'Lean' as an Antidote to Labour Cost Escalation on Complex Mechanical and Electrical Projects

This paper represents “work-in-progress” as part of a collaborative research project being undertaken at the Centre for Innovative Construction Engineering for an Engineering Doctorate at Loughborough University, UK. The programme is funded by the EPSRC and is sponsored by a major UK mechanical and electrical contractor (the company). The project will have specific objectives, which will be capable of making a significant contribution to the performance of the company. That is, the tasks will benefit the company whether or not the Engineering Doctorate was being undertaken. It will not be a “student” project, which has only been selected to keep the research engineer busy, nor will the tasks be at the margin of the company’s interest. In the mechanical and electrical (M&E) sector in the UK, labour cost is one of the largest variables which can have a direct influence on the financial outcome of a project. Actual labour cost incurred has a dependency upon the productivity achieved on site, which in turn is dependant upon the conditions that prevail on that site. For a major UK M&E contractor, labour cost has escalated to such an extent that margin slippage has occurred. Margin slippage can be defined as the negative variation between the expected margin (gross profit) for a project when acquired, and the final margin when the project is finished. Consequentially, the company, as part of a performance improvement initiative, have the objective of developing lean techniques to overcome the causes of the cost escalation—poor productivity, and see this research project and implementing lean as a result of it, as a vehicle to deliver the improvement. This paper will propose that lean techniques, when imposed upon a project, can be an antidote to the causes of poor productivity, and therefore prevent labour cost escalation, along with its impact on the project’s final profitability. These lean techniques, known as “interventions”, are applied to a case study project with positive results in terms final labour cost and margin.