The data on poor performance in the construction industry is vast, but a refreshing school of thought points to areas of great opportunity for real change in how industrial projects are delivered.
The industrial construction industry’s go-to project delivery methods and associated contracting strategies are killing what is needed most: collaboration and integration.
Owners and contractors continue to make the same mistakes. Teams finish their projects, demobilize, and go on to the next project, only to deploy new projects the same manner. Some projects are lucky enough to have inspiring leadership and find their way to success, but for the majority of projects, the results are poor.
To promote project success, today’s project leadership must possess strong collaborative and integrative skills, especially in the mega-project realm. Autocracy doesn’t cut it in complex projects where project trade-offs, large numbers of stakeholders, and competing objectives prevail.
Industrial project teams using the design-build, lump-sum-turnkey, and design-bid-build delivery methods are bogged down in segregated, highly transactional project processes that kill collaboration. They experience extreme organizational pain and often deliver new or upgraded capital assets well below the expected NPV. Moreover, an abundance of data points to sustainability issues with these methods. Not to mention that they destroy capital value at indefensible rates.
While commercial construction projects have been using Integrated Project Delivery (IPD) successfully over the past decade, the industrial sector has paid minimal attention to IPD. Proponents of traditional project delivery point to a justification that their industrial projects are large, complex, and constrained by turnover sequences of engineered equipment and plant systems.
Contractors operate on razor-thin margins, so any additional risks transferred to them contractually by the project’s owner get included in the price. By using traditional delivery methods and over-assigning risk to contractors, owners pay a 20% premium on average. Typically, a contractor’s discernment is a high priority during C-level executive bid reviews. Contractors struggle to cover their contract price and hope to make their anticipated profit margins.
Contrary to current North American practices, owners on the other side of the Atlantic and in the southern hemisphere are successfully using the new Alliance Contracting method for civil infrastructure projects and relying on integration with key project stakeholders. This method achieves project success by aligning with specified business objectives and raises some compelling reasons for adaptation in the North American construction sector.
We have created highly transactional, low collaboration contracting for the sake of risk – yet, are we any better at managing risk?
For the sake of risk transference, current contracting methods purposely separate the owner from contractors, designers from construction contractors, and construction contractors from trade contractors. As we look at the nearly endless data and detail on project failures, it is painfully apparent that merely transferring risk does not guarantee project success. In fact, barriers created by risk transference could contribute to poor performance and its associated organizational pain.
For those working on project teams, collaboration in this setting is crushed as each party operates on their side of a demilitarized zone. Usually, this results in adversarial project teams, poor communication, lost time spent reacting to changing events, unnecessary organizational complexity, and the associated organizational pain. This type of environment is often besieged by out-of-sequence-activities and a perpetual hail storm of change orders, claims, delays, and disputes—often with unpleasant resolutions.
Now more than ever, the construction industry needs to adopt collaborative and integrative principles. The industrial IPD methodology promotes collaboration on project teams to create a corporate culture focused on making decisions based on “what is best for the project.” Collaboration is critical to achieving the goals of IPD: design optimization and construction project performance.
Integration principles (Alliancing) encourage the integration of business practices, creating an environment where project stakeholders agree to jointly pursue mutually agreed on commercial objectives and share data via common business systems, performance metrics, and project controls. This creates a more resilient system that is able to handle higher degrees of project uncertainty and systemic risks.
Imagine combining the existing principles of commercial IPD and civil infrastructure alliancing to foster an environment of collaboration and integration on industrial project teams. The combination of these two emerging practices would demonstrate early involvement of key stakeholders, use of technology as an integration tool, collaborative decision making, joint setting of targets, commercial shared risk and reward, shared project data and information systems, and financial transparency.
The current delivery model for the industrial construction sector is unsustainable and low collaborative and low integrative methods are a major barrier to technology deployment on projects. With such low technology adoption in the construction sector (normally last or second to last in most studies), companies have an unprecedented opportunity to significantly up their game by combining technology deployment with innovative collaborative and integrative delivery methodologies.
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