The effect of the recession on client/ contractor and employer/ employee relationships in the construction industry.

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Christopher Jones: 513594

MSc Quantity Surveying and Commercial Management



The global economy is in its worst ever financial crisis according to Sir Mervin King, the Governor of the Bank of England. (Elliot and Allen, 2011). The implications are highly significant for the construction industry; this essay seeks to reflect upon the historical and current impact of government economic policy and consequences for the construction industry.

This essay seeks to discuss the connotations of recession on the industry; it will seek to understand the industry structure, the economic backdrop and the interaction of some of the key stakeholder groups.


The construction industry is broad and difficult to define; there is obviously the direct construction and engineering trades and managements, designers, surveyors etc. There is overlap with other industries, suppliers, raw material extractors, IT personnel, financiers, plant manufacturers, tool makers, etc. who operate with varying degrees in other industries.

The Standard Industrial Classification lists 20 separate direct trades. The construction industry is a vital sector and effects many different people directly and indirectly. It is highly significant to the UK economy, accounting for 7% of GDP. (Ross, 2011)

The industry can be separated into two categories:

  • Building
  • Civil Engineering

The industry can be further divided into sectors; there is new build, repairs and maintenance. Another important distinction is between the public sector which comprises government bodies and departments, local authorities and nationalised industries (though these have dwindled in the UK). In the private sector there are further sub-categories such as industrial, commercial, the energy sector, water and utilities, anything that is privately owned. The client base is diverse, and to service these client bases there is a wide range of contractors.

The Nature of Construction Projects

The construction industry is different from other industries insofar as the product is not an innovation rather a solution to client requirements, demand is bespoke. This demand is prone to fluctuation in the wider economy, a boom/ bust cycle has long existed in most sectors. Though there have been extended periods of stability and growth the industry is susceptible to economic downturns, especially in commercial sectors.

Projects are diverse and can vary dramatically, the complexity of the industry, the diversity of clients, the requirements, and the nature. People employed in the industry often say two days are not the same. Construction contracts have been described as a complex web of conflicting and competing interests.

The economy and the construction industry

The construction industry reflects the ebb and flow of prevailing economic circumstances and the ideological and/or pragmatic perspective of the government in reaction. Government policy is important to the state of the construction particularly in a downturn. Historically the philosophy of government was laissez faire, based on Adam Smith’s philosophy of the hidden hand guiding the economy. In the early half of the twentieth century elements of the economy were absorbed by government. This rationale developed as a response to the last significant credit crunch that brought about the Great Depression, the socialist movement and later the requirement to reconstruct after the second World War, laissez faire economics was replaced by a more interventionist ethos, the economy became increasingly mixed. Demand could be generated by government, fiscal policy, largely developed by John Maynard Keynes in response to the Great Depression, became the dominant philosophy. This approach advocated the intervention of government to theoretically smooth out the boom and bust cycle by generating demand in economic downturns using government investment to spur growth. Fiscal policy was eventually replaced by monetarism after the economic stagnation of the 1970s. Monetary policy is similar to fiscal policy insofar as both are tools of demand management. Monetarism is by definition less interventionist than fiscal policy as it is conducted through financial institutions. This policy involves controlling the economy through the tools of interest rates and money supply, this then is used to control inflation and theoretically stabilise the economy. In theory, when the economy is in recession, monetary policy serves to generate growth through the expansionary instrument of interest rates to increase the flow of money. In times of unsustainable expansion, contractionary tactics of higher interest rates and less money released into the economy.  Fiscal policy is still employed alongside monetary policy with varying degrees depending on the philosophy and ideological perspective of the party in power, and as a pragmatic response to generate demand, often in election years. In practise both methods are limited in their application, fluctuations in economic circumstances persist. The dominant ideological philosophy of the pursuit of continuous economic growth remains an elusive goal that leaves its proponents frustrated, the tools of demand management are limited in countering the complexities of the global economy.

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The current economic situation can be linked to a combination of variables, the deregulation of the banking sector in 1998, low interest rates which were significantly lowered and maintained to counter the economic aftershock of the terrorist attacks on the World Trade Centre in 2001 and the easy availability of credit particularly in the sub-prime US housing sector. The persistent stagnation of the economy is a result of structural imbalances in the world and UK economy and the high levels of government and consumer debt, this situation is the backdrop of the current UK construction industry.

Current Demand

In the ...

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