(Shivani Soni and Viktoria Roy have helped to assemble the material, which formed basis for this Article).
In recent time’s post-Brexit, post-Farmer and amidst the haze of industrial strategy we have heard a lot about unlocking productivity gains in the built-environment sector. But do we understand what that means.
We live in an age where UK industry has identified and by its own admission accepted its inability to unlock productivity. Within each industrial revolution (except this one), wholesale economic growth and profitability has enjoyed accelerated increases due to efficiency savings due to technological advancement.
If the global construction market is worth $10trn and those such as Euler Hermes, expect 3.5% growth in construction this year why does construction hold the dubious honour of having the lowest productivity gains of any industry, according to McKinsey.
Time & Money - A survey of British architects admitted that 60% of their buildings were late. Oxford University stated that 90% of the world’s infrastructure projects are either late or over-budget.
Prices - materials prices have apparently not risen.
Compliance - We often blame the cost burden of compliance for hampering productivity, but taking the US as an example, only one-eighth of productivity lost since 1987 is due to compliance.
Labour productivity - In all other industrial revolutions technology has replaced labour, but in construction the level of labour required intensifies – this may be partially due to the insatiable appetite of emerging markets coupled with the globalised economy driving use of impoverished labour as a cheaper alternative to investment in technology, but this should not account for the lack of a reduction in human capital consumption by more mature markets.
In the past 20 years the global average for the value-added per hour has inched up by 1% a year, about one-quarter the rate of growth in manufacturing. Germany and Japan have seen no productivity growth. France and Italy have seen falls in productivity by one-sixth and in the US productivity in construction has plunged by half since the late 1960s.
Cyclical economic volatility is also to blame for the routinely downward spiral or reinvestment of working capital by construction.
Fragmentation – as sectors mature they usually experience consolidation, but not in the case of the build-environment, it would seem that even more specialisms and the desire to outsource risk leads to proliferation of supply chain layers which embed waste in unnecessary layers of bureaucracy.
Repetition of production usually leads to improvement of product which when scaled often leads to consolidation of market players and greater R&D for evolutionary investment, but in construction we reinvent the wheel every time.
PIF has been leading for some time on the issue of how ‘technology is the key enabler and driver of innovation’ in the built-environment sector. But technological advances are not all about new gadgets, tools and software; it’s also about process improvement.
Legal Digital Innovation Workshop
On the 10th July www.thepif.org saw the launch of the Legal innovation workshop – this was the second event building on the momentum of the first legal workshop which overwhelmingly concluded that the future of productivity gains in the construction sector lies in integrating construction with the operating FM sector. This was a unanimous acknowledgment of the whole life value proposition that an asset costs 10% to construction, 80% to operate and 10% to demolish.
In the most recent workshop two issues were tackled:
How to create contracts which enable digital construction and operation of built-assets; and
How to create digital contracts
Some of the most notorious disruptors in the legal, financial, technological and solutions fields came together to thrash out and identify what the short medium and long term roadmap to unlocking productivity through automation of legal and business process would look like.
Naturally, they finished the workshop feeling like that a small group of innovative visionaries had taken a baby step in the right direction.
The reality is that this group is set to pave the way for major disruption in the way industry qualifies, tenders, negotiates, awards, manages and handovers the commercial relationship frameworks which currently get recorded in dry two dimensional hard copy bi-lateral contracts.
Questions were asked from do we need contracts at all; to how to we build cloud-based multi-party living contracts, which wholly integrate with contract/project management tools.
The workshop identified a number of pains – problem areas which should be prime for automation from a process perspective. Participants felt that:
The contract structure should reflect the client’s required project structure not vice versa
Too much fragmentation in law
Existing contracts (even with protocols), do not cater for new risks around digital working.
Cloud/virtual project teams – lawyers should be integrated into project teams.
There are protracted negotiation processes on routine areas of risk.
Execution of contracts still by hard copy signature.
Contracts for construction and operation are separate.
One of the specialist groups concluded that if contracts were on the brink of standardisation – including catering for variations of choice, then intelligent contracts which catered for project, procurement or commercial options were achievable.
Examples, of stage testing from technology contracts were also concluded to be useful, i.e. design testing prior to construction and operation would become integral and support by payment and data propositions.
Tools to ensure cohesive virtual collaboration from communications, to planning, Gantt and transparent payment platforms were all thought to be essential in the world of digital contracts.
Incorporation of stage testing learning/digital audits would also enable legal processes to be driven by risk based algorithms founded upon shared risk/reward propositions.
Essentially, the idea would be to link the contract to the data model and the variables would automatically identify the contractual risks.
There was an overwhelming acknowledgement of the role of data within the future of contractual processes. For example, contractual hand-over process is currently based on subjective professional certification not objective data. If digital contracts connect with BIM the built-asset will sign-itself off at handover.
If for every fragmented participant in the process of construction there was in theory legal representation, the idea of project lawyers as opposed to party lawyers would eradicate waste in process and (as with Integrated Project Insurance (one of the Government trial models of procurement)), project lawyers would put the project first and individual commercial interest second to ensure whole-life client satisfaction. But to do this lawyers would need to change from dry arms-length technicians in law and contracts, to knowledge engineers who understand the underlying code required for digital contracts to work.
We know the virtual collaborative environment breeds greater coordination, but a question was raised over why the lawyers were excluded if they’re so clearly critical to the commercial and underlying success of projects. If we are to consider lawyers as part of the team, the way they are in the technology world, then they should have project management and logic rules/skills training.
Within this context the group felt that the post-delivery contractual performance data analysis exercise should be routine and subsequently linked to future project delivery and selection – self-improvement on quality, time, cost, behaviour and integrity.
One of the key groups within the workshop concluded that payment starts only on-site, is linked to the contractual chain with zero visibility. Payment is volatile – i.e. in arrears – creates instability of project at delivery point. Payment was acknowledged as needing to sit outside the contractual chain and link to services, labour, materials, data and asset performance. They added that a lack of visibility leads to over pricing, negotiations and disputes. It was universally acknowledge that as payment is as fragmented as the contractual chain, an immutable project ledger supported by block chain would be invaluable in adding stability and equity to the core of industry.
One suggestion was that if secure delivery was to be optimised, cash-flow is inverted so that the smallest entities are not funding the building process.
Some of the major conclusions included:
Will profit be defined as the finished asset value or in a world where work, living and recreational, space will be fluid, will value be based on usage.
Individuals should be incentivised through learning not delivery or cash reclamation.
Mistakes must be allowed to improve learning.
Proof of concept projects are required to explore the productivity savings which are achievable under the above.
Open source data environments are needed in order to improve buildability and operability.
From the landscape of existing solutions, the groups then identified what the key areas of solutions would look like. The next step will be to set up distinct project areas and innovative fusion teams in order to create proof of concepts with viable business cases in order to ensure the creative innovation from this workshop becomes the reality for digital contracting in a sector which about to experience revolutionary concepts such as DfMA underpinned by whole-life procurement in order to provide value for money in an economy which has repeatedly declared an appetite for housing and major infrastructure.
As with all change some pioneer and others see it as nothing but a threat to their existence as opposed to simply a threat to their historic ways of working.
The challenge will be to create a solution which supports the whole-life cycle of an asset. That vision will take culture, knowledge and disciplinary change which necessitate understanding the role of data within contracts. One thing was for sure amongst all participants, we can keep doing the same protracted analogue based invisible processes badly at the cost of the value of the built-asset and the wider economy which in construction accounts for £89bn, infrastructure and FM £122bn and is quoted as being an enabler of a further £597bn services contribution to a total of 43% UK GDP/£808bn.
One thing was for sure this crowd had an immutable ambition to change; desire to be better and PIF must be commended for a real time infusion of expertise by involving and learning from other industries.
The term ‘disruption’ is being thrown around a lot at the moment when it comes to the changing nature of industry, but disruption is not always a bad thing to drive efficiency and innovation.
The challenge to the wider world from PIF as a follow on from the workshop is to form Co-creation Teams on:
Creating cloud based contracts that support asset life-cycle
Creating digital clause banks catering for amongst other issues:
Background and foreground IPR
Data specification and output specification
Creating digital platforms for the integration of project lawyers into project teams
Integrated labour, materials and risk pricing tools
Creating digital audit and compliance tools
Creating digital payment platforms that integrate all types of cash-flow disbursement models including Project Bank Accounts
Creating post-contract digitally automated evaluation systems
If you are interested in helping pioneer these projects be you capitalist, solution provider, technologist technician or commercial lead, join the PIF community and help these projects grow!
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See the previous Article regarding the Legal Innovation.
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