The overall U.S. construction market has been turning around for the past year and a half, and large corporate owners are beginning to open up their checkbooks again and slowly ramp up their capital programs. But some of the large owners share the same worries as construction firms about the future of the construction industry and how it will impact their programs in the long term.
What the major corporate owners want is no secret. "I hear it every day from my bosses: They want their projects better, faster and cheaper," says Les Sturgeon, divisional vice president for Abbott Nutritionals International, a new division of Abbott Laboratories. But Sturgeon and many owners and owner groups see clouds on the horizon that will make demands for quicker and cheaper projects difficult.
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If there is a universal concern among large corporate owners, it is whether there will be enough people available to do the work on future projects. "Whats increasingly apparent to owners is the concern about work force availability," says Greg Sizemore, executive director of the Construction Users Roundtable, Cincinnati. "You can have the best relationships with all the top construction firms, but if they dont have the people, the work isnt going to get done," adds Tom Weise, director of construction, materials and services for Intel Corp. and current president of CURT.
Weise believes that the industry is facing big labor shortages in the near future. "Look at the huge reconstruction program for the Southeast called for by the federal government in the wake of the hurricanes," he notes. "But its not just that. Ive seen studies showing that a big percentage of the nations infrastructure is obsolete and will need replacement. Where are we going to find all the people required to meet these needs?"
"Personnel will always be a problem," says Hans Van Winkle, director of the Construction Industry Institute, an Austin, Texas-based group of owners and other construction professionals dedicated to researching the construction process. He notes that CII currently is conducting a study on craft labor training. "We are examining the investment return on training, who should be doing the training and how best to expand opportunities." Van Winkle says that the chemical, oil and gas sectors are planning huge capital expansion programs and will need new people coming into the industry to meet these needs.
But it is not just craft labor shortages that are causing concern. "About 75% of my colleagues on my previous job [as head of global facilities engineering] will be retirement eligible within three-to-five years," says Sturgeon. He worries that engineering talent on the owners side is rapidly disappearing. "We used to rely on foreign nationals trained at universities here in the U.S. to come to work for us," he says. But he sees many top engineering students returning home to countries like India and China where they see greater opportunities than staying in the U.S. "They see downsizing and contraction in the industry and prefer to go home," Sturgeon says.
Another major concern is who will lead the facilities groups of major owners. "A lot of us came up at a time when we did all the engineering and management in-house," says G. Wayne Burchette, director of worldwide engineering and construction for Eastman Chemical Co. "Now, most of that work has been outsourced and you dont have the same type of hands-on training for the next generation of leaders." To help answer the need to train owners staff, CII is holding a three-week leadership course for senior executives in the construction and engineering industry in January, says Burchette.
Delivering the Goods
In the pursuit of efficiency, alternate project delivery has become a way of life for many owners. "We are seeing more interest in alternative delivery systems," says Van Winkle. "Owners have found new efficiencies in the various alternate delivery systems over the old design-bid-build process." Thats why CII has an on-going study attempting to quantify these efficiencies, he says.
But not all alternative methodologies fit many owners. "Things like design-build are fine if youre building a hotel or a store," says Burchette. "But when youre building a process plant, you dont know what the final facility will look like until well into the design process," he says. So you cant ask a construction team to bid on the project on a design-build basis based on a statement of requirements, Burchette says.
To save time and money, Eastman Chemical is searching out means to streamline the construction process. For example, the company now is using more off-site prefabrication of standardized process elements for installation at a later date, Burchette says. "You bring in the completed element on a pallet and plug it in," he explains.
For some owners, establishing relationships with major construction firms is the answer to greater responsiveness and efficiency. "For many major owners, its no longer a free-market free-for-all," says Weise of Intel. "A lot of us, including Intel, see a limited universe of contractors that we feel comfortable dealing with and who can do the work we need." He believes that alliances and partnerships with select construction firms is well established and will continue. "These relationships have saved owners a lot of unnecessary headaches."
However, not everyone is fully comfortable with alliances. "I dont know that long-term alliances always work," says Sturgeon of Abbott Laboratories. "When you commit to an alliance with a construction firm, you have the expectation that they will dedicate resources to provide you what you need." But he cautions that owners also are committing to provide enough work to keep its construction partner busy. "If you dont, they will have to find work for their staff and may not have enough people to meet your needs when something unexpected comes up."
Cutting Costs Vs. Increasing Efficiency
In the continuing quest for lower costs and greater efficiencies, many owners worry that current cost-cutting procedures used by design firms will not last. "Right now, for the major engineering firms, 40 to 50% of the basic engineering is [being outsourced to] low-cost engineering centers in places like India, China and the Philippines, with just the heavy lifting done at the home office," says Sturgeon. But he warns that, as the engineers in the low-cost centers abroad become more sophisticated, they will begin to demand to do more involved engineering and will begin to charge more. "They will stop being low-cost centers and merely become lower-cost centers. Where will you go then for your low-cost design work?" he asks. He urges the design industry to push for more true efficiencies, rather than simply seeking out the lowest costs. "After all, if the labor component of making an auto is $2,000 in Detroit but only $200 in Vietnam, are you truly being more efficient if you decide to build you cars in Vietnam?"
As for greater productivity in the field, one owner has done a study on the construction process. Cisco Systems Cisco Connected Real Estate Group [CCRE] sponsored a study on Internet Protocol Telephony on the construction site led by Rick Huijbregts, then executive director of the Center for Design Informatics at the Harvard Design School and now program manager at CCRE. "We found that there are as much as 30% inefficiencies on the job site," says Huijbregts.
Communication inefficiencies are a major roadblock to productivity problems. Huijbregts notes that the National Institute of Standards and Technology identified $15.8 billion in annual waste due to interoperability problems in a study NIST released in August 2004. "Much of that money is coming directly out of the owners pockets," he says.
Huijbregts says that construction workers only have 70% of the data they need onsite. And only 30% of that data is available at the location of the work. "In most cases, if theres a problem or a question, someone will end up having to go back to the trailer to get the answer," he says. "Cut that by half, and theres a tremendous increase in productivity in the field."
IP Telephony, using cell phones, tablets or other hand-held devices, could help address this issue, says Huijbregts. The problem is demonstrating the return on investment. "Contractors are going to want hard numbers to justify the expense," says Huijbregts. Unfortunately, most of the evidence of savings at this point is anecdotal, "so its a tough sell," he says. Huijbregts admits that even on Cisco projects, it is difficult to get everyone on the same page for using advanced communications systems.