The construction procurement model is broken.
For decades, the construction industry has endured a ‘design, bid, build’ tender process that has left them exposed. Not only are they made to carry the most risk, but they have been left to run a race to the bottom which thousands, including some of Australia’s biggest players, haven’t survived.
Those that have avoided bankruptcy have done so with the thinnest of margins. External factors in particular – the ongoing skills shortage, continued inflation, issues accessing sufficient materials, and supply chain pressures, plus the expectation to build sustainably – have left businesses desperate for work, and often taking on projects despite the financial crunch.
Productivity is the key to unlocking better outcomes for the construction industry. This does not mean we should be working longer hours – it means we need to do more with what we have. The current procurement process, broadly driven by a low pricing model, is skewing economics and is the cause of much of the long-term and systemic damage to the sector. Reform in procurement will go a long way in healing structural issues such as modern methods of construction at scale, (a lack of) diversity in the workforce, worksite safety gaps, and some of the dire mental health outcomes workers face – and ultimately reinvigorate productivity.
The industry has called for a shift to a program approach to replace the existing tendering system to allow companies to become pre-qualified and assigned based on the criteria of a project. The position is that, “The open book pricing, incentivisation and the ability to earn performance incentives significantly improve the process and outcome, compared to more traditional and adversarial contract models”.
That takes time. And although many of the major challenges industry faces are out of its control – including the future of government investment, and the appetite of private investors to further foot bills – there are mechanisms for pragmatic inroads and ease the burden of existing pressures to develop foundations for reformed procurement.
Bulldozing the fourth wall
Among the major shortfalls in existing procurement processes is the absence of deep client engagement in its early stages. It not only prohibits visibility in evaluation and selection of parties to deliver a project, but leads to poor collaboration throughout its lifecycle.
The consequence also extends outside the sector. Without early involvement internally, industry loses the opportunity to drive broader integration between contractors, representative bodies and government agencies.
Emphasising early involvement and subsequent collaboration generates the ability to advance standards, particularly asset standards which are critical for the end-owner to manage the asset or build environment for, in many cases, twenty times the design and construction phase. Doing so will make the processes of design and construction more accountable. It is key to overcoming the chaos from processes and related growing pains that have impeded progress for several years now. It means creating standardised requirements and asks from a delivery standpoint to ensure all parties understand what is required and enables concise investigative work before contracts are awarded.
Reform also needs to extend to the way in which projects are funded. One example is value capture; if we are to build a rail corridor, we need to look at how we index along that corridor, and account for variables including the long-term economic gains generated by the delivery of the rail asset and the mechanisms in which we capture that value and turn it into a potential long-term economic operating model.
Among the final hurdles is the ongoing management of a projects. While this is typically considered, there is room to further ideas on the operational expenditures that come with overseeing a project that takes, for example, seven years to build, but needs to be managed over a century thereafter. This is an important consideration that breaches the political tenure of government which could be half the term of the construction process.
Digital scaffolding
There have been dozens of reports into the lack of digitalisation of the construction process in recent years – the conclusion almost always is construction needs to adopt digital processes to become more productive. While this may be somewhat true, the underlying reason for what is perceived to be slower digital uptake is predicated in incentivisation.
The construction sector, in many cases, receives a digital design from many sources including architects and engineers – disciplines highly digital and regarded as the white collar segment of the built environment. There is a significant amount of work contractors undertake to ensure these designs then become ’constructable’. This process then needs to be ported to the field for subcontractors. The industry underestimates the complexity of this process. Combined with the pricing model, skills shortage and risk profile for contractors for projects has led to a lack of incentive or focus for mass digital adoption. It is unfair to labour the industry with this profile and the contracting industry are rapidly adopting a digital first mentality.
Digitalisation is not just about ease – it’s about how data is used and shared throughout the design and make process. While policy-level collaboration isn’t going to be reformed overnight, common data environments create crucial visibility throughout the lifetime of a build – including its ongoing maintenance and management after the construction phases have been completed. That data can then be readily used, analysed and evaluated, while allowing remote collaboration, so that any problems can be tracked and identified before construction begins. It simultaneously lowers risk and drives down sunk costs.
Australian building company Hansen Yuncken (HY) has maintained resilience despite economic challenges and rising costs, by embedding a ‘building better with tech’ ethos into its operations, with data at the heart.
HY has completed more than 5,000 projects, including the iconic Sydney Coliseum, Meadowbank TAFE, and the Greater Shepparton Secondary College. These were delivered on time and within budget – and amid various unexpected requirements – by operating smarter, tightening book ends, empowering workers, and reducing risk by harnessing data.
Rexine Jones (GAICD MBA), who wears CFO, CIO and Company Secretary hats at HY, believes “if you’re not using tech and harnessing data, you might as well shut shop today”.
“Everyone wants to know what’s going to happen and when it’s going to happen. Clients want certainty, and our teams leverage technology to establish that certainty, and create a view on risk. Data and tech allow us to build stable and profitable business”.
For HY, making that possible meant integrating digital capabilities into workflows from pre-contract, pre-construction, to delivery and handover, and maintaining a connected data environment.
The challenges that have clouded construction in the last year won’t dissipate in the near or medium term, and the sector will continue jumping between volatile conditions, many out of its control. But all is not lost if it combats the outdated procurement cycles that place too much risk on certain parties, and lead to finger pointing when projects fall into disarray. As technology becomes a staple in the sector, it’s the ability to use the data on hand to drive engagement and collaboration, and take progressive leaps in a bid for reform.
By Brett Casson is Director of Architecture, Engineering and Construction (AEC) strategy for APAC and EMEA at Autodesk, based in Sydney.
Image: Quickbase
