Disruption of the industry is imminent

While talk of disruption to the industry is not new, this year, participants agreed that the industry has reached an inflection point, with increasing evidence that change is underway.

There are three prominent catalysts for this change. First, widespread recognition of the industry’s low levels of productivity and digitization make it fertile ground to approach things differently. Second, countless technologies are already changing the way the industry operates. This includes the use of sensors and the Internet of Things to unleash predictive analytics, project lifecycle management tools integrated into building information modeling (BIM), digital twins, and the use of mixed, augmented, and virtual reality at various stages of the project lifecycle. Finally, the next generation of workers has been raised on interactions with smart devices or on screens; they are not going to accept the current work practices, and this dissatisfaction will propel change.

The question for many is whether the disruption will be led by traditional industry players or if technology companies who have shown interest in investing in the industry will take the lead. Incumbents need to think hard about how to harness these trends rather than risk having others move in.

Scale the use of interoperable and modular components, particularly in densely populated areas

Modular construction can help increase productivity, improve quality given the controlled environment, reduce construction times, and attract new members to the workforce who would not otherwise work in construction. In densely populated areas, use of modular and prefabricated components can also reduce the burden on the neighboring public by lessening traffic congestion, as well as noise and dust pollution.

To realize the full potential of this disruption, the industry will require a new operating model across the construction supply chain that incorporates modularization and prefabrication, technologies such as 3D printing and digital twins, and collaborative contracts. Industry players will need to adopt a production-style approach with standardized and interoperable modules across asset classes, while also maintaining the ability to customize projects. They will also need to more sharply focus on end-users’ needs and invest in upskilling the employees of organizations that are critical to the supply chain. Success will require all stakeholders, including regulators, public and private owners, engineering and construction companies, technology providers, and suppliers to align on new ways of working.

I think that modular has the highest likelihood of the new technologies of transforming how construction will be delivered.

Measure progress against a well-defined, outcome-focused business case

Projects are currently defined as successful based on whether they are delivered on time and on budget. While participants did not underplay the importance of these criteria, the industry at times loses sight of the critical outcomes a given asset will provide. For example, a 10-year project that is delayed by one year often faces intense public scrutiny. However, it is rare that we celebrate when that same project ultimately reduces average commute time by 50 percent and lowers air-polluting emissions. The primary goal of infrastructure is to deliver long-term environmental, economic, and social benefits. By focusing solely on the cost and schedule implications during design and construction, project owners risk making decisions that are not in the interest of delivering those outcomes. Therefore, the true benefits of the project can be overlooked and underdelivered.

Procurement decisions should not be made in isolation. Determine the real value of the final asset; only then can you begin to interpret whether or not it’s the correct cost you’ve allocated.

Use real-time management data to enable early identification of project issues

The performance of major projects can be improved. When we asked participants for their views on the biggest cause of major project failure, 33 percent said poor stakeholder alignment, followed by a lack of owner or sponsor capabilities (at 19 percent) and inadequate risk planning (at 18 percent). These factors contribute to the well-recognized fact that too many projects suffer from budget overruns or suffer schedule delays.

When we asked participants for their views on the biggest cause of major project failure,33%said poor stakeholder alignment

Many agree that projects would benefit from improved transparency and clear management data, which would allow project leaders and owners to understand performance at a granular level and recognize when a project is in distress. To help overcome this issue, project owners should develop well-defined business cases at the outset. It is then the role of project leaders to regularly revisit the business case with the project team, reinforce shared goals, and measure success against the desired outcomes. Project leaders need to quickly establish a clear vision—this will foster a collaborative and problem-solving environment to help a multidisciplinary team work together. Owners and contractors should also look to augment their project teams with agile-savvy leaders who can integrate across functions and technical disciplines, allowing them to more quickly identify and resolve issues.

The answer is staring us in the face. Every other industry identified the potential for disruption 30 or 40 years ago. Technology is breaking down some of the challenges peculiar to construction.

Adopt collaborative contracts that incorporate risk sharing and clear requirements

Collaborative contracting: Making it happen

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Changes in procurement and contracting models are critical to a more collaborative approach to projects. This theme is not new, but its widespread implementation has not been achieved. While there are promising examples of this in the private sector, for example in mining or oil and gas, in the public sector it is an enduring challenge. All parties involved must first set challenging yet realistic objectives up front and then establish what “win-win” really means for everyone. And to avoid hidden or surprise costs, there is also an opportunity to develop transparent systems for project budgets with joint ownership of contingencies—benefiting owners, investors, and contractors.

46%of GII attendees said designing win-win incentives into contracts will have the largest impact in improving the relationship between owners and contractors

Participants emphasized that monetary-only collaborative contracting attempts will not work. Fair risk sharing, clearly defined requirements, and established principles of collaboration can be even more important than the financial aspects of the contract. Such a shift to understanding a project’s behavioral aspects are demonstrated by an increasing number of owners using psychometric tests—that is, aptitude questionnaires or interviews—during contractor bid evaluations.

Finally, project owners can consider changes to the procurement and contracting process that enable contractors to invest more in research and development. When there is shared risk between contractors and owners and the right financials in place, experience demonstrates that the owner-contractor team is more likely to develop innovative solutions.

If you are going to design win-win incentives, they have to be real and credible.