2018 ENR Top Owners Sourcebook: Owners Ask for More Buy-In
Owners have been complaining for years about inefficiencies in the construction process and the growing workforce shortage crisis. Many have attempted to address these issues for individual projects. But now, owners are seeking more holistic solutions.
The problem for owners is not the market, which remains strong. “We are now in our 112th month of recovery, but there remains a lot of confidence in the economy continuing to be strong,” says Greg Sizemore, executive vice president of the Construction Users Roundtable (CURT), a Cincinnati-based organization of large owners and construction firms.
Sizemore concedes that many firms are “looking over their shoulders,” worrying about when the boom will end, but most believe the market is healthy.
The strength of the market has caused owners to intensify their moves to streamline the construction process to reduce costs. The active market has intensified concerns over workforce shortages.
Shortages in both the trades and in management have put increasing pressure on wages in the industry. “It’s estimated that 15%-16% of skilled construction craftworkers will retire in the next two years, and 30%-35% will retire in the next ten years,” says Daniel Groves, director of operations at CURT and CEO of Construction Labor Market Analyzer. It will take years for newly hired young people to go through apprenticeship training and gain the experience to achieve the needed productivity in the trades, “so we have to act now,” Groves says.
Research and Development
To try to answer the long-range skills shortages in the industry, the Austin-based Construction Industry Institute has launched one of its most far-reaching research studies into workforce recruitment and training of young people for the industry. CII Research Team RT-335 is spending three years researching how technical education and apprenticeship programs work in the U.S. and abroad to determine how the U.S. system can be improved. The study is being sponsored by CURT, the National Center for Construction Education and Research, Alachua, Fla., and The Ironworker Management Progressive Action Cooperative Trust, Washington, D.C.
“Our current system for preparing young people for the workforce in the U.S. is broken,” says Eddie Clayton, contracting and workforce development strategies manager at Southern Co. and vice chairman of RT-335.
Research shows that, for every 10 new jobs created, one will require a postgraduate degree, two will need a bachelor’s degree and the remaining seven will require only some form of postsecondary education or training, Clayton says. “Yet most government funding goes to encourage kids to get a four-year degree.”
Many agree with Clayton’s dismal assessment of government funding priorities. “In the past decade, federal funding for technical and vocational education has fallen 18%, while funding for higher education has doubled,” says Groves.
Some owners are not waiting for long-range solutions but are considering requiring contractors to have a workforce development plan as a prequalification criterion for bidding projects. Clayton says Southern Co. is considering including such language in its bid documents.
Groves points out that owner requirements are one of the most effective means for modifying the behavior of contractors. He says the federal Occupational Safety and Health Act had been in place for a decade with only modest success before the Business Roundtable, and later CURT, pushed to have owners require contractors to have a good safety record to bid.
“These safety requirements forced contractors to develop effective safety programs to make sure their workers would go home at night,” Groves says. “Making contractors implement workforce development to bid for jobs should have the same impact,” he says.
Many owners are calling for contractors to adopt lean construction practices and now are experimenting with integrated project delivery (IPD), where the owner, designers and trade contractors share in the risks and rewards of going over or under budget on the project (see p. 46).
Procter & Gamble is now convinced that IPD works. It is building a $2-billion complex at Tabler Station, W.Va. (see photo, p. 53), and is using a variety of project delivery methods, including engineer/procurement/construction management (EPCM), design-build and lean IPD, says Mike Staun, P&G’s associate director for global capital management. “We are using an IFoA [integrated form of agreement] on two projects well in excess of $100 million each, and plan to use IFoA on four more coming up,” he says.
Staun says IPD works when the parties trust each other and are willing to work transparently. However, he cautions that IPD projects require a substantial amount of up-front work, so they only work when the projects are fairly large.
A successful IPD project requires an owner to spend time examining its feasibility, Staun says. Then the owner must engage design, contracting and trade partners in a conceptual phase, which could take up to four months. After that, the team comes together to finalize both price and a detailed design.
The critical point is where the parties have agreed to a price and schedule and begin to examine alternatives in the design. “Once you see that the project may go over budget, you reach the ‘mountain of despair,’ where the parties have to figure out how to cut costs,” says Staun.
However, many owners complain that they have to be the ones to push contractors and designers to accept lean construction practices and IPD contracts. “The concerning thing about lean construction is that it is completely owner-driven,” says Al Schwarzkopf, deputy director for engineering at Merck. He says construction firms know the buzzwords and know the concepts, but haven’t fully embraced lean.
Schwarzkopf says major EPCM firms’ commitment to lean construction practices must come from the “C-Suite.” Many firms have offices where the local leadership have embraced lean construction, “but these firms need to adopt lean principles across the entire business, rather than simply apply them when the owner insists,” he says.
Construction’s OS 2.0
One of the most far-reaching efforts by owners to improve the construction process is Operating System 2.0. CII, CURT and other industry organizations are supporting OS 2.0 research into overhauling the whole construction process, examining how to improve the legal, procurement and delivery process.
OS 2.0 has excited many owners who believe that the current system is broken and that chokepoints in the construction process must be identified and addressed. “We are conducting meetings and doing presentations to raise funds for the research and are finding overwhelming support in the industry,” says Pete Dumont, CURT’s executive liaison to OS 2.0, who, with CII Director Stephen Mulva, is spearheading the OS 2.0 effort (see ENR 11/6-13/2017 p. 51).
However, Schwarzkopf fears that it may be a struggle for OS 2.0 to be accepted. “You end up running into the same speed bumps when you try to make wholesale changes. People cling to the old ways that they have been doing things.”
One subject the OS 2.0 team will be looking at is facility miniaturization. There has been a trend toward increasing the size of refineries and other industrial plants to gain economies of scale. For example, a plant’s size might be doubled, but the overall cost may only increase 60%.
But OS 2.0 is testing the assumption that bigger is always better. Dumont says it may actually be more efficient to build 10 or 20 mini-plants than build one huge facility. He cites many examples where money might be saved: A smaller plant would come online and generate revenue more quickly; smaller facilities may make off-site modular construction easier; modules could be serviced offline piecemeal and only when maintenance is needed, rather than taking the whole plant off line; mini-plants can be built in a manufacturing environment that would improve productivity, quality, safety and worker recruitment; and business-interruption insurance may be reduced when only individual modules, not the entire production line, are at risk from a disaster.
“These are all assumptions that will be researched with the development of OS 2.0,” says Dumont. “We won’t know for sure until we study and test them.”