Owners continue to write the checks that support the expanding market. But many large customers are becoming more restive with their construction service providers as construction productivity improvements are lagging behind that of most other industries and construction firms are finding it increasingly tough to staff up jobs, putting pressure on schedules and wages.
For many owners, the construction process is becoming more inefficient, not less. Many owners see the process becoming more fragmented, with more players that favor their own interests crowding the field and introducing new levels of complexity to the jobsite.
This fragmentation has introduced new sources of inefficiency. “In the past, electricians used to do it all. Now, you have high-voltage, low-voltage instrumentation specialists and the like, all in their own silos,” says Al Schwarzkopf, associate director of engineering at Merck. This arrangement complicates the construction and procurement process, he says.
Many owners now are looking to streamline the process, putting an emphasis on a team approach and providing construction firms with incentives to innovate and work more efficiently.
The need for efficiency has caused many owners to focus on lean construction techniques, which have worked well in manufacturing, and integrated project delivery (IPD) agreements, in which all parties share project risks and rewards.
“I have never seen more interest in lean construction and integrated project delivery than I have in the past year,” says Greg Sizemore, executive vice president of the Construction Users Roundtable (CURT), Cincinnati.
Procter & Gamble is ramping up its use of IPD on projects. Last year, it successfully tested IPD on a $10-million warehouse expansion, near Greensville, S.C., and now is using the process for larger projects, says Mike Staun, associate director, capital management and engineering systems, for P&G.
“We now have 16 pilot projects going on [that use] some type of integrated form of agreement,” Staun says. The biggest is a part of P&G’s construction program at Tabler Station, near Martinsburg, W.Va. While Staun declined to release details of the project, he says the contract was carefully drawn up to make sure the parties’ interests are aligned and the team integration practices are clearly defined.
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One of the biggest issues for owners is the availability of an adequate workforce to staff up projects. The growing severity of staff shortages in the industry can be seen from the results of ENR’s Top 600 Specialty Contractors survey (see 10/23, p. 51). In addition to revenue questions, ENR asked subcontractors whether they have experienced staff shortages. In 2012, only 25.8% of the Top 600 said they were experiencing staff shortages. By last year, that figure had risen to 60.6%, and this year, 70.8% of the Top 600 said they were experiencing staff shortages.
An aging workforce is clearly a worry. “The Dow just hit 23,000, and that has an impact on us,” says Sizemore. He notes that many baby boomers have investments and 401(k) plans tied to the stock market, and the recent surge in stock prices have many older workers feeling financially secure enough to retire.
Using its Construction Labor Market Analyzer (CLMA), Construction Industry Resources Inc., Lexington, Ky., in conjunction with CURT, has been collecting data for several years on project workforce demands and planning; as industry workforce shortages become more acute, CLMA is expanding.
Daniel Groves, CURT’s director of operations and head of Construction Industry Resources, says CLMA is launching a new service in early 2018. Owners will be given access to not only workforce-availability data but also the CLMA staff’s data analyses, geared specifically to their planning needs, says Groves. “Not every customer has the staff to fully analyze the data,” he notes.
In addition, the CLMA is expanding into Canada for the first time. Groves says he is working with the Edmonton-based Construction Owners Association of Alberta through the CII to assist industrial owners in the province in their workforce planning.
Another area of concern for owners is the loss of knowledge and expertise as senior people retire. Younger professionals may provide a key to greater project productivity, which is why CURT created its Young Professionals committee. The “YP committee gives younger people in the industry a chance to gain some exposure and to openly express their ideas to improve the industry,” says Sizemore.
Kelley Allison, a 34-year-old project manager for Duke Energy, is an example of how the YP committee is helping young people. “The YP program was set up to allow younger people like me to share our viewpoints with senior executives in the company and the industry,” he says.
Allison says knowledge transfer is critical for young professionals, but most firms do not have a formal program for knowledge transfer. He suggests firms create a new position—“attrition planner”—to provide a structure for knowledge transfer and mentoring, instead of leaving it to the company’s human resources department or individual managers.
Operating System 2.0
One of the most significant developments for owners and the industry as a whole is CII’s research proposal for Operating System 2.0, spearheaded by CII Director Stephen Mulva. OS 2.0 aims to evaluate the entire construction process to drive waste out of the system. Debuted this past summer, the study is slated to take three years.
Mulva says there are numerous areas where transactional costs drive up the price and inefficiency of the process. “For example, on a large project, there may be 100 or more contracts with the various players, each negotiated individually and often signed without a focus on aligning them with the objectives of the project,” he observes. Mulva wants to find effective ways to consolidate the legal process.
However, one of the biggest transactional costs for the owner is in the supply chain. “You have the raw-materials company, the manufacturer, the supplier, the distributor, then the subcontractors and the general contractor, each adding its overhead and profit margin to the overall cost before it gets to the owner. A piece of equipment that a manufacturer might sell for $80 may end up costing $300 by the time it gets to the owner,” Mulva says.
Mulva likens the process to a farmers market, where the producer supplies the product directly to the consumer, rather than going through numerous intermediate steps that add costs without adding value before getting to the supermarket.
Past industry research has focused on specific elements of engineering or management of projects to add predictability or safety to the construction process, Mulva says. OS 2.0, however, is focusing on broader business, legal and economic issues in the construction process.
Mulva goes on to note that many industries have employed variations on these approaches, so OS 2.0 is not attempting to reinvent the wheel. He adds, “We want to know what works in construction.”
Many groups have expressed interest in OS 2.0, including CURT; the National Center for Construction Education and Research, Alachua, Fla.; the Lean Construction Institute (LCI), Arlington, Va.; the Associated General Contractors, also Arlington, Va.; and the Associated Builders and Contractors, Washington, D.C.
Owners are enthusiastic about the project. “OS 2.0 is designed to break down many of the barriers in the industry that drive up costs. It’s very exciting,” says Schwarzkopf of Merck.
Staun of P&G also likes the proposal, saying it could drive the waste out of the supply chain. But he is especially pleased by the growing cooperation between industry groups. He adds, “Stephen Mulva is doing a great job [of aligning] the various industry groups—CII, CURT, LCI and the like—that often have divergent approaches.”
Peter Dumont, vice president of global strategic projects for Pentair and CURT’s president, notes that OS 2.0 is needed because owners can’t trust that their capital projects will be delivered as planned. “The underlying management system is broken, and people in the industry are beginning to realize it,” he says.
Dumont and Mulva have been working for years to lay the foundation for this transformation. But the changes envisioned in OS 2.0 will take time to develop and grow, warns Dumont, adding, “We are now taking the first step in the journey. Turning around the world’s largest industry won’t happen overnight.”