Houston 2017: Rethinking Construction

March 2017

More than twenty-five industry leaders, including industrial project owners, construction contractors and developers, came together in Houston on March 21 to discuss the root causes of low construction productivity and explore practical actions to improve the efficiency of projects and drive a meaningful step-change in productivity. The group explored long-term considerations and immediate business improvement opportunities. The roundtable focused on three primary opportunities: new approaches to project operating systems, infusing digital technology and rewiring contractual frameworks between owners and contractors.

Context:  McKinsey Global Institute’s 2017 Reinventing Construction report found that U.S. construction productivity is lower today than it was in 1968, and it lags significantly behind industries such as manufacturing and agriculture. However, if the construction sector could meet the productivity levels of the overall economy, it could unlock more than $500 billion in value. This represents a significant opportunity for all stakeholders involved in major projects.

Some of the key themes discussed included:

  1. Predictability and performance must be addressed alongside productivity. While construction does not take place in the same repetitive environments as industries like manufacturing, there is a clear opportunity to incorporate greater levels of standardization and repeatability across projects and project owners. This will require a mindset shift from custom scopes for each project to implementing standards across processes and the supply chain where possible. There is also an opportunity to learn from manufacturing. Predictability and performance can be driven by improved up-front planning processes and well-defined scopes, with outcome-focused and data-driven performance indicators. Participants agreed this will only be successful if contractors and owners work together and have buy-in from the top to fundamentally reconfigure the way they think about projects.
     
  2. A new project-operating system is needed to achieve change in predictability, productivity and performance. To overcome today’s stalled productivity, change should be implemented across all three aspects of the project operating system: management systems, technical systems and mindsets and behaviors. These changes should be aimed at minimizing variability in activities and timing. One participant offered the oil and gas industry’s relentless pursuit of safety as an example of how all industry players can work together to create change in both behaviors and systems. When project owners have centralized projects organizations this can also help create cultural change and define new processes and systems for use across the entire project portfolio.
     
  3. Improving contractual relationships will be fundamental. The current contractual environment is highly focused on risk transfer, and often results in adversarial relationships between owners and contractors. Case studies have shown that the when contractors’ and owners’ interests are aligned and aimed at successful project outcomes, the project is more likely to meet schedule and cost targets. BP’s Project Andrew in the North Sea in an example of a project that was delivered using an alliance contract model, and it was delivered 35% under budget and ahead of schedule. While this project occurred two decades ago, its lessons are still relevant.
     
    While integrated project delivery (IPD) may not be the right answer for all projects, industrial players should consider how they can mimic the positive aspects of IPD that focus on making the best choices for a project, encouraging innovation, reducing variability, and cutting down the excess inventories that burden so many of today’s projects. One important attribute of any relational contract should be the incorporation of lifecycle maintenance costs and a focus on long-term operability.
     
  4. The U.S. industry should look to international peers and projects to help overcome skills gaps in the workforce. The group explored long-term, socio-economic trends impacting today’s construction workforce, from literacy and education to negative perceptions among younger generations. While these major challenges may take years to overcome, the U.S. industry could look to other countries such as the UK and Germany where they have instituted strong apprenticeship programs. Contractors can also look internally at what they have done in emerging economies where they have overcome education and literacy challenges on projects with local hiring requirements to identify transferable programs or ideas. A well-defined project scope at the outset is also incredibly value because it allows both contractors and the owner’s team to identify skills gaps and anticipate training needs.
     
  5. The industry needs to think creatively about how to embrace technology. Technology alone will not address the root causes of poor productivity. It is important that companies put in place the right systems and have the culture to embrace technology in a way that would catalyze a “manufacturing-like” step-change in the industry. However, it is a critical enabler to improve productivity and because there are disruptors entering the market, companies need to institute changes now to maintain their competitive advantage. Project directors and senior management need to help educate company executives and boards on which innovations are working, where investment is merited, and which digital or technology-focused questions the organization should be pursuing. At the field level, it is important to receive “bottom-up” feedback and work collaboratively with the on-site team to align on what you are trying to solve for and how technology can help. Pilot projects can test innovations, while minimizing risk, and also help secure investment for broader change initiatives.
     
    There is a need for the industry to continue to share case studies and successes with one another. Innovations currently being used and proven effective, include:
    • RFID tagging to track and manage inventory. Beyond the tagging, some organizations are considering taking greater control of the supply chain by sending shipping containers to suppliers to fill, which allows them to track from the starting point and also maintain greater control over the laydown area at the project site.
    • LiDAR-equipped drones to conduct quantity surveying more efficiently.
    • 5d BIM that integrates 3D modelling with scheduling and cost information to improve on-site coordination. Ideally, this will advance to a 6D model that also incorporates supply chain and materials data.
    • Augmented reality to help project owners physically “see” and “experience” project attributes from initial design to minimize change orders later in the project.
    • Digital collaboration tools to enable real-time feedback from the field.
    • Advanced analytics and big data to evaluate project progress and establish benchmarks for future projects.
    • On-site 3D printing for manufactured pieces and advanced automation in control systems.

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