With low oil prices still a nagging factor in the global economy, construction executives and researchers shared strategies for project delivery and business success in markets that are increasingly difficult to predict and more controlled by tightening costs.
Capital expansion is down 30% among the owners studied by project research firm Independent Project Analysis Inc., Phyllis Kulkarni, its North American director, told attendees on Oct. 11 at the 2016 ENR Global Construction Summit in New York City.
She predicted “weak growth in the next couple of years,” but said the chemical and consumer-product sectors are bright spots, particularly in the U.S. Even so, Kulkarni said owners with cash-flow constraints are “putting the brakes” on costs, with IPA research indicating they are “more optimistic” than contractors about the benefits of solutions such as standardization.
Kulkarni also raised concern about a “pretty significant slip” in the duration and quality of project engineering, with potential impact on later field productivity and the need for teams to “set projects up for success,” she said.
Citing such success tips from a recent book by IPA colleague Paul Barshop (see box below), Kulkarni added that only 60% of owners define a specific executive as the project “sponsor” and encouraged attendees to better manage and reduce the number of project “interfaces.”
Company CEOs agreed, with newly named Kleinfelder Inc. chief George Pierson pointing to project interfaces as the genesis of most project claims. “There’s too much slicing and dicing,” added Basar Arioglu, chairman of Turkish tunnel builder Yapi Merkezi.
Pietro Salini, CEO of Italy’s Salini-Impregilo, said contractors have to be ready to deal with projects on which engineering may be insufficient. But he and Louis Berger CEO D. James Stamatis still pointed to pervasive payment risks in some countries.
Pierson and Jim Rammell, Wood Group vice president of corporate construction operations, pointed to the growing role of jobsite safety and security on projects as a catalyst for attracting quality workers, and a key owner issue.
Brendan Bechtel, 35, who took over last month as the fifth-generation CEO of the family-founded global contractor, exhorted attendees—with iPad in hand— to find new ways “to increase our relevance.” He stressed, “The most successful firms will define change, not respond to it,” adding that, for example, sustainability innovations “are no longer add-ons but a threshold qualification.”
Bechtel decried perceptions of construction as a “laggard on technology,” noting his firm’s $60-million investment in innovative intrapreneurship, a program that “breaks things in a more consequence-free environment.”
Citing construction’s real-world challenges, Bechtel added, “We have a whole community of coders who didn’t want to develop apps to chase angry birds.”
The CEO acknowledged the industry has to “lean forward and pick up the pace,” while “customers must support us in taking risks.” He encouraged firms to better compete with Silicon Valley for the best technical talent.
Andrew Liu, vice president of new ventures at AECOM, said the industry’s opportunities are “limitless” to develop new technology. “This is not new to civil engineers. It’s what we’ve been doing for decades,” he said.
Liu noted the firm’s work with at least two efforts to develop the ultra-high-tech Hyperloop transportation system that, one day, could move goods—and people—in levitating pods through vacuum tubes at speeds of up to 750 miles per hour.
While a Hyperloop test last May “was over in two seconds,” its video footage “garnered 40 billion media impressions,” he said. “The world is watching what we do.”
What Owners and Contractors Should Know to Avoid Costly Mistakes and Make Investments Pay Off
- Every project needs a sponsor—the key person accountable for delivering value.
- Establish boundary conditions before thinking about scope and strategies.
- Clear objectives and quantitative cost-schedule trade-offs are a must.
- Ensure adequate staff and experience mix on both owner and contractor sides.
- Minimize risk by completing basic engineering before execution.
Source: Paul Barshop, “Capital Projects: What Every Executive Needs to Know to Avoid Costly Mistakes and Make Major Investments Pay Off”
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