Owners Use Bid Process to Boost Construction Output
Owners have been complaining for years about the costs and inefficiencies in construction. Now, large owners are taking initial steps to become more proactive about addressing major problems they see in the industry.
One of construction’s biggest problems is the growing shortage of craft workers and project supervisors. These gaps are leading to labor cost increases and schedule delays as contractors scramble to staff up for projects, as well as worries over the impact on safety due to an inadequate or inexperienced workforce.
“Workforce shortages have been chronic and are now becoming acute,” says Greg Sizemore, executive vice president of the Construction Users Roundtable (CURT), a Cincinnati-based organization of large owners and construction firms. He says these shortages are not limited to the trades, but are appearing in project supervision as well.
To address this problem, CURT introduced a new Labor Risk Management Program (LRM) in March (ENR 3/4-11 p. 18). The program asks owner members to hire only contractors that commit to having a verifiable recruitment, retention and workforce training program. “What is happening today on workforce issues is not working,” says Daniel Groves, director of operations at CURT and CEO of Construction Labor Market Analyzer (CLMA). “To transform the process, we need the leadership of owners.”
Several large owners are beginning to test CURT’s LRM program. One of the first is utility the Southern Co. “We have always made sure every project had a staffing plan in place before project launch,” says Eddie Clayton, Southern’s contracting and workforce development strategies manager. Southern now is piloting the LRM program on a new project—making a workforce development program a prequalification for contractors to bid.
CURT’s program calls for a third-party workforce development program assessment, such as those conducted by the National Center for Construction Education and Research’s Construction Workforce Development Assessment (CWDA) tool. But Clayton says there were not enough qualified contractors that have gone through the third-party assessments, so Southern required its bidders to submit a detailed self-assessment of their program. The apparent winning bidder on Southern’s LRM pilot project had one of the best workforce development programs, he says.
Clayton says requiring contractors to have a verified workforce development program should not add a lot to project costs. “If you are a bid contractor, you need to have an adequate workforce development plan in place anyway,” Clayton says. “We are simply trying to lead them to the water to see if they drink.”
One contractor that has embraced CURT’s LRM program is Houston-based Worley. “Workforce development is simply business as usual for us,” says Scott Marshall, its group director of people operations. “The problem is that workforce development has been done on a contractor-by-contractor and owner-by- owner basis,” he says. CURT’s LRM program takes a more holistic approach, providing a framework to assess and implement an entire recruitment, retention and training program, he says.
Marshall notes numerous private companies do workforce development. “But CWDA was developed by the construction industry for the construction industry,” he points out. “It was designed to be more than simply checking a series of boxes.” He says CLMA also provides third-party guidelines.
As for the costs to implement the LRM program, “everything costs money,” says Marshall. But he emphasizes that as studies show, for every dollar spent on workforce development, owners and contractors will save $3 to $5 in productivity enhancements.
The big problem will be whether the LRM program can be applied down the construction food chain. “We have not seen resistance from our subcontractors yet,” Marshall explains. But he says it is still early in the process, and will take from one to three years to determine how the program gains traction.
Groves says that staff shortages are not just a labor-cost problem. He says the Total Recordable Incident Rate (TRIR) has dropped yearly since the late 1980s, when owners began demanding that contractors have safety programs. “But in the past year, we have seen an uptick in the TRIR. Part of that is the result of workforce shortages,” Groves contends.
As a result, many owners are taking a more proactive approach to safety. “The industry has been talking about the problem of workforce shortages since 2010,” says Kevin Keller, Johnson & Johnson’s global director of construction. “We anticipated this concern when we initiated a new J&J safety strategy,” adds Felix Velez, J&J’s senior director for project management, Americas. He says the potential for increased safety hazards exist, but that there have not been any changes in J&J’s safety metrics so far.
But safety goes beyond general rules and procedures for J&J. “Having a good safety program requires boots on the ground,” Keller says. The company has on-site managers to monitor safe working conditions and provide input into processes. J&J also brings in managers from other sites to do walkarounds to gain added insights from the project and notice problems that regular on-site managers may have overlooked.
J&J also believes in active engagement not just of contractors’ managers, but of craft workers. “We have weekly lunchtime safety meetings with the workers on site and provide them with a free lunch,” says Kevin Owsiany, firm director of project management and cochair of CURT’s safety committee. He notes that J&J managers also meet regularly with the senior leaders of the subcontractors.
Construction OS 2.0 Launches
Another development for owners is the launch of the long-anticipated Construction Operating System 2.0. The Construction Industry Institute (CII), an industry research group affiliated with the University of Texas-Austin, in conjunction with CURT and other industry associations, has been studying for several years what areas need to be changed to improve construction speed and productivity to focus on the optimum areas for research in improved industry productivity.
In early July, CII officially launched the OS 2.0 program. ExxonMobil, Shell, Canada-based Suncor Energy, Australia’s BHP and Saudi Arabia-based Sabic contributed $2 million to support the study. CII, CURT and OS 2.0 sponsors met in early October to set the research agenda. “We hope to get some large EPC contractors on board as well,” says Stephen Mulva, CII director.
CII intends to focus on risk management, productivity and driving down transactional costs. Among the issues to be researched are technology and big data, owner engagement with suppliers and the use of digital contracts.
Mulva proposes that work processes and schedules be loaded into a computer to create a “data lake.” Owners and contractors then can run countless simulations to discover the optimum methodology and sequence of tasks to generate a more efficient way to deliver a project.
Another area of research is supplier engagement. Construction owners almost never interact with suppliers. Mulva says OS 2.0 will look at how to squeeze out some of the numerous levels in the construction supply chain—where each middleman takes a cut of margins—by interacting directly with suppliers.
Another area of research is on the use of digital contracts. “We are taking a serious look at blockchain contracts,” says Peter Dumont, CURT’s liaison on OS 2.0 and CEO of PrairieDog Venture Partners, a group designing a platform to implement elements of the program as they become final.
Dumont says that digital blockchain contracts would serve as a central repository for all contracts related to a project. Each transaction would be irreversibly recorded and allow all parties to see each step in the project’s process.
“Using blockchain, we can guard against the use of counterfeit parts or equipment and against being billed for work not done or equipment not supplied, and avoid double billing or payments,” Dumont says. He also says payments for completed tasks and deliveries would be self-executing, avoiding late payments to contractors and suppliers.