The Root of The Performance Gap

A number of comments made during an industry dinner last week have crystallised a new understanding for me about the real root causes of the building performance gap that we now hear so much about.

The performance gap is the difference between the notional energy performance of a building predicted by its designers and the actual out-turn energy consumption once occupied. When you eliminate the obvious impact of regulated versus unregulated energy then there is often still a disparity between design and operation. In many cases this is due to failings in the design or construction, but equally often there is a failure in the management and operation of the finished product.

As is usual in the construction industry, blame for the performance gap is being attached to individual parties in the supply chain. However I now realise that the real problem is structural and embedded in the nature of supply chains themselves. Design and continuous improvement is a circular process, but the supply chain is linear. It is like that because procurement and project managers have made it so. Nowhere within the supply chain is any one party responsible end to end for the building performance.

The project manager who implements last minute omissions from the ‘expensive’ metering and control system is rewarded by the client for bringing the project in on budget. Facility Managers who reduce operating cost by disabling systems or purchasing the cheapest replacement parts are awarded bonuses for achieving financial targets. The chances are that neither party will even be working on the project when the consequences of such decisions come home to roost.

Further, at each link in the chain, we create incentives that promote short term thinking rather than action for the long term outcome of better building performance. Most client organisations separate those responsible for capital investment from those responsible for operations. They reward the procurement teams for achieving the lowest capital cost. Thus procurement is through competitive tendering which provides a clear incentive to do as little work as possible whilst achieving an acceptable, rather than exceptional, outcome.

The consultants need to win work at the lowest cost which constrains the time spent on design. The contractors need to make profit to pay shareholders so will select products on the basis of cost not performance. The Building Control Officers need to win future work and are unlikely to tell unwelcome truths about the building performance. The facility managers survive on their meagre fees by not spending money on extensive maintenance and quality replacement parts.

Even within organisations the way people are employed impacts on outcomes. Employees’ performance in regard to promotion and reward is often measured against annual or even monthly financial targets. When you combine this with a project based workload you create a clear incentive to move on to the next project as quickly as possible, rather than spend more time on delivering one project really well. People are then often ‘too busy’ getting work and doing work to plan the future of their business and still less the future of construction.

It is telling that the RIBA survey of chartered practices found that 62% do not have a business plan. I’d be prepared to bet that the most common reason for not having a business plan is being too busy to create one. Having worked in and run small businesses myself I am well aware of the pressure simply to keep turning over the work.

The building performance gap is not the ‘fault’ of the construction industry or the occupiers. It is a product of the systemic failure of procurement, management and operation of buildings.

More thoughts about the impact of procurement on construction value in follow up article ‘Race to the Bottom

11 thoughts on “The Root of The Performance Gap

  1. The performance gap is a key issue in the sector. We did some research last year with the Better Buildings Partnership which showed no correlation between EPCs and ‘DECs’.

    However I agree that this issue is more to do with short termism that is systemic in our capitalist economy. We need to introduce environmental and social factors into investment decision making, such that they have equal or greater weighting for any investment decisions. I would urge you all to read ‘Enough is Enough’ by Rob Dietz and Dan O’Neill which provides some practical solutions as to how we can move to a more steady state economy – to the benefit of all.

    • Thanks Alex, both excellent references. I have made extensive use of the BBP findings in lectures and reports. Enough is Enough is high up on my to read list and I’m slowly getting there. However in the meantime I believe that we need to find a new way of incentivising all the businesses involved in construction and operation of buildings. Since their principal motivation is presently financial, I think that we need to look at the financial structure of procurement and outcome to address the performance gap. At least until everyone becomes wealthy enough to act altruistically, which is what we tend to merely hope for at the moment.

  2. Doug
    Interesting insights. My view is that failure in patronage is ultimately the cause of deficiency in procurement. An enlightened client, who is committed to successful long term investment and economical use of resources, will ensure that cost-in-use and building service performance are essential components of the building brief. Clients who are making short term investments will be less interested in the long term rewards of quality construction.

    • John
      I agree absolutely. If we were to pick the best performing buildings we can think of, I believe that we would find that all had been built for an enlightened client. The real problem that we have to overcome is mass market speculative building. The developer, who the designers would consider client, has the shortest possible view. They simply want to build for the least cost and sell for the greatest profit. In this case the developer is simply another link in the dysfunctional supply chain. We need joined up thinking and delivery that actually serves the ultimate client – the end user.

      • As this boils down to ethics in the development world, you might consider raising your concerns with Justin Welby. His inside knowledge of big business, interest in good stewardship, and position of considerable influence, would make him an ideal spokesman on this subject. In practical terms, it could lead to championing successful projects, and highlighting the wider benefits of the long term view. Many in the UK recognise the successes in German businesses of this approach, but take up is slow…

  3. This situation is compounded by there being no accountability for the changes made between the design and build. Awards are handed out for BREAAM “excellent” buildings but their subsequent less than excellent performance is never highlighted in the same way. If all those changing specifications could be made accountable through some kind of audit trail, attitudes may change for the same commercial reasons which encourage the current bad practice. The industry needs to name and shame.

    • Robert
      Thanks for your thoughts. I agree that there is a big gulf between design specification and final specification, some of which is down to the supply chain. However, I believe that we must also recognise that even the best designers cannot imagine all the needs of potential users. Users will therefore adapt the buildings we design for them. We need to make sure that our designs are capable of adaptation. We need to ensure flexibility in use rather than trying to force users into a rigid framework that may not suit them. Then, rather than specifically naming and shaming we need the designers to revisit their buildings to learn and share the successes and failures. We need to learn how to design more adaptable buildings by observing real user behaviours rather than just relying on the BREEAM certificate.

  4. There are tools to help get around this which have been put forward for decades but not widely taken on board. Sad to think we’re still in this place but the way to reduce the performance gap is to penalise those who have a performance gap.
    Organisations have boards who should be questioning these issues. How does the PM or FM get the authority to put at risk an organisations long term sustainability (financial as well as green) in making a decision such as this. There must be a project board or other governance regime to answer to and they need to balance the risks and rewards short and long term in the decisions made- sometimes organisations simply have to make the short term decision but it has to be a balanced decision for the org not simply a spur of the moment decision.

    If there is a wish to reduce the performance gap then facilities which are graded at, say Energy rating C, but which operate at Energy Rating D or lower should have to pay a premium in addition to the extra energy costs on a sliding scale. Orgs reducing their energy requirement and operating at a better energy rating should receive a refund- without suggesting this is a money spinner for the Treasury, if the penalties less the operating costs of the scheme are then paid to the ‘winners’ then this is a real incentive to avoid the cost of energy inefficiency, penalty and competing against organisations who are receiving an income from doing it right will soon shift the focus to the long term than the short. Wish it wasn’t so and don’t like the idea of more regulation but if you’re going to have EPC’s then surely there has to be a point to them beyond simply coloured pictures.

    • Jim
      What you have just described is very similar to the Carbon Reduction Commitment, but focussed on the building not on the entire organisation. The CRC was supposed to stimulate carbon reduction in just the manner you have described, with the losers paying out and the winners rewarded. However any system such as this creates incentives for businesses to try and circumvent it. I wrote about the perverse incentives of the CRC here. The loss and reward part of the CRC has since been abandoned and it has become a straight tax on energy for large consumers. This will simply create a further incentive for large businesses to split their energy consuming premises into smaller sub-units to avoid the tax altogether.

      On your other point I agree, Latham and Egan both proposed tools and ways of working that would help to overcome these issues, but as you say they have not been widely adopted. I have been fortunate enough to work on many projects where the client and design team have come together at a high level board to provide project governance and it is clear that those projects deliver much better outcomes.

  5. A very interesting insight, and indeed one which is paralleled in many other areas of business and industry. The big question becomes: how can we use this (broken) system to solve the immediate problems of excessive energy use and environmental degradation? Is it possible to encourage stewardship of the supply chain? If we accept that we must work with the capitalist model for now, I think the answer must come through a combination of CSR, greater transparency and increased regulation from government.

    • Thanks Adam
      In my next article I suggest that we could work within the existing system simply by not accepting the lowest tender. This would change the incentive structure completely and eliminate suicide bidding amongst other things. However you are correct, the construction process needs stewardship from end to end. The original concept of PFI could have delivered this, but in the end that too was broken by political / financial manipulation. Altruism and regulation seem like they should work, but the financial incentive is usually stronger. We need to move to a model where the construction industry profits by a long term relationship with building occupants, not simply sells them a product.

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