With the number of construction projects dwindling as a result of the pandemic, many companies are reimagining their business models to secure their future.
While how to increase productivity remains one of the major hurdles that the industry needs to overcome, construction and engineering companies must also look to servitization — the idea that construction organizations compete on full lifecycle support offerings rather than simply the tasks associated with initial build — to attract new business. Even if it may appear to some as a question of identity, the provision of service will, in reality, be a question of survival for many businesses.
Even though the outlook is harsh, there is evidence that many companies are using the current lull to arm themselves with tools that will enable them to hit the ground running when the tide turns. In fact, a recent IFS study revealed that 70 percent of businesses have increased or maintained digital transformation spend, despite the Covid-19 pandemic. In the engineering, construction and infrastructure sector, this figure is more than 75 percent.
Given the unpredictability of 2020, we are facing a new year whose challenges and opportunities are equally difficult to pin down. Despite the uncertainties, however, I have summarized a few trends that I believe will color 2021 and beyond.
As a result of the disruptions of 2020, the construction industry is intensifying its focus on securing stable and robust revenue streams. This has led many companies to transform themselves from traditional construction companies to asset lifecycle service providers, able to provide through-life service, facilities management, and maintenance to their clients.
The upshot is a strengthened emphasis on total lifecycle cost rather than the traditional, one-and-done build cost. One of the major implications is the profound shift in focus among the companies building the assets. As they will be increasingly expected to assume cradle-to-grave service responsibility for each asset they build, they will need to focus on asset quality, longevity, and ease of maintenance. Put more provocatively, now that the asset is the construction company’s problem, it will need to be designed for quick and easy repair and maintenance.
As customers are more and more interested in buying outcomes rather than brick-and-mortar assets — for example, hospital beds rather than the building that houses them — construction companies will need to get used to providing an all-encompassing service offering.
A majority of stakeholders in the construction and engineering space are still doing business through two separate contracts — one to build and one for service. In 2021, however, I predict that we will see a decisive increase in the number of construction companies transitioning to a single contract that spans the entire lifecycle of the asset while regulating its output or availability.
The effect on companies’ business models will be profound as they will need to extend their planning horizons significantly to ensure long-term profitability. Even if they have competent staff to attempt this transformation, it is likely many construction companies will initially struggle to establish best-practice in service processes that will ensure delivery of new-to-them concepts such as customer engagement, service-level agreements (SLAs), and field service scheduling and optimization. One of the ways companies will solve this is to look at enterprise software designed to power the transformational journey from construction-only to through-life service provision.
Offsite construction, also known as prefabrication, is a trend that has been gaining momentum across the industry. Whereas construction companies used to build a house using materials shipped to the site, many companies are today moving the actual construction to factory-like, indoor environments where tradespeople and contractors build components or modules that are shipped to and assembled on the building site. One of a vast number of examples of this trend is leading engineering firm Babcock, that delivered prefabricated components to the Heathrow Terminal 5 project.
As construction companies are tasked with managing increasingly complex logistics for each build, we will see a significant uptick in companies focusing on implementing supply chain management best practices. The vast majority of traditional construction companies will admit to having very little experience in working with things like parts, numbers, and inventory. The supply chain-centric work processes of a company like Amazon will not reflect the current reality of their businesses. Yet, this is the vocabulary they will need to learn (very quickly) in order to effectively and profitably manage the logistics challenge of getting hundreds or even thousands of prefabricated components to one or more construction sites — at the right time and in the right order.
I predict the construction industry will see accelerated investments in business software capable of imposing order on a supply chain-driven transformation that would otherwise spin rapidly out of control. Companies will increasingly turn to a manufacturing ethos as they get used to the idea of building standardized components with serialized part numbers that can be used in multiple projects, as opposed to costly, customized solutions.
In other words, 2021 will be the year when the inexorable march of offsite construction compels traditional construction companies to evolve and get to grip with the urgent need for standardization, both in terms of materials and work processes.
By now, most people with an interest in the construction and engineering sector know what Building Information Modeling (BIM) is and what its major benefits are. As a standalone technology for three-dimensional design, it has had a huge impact on how complex assets are being developed and built. Many industry stakeholders are currently talking about 4D BIM, which also takes the time and scheduling aspect into account, basically giving companies a video simulation of how and in what order an asset should be constructed.
What is not a very mature concept, however, is the combination of BIM with enterprise resource planning (ERP) software, which is arguably where most crucial business data is stored. This lack of sophistication is odd, given the enormous potential in connecting the two. What I am referring to here is what is being hailed as 5D BIM.
With the fifth dimension being money, I predict that the challenges of 2020 will provide added incentive for companies looking to bridge the gap between BIM and ERP. The question an increasing number of construction companies will ask is how to take a BIM model, turn it into a cost estimate, and then track the actual costs back to the BIM objects.
Edging out the traditional bill of quantities, companies are today being asked to bid against a BIM model, a cumbersome process that normally involves a myriad of manual calculations and measurements. As 5D BIM comes to the fore, I predict that in 2021, construction companies will start demanding automated tools for transferring BIM models straight into the estimate module of their ERP software. Companies will expect standard integrations that will enable a free flow of data between the different systems. What will be needed are integrations that let the bid teams sort and structure the data by type of component, separate them into packages of work, and automatically price each package.
Early-moving companies that are already implementing or trialing 5D BIM/ERP integrations will use their head start to investigate the sixth dimension of BIM: maintenance. At this stage of the maturity cycle, the visualization element of BIM takes a subordinate role to the free flow of information throughout the lifecycle of the asset — from design to build to maintenance. While still a few years out, I predict a rapid progression to 5D and 6D BIM.
Even under ideal market conditions, construction is a demanding industry in which complex networks of projects and project delivery must be navigated effectively. I remain convinced that one of the best ways to ensure business value and resilience is the long-term investment in sensible technology that is fit for purpose.
For all its unpredictability, I believe that 2021 will be a year of opportunity in the construction, engineering, and infrastructure sectors. But just as luck favors the bold, I also believe that capitalizing on these opportunities will require strategic fortitude and a clear vision of how servitization and technology could and should coalesce into new and more intelligent ways of working.
Kenny Ingram is Vice President, Engineering, Construction & Infrastructure at IFS. In addition to the core industries of construction, contracting, engineering, infrastructure, and shipbuilding, he is heavily involved in other project and asset lifecycle industries including oil and gas, energy, utilities, and defense. Kenny's main responsibilities are to promote the IFS solution to the external marketplace and to educate the IFS workforce on the business issues and challenges these industries face. He is also a key member of the IFS product management team who are responsible for making decisions on the IFS product strategy. Kenny has been with IFS for 20 years and has worked in the business systems marketplace for over 25 years. He is now regarded as one of the top specialists in project-based business systems and has been heavily involved in driving the IFS strategy in this area for the last 20 years. Prior to this, Kenny worked in industry in various positions covering management & project accounting, supply chain and logistics.
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