reality is that, um, we ha- we have a very mixed picture, and the negative headlines, I think, of the last four to five years that are tied in to the broader economic backdrop have dominated discussion, and I, I fear to say, are currently, um, dominating everything as we speak currently because we're not out of the woods yet.

Darren Richards: And so to a certain extent, the industry couldn't move as fast as you extolled them to. You, you wanted the industry to move quickly to address skills shortages and cost inflation, delivery ca-capacity, quality, those things all came out. You're saying, uh, a lot of the influence was out of the industry's control.

Even if we wanted to, the wider macroeconomic conditions didn't really allow us to do it

Mark Farmer: Yeah, I, I just think, I, I d-- I'm just generally of the view that the bandwidth of industry to embrace [00:05:00] change, to get over that hump of viewing change as a risk, and it's-- that's a very fair pr-presumption to have, that change is a risk of, of going backwards, costing you money, um, even, you know, effectively, um, being a risk to your business.

Um, that bandwidth is better and is greater when we have positive economic conditions. That's just the re-- that's just a-- I think it's a truism that people feel more confident. There's a bit more money floating around. People are making money so they can invest more, have a bit more margins around or buffer around, um, what they're prepared to do.

In a downturn, unfortunately, because of the nature of our industry, you ke- you revert to short-termism. You don't, you don't think long term. You can't think long term unless you're in-- you've got particular, um, s-- characteristics of your pipeline or your w-w-to demand. Everything's project-based pipeline. If the number of projects diminish, then your ability to think ahead and be bold in your decision-making reduces.

And that's [00:06:00] the biggest thing that has become clear in, um, in the last decade. We've seen an upward cycle, now a downward cycle. If that ten-year period, um, had started in, say, twenty twelve, four years before, we might have had a lot more runway to actually have continued the momentum that was building through to twenty twenty-two that then got truncated, um, and make even more positive progress.

But look, I'm under no illusion that our industry is always gonna be cyclical. There's gonna be elements of, um, volatility, not, you know, I, I know it's characterized as a boom and bust industry. I, I, I really do implore government to be bit, a bit more intelligent around how it uses demand tools and policy to avoid it being boom and bust, but there's always gonna be cycles, and there'll be like a sine wave of demand that goes up and down.

We just need, you know, a-as an industry, we just need a bit more certainty that we're not gonna have the bottom ripped [00:07:00] out of our demand, which is unfortunately, as I see it, what's happened in the last four years. It's been pretty dramatic. Um, it's affected all parts of industry, not just modern, innovative, disruptor, um, um, businesses where the headlines have been.

Actually, as we speak, it's decimating the traditional, uh, production base of the-- of, of our sector, including product manufacturers, contractors, consultants. Um, so it's, you know, an econo-- an ec-economic, um, downturn is not discriminatory between if you're a modernizer or if you're a traditionalist. It affects everyone, and that's the brutal reality.

Darren Richards: Um, there are some embers of positivity, I think, around some of the alliances and the major public sector frameworks. So the big five or six, you know, public sector, um, procurement models. We've seen some real positivity around industrialization, industrialized, um, construction delivery, uh, around, um, prisons, the MOD, um, new [00:08:00] hospitals program, education frameworks, et cetera.

So, so th- so there are still some positive things starting to emerge around this pipeline aggregation. Government is, I think, demonstrating some significant leadership in these areas now. Do you agree?

Mark Farmer: Uh, yes and no. So I, you know, I'm pretty close to some of the, um, uh, discussions with government around the NISTA pipeline, which is where m- all of what you just said is effectively set out, uh, as the government's intentions around capital spending, um, on major programs of bo- both economic and social infrastructure.

You're absolutely right. There are some really positive signs that government as a client Um, is taking a leadership role in saying, "Look, you know, we need to lead from the front around how we change the industry and how we-- it does things by asking it for it to be done differently." If you don't ask... If you ask for the same thing, you'll get it delivered in the same way.

So I think there's really clear signs, um, around government departments [00:09:00] recognizing they have a role to play because ult-ultimately, any change in our industry will be demand-led. It will never be supply-led and pushed uphill. It needs to be pulled from the clients and their advisors and how the jobs are set up, the ecosystem that you develop around, um, supporting positive change.

Uh, the new hospital program, the MOJ prison program, uh, are probably the ones that I would say are m-um, most advanced in that regard. Um, I think the schools program has gone through a period of change, so there's, um, uh, still need to understand how that comes forward in the way that the aggregation of the opportunity and the sort of ecosystem that's being developed, um, how that works for school pro-- um, school program.

There's a little bit of reactivity that's been required to deal with things like the rack, um, issues in the existing school estate, so there's been a lot of short-term, "Right, we need to do something." Um, I think the DIO program for defense, um, is a massive [00:10:00] opportunity, but it's not real yet. So the Defense Housing Service that's only just been stood up.

There's, I think, seven billion pounds of money being allocated for that. But the money... Uh, but I don't-- I'm not sure the funding has flowed yet. So that is sitting on a mister pipeline as a bar, but it's not real projects. My biggest, um, challenge on this to government is with all of that good thinking around how it wants to act as a client to drive change through industrialization and other techniques, those jobs need to become real.

So the new hospital program, you know, it, it's probably the most advanced around completely rethinking the ecosystem, how you design a hospital, how you procure it, how you, how you then construct it. Um, my fear is the new hospital program alone around its capital works pipeline is not enough, and it's quite erratic around the timing 'cause it's dependent on planning consents and getting these, these hospitals to come through to drive the level of change we need.

We need the new hospital program replicated across all the other departments [00:11:00] around that thinking. But most importantly, we need the jobs to come forward. We need the spending happening in the sector as opposed to it being manana. Actually, here's a... There's a, there's a project coming or program coming.

It's sort of replicated as well in the regulated utility sector. So there's big, um, uh... You've got AMP8 in the water sector. So the utility sector's been a very good, um, advocate and proponent of change in modernizing techniques, alliance contracting, um, off-site manufacture, all sorts of different things.

But I know that the AMP8 program is increasingly backloaded So at the moment, there's a bit of a gap around investment in that sector, and, you know, it has to, it has to invest 'cause it's a regulated requirement, but it doesn't stop them backloading the spend. So that's all very real for the industry, the construction industry as a risk around business planning.

And again, coming back to modernizing, you need those jobs to land because unless you have the order book, uh, modernizing [00:12:00] isn't gonna happen

Darren Richards: No. You won't have the confidence to make the investment, to make the step forward. So we've mentioned every other sector. We haven't mentioned housing. Um, is that the elephant in the room? Um, housing, um, does that have the same pulls that you've described for these other sectors? I know Homes England, um, you know, have been very much an early advocacy body, um, going back to the early days of Modernise or Die, you know.

There was a lot of talk around, um, accelerating housing, using modular housing, et cetera. Where, where does the landscape around that-- We, we-- we're clearly not gonna hit one point five million, uh, new homes within this Parliament, but what's happening in that space?

Mark Farmer: Yeah. So everything I've just said about the economic downturn or the construction sector downturn, it's probably not been-- It, it-- the, the sector that's been hit worse in terms of the impact of that is housing. So you look at the level of housing delivery that we are currently at and projected to be at in the future, it is, um, [00:13:00] it's pretty well down on peak.

Uh, to give you an idea, the one and a half million homes target by twenty thirty, um, the sort of current thinking, I mean, there's a report out by Savills last week that suggested we're probably gonna be nearer to nine hundred thousand. So we're not even, um, you know, just slightly out. We're an order of magnitude out around housing delivery in this country.

So clearly the ability to use housing as a sector that drives modernization, um, has been hugely impacted after what was, you know, as you say in, in twenty sixteen, um, you know, part one of the sector seen as the opportunity to drive, um, in, uh, change in the industry and embrace MMC and different techniques was housing.

At that time, we had a pretty boom market. There was a lot going on, private sector and in the affordable space as well. We had lots of active players. There was a, um, a real interest in seeing how whether a modular-- volumetric modular housing model could be developed, primarily because [00:14:00] it's something that has happened in other countries, and I think it just piqued the interest of, can we actually nail this?

Can we do it at scale like they do in Japan or Sweden or wherever it might be? Um, and I think investors got behind that as well. So there, you know, there was a lot of money coming into the sector experimenting with the idea of a different business model in housing where, um, you basically build the bulk of, um, the, uh, product off-site.

And clearly, um, everything I've just said around the market downturn decimated that whole, um, sector, um, as a combination of the total housing demand in the country collapsed, um, uh, plus The fact that a lot of the businesses that are set up in that part of the market, because it is such a ra-radical change from the norm, it's not like incremental, you're just putting to the industry a completely different way of building.

Which I-- was clearly always gonna be difficult around the psychological mindset, behavioral [00:15:00] mindset around resistance and, and change and nervousness about, you know, th- what does that look like? Will it stand the test of time technically? Is it robust, durable? Whole load of legitimate questions that lots of people were asking, which startup businesses were having to grapple with, invest in R&D, invest in testing, investing in proof of concept, investing in building projects that could become their shop window.

And then downturn happened, and actually any hope they had of getting o-over the hump of becoming a mature business disappeared. So we saw, um, a, a pretty dramatic collapse in that sector. I think, um, I don't think we're gonna see that ship return. I think that ship sailed around pr-- um, certainly investor confidence in that model.

It's a shame because actually I do think if you can get the economic model to work, it is still, um, a, a model that should deliver benefits. But what I think it, it also was, is, was [00:16:00] probably, um, it was that reality check. Sometimes you need to understand how good ideas meet reality, and I think the reality check of the economic backdrop Has built, I think, a more resilient future for how mod-modernization MMC has adopted going forward.

So what's, what's come out of that, the phoenix out the ashes is if you, if you like, is the fact that house building's pre-manufactured value has gone up. So, you know, o-one of the things about Modernise or Die, everyone thinks it was, um, all about evangelizing about volumetric modular housing. It wasn't. It was never about that.

It was-- Well, that was one feature of what is a spectrum of opportunity to build things differently. Yeah. And pre-manufactured value was a term that I coined in, um, the Farmer Review. I defined it. It was a fairly simplistic measure of just trying to, um, define how much of a product, um, was material and product as opposed to labor on-site.

So for me, it was a [00:17:00] very high level discussion around increasing. What I wanted Modernise or Die to do was to promote a debate about how do we increase the industry's pre-manufactured value at an average scale across, across the whole sector. So that implicitly means just, um, doing less on-site or doing what you're doing on-site better, so it uses less labor.

It's an, it's an efficiency measure, effectively. So what that, you know, what that was really aiming at, and a lot of the work I did subsequent to Modernise or Die with MHCLG around the seven category MMC definition framework, et cetera, was all about building this spectrum of choice around the physical way in which we build not just homes, but, you know, any, um, other products as well.

But a lot of the, the work in d- in developing this discussion was in the house building sector. Um, and, you know, what, what's come out of the failure of the mod- volumetric modular market is now a house building sector that is using category two panelization, uh, at scale. All of the majors have now moved towards timber [00:18:00] framing, uh, partly in, in response to future home standard, partly in response to fear of future risks around labor shortages, et cetera.

Uh, and you're seeing an ongoing appetite to want to look at other opportunities to, um, to, to modernize production techniques. So that, that whole sort of conflation of Modernise or Die, MMC, volumetric modular is a false narrative. Yeah. And, you know, I'm very clear and most people who understand what I've been talking about and understand my, my backs-- the story that I've been advocating understand, um, understand that point.

It's just that in some instances it's, it's seen as just evangelism for a single method of building, and that was never the case. No.

Darren Richards: it's misunderstood. I mean, the positive legacies, the PMV, you know, used as a, a, a metric regularly now. Um, the, the shift towards a different way of doing it and the category definitions, et cetera, are all real positives that came out of Modernise or Die. And [00:19:00] to your point, you know, seven of the top ten house builders have now started a different journey.

They're, they're not going down the volumetric route. They're going down a panelised, um, category two route. Um, they're making investments. They're industrialising. They have capacity, um, in some fairly, you know, large automated manufacturing facilities. So they clearly now have real skin in the game. They obviously need the market to come back.

They need to be busier. Um, and I would, you know, forecast that they'll incrementally move towards more of a hybrid system, you know, panelised solutions with pods or utility cupboards, et cetera. So they're on a journey, which I think is an important, uh, important thing. So if we go back to the off-site manufacturing industry, the last decade has taught us quite a lot, I think, about the strengths and weaknesses of the UK off-site manufacturing sector.

We saw a lot of attrition, predominantly in the volumetric modular, uh, space, which is what we've been talking about. Um, I still think we have quite a fragile supply chain. I mean, government obviously, um, [00:20:00] can't do much to subsidise those businesses, but it can give them confidence and pipeline. Um, but where do you see other support coming from?

Where do we get the confidence back in the industry? Is it from these, um, departments we were speaking about, these aggregated pipelines?

Mark Farmer: Yeah. So I, I think, um, um, I'm very clear that the biggest role for government in trying to drive positive change in our industry is, uh, to have a demand-led policy and intervention strategy. I... You know, what is very clear is that, that subsidizing businesses, propping up businesses, even giving businesses working capital support can be a false benefit.

It can create zombie companies that basically are just not sustainable, and they're only being propped up by external support. That is not good news, and it's certainly not good news for the UK taxpayer. And some of that happened actually, um, in the last [00:21:00] cycle. Um, you know, I'm-- I was very much in my discussions with Homes England, this is not, um, about pointing fingers.

It's just the reality of n- understanding how policy change works. I was very clear that the Homes England, um, approach should be one of demand-led intervention, and actually the biggest influence they, um, could have is placing orders Um, providing land to innovative developers, um, that drives the showcasing of their products, which in turn then perpetuates demand.

It wasn't actually give that firm a hundred million quid or whatever, just to keep it going. And I think that's the-- And even the sort of in the, uh, Affordable Homes Program, where I managed to get some explicit reference to MMC embedded into the Affordable Homes Program, uh, twenty sixteen, twenty twen- uh, twenty one, um, those provisions were actually not muscular enough.

So the-- there wasn't the appetite to absolutely mandate, [00:22:00] um, certain, um, minimum pre-premanufactured value, for instance. So I said: Look, don't te-don't tell them how to build it, just give them a parameter that very broadly says that you have to have minimum premanufactured value. And then the final guidance that got released, it was sort of an advisory.

It was a nice to have. It wasn't mandated. So it never got driven into the Affordable Homes Program at scale. As I say, the positives that have come out of it is it has actually acted as, acted as a catalyst for timber framing. So a lower level of PMV has had a positive impact around boosting what-- and is now, you know, a sustainable and growing industry, and that's a good thing.

But actually the, the, the appetite during that period to further push the boundaries around, for instance, closing panels on tim- on, on timber frame, looking at internal prefabrication opportunities in fit out, um, was a bit more limited because it wasn't required as part of the funding prospectus for, for, for the affordable program.

[00:23:00] Um, so that de-- you know, for me, demand-led intervention is key. It's what we are now seeing in Canada with Build Canada Homes. It's what you're seeing in Australia, in New South Wales, um, uh, state, um, MMC program. You're seeing the government driving demand, not propping up companies. It's actually driving demand.

It's, uh, it's, it's requiring homes to be built in an ecosystem that they're already nurturing behind the scenes. So both of those countries, a lot of work's happening around standards, around, um, the regulatory environment, building control, warranties, all the things that we have had ongoing, um, debates about as to whether our institutional framework is a fit for purpose Um, particularly when it comes to modern construction techniques.

So yeah, my, my, my, my role, um, my view is that government should be demand led. When it comes to housing, there's no point being demand led if there's no demand. That's the brutal reality at the moment. There's not [00:24:00] enough out there to be going around. So that's where we, where, um, we are, where we are. And that is why it does, as you said, it comes back to, um, what's the role of other government departments?

What's the role of social infrastructure? What's the role of the school building program, the prison building program, the hospital building program, defense program to create demand for new ways of working. That only works if the c-- if the government, going back to what we were saying about the government's role as a client, um, is, is asking for it differently, is d- is designing it differently, is procuring it differently, is briefing the job differently to the sector, which then creates the confidence for businesses to invest.

And I think what you're gonna see is a new sort of type of innovative business. If you're looking at off-site manufacture, certainly, um, the route to success is being multi-sector. It's being a resilient business that is not just in housing, you're in everything. But, um, as certainly from a government perspective, you're not synchronized with the economic cycle as much [00:25:00] because you've got some government work that hopefully is countercyclical.

Um, but you know, as I say, even in housing, the Affordable Homes Program has been unfortunately synchronized with the private market counter 'cause a lot of the housing, a lot of the HAs, the housing associations, um, they're subsidized by private development. So as the private market's gone, even the HAs have sharp-shop.

So the housing market's the most difficult nut to crack, I would say. And that's why I think it needs a different solution. And industrialization as a whole ecosystem change, um, is I-- my personal view is it's nigh on impossible to do that, um, at scale in the housing sector. You can do it in bits with, um, with people that wanna take a, um, a different position, but that industry will always deliver in a certain way.

And that's just the hard reality

Darren Richards: Yeah. And, you know, I think to your point, if demand-led strategies and intervention are real, so they're not just headline-grabbing announcements, there is enough [00:26:00] entrepreneurial, um, spirit still, I think, left within the UK economy that people will make the investments. New factories will be formed. You know, there will be-- provided the confidence is there that they've got product to sell, there will be new investment and different ways of funding.

Perhaps, um, consortia-based, uh, investments in manufacturing facilities, you know, might emerge as well.

Mark Farmer: Yeah, I think, I think, um, yeah, u-ultimately, if there's demand to start, you know, if you just-- if you tick that box, then something will happen, as you say. There is a, you know, there's a natural reaction, um, for people to say, "Look, there's an opportunity to, to build a business and make money here." Um, it's just what is the-- what is that business?

I do think that the, the prospects of seeing lots of LNG, Ilka, Top Hat type big set-piece factories springing up again is re-is relatively limited because I think the mode of Business operations are going to look different going forward. I think you are-- as you say, I think there's much more of a, [00:27:00] um, a sort of, uh, a, uh, a, a consortium alliance type model, if I were to describe it that way, where your-- those factories already exist, or the production fa-facilities already exist.

They're coming together in a coordinated fashion. There is a, there's a loose fit, sort of borrowed economies of scale, if you can use that term, where they come together in partnerships. Um, they might consolidate products at multiple stages but use the, the existing production space. I think if there's new production space, it's more likely to be much more of like a flying factory type concept, much more temporary in its nature, um, particularly around major projects where you, you, I think you're likely to see, um, near site manufacturing as a temporary measure, potentially be viable for some forms of industrial and industrialized approaches.

Um, I just think the, the way in which manufacturing is gonna move forward is gonna be hybrid, as you [00:28:00] say. I, I, I think it's the height-- the PMV needle is nudging to the right, and it's not just, um, gonna go fly to the right and go to a volumetric solution. It's gonna be more about, um, uh, subassemblies, consolidated products.

It's gonna be about hybrid, um, offsite pre-manufactured goods sitting alongside site, traditionally site-constructed solutions. Um, and that has a different manufacturing landscape. It ha-- it means it's a different opportunity for investment in the MMC sector. Um, I don't think you need to be as, um, ambitious around holding fixed costs. And there's one thing that's looming over all of this that I think will change the paradigm in some respects, which is in the last ten years, the outlook for technological change has completely transformed. So when I wrote Modernize or Die, AI wasn't even... Well, it probably was a thing, but it wasn't on my radar.

Where we sit today, the power of technology could completely change the ecosystem that we work in, [00:29:00] and it has major ramifications potentially for, for offsite manufacture. Because what I think it does, it just uses technology as the glue to create a buying ecosystem and a, and a sort of production process that is bringing together all these disparate parts into a joined-up collective.

Yeah. Which is much more about a virtual marketplace. It's much more about, um, connecting the dots of what already exists out there in a fragmented market in a way that can, um, can reach its end m-- end client better

Darren Richards: And, you know, interestingly, that leads into something that, uh, you and I are both involved in, the Industrializing and Digitalizing Construction, um, initiative, the challenge. Um, obviously, they've got a vision for a, for, for, uh, a digital marketplace. Um, not quite sure the objectives of the program are fully fleshed out at this point in time, but a very exciting and very timely, um, uh, fund that's coming to market there.

Um, how fast are we gonna [00:30:00] move on it? You know, we gotta kinda grab that and, and move quickly, I think

Mark Farmer: Yeah. It's, um, it's an interesting opportunity. So UKOI, um, have established this challenge. It's the Industrialization and Digitalizing of Construction challenge, IDC. Um, it is-- At its center, um, is the idea that we create a digital marketplace combined with a sort of a design library, a digitalized design library, a kit of parts, if you like to use that terminology, um, that effectively becomes the, um, the basis of a configuration approach on a platform that enables buildings of different typologies and types, actually asset classes, to be built using this inventory of products, um, that is hosted digitally.

That's the important thing. This is a digital initiative. This is not hard. Um, this is not factories. This is not things. It's a digital, um, output, which is a very [00:31:00] different approach to perhaps some of the work that happened, um, under previous UKOI funded initiatives. This is all about technology. Um, it's quite interesting though that, you know, the challenge around how you drive change in our industry, this is looking at a fully industrialized approach.

It's what I call a closed loop Approach where the client is gonna use this platform, um, as a-- as the basis of building its program. It commits to that. Its, its designers are mandated to use that approach, and then it builds the inventory, and it builds the supply chain below it that enables, um, projects to be commissioned and built in a normal way.

It is, it is ambitious. I think the reality is, though, it's starting in the right place 'cause it's gonna use government as its pull-through plan. It has something called a pull-through plan, which is, comes back to this demand-led approach that we've been talking about. So it's not centered on, um, the private sector.

It's centered on government. [00:32:00] Um, its biggest opportunity, if I'm honest, I think will be in the, um, social infrastructure space. So it would be schools, hospitals, prisons, defense assets, where you have this closed loop where the government's the client, and it can initiate the process, and it holds the asset at the end of it.

Um, interestingly, one of the pilots, though, does include social housing. So there's some work happening, uh, in relation to a couple of h-housing associations in Liverpool at the moment. So, you know, it sounds a little bit counterintuitive bearing in mind what we've already said about how difficult the housing market is.

But we're proving the concept with some two housing associations who are w-willing and able to test it in a housing typology context. But if I'm really honest, the real scalability will be in the government estate, um, because, you know, e-in the housing market, even in the HA world, it's fragmented. It's difficult to convene, um, standardization, albeit there's some work happening at the moment in that whole arena, um, outside of the UKRI challenge.

[00:33:00] Um, but yeah, I think it's, it's a really interesting development that will test the growing role and prominence of technology in this sort of modernization question. It's maybe less about manufacturing, and it's more about technology

Darren Richards: Yeah. It'd be interesting, you know, to get together again in twelve months' time and see, you know, what impact it's starting to have 'cause obviously it's in its engagement phase at the moment. So, um, we'll maybe pick that up in another podcast down the line. Um, coming back to the realities of where the construction sector is at the moment, we've obviously got some big challenges around productivity.

Um, we've got some, uh, big challenges around how we measure, uh, productivity and measure value, et cetera. And we've also got some very big challenges around skills, workforce evolution, workforce development. These are obviously areas you're heavily involved in. A-and they go hand in hand, you know. A, a, a, a more-- a better skilled workforce with the right tools in theory creates a more productive, uh, uh, output.

Uh, and so just want to pick up a few things around that, um, in [00:34:00] the last few minutes. So maybe productivity is less about construction technology. It's not necessarily about the widgets you use. You know, it's more about the way the market is structured. So in the last ten years, have you seen the market restructure a lot?

I mean, are we still doing the same thing we've always done and getting what we've always got?

Mark Farmer: Yeah, I don't, I don't think we've seen any dramatic shift in the s-- in the, the structure of the market or the systemic issues that we have that hold back our productivity. And you're right, it's, you know, there's a lot of focus when, when we talk about productivity, we're assuming, uh, how many bricks an hour can a bricklayer lay or, you know, something like that.

A hard tangible measure, which is, you know, there's absolutely a question about site-based productivity and, um, you know, are we using the right techniques? Are they too labor-intensive? There's actually a much bigger picture issue where the stakes are much higher, which is the whole structure, as you say, the way the jobs are set up, the inefficiency that is driven through transactional boundaries.[00:35:00]

So a lot of it is around the shape and structure of the industry, the contracting and subcontracting that goes on. Um, and to an extent, the sort of ownership of obligations for design and construct and the confusion around that, where it creates a sort of a real risk that no one's really owning the outcome holistically.

And even though there's regulatory change trying to change that particularly in building safety, it's still a massive issue. And you know, for me, setting a job up right, the clienting of the job, the client's advisors in establishing how a job should come forward in, you know, repe-- promoting things like s- um, repeatability, standard-standardization in design, not necessarily offsite construction.

It might just be repeating robust details that a site-based workforce can get-- can learn, um, and get more and more efficient at. They're all decisions upstream. So it's sometimes unfair to, to sort of blame the workforce on the site for poor productivity when actually a lot of the s- the success [00:36:00] factors for a construction project are set years and months back in a client's office where the wrong decisions are made and that cascades down into what then becomes a poor performing low productivity, uh, process.

So I think we do need to focus on the whole, um, ecosystem. That's why industrialization, if we're gonna use that term, um, i- is more than just the physical manifestation of how we build it. MMC is more about the physical product manufacture and process of how you build. Industrialization is the broader, um, wrap of how do you procure it, uh, how do you design it, how do you procure it, um, how do you drive out, um, some of the other inefficiencies.

And it's for that reason, you know, I was quite Clear that when I wrote Modernize or Die in twenty sixteen, I wasn't talking about industrialization. Um, I read the Egan report in nineteen ninety-eight, which is very much around industrialization because of Sir John Egan's background at, at Jaguar. And [00:37:00] I just-- I'm a real cynic in terms of our industry's ability to move towards a different systemic model.

I was-- My view was that actually MMC is sort of trying to improve an imperfect world, but not create a utopian position. Industrialization, if it's gonna really work, has to be a closed loop change from a client that is gonna embed it and drive it through the whole process to the handing the keys over and operating.

Which is why at the moment, and if I'm a realist, that's only gonna happen in the public sector. There's too much fragmentation in the private sector for us to become-- to get to a fully industrialized solution. Um, so that means we're alway... As it, as it stands, we're a long way from, uh, sort of step change productivity improvements in our industry because the actual, the nature and system and structure of the industry won't allow it to happen.

That's just the reality where we are

Darren Richards: Yeah. And one or two kind of exceptions, I suppose, to that rule in the sense that the pharmaceutical industry, you know, unique as it [00:38:00] is, has taken some in, i-i-very interesting approaches to platform design. I think the data center market, predominantly private sector-owned, you know, through the, through the dynamics and the need of that sector has embraced industrialized processes.

There's a business imperative there, isn't there? And I think we've seen it in commercial offices, you know, but again, it's in small pockets. It's not a big systemic

Mark Farmer: It's been exemplars. Pilot projects, exemplar projects, um, and they're all good stuff. They show the art of the possible. None of them are scaled, and unless there's some external stimulus for change, um, you won't see complete pan-industry pivot to a different model because of the, the industry's set up in a certain way.

Going back to the beginning of the conversation, the industry is like it is not by accident. It shapes itself to be resilient as possible, even though it's even struggling now, in what is a cyclical market. That's what's drove over the last forty to fifty years subcontracting. That's why we're so fragmented.

No one wants to hold payroll. No one [00:39:00] wants to hold fixed cost investments. They're basically, we've now got this atomized industry where half the industry is self-employed labor. Subcontractor employs a subcontractor, employs a subcontractor, et cetera, et cetera. That is not something that's gonna change back to some utopian word, vertically integrated, quasi manufacturing type model.

We would never-- I don't think it ever will. It might change if government regulates and forces something. Or the other, the other, um, avenue for change might be some of the real disruptive impacts of AI and how that might, um, remap workflows. I think that's something that's coming. I haven't quite got my head around what that looks like yet, but I think there's something there around using technology to disintermediate the process of building that could have a structural and systemic change implication in the future.

Darren Richards: And that might, um, uh, create a more attractive, um, environment sector for people to work in. So onto the workforce, [00:40:00] uh, question really in terms of rethinking, you know, construction skills, the whole workforce model maybe, um, that needs to be fit for this industrialized construction future. So you've done a lot of work in this area.

You've been working with government, uh, in this area. What's our biggest challenge? Um, I think, I think you said it wasn't-- This is going back to a conversation we had a while ago. You said it wasn't attraction, it was absorption, which I thought was a very interesting phrase. So just maybe elaborate on that.

Mark Farmer: Yeah. It, it's, um, it's getting a bit more traction now in terms of that statement is being recognized. So everyone for years, including when I wrote "Modernize or Die," is talking about the fact we can't attract enough young kids. And I sort of-- I, I suppose I've fallen into the trap of assuming that's been the case as well because there's a, you know, it's quite clear that construction historically as an industry hasn't been top of a lot of kids' wish lists as a career, seen as sort of quite physical, um, not necessarily aspirational compared to other choices over, over time.

[00:41:00] I... What I've come to realize though is actually there's plenty of kids who wanna work in our industry, and not only that, there's plenty of kids who leave school who go and do construction related courses, um, post 16, um, but don't actually end up in our industry, um, for a series of different reasons. But, you know, one of the-- some of it is that they d- they do the course and they realize it's not for them actually.

The idea of construction isn't their career vocation or leaning. Um, but more, but, but p- probably more, um, the, the driver is the fact the industry's not been willing or able to take on the, all of those students as people, um, as employees, whether full-time employees or apprentices And that comes back to two things.

One is there's a general l-low appetite to train people in our industry, which just comes back to this cyclicality point and lack of appetite to invest. Everyone's worried about the next downturn. [00:42:00] Where's the next project coming from? Um, so they tend to, to, to take people that have already been trained by someone else.

So it's called the free rider principle. So basically, a lot of smaller businesses in particular will just-- They won't train themselves. They'll just, um, um, go out in the market and find someone that's already been trained, pay, pay a bit more for that, um, but won't invest in the process. That improves slightly in good times.

So when we're in a boom market, you do get a reasonable amount of training going on because in-- subcontractors realize that they have to do it. In a downturn, and as we are at the moment, though, it falls away pretty rapidly. And w-well, this is where you see this absorption issue. So at the moment, we have a, um, a backlog of kids currently in courses, construction courses, who cannot find placement in industry.

It's absolutely swamped with kids wanting to get into construction. And I'll tell you what, it's going to increase because with AI starting to reshape kids' career, um, [00:43:00] the realization of career sustainability, uh, you're going to see a pivot to a lot more kids wanting to get involved in trades because they see it as more resilient and AI-proof.

We're already seeing AI. There's been a couple of reports indicating that's already starting to happen. Kids are turning their back on un-university. They're, they're being told by their parents or their-- even their teachers, "Actually, get yourself, you know, a practical career, you know, a f-a, using your hands or whatever it might be."

Um, not exclusively 'cause I think, you know, the industry obviously is a lot more than just the physical stuff on site. It is about all of the professional services that wrap around it. Um, so yeah, we do not-- We have an absorption problem, and it's made worse in, in poor economic conditions where the appetite to take people on is low.

So our biggest challenge with work I'm doing with government at the moment for the Construction Skills Mission Board and my work as people and skills lead for the CLC, a lot of that is focused on addressing absorption challenges. How do we get kids into our industry? If [00:44:00] it's not on an apprenticeship, can we get them a work placement?

Can we improve their work readiness? Can we get them some kind of, um, badge that en-enables when the market recovers employers to think, "Actually, I'm not starting from scratch with this kid. He's actually got a leg up. He's done some work, and he's, he's productive maybe in certain functional activities.

He's got a CSCS card. He could be used in a, in a productive capacity." So we're trying to find ways to broaden the bridges into the industry, um, but we have no shortage of kids. That's the biggest thing I would say, that, that this is not an attraction issue. That is a fallacy.

Darren Richards: Hmm. Interesting point. Probably a point the industry needs to speak about more often and probably address in a, in a, in a different way. So wrapping up, um, just wanted to kind of look ahead now. We've looked back over the last ten years, and maybe look ahead in the next ten years and, and I suppose the question for me is, you know, what would a successful industrialized construction sector look like in twenty thirty-six in your [00:45:00] mind?

So, you know, obviously it'll have components of what we've already spoken about, but, um, if you were rewriting 'Modernize or Die' now, um, there'd be a lot of it, I guess, would be, uh, cut and paste 'cause things haven't changed. But obviously, with the influence of AI and new technologies and platform design and various other, uh, elements, what do you think it, it...

What would you like it to look like in ten years?

Mark Farmer: So I think the ultimate ambition is the same as it was ten years ago, which is a much more productive industry. One where, um, we'd eradicated so much of the waste of what we do. You know, a lot of that productivity challenge is not just about how hard you work, but it's about how much do you waste.

Physical waste, transactional waste, all of that implicit waste that comes from the structure of our industry and the layering of what we do. But ultimately, it's being more productive, so doing more with finite resources. Um- The bus-- the industry making more money. That sort of corollary of this is actually if you cut the waste out, what you should be looking to do is everyone should be making more money, but the end client [00:46:00] still gets a cheaper job.

That feels a bit utopian, feels a bit ambitious, but I-- this, you know, anecdotally, our industry is forty to fifty percent waste. Every pound spent in construction, only about fifty, sixty pence is the physical stuff you see. So we've got to go after that stuff that's missing. We can compress that, share it between the clients of the industry and the supply chain.

We can pay ourselves a bit more and clients get cheaper construction. And, uh, that I think if there's a sort of a success metric that I'd like to see going forward, it would be the realization of that ideal. I do absolutely think that AI is gonna be the change agent, this, for this next decade, not just for construction, the whole of society.

So it feels to me AI will be part of the journey as to how we're gonna get to that, um, that sort of future ambition. It will be about what's the role of AI disintermediating, which is a term I use quite a lot, cutting out all the waste in the process. So how do you [00:47:00] go from the people have got the digital, um, skills and technologies and the, um, the raw product to connect that to the physical product, whether it's manufactured goods or whether it's site labor and everyone in between, whether it's consultants or main, main contractors or even major subcontractors.

But I think they're increasingly gonna get challenged to prove their worth. It will be a world where clients wanna connect with the people who can actually do the doing, physical stuff, and all the layers in between that are currently are predicated on managing complexity and labor intensity and chaos, if, if I'm really honest.

If AI does what it could potentially do, you'll see all of that under pressure, which will start to become the opportunity to drive the waste out. That doesn't mean we're gonna see the end of consultants and main contractors, but they need to reinvent themselves. They need to come up with new business models that are value add.

We're certainly seeing that as our challenge at Cast. In, in my day job [00:48:00] here, we-we're trying to work out what's the future of consulting look like around an AI-based world. I think it's quite exciting. It's a little bit daunting, but it's exciting as well. Um, and I think coming back to, you know, what does good look like in ten years' time?

We're all part of a, uh, industry that's delivering more, um, uh, with less resource, um, or finite resource. Uh, build, uh, clients are getting better quality buildings cheaper, quicker. Um, that's gotta be an-- that's gotta be the right ambition, isn't it?

Darren Richards: Isn't it? Right. That's the panacea. Mm. Well, it's been a pleasure as ever. Till the next time. Thank you.

Mark Farmer: Thanks, Doug