An English colleague recently wondered “what’s holding back the transformation of construction that everyone has seen coming for at least 20 years?”
He mused that, despite the claims of one construction technology advocate or another, none could explain why the ‘pieces and parts’ of construction have never added up to give construction’s customers a measurably better deal. This colleague had experience in global insurance underwriting and ‘risk wrapping.’
So what is holding back the momentum that is needed to move Australia’s construction fully into the modern construction era? The key here is to first ask "what is the problem needing to be solved?"
- Do the current promotions of ‘off-site’, ‘prefab’ and ‘modular’ misrepresent the complete picture of the transformations currently occurring in construction?
- Is the promotion of BIM by those who still regard themselves as the ‘first specifiers’ under-representing these transformations as construction joins the digital economy?
- Does just tweaking with local standards, regulations and compliance regimes miss the reality of the multi-jurisdictional forces redefining construction dealings?
These themefail to articulate the challenges that construction more broadly needs to resolve. Critically, they overlook the convergence of the ‘constructing and constructed’ built world.
For example, the digitisation of both of these worlds calls for early embedding of digital capabilities that can trace construction inputs from source, to installation and then into whole of life interoperability. This is not just about the 'things' of construction; it now includes how the users of construction will engage with those things. The transformation of construction globally is an end to end process which spans the ‘pre-construct’, the ‘construct’ and the ‘after build’ phases of creating tomorrow’s built world.
This conversation is about more than the popular themes we hear most about, such as suggestions that:
- The advocates of the parts of these changes often overlook the reality that it is the ‘sum of all the parts’ across all these phases that makes whole buildings.
- The public, the policy makers and the clients of construction are confused by solely pressing themes such as ‘BIM should be universally specified by government and clients’ and of ‘the opportunities in advanced manufacture’ alone defining the future.
Australian construction seems happy to avoid the end-to-end ‘risk wrapping’ question that’s needed to underpin any value proposition that relates to the sum of the parts. This may explain why thus far, there is limited reasoning to enlist policy makers, clients, industry and academics to discuss why the ‘traditional’ approaches to construction definition, procurement, acceptance, evidence based academic learning and research should be modified to fully engage with the fast-moving construction transformations that will re-define our industry within just a few years (ideally the next five to seven years).
Modern construction may be characterised as 'measurably better construction for less.'
- ‘Better construction’ is a client centred proposition that is resolved to deliver better quality, lower cost, more sustainable, easier to maintain, use and adapt buildings.
- ‘For less’ is a value chain centred resolve to dramatically improve the processes of construction (less time, less waste, less workforce inputs and fewer accidents.)
Few of the advocates for the pieces and parts (services and components) understand that attempting to move one part forward without a systemic resolve to ensure their combined inputs deliver measurably more for less, is in their mutual interests. Mutual interest throws up another threshold question. Who will be the surviving mutually interested parties? And, what will a mutual interest be? Money flows in the end sorts out mutual interests.
Perhaps it’s inevitable that beyond the digitisation of construction, insurance ‘risk wrapping’ could turn out to be the game changing enabler that will drive industry transformation from here on. It is clear to me that the clients, financiers and insurers of construction are not happy with what's on offer or how the industry traditionally operates. No other industry could get away with it. But the dynamics of construction procurement are changing:
- Soon, over 60 per cent of the construction contract sum will be value added before delivery and assembly occurs on site. There will be less and less on-site fabrication.
- Over the next five to 10 years, more of the actual construction sum will need to be paid for before inputs are dispatched too, and assembled on-site.
- There is no more defining mechanism in construction than money flows.
- The first certifiers (consultants) and the makers of construction have never successfully wrapped construction risk, because the risk adverse status-quo prevails.
- The off-site payment tipping point will occur well before 60 per cent of construction inputs occurring off-site. New pre-delivery payment mechanisms will be required.
- This changes the nature of construction contracts that have traditionally envisaged 80 per cent or more of fabrication and assembly on-site, and subsequently physical observance and certification by a Superintendent to enable progress payments.
- These certifications have not assured that the work being valued was compliant. Payment has always been on account. This enables the deferment of defects rectification, eventual compromise and impaired built outcomes.
- Construction's services and pre-site inputs are increasingly coming from multiple jurisdictions (different countries with differing standard regimes and laws).
- The traditional certification process has lost credibility as the level of certification service is fee driven - lower fee, lower service.
- Buildings are being completed with many compromises - both from a functional and physical source, often with design fault as much as any other.
- Concurrently, new construction materials and assembly methods are evolving faster than the industry can verify their merits or after build performance potential.
- Construction financiers are seeing this as an unmanageable risk. They have rightly pushed back on enabling pre-site payment where better assurance is absent.
- Constrained payment for pre-build (often off-shore) stresses the value chain.
- The UK industry’s Build-Off-Site organisation seems to have come up with a solution that provides an enterprise or project 'risk wrap' based on value chain risk rather that applying average industry premium spreads as has been the case in the past. So, each value chain input is risk assessed and priced. This will be game changing.
- The insurance industry is increasingly using project or consumer specific risk and premiums world-wide - the motor industry is a good example.
- It was inevitable that this risk and pricing model would find its way to construction. The good guys can look forward to not subsidising the bad guys and their practices.
- For the first time, it appears that a customer may be able to get the whole value chain (including design + construction + warranty) performance 'risk wrapped.' It’s a smart move as it avoids trying to apportion risk and blame when the blame game starts. Game over for a lot of litigation.
- At the same time, the insurance industry looks to have stood back and taken in the bigger picture of construction risk management opportunities:
- insurers insure buildings for their life (as do banks who finance them)
- it’s possible that more buildings will be built over the next 50 years than has ever been built before (developing economies)
- climate change is stressing buildings more than the climate has at any time prior and impaired construction exacerbates this risk
- Big data is now able to be deployed in tracking and recording the entire value adding chain (provenance/chain of custody) of new build
- The digitisation of construction now enables the pieces and parts of construction to carry with them an Internet Protocol address, i.e. a curtain wall made in Germany will comprise of drawings, glass, aluminium and other components sourced from many vendors. RFiD chips and similar devices can now carry this intel. I was in a factory last week where the vendor told me they can now just hold a reader up to a sea container and without opening it they could see the contents, the chain of custody of those contents and where they were headed next. The end customer would get that intel when the building completed.
- More amazing, when the curtain wall elements go into service, they would start a lifetime feed back to the owner to tell the heat load, stresses and performance of the curtain wall. So, here is hard evidence of the digital continuum joining the 'constructing world' with the ‘constructed world.' It’s happening fast.
- Insurers will no longer have to operate in the dark as to the potential robustness of a building that they underwrite. And financiers can be assured that they are making payment for the real deal. Every building will be impairment and performance rated.
- For the first time, construction may be able to turn-up ‘in-full, on-time’ and for a detailed inventory of all inputs certified as being compliant and fit for purpose, and for all this to be underwritten by a single "risk wrap.' It may not be long before financiers make this sort of 'risk wrap' a condition of construction lending.
- This will enable the next wave of technology now moving fast - 'block chain.' This is crypto currency tool which will be the way global payments are made. Gone will be the traditional methods of making value chain payment - real time direct to supplier.
Hopefully by this point, you get the idea. And of course, a new form of construction contract seems inevitable (MC1). Work has already started on determining what the core objectives and operational functions of this will be. MC1 will require a different industry culture and value chain transaction protocols. It will embrace the single ‘risk wrap’ principle and incorporate the potential of traceable construction inputs that negotiate their ‘constructing’ and ‘constructed’ built future. The themes mentioned earlier will survive if they add measurable value to the future chain of construction dealings. If they do not make the leap that the sum of the parts will define modern construction, they will fail.
This is exciting stuff, and opens amazing new enterprise, service, manufacturing and career prospects for tomorrows’ constructors. And on a positive note it’s great to report that Dr Mary Hardie, the director of Construction Undergraduate Academic programs at Western Sydney University has taken up the challenge of giving her future graduates a first look through the window of a digitised, industrialised and globalised construction future.
The future of modern construction transformation is becoming clearer.