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# 52012SC0236

**COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION “Strategy for the sustainable competitiveness of the construction sector and its enterprises” /\* SWD/2012/0236 final \*/**

  

COMMISSION STAFF WORKING DOCUMENT

Accompanying the document

COMMUNICATION FROM THE COMMISSION

“Strategy for the sustainable
competitiveness of the construction sector and its enterprises”

1. Introduction

The scope of this Staff Working Document
(SWD) is to strengthen the factual basis underpinning the Communication ‘Strategy
for the sustainable competitiveness of the construction sector and its
enterprises’.

It provides information on the structure
and the short-term trends of the entire ‘value chain’, including on-site
construction enterprises (construction of buildings, infrastructure and
specialised construction activities), the manufacturing industry (producers and
suppliers of materials and construction products) and professional services (consulting
firms, architecture and engineering, etc.).

‘Sustainable
competitiveness’ is understood as the ability of businesses in the construction
industry to achieve and maintain levels of economic performance required by the
markets while coping with sustainable development goals. In other words, their
economic performance should also contribute to the achievement of objectives in
terms of quality of life, social welfare, resource efficiency and environmental
protection. Hence, the SWD will also provide information about the
environmental performance of construction enterprises.

2. Industry Characteristics

The construction industry is a major
economic operator. Overall, it generates almost 10 % of GDP, provides 20
million direct jobs, mainly in micro and small enterprises, and contributes to
more than 50 % in fixed capital formation of all economic agents. Due to
its economic importance, the performance of the construction sector can have a significant
influence on the whole economy.

Buildings account for 42 %[1] of final energy consumption and
35 % of the CO2 emissions in the EU-27. The manufacturing and transport of construction products is
responsible for about 10 % of final energy consumption and about 50 %
of all materials extracted from earth. The environmental performance of
buildings varies significantly from one country to another.

The competitiveness of companies in the
construction industry is therefore an important issue, not only for employment
and for the European economy in general, but also to ensure the sustainability
of the industry.

The range of different activities within each sub-sector gives
contrasting results in terms of skills
and adaptation to new regulations
and market opportunities. Along the value chain, there are clearly three major
sub-sectors differentiated by
their structure, performance and the nature of the challenges they face.

2.1 On-site construction enterprises

This includes all businesses that
construct buildings and infrastructure (bridges,
roads, transportation networks,
etc.) and carry out maintenance, renovation and demolition works.

The number of direct jobs linked to
this sector was 15 million in 2008, representing 7 % of jobs in the EU and 30 % of industrial
employment. Corporate concentration remains
relatively low and a significant portion
of the production value comes from micro-enterprises[2]. Civil engineering
works account for 22 % of total construction work, i.e. € 258 billion
and about 3 million operatives.

As on-site construction is a major consumer
of intermediate products and services[3], its
growth has a significant impact on the development of other industry sectors
(raw materials, chemicals, electric and electronic equipment, etc.).

Output has slowed down, especially in the construction and renovation of buildings.
The production index has fallen by 19%,
excluding seasonal variations, between January 2008 and November 2011 for all EU-27[4]. Infrastructure work has also fallen, although to a lesser extent, as the index of production fell 7 % over the
period between January 2008 and November 2011. Overall, the sector lost 13 % of its workforce between 2008 and
2010[5].
Annex 1 gives more details on the impact of the crisis and the response of
Member States.

A major share of on-site construction work in
the EU, especially on infrastructure, arises from public procurement. Public procurement projects are often complex and extensive in nature and size, which may pose
difficult challenges for SMEs.

To help implement the ‘Small
Business Act’, the Code of Best Practices on SMEs encourages
Member States to develop favourable conditions for subcontracting and partnership between SMEs (‘consortium’) within the
framework of public procurement. Given the
importance of public works for
the construction activity, public procurement policy
should be exemplary, a model of good
practice for all fields.

As announced in the recast of Energy
Performance of Buildings Directive[6],
the introduction of Nearly Zero Energy Buildings (NZEB)[7] is going to be a major
challenge for the building industry in the next few years. The market has
several years to adapt, but it needs to be supported by all market actors
ranging from public bodies (which need to implement two years in advance),
construction companies, designers, developers, etc. It will also require adaptation
in areas such as financing structure, procurement, education and marketing.

On-site construction will increasingly
face the need for
skilled labour. Some surveys show that more than 7 enterprises out of 10 have already experienced difficulties in recruiting for several years. The huge swathe of skilled people due to
retire by 2020[8], representing over two
thirds of jobs in construction, industry and transportation,
will also need to be replaced. The chronic shortage of skilled labour can be explained by the
low attractiveness of the sector for
young people and by the growing need
for skills corresponding to specific qualifications,
which education, training and the employment market often do not satisfy. The transition to a resource
efficient and low carbon economy will also bring major
structural changes in the construction sector, which will have to adapt and anticipate the needs
for skills and competences in these areas. This is especially the case
regarding preparations of the labour force to build Nearly Zero Energy
Buildings, both new buildings and renovation.

The proportion of on-site construction
workers who have completed higher education has increased over time but at a rather
slow annual rate. This constitutes an obstacle to higher productivity and a
better uptake of innovative technologies and business models. Moreover, due to
disparities, in particular in the organisation of compulsory education systems,
there are significant differences between the EU-27 countries in the level of
basic skills of the workers recruited. These disparities, and the lack of a clear
definition of basic requirements for jobs in on-site construction, pose a major
obstacle to the mobility of skilled labour, as do other issues related to
working conditions and wages.

These obstacles are reflected in the
insufficient use of Information and Communication Technology (ICT) in
the sector. Although the proportion of on-site construction enterprises with
access to broadband internet has grown rapidly, the electronic management of
orders and purchases and/or the direct exchange of information with suppliers
and customers have grown more slowly. Only about one third of companies with
more than ten employees use ICT to integrate its internal business processes[9] and barely one tenth uses ICT
to integrate external processes[10].
In most micro-enterprises, ICT use is almost non-existent.

Spending on research and development (R & D) remains very low (0.05 % of turnover in 2007). This
can be explained by the fact that the main interest of on-site construction
enterprises is to integrate available external technological developments into
their activities.

The number of ‘low-energy’ buildings
is growing but has not yet reached a critical mass. Efforts to improve energy
efficiency and integrate renewable energy sources are progressing slowly, for
existing buildings and for new constructions. The initial extra costs of
constructing a passive building vary between 15 to 20 % and seem to have a
dissuasive effect on demand.

Regarding extensive renovations of buildings,
the energy savings achieved are often
relatively modest since investors often do not clearly perceive
the added value of improved energy efficiency in the overall profitability
of investment, especially for rental
income. The ‘Strategy for a competitive, sustainable and secure energy’[11] , the ‘Roadmap for moving to a competitive low-carbon economy in
2050’[12] and the ‘Energy Efficiency Action Plan 2011’[13] therefore focus on the need for more action on buildings, especially on renovation.

Transport infrastructure has an enormous environmental impact, consumes substantial volumes
of energy and raw materials and generates substantial volumes of waste.
Infrastructure networks should bring a major contribution to making Europe more
sustainable, by reducing the environmental impact, consumption of land and
natural resources and energy and by making optimal use of scarce financial
resources. In the urban environment, upgrading and retrofitting
infrastructure will help provide a wide range of services, improve
environmental and security issues, reduce disruption to traffic and drive down
maintenance and reparation costs.

Finally, competition in the EU markets has improved through the application of public procurement directives
and by most Member States adopting the European design and
construction standards (Eurocodes). However, EU companies are not always on an equal
footing, especially due to the social
conditions in which they operate. Pressure from non-European companies, which
are often subject to less stringent social and
environmental requirements and sometimes receive state aid,
is also growing in some EU markets, in
particular for infrastructure works, with the risk that this puts European companies in an uncompetitive position. The situation on international markets is even more difficult. European businesses
often face serious difficulties, both due
to technical issues and due to the
conditions of competition in some non-member countries, e.g. China, which limit the scope to access their markets.

2.2
Manufacturing construction products

In 2007, the construction products industry
generated a turnover of €360 billion for an added value of € 115 billion
and employed 2.5 million of workers[14].
The seasonally-adjusted production index decreased by 24 % over the period
from January 2008 to September 2011 for the entire industry in the EU-27.

The structure of this industry varies significantly depending on the areas concerned. SMEs are predominant, but the
economic value of large enterprises is substantial in some industries, such as cement or
plaster.

Beyond cyclical movements, the growth prospects are
closely related to the on-site
construction sector. Thus, the effects of the economic crisis on buildings and infrastructure
projects were directly reflected in the
sector of construction products,
which also faces the challenges
of rising costs of energy and raw materials and international trade[15].

The sector is, nevertheless, very innovative,
particularly in terms of quality and performance of products placed on the market.

Spending on research and development in the construction
products industry increased in
2007 to about 0.5 % of
turnover. This low
rate (1 to 2 %)
can be explained by intensive manpower requirements
compared with industry in general. In terms of patents, however, EU27 companies have been frontrunners
with over a half of international patent applications related to
new processes and new products submitted to
the European Patent Office in
2006.

On-site construction and the manufacturing of construction
products are characterised by a
high consumption of inputs (such as metallic and non-metallic minerals,
chemicals and wood) and the production
of large quantities of waste. The construction
products industry has sought in
recent years to improve its environmental
performance. Efforts have been made in the last decade
to integrate the management of manufacturing, design of buildings and
on-site works to reduce the amount of waste[16].
The industry is developing more and
more materials that are easier to
collect and reuse and systems or ‘building solutions’ that facilitate the ‘deconstruction’ of the works and the re-use of materials.
These efforts are in line with the new basic requirement listed in the Construction Products Regulation
concerning a sustainable use of
natural resources, and with the Raw Materials Initiative (RMI), by
developing best practices in waste collection and treatment, especially in
recovery/reuse of valuable materials from waste, and through support for
research on economic incentives for recycling/recovery.

In addition to the drive to
make progress in research and development, the dynamism of the sector is also due to the following factors: a gradual
increase in competition on the internal market thanks to implementation
of the Construction Products Directive (CPD), and the climate, environmental and energy
efficiency objectives requiring continually
higher performance levels of buildings constructed from these
products.

However, the construction
products industry still has to cope with a great diversity of standards, national
approval schemes and quality
marks, which often artificially
increase the costs of the products placed on the market. Implementation of the Construction Products
Regulation, as of July 2013, should help improve this situation significantly.

Meanwhile, the sector has gradually opened up to competition from outside the EU, exposing
itself to severe competition with
producers that have to follow less stringent social
and environmental regulations.

2.3 Professional services in the
construction sector

This area is also very diverse and includes
architecture and engineering as well as regulators, surveyors and project
coordinators. In 2007, it generated a turnover of € 620 billion, an added
value of € 300 billion in 2007 and employed about 3 million people.
Compared to the two other areas of the construction sector discussed above, the
crisis has had less of an effect on the activity of professional services,
although the production index for the period January 2008 to August 2011 shows
stagnant activity in this sector.

In recent years, many mergers and
acquisitions have taken place in the professional services sector, but
micro-enterprises are still likely to dominate, according to medium-term
projections.

The fragmentation of practices, regulations
and cultural traditions at national, regional and local levels limits the
mobility of professionals in this sub-sector, despite EU legislation on free
movement of services and the mutual recognition of professional qualifications[17].

Eurocodes, European standards for design
and construction, are an important platform at European level for engineering
companies to access construction markets, including public procurement.
Internationally, Eurocodes are also known to play an important role in opening
new markets for European companies. Russia and some Asian countries, for
instance Vietnam and Malaysia, are in the process of adopting them as tools for
the design and construction of buildings and infrastructure. Underpinned by the
right policy, Eurocodes could also play this role in African markets.

Although energy performance requirements
are increasingly taken into account in project design, a more global approach
encompassing sustainable development requirements is still only taken in specific
cases. At national level, methods for making an integrated assessment of
environmental performance and related certification tools are beginning to be
applied in public procurement. However, these approaches are not harmonised and
are insufficiently conducive to innovative solutions. Here too, European
standardisation[18]
must play a role accompanied, where appropriate, by concerted efforts to
develop a more systematic and harmonised framework to meet the economic, social
and environmental criteria[19].

Costs resulting from failures in the
construction process are relatively high; they represent a considerable risk to
professional services and construction companies. Risk management is therefore
a major concern for professional services. Liability and insurance policies vary
significantly between Member States and are often associated with national
quality marks, which in most cases is a major obstacle to the free movement of
services on the internal market.

2.4 Structure and trends of the sector
at national level

Annexes 2 to 4
describe the structure of the three sub-sectors analysed in the previous
sections and trends in individual Member States.

In terms of size
of enterprise, the three construction sub-sectors all have a comparatively
high share of micro-enterprises compared to the average for manufacturing (NACE
D). Although the small size of construction enterprises typically limits their
internal capabilities and investment resources, it can offer opportunities for
faster and more flexible business development. Member States in southern Europe
tend to have the largest proportions of SMEs. Conversely, central and eastern
European countries tend to have a higher share of large enterprises, although
the trend is towards increasing shares of SMEs. Market concentration in both
the on-site construction and the manufacturing of construction products tends
to be higher in smaller Member States than in larger ones, presumably due to
their market size and overall number of enterprises.

In terms of skills and education,
most employees in on-site construction have at least an upper secondary
education. There is a significant difference between the EU15[20] (61 % of total
employment) and EU12 (84 % of total employment) averages, which in part
reflects differences in the definition of mandatory educational systems. Annex
5 provides examples of the vocational education and training systems in place
in some Member States. More than 60 % of employees in on-site construction
in the southern European countries only have primary or lower secondary
education. Over time, the share of employees in on-site construction with an
upper and post-secondary non-tertiary education or a tertiary education have
increased, although at a low annual rate in the EU27 from 2004-2008.

In all three subsectors, the share of
turnover represented by business expenditure on research and development
is significantly lower in the EU12 than in the EU15[21]. Furthermore, in terms of
innovation activity, there is a significant gap between enterprises in the EU15
and the EU12 in all three subsectors[22].
Innovation activity in the EU-27 appears to be decreasing compared to 2004
levels, although this may simply reflect the initial impact of the financial
crisis on enterprises involved in construction (note also the limited data
coverage for 2004).

In terms of environmental performance,
on-site construction and manufacturing of construction products generate large
amounts of non-recyclable waste. In Greece, Romania and Slovenia, the shares of
non-recyclable wastes are comparatively lower than in other EU countries, which
is probably due to a higher reliance on more traditional construction materials
and building methods. Efforts made so far to develop
materials that are easier to re-cycle and reuse will only be fully reflected in
improved waste statistics in 20 or 30 years. Enterprises
in manufacturing materials in the EU12 appear to generate significantly more
waste relative to output than enterprises in the EU15. This difference in waste
efficiency (amount of waste generated per unit of production) may be due to
differences in technology use driven by higher labour costs in the EU15.

Annex 1

Trends in on-site construction

The
construction sector has been hit particularly hard by the financial and
economic crisis. Figure 1 shows that the production index of on-site
construction for both building and infrastructure works fell by 16 %
between January 2008 and November 2011 across the EU-27.

Figure 1: Production index in the construction sector
since the crisis

Source: Eurostat STS — News release 10/2012 – 18
January 2012.

Activity fell sharply
in building works, in particular in the new residential
segment, with a decline in the production index excluding seasonal variations of 19 % between January 2008 and
November 2011 for all EU-27. Infrastructure works also experienced, although to a lesser extent,
a downturn in activity as the
index of production fell 7 %
over the period between January 2008 and November 2011.

The situation varies enormously from one
country to another. When comparing the quarterly production indexes, number of
persons employed and building permits[23]
over the period from the first quarter of 2008 up to the third quarter of 2011,
the most negative trends are seen in Bulgaria, Cyprus, Estonia, Greece,
Hungary, Ireland, Portugal, Slovakia, Slovenia and Spain.

Figure 2: Change in the production index in on-site
construction in individual Member States

However, in Austria, Belgium, Germany,
Luxembourg, Poland and Sweden, at least one quarterly performance indicator showed
an increase in activity. Countries with the highest
decreases of the performance indexes since 2008 are those that had the highest
growth rates up to 2008. Another reason for the different impacts of the crisis
at national production levels could be the nature and impact of planned
construction work as well as varying effects of national stimulus packages. Still,
as Figure 7 shows, the on-site construction subsectors in all Member States (with the
notable exceptions of Germany and possibly Belgium and Poland) were adversely
affected by the financial crisis to some extent or other (both Germany and
Poland fared comparatively poorly prior to 2008, however).

Responses to the crisis

Several Member
States have adopted or announced specific programmes to promote private and
public investment in infrastructure projects[24].
For example, Germany’s second fiscal programme provides for € 17 billion
in infrastructure investment. The French ‘plan de relance’
provides for € 4 billion in public infrastructure investment and € 1.9
billion for housing projects.

Some Member
States have also adopted or announced additional measures in direct support of
private housing demand and supply:

·
Belgium: The
government has announced reduced VAT rates (6 %) for new construction
works up to a value of €50 000 in 2009.

·
Ireland: Support for
the housing market — Taxation measures with an estimated cost of € 180
million or 0.1 % of GDP, namely extension of the period of capital
allowances for newly constructed buildings in order to increase the attractiveness
of commercial buildings, a reduction of stamp duty applicable to
non-residential property and an increase in mortgage interest relief for
first-time homebuyers.

·
Latvia: Lifted
the obligatory 10 % down-payment rule when taking a mortgage loan (i.e.
the LTV ratio was capped at 90 %) and reversed the fee increase for
registering in the land registry.

·
Netherlands: The
guarantee fund for council housing ‘Waarborgfonds Sociale Woningbouw’
will be extended by (temporarily) increasing the maximum level of the guarantee
in special circumstances. This enables housing corporations to (partly) take
over projects from commercial parties and to let out houses.

·
Spain: Draft bill
on measures to stimulate the rental market and energy efficiency in buildings.
Authorisation will be given to create Real Estate Investment Trusts which will
have a favourable tax regime and whose main object will be to invest in
property for rental purposes. The objective is to encourage the rental market
in Spain. In 2008, through ICO, the State guarantees for securitising loans to
SMEs were increased from 1 to 3 billion euro to promote rentals. Also, the ICO
guarantee lines for securitisation of mortgage loans to buy social dwelling
homes were increased from 3 to 5 billion euro. On VAT and personal income tax, there
is improved tax treatment of building refurbishments that cost over 25 %
more than the acquisition price (not including the land), effective as of January
2008. The goal is for more projects to be eligible for a more neutral
beneficial tax scheme, improving input VAT recovery and stimulating the
construction industry. The same applies to the rehabilitation credit allowed
for the habitual dwelling under personal income tax.

·
UK: Homeowners
support package of £ 1.6 billion (0.13 % of GDP), including a new
shared equity scheme to support first-time buyers, support to vulnerable
homeowners at risk of repossession and a £ 400 million programme to
support social housing supply. The government also decided to temporarily raise
the tax-free threshold for the UK’s residential property transaction tax for
one year from £ 125 000 to £ 175 000 (estimated to cost
around £ 600 million in foregone revenues).

Annex 2

Individual
Member State performance in on-site construction (NACE section F)

Figures 3 and 4 show the key performance
indicators for on-site construction for each of the 27 Member States in 2007. Figure
3 shows how enterprises in the Nordic countries, Benelux, Ireland and the
United Kingdom tend to generate a comparatively high turnover per person
employed (although note that Irish figures only refer to enterprises with 20+
persons employed) compared to both the new Member States and the remaining EU15
Member States.

Figure 3: Turnover
per person employed (2009 prices) and average enterprise sizes across Member
States

Source:
Eurostat SBS (NACE Rev.1.1) and further calculation., Comparatively high Irish
figures at least to some extent are due to the data not including enterprises
in on-site construction with fewer than 20 persons employed, Data not available
for Malta.

Figure 4: Wage-adjusted
labour productivity and its components (2009 prices) across Member States

Source:
Eurostat SBS (NACE Rev.1.1) and further calculations. Comparatively high Irish
figures at least to some extent are due to data not including enterprises in on-site
construction with fewer than 20 persons employed. Data not available for Malta.

The lowest turnover per person employed
among the EU15 Member States is recorded in Greece and Portugal. The lowest
turnover per person employed among the New Member States is recorded in
Bulgaria, Lithuania and Romania, reflecting to some extent differences in
purchasing power and productivity levels. Differences in purchasing power do
not explain all the variation in turnover per person employed, however, and
other factors are likely to include the quality of workforce and equipment and
the frequency of undeclared work. The first graph also shows some interesting
regional patterns regarding enterprise sizes. On the one hand, the southern
European countries of Greece, Italy, Portugal and Spain all have a
comparatively high number of enterprises relative to population size and a low
average enterprise size (implying a comparatively high proportion of micro
enterprises and/or comparatively small large enterprises). Only the Czech
Republic registered a higher number of enterprises relative to its population
size than these four countries in 2007. On the other hand, the countries with
the largest average enterprise sizes tend to be new Member States. Thus, out of
the five countries (not counting Ireland) where the average number of persons employed
per enterprise exceeded 10 in 2007, four were Bulgaria, Latvia, Romania and
Slovakia, and the fifth was Luxembourg — the smallest of the EU27 Member States
besides Malta (for which no recent data is available) and the only country out
of the five where the number of enterprises relative to population size was not
correspondingly low.

The second graph shows how enterprises in
the new Member States generally tend to record comparatively higher wage-adjusted
labour productivity levels than enterprises in the EU15 Member States, led by
enterprises in Bulgaria, Latvia and Romania, which generated more than two euros
of value added for each euro paid in personnel costs in 2007. Seven of the 11 new
Member States for which data are available recorded wage adjusted labour
productivity levels above 150 % and only two, the Czech Republic and
Hungary, recorded wage-adjusted labour productivity levels below the EU15
average of 128 %. Conversely, only Ireland and the United Kingdom among
the EU15 Member States recorded wage-adjusted labour productivity levels above
150 %, driven by a comparatively high value added per person employed (for
Ireland the effect of not reporting data for enterprises with less than 20
persons employed are unclear, but wage-adjusted labour productivity levels
would appear to be relatively stable across enterprise size classes, even though
it is lower among micro enterprises (see Figure 5). The lowest wage-adjusted
labour productivity levels among the EU15 Member States in 2007 were recorded
by Germany, France, the Netherlands and Sweden — in the latter two countries at
least in part due to the highest average personnel costs of all Member States.

Figure 5: Wage-adjusted
labour productivity and its components (2009 prices) across enterprise size
classes

Source:
Eurostat SBS (NACE Rev.1.1) and further calculations. EU27 averages do not
include Ireland, Malta or Spain due to missing data.

Figure 6 shows that
the majority of employees in on-site construction aged 18 to 69 has at least an
upper secondary education and that this is the case for as many as 86 % in
the EU12[25]. However, the significant differences between the EU15 and EU12
averages at least partly reflect differences in the makeup of mandatory
educational systems, and only about 10 % of the European labour force
employed in on-site construction holds a university degree or other tertiary
qualification.

The above averages mask some notable
regional patterns. Specifically, more than three in five employees in on-site
construction in the southern European countries including Greece, Italy, Malta,
Portugal and Spain have just a primary or lower secondary educational
background. Luxembourg is the only other Member State where this is the case. Also,
the eight Member States with the lowest shares of employees in on-site
construction with just a primary or lower secondary educational background form
a tight geographical cluster in central Europe, namely in Austria, the Czech
Republic, Germany, Hungary, Lithuania, Poland, Romania, and Slovakia. Finally,
employees in northern Europe including the Nordic countries, Austria, Germany,
the Netherlands, Ireland and the United Kingdom tend to have relatively more
education and training, although it is unclear to what extent this is
continuing vocational education and training or leisure interest classes. Only
in Slovenia do employees in on-site construction participate in education and
training at similar rates.

Figure 6: Educational attainment levels of
employees in on-site construction (NACE section F), 2008

Source:
Eurostat, Labour Force Survey (NACE Rev.1.1) and further calculations. See
footnote for further comments on the EU12 average.

Over time, the shares of employees in on-site
construction aged 18 to 69 with an upper secondary and post-secondary
non-tertiary education or a tertiary education have steadily increased in the
EU27 (not shown). The incremental changes probably reflect overall changes in
the educational composition of the European labour force caused by inflows of
better-educated young workers. But it is difficult to discern the impact of any
concerted effort to improve educational levels in the limited time span of
available data.

Developments since 2007

The most negative developments are found in
Denmark, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg,
Portugal, Spain and the United Kingdom, where the average quarterly change
across available indicators (number of persons employed, new orders, production
volume and/or gross wages and salaries depending on country) fell below zero (0 %)
and the average quarterly change for at least one individual indicator
exceeding a negative one (-1 %). On the other hand, Austria, Belgium,
Finland, France, Germany, Poland, Romania, Slovakia and Sweden have fared
relatively well in light of the crisis. In these countries the average
quarterly change across available on-site construction indicators has stayed
positive and the average quarterly change for at most one individual indicator
is below zero (0 %). The countries with the highest decreases in
construction activities since 2007 are those that had the highest growth rates
up to 2007. Another reason for the different impacts of the crisis on
development in national production levels could be the nature and impact of
planned construction work and the varying effects of national stimulus
packages. Still, as clear from Figure 7, the on-site construction subsectors in
all Member States (with the notable exceptions of Germany and possibly Belgium
and Poland) have been adversely affected by the financial crisis to some extent
or other (both Germany and Poland fared comparatively poorly prior to 2007,
however).

Figure 7: Average quarterly changes in on-site
construction (NACE section F) across Member States

Source: Eurostat STS (NACE
Rev.2). Performance
indicators include the number of persons employed (far left red column), new
orders (middle left green column), production volume (middle right purple
column) and gross wages and salaries (far right blue column). Average quarterly
growth in new orders based on data until Q4 2008 only to include new
Member States. No current data available for Italy, Malta or the Netherlands.
Countries ranked by swing in average quarterly changes between top and bottom
rows.

Annex 3

Individual Member State performance in
Manufacturing of construction materials

Figures 8 and 9 show the key performance
indicators for manufacturing of construction materials for each of the 27
Member States in 2007. Figure 8 also shows how in manufacturing of construction
materials, enterprises in the Nordic countries, Benelux, Ireland and the United
Kingdom together with France tend to generate a comparatively higher turnover
per person employed compared to both the new Member States and the remaining
EU15 Member States.

Figure 8: Turnover
per person employed (2009 prices) and average enterprise sizes across Member
States

Source: Eurostat SBS (NACE Rev.1.1) and further
calculations. Data not available for Malta.

Figure 9: Wage-adjusted
labour productivity and its components (2009 prices) across Member States

Source: Eurostat SBS (NACE Rev.1.1) and further
calculations. Data not available for Malta.

The lowest turnover per person employed
among the EU15 Member States was recorded in Portugal and the lowest turnover
per person employed among the new Member States was recorded in Bulgaria,
Lithuania and Romania, as it was for enterprises in on-site construction. When
comparing average turnover per person employed between subsectors country by
country, enterprises in manufacturing of construction materials tend to
generate a significantly higher turnover than enterprises in on-site
construction in the EU15 Member States, but this is not the case in the new
Member States, even in percentage terms. This disparity suggests that manufacturing
enterprises in the EU15 Member States are able to and do employ more modern
technology and/or a better qualified workforce than manufacturing enterprises
in the new Member States. Also in manufacturing of construction materials there
is a regional pattern of comparatively high numbers of enterprises relative to
population size and low average enterprise sizes in Southern Europe. The
regional pattern noted in on-site construction of fewer, but larger enterprises
in Eastern Europe is less apparent, however.

Figure 9 shows how manufacturing
enterprises like on-site construction enterprises in the new Member States
generally tend to record comparatively higher wage-adjusted labour productivity
levels than enterprises in the EU15 Member States, led by enterprises in
Bulgaria, Latvia, Poland, Romania and Slovakia, which generated more than two euros
of value added for each euro paid in personnel costs in 2007. All of the 11 new
Member States for which data are available recorded wage-adjusted labour
productivity levels above 150 %, the lowest levels being recorded in
Estonia, Lithuania and Slovenia. None recorded wage-adjusted labour
productivity levels below the EU15 average. Conversely, seven of the EU15
Member States recorded wage-adjusted labour productivity levels below 150 %,
namely Austria, Belgium, Denmark, Germany, Italy, the Netherlands and Sweden.
Comparatively high average personnel costs are a major factor in several
countries. Similarly to on-site construction, the highest wage-adjusted labour
productivity levels among the EU15 Member States in 2007 were recorded by
Ireland and the United Kingdom, although much closer to the EU15 average in
this subsector. Country–by-country differences between manufacturing of
construction materials and on-site construction are greater in the new Member
States in value added per person employed and wage-adjusted labour productivity
levels than in turnover per person employed, matching the differences observed
between subsectors in the EU15 Member States. The generally higher wage-adjusted
labour productivity levels in manufacturing of construction materials are largely
driven by higher value added per person employed, given the similar average
personnel costs in both subsectors in most countries.

Developments since 2007

The most negative developments have been recorded
in Denmark, Estonia, Greece, Ireland, Italy, Latvia, Lithuania and Spain, where
the average quarterly change across available indicators (number of persons
employed, turnover, production volume and/or gross wages and salaries, with
variations across countries, has shifted to below negative (-1 %) and the
average quarterly change for at least one individual indicator exceeds -2 %.
The average quarterly change across available indicators has been positive in
only one country after 2007, Poland. An additional nine countries, Austria,
Belgium, the Czech Republic, France, Germany, the Netherlands, Portugal, Sweden
and the United Kingdom, have recorded average quarterly changes across
available indicators between zero and minus one (-1 %) with average
quarterly change on no individual indicator exceeding -2 % (see Figure 10).
Compared to developments since 2007 in on-site construction, two groups of
Member States seem to cluster at either end of the spectrum. Current
performance levels in the Baltic States, Ireland, and Spain are consistently
the most adversely affected by the financial crisis and performance levels in
Austria, Belgium, Germany, Poland and Sweden are consistently among the least
affected. Apart from the impact or lack of impact of construction projects
planned before the crisis and stimulus packages, the manufacturing sector and
the trading sector (see below) are always likely to be directly affected by
developments in on-site construction[26].

Figure 10: Average
quarterly changes in manufacturing of construction materials across Member
States

Source: Eurostat STS (NACE
Rev.2). Performance
indicators include number of persons employed (far left red column), turnover
(middle left green column), production volume (middle right purple column) and
gross wages and salaries (far right blue column). Average quarterly growth in
number of persons employed in Ireland based on data until Q2 2009 only,
due to missing data. No current data available for Cyprus, Luxembourg, Malta,
Slovakia or Slovenia. Countries ranked by swing in average quarterly changes
between top and bottom rows.

Annex 4

Individual Member State performance in Professional construction
services

Figures 11 and 12 show the key performance
indicators for professional construction services for each of the 27 Member
States in 2007. Figure 11 shows how enterprises in the Nordic countries,
Benelux, Ireland and the United Kingdom together with France and Slovenia tend
to generate a comparatively higher turnover per person employed compared to the
other Member States.

Figure 11:
Turnover per person employed (2009 prices) and average enterprise sizes across
Member States

Source: Eurostat SBS (NACE Rev.1.1) and further
calculations. Data not available for Malta.

Figure 12: Wage-adjusted
labour productivity and its components (2009 prices) across Member States

Source: Eurostat SBS (NACE Rev.1.1) and further
calculations. Data not available for Malta.

The lowest turnover per person employed
among the EU15 Member States is recorded in Portugal and the lowest turnover
per person employed among the new Member States is recorded in Bulgaria and
Lithuania, shortly followed by Latvia and Romania. These patterns resemble the patterns
evident in the other two subsectors. When comparing average turnover per person
employed across subsectors, the only countries in which turnover per person
employed is highest in professional construction services are the Czech
Republic, Denmark, Slovakia and Slovenia. Both the regional pattern of
comparatively high numbers of enterprises relative to population size and low
average enterprise sizes in southern Europe and the regional pattern of fewer,
but larger enterprises in eastern Europe noted in on-site construction are
apparent to a lesser extent in this subsector.

The latter graph shows how professional
construction services enterprises in the New Member States generally tend to
record comparatively higher wage-adjusted labour productivity levels than
enterprises in the EU15 Member States. As in the other subsectors, wage-adjusted
labour productivity levels in 2007 were highest in enterprises in Bulgaria,
Latvia, Romania and Slovakia, which generated nearly two euros or more of value
added for each euro paid in personnel costs. Compared to the other subsectors, however,
there are some notable variations. Hungary and Ireland recorded two of the
three lowest wage-adjusted labour productivity levels in professional
construction services in 2007 and together with Italy were very close to
generating less than one euro of value added for each euro paid in personnel
costs. Equally, Portugal recorded the highest wage-adjusted labour productivity
among the EU15 Member States at above 150 %, a feat only otherwise
achieved by the United Kingdom. These discrepancies probably reflect the upward
pressure on average personnel costs of differences in the stock of available
labour force with the required skills base.

Developments since 2007

The most negative developments were seen in
Estonia, Ireland, Latvia and Lithuania where the average quarterly change in
turnover since 2007 has shifted to below -2 %, followed by Greece, Spain
and Slovenia, where the average quarterly change in turnover since 2007 has
shifted to below -1 %. On the other hand, the average quarterly change in
turnover since 2007 remained positive in Austria, Bulgaria, Denmark, Finland,
France, Germany, Hungary, Malta, the Netherlands, Poland, Romania, Sweden and
the United Kingdom, that is, in at least 13 of the EU27 Member States. Hungary,
Poland and Romania even recorded average quarterly changes above 2 %.
Nevertheless, Figure 13 quite clearly shows that the professional construction
services subsectors were also adversely affected, to some extent, by the
financial crisis in most Member States, except in Poland and possibly Hungary,
Malta and Sweden.

Figure 13: Average
quarterly changes in professional construction services across Member States

Source: Eurostat STS (NACE
Rev.2). No current data
available for Belgium, Italy and Portugal. Countries ranked by swing in average
quarterly change between top and bottom rows.

Annex 5

The provision of education and training for the construction sector[27] in individual Member States

Education and training systems across Europe vary widely in
the degree of centralisation or decentralisation, the structure of training
provision, the role of the social partners, financial structures, and
curriculum content. Four education and training systems have been chosen to
illustrate the type of systemic challenges in each of the systems.

·
In Germany, the Vocational Education and
Training system is decentralised and corporatist, as the construction sector is
the joint responsibility of the federal government, the Länder (the
federal states), the social partners, and enterprises. It is based on
tripartite cooperation between government, employers, and trade unions, which
updates the curricula in line with labour market needs. According to some
stakeholders, the current system attempts to address too many and too narrow
specialisations within the construction sector. This makes it more difficult
for both enterprises and potential apprentices to navigate the system and to
adapt to future job profiles and skill needs, which often transcend specific
occupational profiles.

·
In Italy, vocational training in the
construction industry is carried out by a national vocational training system
jointly managed by employers and employees’ federations, based on the national
collective agreement for construction firms signed by ANCE (National
Association of Construction Sector Workers) and the workers’ unions. A main
challenge to the adaptability of the Italian VET system is to define and ensure
comparable competence outcomes and quality levels across regions. As the
vocational training system is not related to a national qualification
framework, two workers may have the same vocational training qualifications but
with quite different content.

·
England has an
employer-led on-site learning system where students mainly acquire competencies
through company training. The VET-system is primarily regulated through
voluntary agreements. Employers contribute to apprentices’ wages, while school
training is funded by the state. A challenge in this system is the continued
lack of suitable and sufficient places for apprentices, even though there is a
levy/grant system for employers that take in apprentices. SMEs with annual
payrolls below £ 73 000 are exempt from the levy, although they still
qualify for grants, advice and support.

·
The Bulgarian VET-system is centralised
and characterised by school-based training and practice. Vocational
construction education and training includes four years of general school
training followed by the option of an additional year of specialisation. At the
national level, VET is the responsibility of the relevant ministries. The main
components of the curriculum are identical for all schools. A challenge of
centralised systems like the Bulgarian is the rigidity in changing curricula.

[1]               Source:
DG ENER.

[2]               Less than 10 employees — in 2007, micro enterprises
represented 92 % of the total number of enterprises in on-site
construction and accounted for 42 % of all persons employed and 31 %
of the total turnover of the sector.

[3]               In 2007, on-site construction consumed € 750
billion of intermediate products and services from sectors other than
construction (NACE section F), corresponding to nearly 44 % of the
subsector’s turnover — Source: ECORYS, study on the sustainable competitiveness
of the construction sector, client EC (2010).

[4]               Source: Eurostat.

[5]               Source: Eurostat.

[6]               Directive 2010/31/EU of the European Parliament and
of the Council of 19 May 2010 on the energy performance of buildings.

[7]               For more details on the relevant provisions, please
see Directive 2010/31/EU, Articles 2(2) and 9.

[8]               CEDEFOP ‘Skills, demand and Supply’ 2010 p. 93 http://www.cedefop.europa.eu/en/Files/3052\_en.pdf

[9]               E.g. electronic management of orders and purchases.

[10]             E.g. exchange of information with suppliers and
customers.

[11]             COM 2010 (639) final.

[12]             COM 2011 (112) final.

[13]             COM 2011 (109) final.

[14]             Study ECORYS — ‘FWC Sector Competitiveness Studies No B1/ENTR/06/054
— Sustainable Competitiveness of the construction sector’ — March 2011.

[15]             Ibid – For more information on the impact of the crisis
on this sector, see ECORYS.

[16]             The experience relating to ‘Lean construction’ refers
to this approach of integrated management.

[17]             E.g. Directive 2006/123/EC on services in the internal
market and Directive 2005/36/EC on the recognition of professional
qualifications, etc.

[18]             E.g. the work of CEN TC 350.

[19]             E.g. the SB Alliance.

[20]             EU-15 refers to the following group of countries of the
EU-27: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxemburg, the Netherlands, Portugal, Spain, Sweden, United Kingdom.
EU-12 refers to the following group of countries of the EU-27: Bulgaria,
Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Romania, Slovakia, Slovenia.

[21]             See Eurostat Statistics on research and development.

[22]             See Eurostat Community Innovation Survey.

[23]             The reference year is 2005 (=100). Building permits
refer to the useful floor area granted by the authorities.

[24]             The response of Member States to the Recovery plan is
much diversified and needs a systematic analysis. A study ‘Lead Market
Initiative – Assessing the impact of national recovery measures on construction
in the EU-25’ is ongoing and would deliver results in November 2012.

[25]             According to Eurostat, the average share of employees
in on-site construction aged 18 to 69 with primary or lower secondary
educational background is 41 %. However, also according to Eurostat, no
individual country among the EU12 except for Malta registers a share of
employees in on-site construction aged 18 to 69 above 37 %. Moreover, the
EU27 average according to Eurostat is lower than the EU15 average of 39 %
implying that the average for EU12 equally should be lower.

[26]             The general availability of Eurostat STS data is very
limited below the NACE section level. It is thus impossible to precisely detail
developments within the various NACE divisions and subdivisions that make up
the composite ‘Manufacturing of construction materials’ subsector as here defined.
However, manufacturing of construction materials comprises significant shares
of NACE sections C16, C23 and C25 and trends in these broader categories of
economic activity thus cannot move entirely independently of activities within
relevant NACE subcategories, or at least are highly unlikely to do so.
Moreover, trends within each of these broader categories of economic activity
are highly similar, suggesting an impact of the financial crisis common to most
types of economic activity. Accordingly, aggregate developments within manufacturing
of construction materials are approximated as the weighted average of changes
within C16 (15 %), C23 (45 %) and C25 (40 %) based on relative
sizes of divisions and subdivisions in terms of persons employed, turnover,
value added and personnel costs.

[27]             See ‘Future Qualification and Skills Needs in the
Construction Sector’, study carried out by Danish Technological Institute on
behalf of the European Commission, DG Enterprise and Industry, July 2009.

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