Engineering, Construction and Architectural Management

Reframing construction within the built environment sector

Gerard de Valence,
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Reframing
Reframing construction within the construction
built environment sector within the BES
Gerard de Valence
School of Built Environment, University of Technology Sydney, Sydney, Australia

Abstract Received 28 February 2018

Purpose – Official statistics on the output of the construction industry capture on-site activities of Revised 28 February 2018
contractors and sub-contractors; however, the role of the industry linking suppliers of materials, machinery, Accepted 12 April 2018
products, services and other inputs is also widely recognised. These two views have been called broad and
narrow, with the narrow industry defined as on-site work and the broad industry as the supply chain of
materials, products and assemblies, and professional services. An argument is made for using the term
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“built environment sector” (BES) for the broad industry definition of construction. The paper aims to discuss
these issues.
Design/methodology/approach – Construction industry statistics capture the on-site activities of
contractors and sub-contractors. This paper reviews research that adds to construction output the
contributions of suppliers of materials, machinery and equipment, products and components, professional
services and other inputs required to deliver the buildings and structures that make up the built environment.
Findings – The same term, “construction”, has been used in a number of ways in different definitional
studies of the narrow and broad industry. The term that best encompasses the large number and range of
participants in the creation and maintenance of the built environment, from suppliers to end users, is the BES.
Research limitations/implications – Construction economics makes an important contribution to
researching the macroeconomic role of the BES. There is also a special role for construction economics
in researching both the boundaries of the BES and the data available on the industries that contribute to
the BES.
Practical implications – Measuring the BES would improve the understanding of its macroeconomic role
and significance.
Social implications – Measuring the BES would contribute to city policies and urban planning.
Originality/value – The paper proposes a new approach to defining and measuring the industries that
contribute to the production, maintenance and management of the built environment. It introduces a new
name for the combination of those industries.
Keywords Organization, Construction, Novel method, Novel model
Paper type Conceptual paper

Construction industry statistics

The International System of Industrial Classification is the method used to measure industries
and their contribution to the economy. This is published by the UN (UN Statistical Division,
2008), although national statistical agencies produce their own versions of this Standard
Industrial Classification (SIC). For building and construction, statistics are collected by sector
and then divided into building or structure type, shown in a generalised form in Table I.
Projects within a defined market sector are then grouped together to establish sector size and
importance, detached housing, for example, or commercial developments. Because the data on
industry activity and output are presented in these classifications, analysis of trends and
forecasts of building and construction work are also usually found in this format.
The SIC definition of the construction industry captures the on-site activities of
contractors and sub-contractors, and these data on building and construction work are
taken to represent the industry. However, the on-site work links suppliers of materials,
machinery and equipment, products and components, professional services and all the other
inputs required to deliver the buildings and structures that make up the built environment.
Consultants provide design, engineering, cost planning and project management services.
There are also inputs from urban planning, transport, finance and legal services. This can Engineering, Construction and
Architectural Management
be thought of as the difference between “the construction industry”, made up of contractors © Emerald Publishing Limited
0969-9988
and sub-contractors supported by equipment suppliers, consultants, manufacturers, DOI 10.1108/ECAM-02-2018-0088
 ECAM distributors and others, and the on-site work that is measured as “construction activity”,
which includes contractors’ purchases of materials, etc., for use on building sites,
but does not include consultancy services or construction work by organisations other
than contractors.

Boundaries of the industry

Because the industry statistics for building and construction output and work done do not
include the wide range of inputs and activities involved, a number of researchers have
considered the issue of where the boundaries of the industry might be. Ive and Gruneberg
(2000) used stages of production approach, with the construction industry as one part of the
process of producing and maintaining the built environment. They were the first to argue
“A narrow definition of the construction industry includes only those firms undertaking
on-site activity” (2000, p. 9) whereas a broad definition includes many firms from other
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industries involved in production of the built environment (their italics).

In a similar analysis of the Australian industry, de Valence (2001/2010) compared the size
and scope of construction, first using data from a construction industry survey done by the
ABS (1998), and second from an industry cluster perspective. The cluster analysis approach
was used by the AEGIS (1999) to include SIC industry sectors that provide services before
and after construction in an approach that focussed on the linkages and interdependencies
between firms in a chain of production.
Following Ive and Gruneberg (2000), Pearce (2003) also called these the broad and
narrow industry structures. The narrow industry was defined as the on-site work reported
as industry output in the national accounts, and the wider industry as “the supply chain for
construction materials, products and assemblies, and professional services such as
management, architecture, engineering design and surveying” (Pearce, 2003, p. 10). Where
to draw the boundaries of the wider industry is an open question, as a diverse range of
firms, professional institutions, government regulators and authorities all contribute to the
creation and maintenance of the built environment.
Using what they called a “meso-economic” approach (i.e. between micro- and
macroeconomics), Carassus et al. (2006) compared the size of the “construction sector
system” in seven countries, again using a very wide definition to include property
management, repair and maintenance and the institutional actors involved. Ruddock and
Ruddock (2009) also estimated the size of the construction sector for 20 European countries.
In de Valence and Lauge-Kristensen (1998), construction links to other sectors include
finance as well as property and the supply chain.
Squicciarini and Asikainen (2011) did a thorough comparison of the European and
North American SIC classes that can be included in a wider definition, and extended the
scope of their “wide industry” further than Pearce. They concluded measures of
composition, structure, value added, skills and R&D input and output of the construction
sector change substantially when a broader definition of the sector is used. In Squicciarini

Sector Type

Residential building Detached housing, medium and high density dwellings, includes alterations and
additions
Non-residential building Private – retail, commercial, industrial, hotels, etc.
Table I. Public and social – education, health, community, etc.
Building and Engineering construction Bridges, ports, rail, mines, electricity, roads, water and sewerage, dams,
construction industry telecommunications, etc.
statistics Source: UN Statistical Division (2008)
 and Asikainen, the industries included are drawn from contributors to the three project Reframing
stages they used to represent the industry, in what they call a value chain approach: construction
preproduction activities and services; core production; and postproduction activities within the BES
and services.

Discussion
Because building and construction is so diverse it is hard to get an overview of the industry.
With a vast variety of projects in all possible locations made out of materials ranging from
primitive to rustic to ultra-sophisticated the industry, particularly on a global scale, is so
broad that a system of classification and categorisation is necessary. With the development
of the SIC the industry has come to be defined by the data collected by national statistical
agencies, but the role of the industry is much wider and deeper than the statistics show
(de Valence and Lauge-Kristensen, 1998).
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This means that the typical view of the industry is one called “construction”, and that
industry is made up of three sectors, residential building, non-residential building and
engineering construction. Because statistical data on work done are presented in this form,
most of the discussion and reporting of the industry also follows this pattern. This is not a
bad thing, but is not truly reflective of an industry as diverse and wide-ranging as building
and construction. Industry output statistics represent the industry as a set of functional
projects, like detached housing or retail and railways or hospitals, despite the fact that many
buildings are mixed use. Also, there are many other ways of classifying and categorising
building and construction projects (e.g. Dubois and Gadde, 2002; Shenhar and Dvir, 2005).
In fact, how the building and construction industry organises and delivers projects is an
ongoing evolution, and there have been significant changes in the range of activities and
types of firms involved in building and construction over the last two decades. The two
trends underpinning these changes have been the increasing use of multi-disciplinary
project teams (Gann and Salter, 2000), where the boundaries between professional
disciplines have become less distinct (Connaughton and Meikle, 2013), and the in-house vs
outsourced decision about provision is more common. Facilities management is an example,
an activity that used to be done in-house but is now often outsourced, sometimes but not
always to construction contractors. Consultants bid for work as contractors, and contractors
do consultancy. Urban planning was primarily associated with design, but is now more
linked to real estate and development. This process of structural change in the industry is
ongoing (Runeson and de Valence, 2008), as institutional roles and firm capabilities develop
over time, for example, Bygballe et al. (2013) offered four different perspectives in forms of
inter-firm relationships in construction.
Meikle and Gruneberg (2015, p. 127) concluded in their analysis of international
construction data that “Governmental statistical agencies and industry commentators
require improvements in the official definitions of construction and the way data is
presented. There is a need for better information on the various measures of construction
activity”. This refers to the narrow industry, but it is also true for the broad industry, which
at present is not measured despite the importance of the built environment in economic
development and social welfare. There is a need for better information on cities and the built
environment. All else equal, better data mean better policy and, by aligning the industry
classifications, the cumulative economic contribution of the various industries that comprise
the built environment sector (BES) can be measured.
Measurement is important, but so is choosing what to measure. In a time of rapid
urbanisation and great social and environmental challenges, the built environment and city
policies have become central issues in public policy. The quality of the built environment
the construction industry delivers is a major determinant of the quality of life. However, the
data on cities, that policies are based on and how cities are measured, typically follow the
 ECAM national accounting format of output and employment by industry. In this view
construction is just one of many industries, but the irony is, of course, that it is the industry
responsible for building cities. In a fundamental sense, how cities function depends on how
well the building and construction industry can deliver the projects required. While project
delivery happens in a very complex environment, with many factors external to the
construction industry, there are also internal factors such as materials and processes.

The built environment sector

A fundamental problem is that the same term, “construction”, has been used in a number of
ways in these different definitional studies. As the discussion above shows, there have been
a range of definitions and “construction” has been given a widely different scope across the
different studies. Thus, Ive and Gruneberg (2000) had a “construction sector” and Pearce
(2003) described his approach as contrasting “narrow” and “broad” views of the industry.
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In Squicciarini and Asikainen (2011), the definitions are built around “narrow” and “wide”
approaches, and like Ruddock and Ruddock (2009), used the Pearce report approach with a
“construction sector”. Carassus (1998) had a “construction system”, and de Valence
(2001/2010) and Carassus et al. (2006) an industry “cluster”. It would be helpful to agree on a
common usage.
The idea that the construction industry as measured in the national accounts or using the
SIC of industries is only one part of the creation and maintenance of the built environment
and the range of industries that encompasses is not new. Turin (1969) and the Bartlett
International Summer School series in the 1980s (Groak, 1992) advocated looking at the
sector that produces the built environment in broad and integrative terms. Recognition of
the industry’s extensive linkages with other sectors, measured through the industry’s high
multiplier effects (Lean, 2001; Gregori and Pietroforte, 2015), gives the industry an
important macroeconomic role (Lewis, 2009; Meikle and Gruneberg, 2015). Through those
linkages the impact of construction activities on other parts of the economy is much greater
than their direct contribution. Construction economics makes an important contribution to
researching the macroeconomic role of the BES (de Valence, 2006).
The term that arguably best encompasses the extraordinarily large number and range of
participants in the creation and maintenance of the built environment, from suppliers to end
users, is the BES. Measuring the BES would help public policy and macroeconomic
management for two reasons. First, the macroeconomic contribution of the BES to
aggregate demand and employment is large, and possibly the largest component in many
countries. It is also one of the most volatile components of the economy, with annual rates of
growth or contraction greater, and often much greater, than changes in GDP, making the
BES a key driver of the business cycle (Lewis, 2009). Perhaps more importantly, changes in
the composition of output of the BES would be a leading indicator of future demand as
current new work completes, reflecting changes in the early stage project preparation
activities required for future work. Through industry linkages and lags, such slowdowns or
pickups in project preparation can be strongly procyclical, exacerbating the peaks and
troughs of the business cycle. Because of the number of small firms found across the BES,
the employment consequences of changes in activity levels are also significant.
Second, measuring the BES provides a way to measure the effectiveness of discretionary
fiscal policy, when that involves changes in expenditures on building and construction.
Discretionary fiscal policy, as a response to the business cycle, is an increase in public
spending to counteract a downturn in the business cycle or a recession, typically targeting
public investment in both social and economic infrastructure. Tracking the impact of such
expenditures through the economy is difficult but would show up in a BES account.
This would also allow a finer-grained analysis of the employment effects of different types
of projects and programmes.
 Conclusion Reframing
The modern form of economic accounts is a statistical system that has been under construction
development for over 70 years. The national accounting framework (UN Statistical Division, within the BES
1968) provides a useful picture of economic structure, defines the data required and
simplifies the task of collection. However, the greatest difficulty statisticians face in
measuring gross domestic product and economic activity is its diversity. At the industry
level using SIC data, measuring economic activity is even more difficult. Despite issues of
data quality and availability, bringing together the range of industries that contribute to the
production, maintenance and management of cities, infrastructure and buildings as the BES
would improve our understanding of both the sector and the wider economy.
The argument for extending construction beyond on-site activities has been made in
various ways by many researchers over the years, and there is a special role for construction
economics in researching both the boundaries of the BES and the data available on the
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industries that contribute to the BES. Measurements of the BES confirm the significant
economic role of these industries when combined, and the response of the BES to changes in
macroeconomic conditions and policy is an important factor in the path taken by output,
employment and inflation over time. For these reasons, agreeing on the definition and
terminology of the BES would be a significant step forward.

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Corresponding author
Gerard de Valence can be contacted at: Gerard.Devalence@uts.edu.au

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