Sector - Finance & Legislation
The State of Construction
The global engineering and construction (E&C) industry is forecast to be an engine for growth in the coming decades, presenting unparalleled opportunities and potential for risk. Greater recognition of the global significance of the E&C industry brings with it increased stakeholder scrutiny. We speak to Charlie Woodley, HKA Director and CRUX Programme Lead, a construction informatics specialist with a focus on strategic digital advisory and problem-solving on complex, high-value programmes and projects, about the opportunities and challenges.
The capitalisation of Tier 1 and Tier 2 contractors is unpredictable with the fallout from some high-profile collapses felt throughout supply chains worldwide. The fitness for purpose of existing procurement and operating models is being questioned. The expectation to deliver more, quicker and for less is asked of an industry that has failed to respond to calls for change.
Disputes can be a litmus test of the health of the E&C industry. Resolving them often requires detailed forensic analysis, examining the complex web of issues impacting the operations of project stakeholders.
HKA’s recently launched CRUX Insight Claims and Dispute Causation, A Digital Perspective reveals a staggering average of 13 interrelated causation factors on a project (seven primary, six secondary) – and an eye-watering maximum of 39 on a single project.
CRUX Insight examines the impact of digitalisation, providing thought-provoking insights and forecasts intended to reinvigorate the debate on how to reduce claims and disputes.
Information technology is critical to our ability to manage complexity, inform decision-making, improve productivity, and reduce uncertainty, thereby mitigating risk. The days of instinctive decisions in the industry are numbered.
HKA witnesses that an increasing volume and complexity of data on projects is outstripping stakeholders’ ability to derive value from it. The impacts are profound. The misapplication of technology has negated much of the potential benefit and introduced new, unfamiliar risks.
Be wary of the illusion of control
It’s easy for the delivery-focused to assume the existence of controls directly translates to being in control. Differing or biased interpretations result in entrenchment that crystallises disputes when no common ground can be agreed.
Disputes all too often expose an illusion of control with flawed record- keeping and situational awareness compromised by poor information flow.
The illusion of control obscures the interconnection between issues, something seen routinely in the underestimation of causation complexity and overconfidence in the quality and value of records.
Rethink project control
Delivery professionals must undergo a data epiphany and accept that unassisted by technology, they will ultimately become redundant, replaced by technologically savvy peers.
The quality, format and fitness for purpose of project records are a good measure of both project control and organisational understanding of the flow and purpose of data – poorly conceived or onerous controls are ineffective for managing risk, obscure inefficiency and erode margin.
By first understanding the flow of information, organisations come to understand the transformative nature of ‘information liquidity’ – the ease with which records, and the data they contain, can be converted into knowledge.
Comprehending data flow and information architecture means organisations can streamline reporting or connect decision-makers directly to data, enabling truly informed, data-driven decisions.
Improve contract compliance
As organisations rely more on technology to assist with the management of projects, contractual compliance will improve and the prevalence of disputes reduce, accelerating should smart contracts gain traction.
In the short term, the inability to properly administer the contract is a good indicator that there are underlying problems – information overload, poor communication, or indeed a different interpretation of the contract are all commonly cited secondary claims or dispute causation factors in the CRUX research.
Building Information Modelling (BIM) improves collaboration and the increased information transparency and interaction between supply chain members is expected to flush out ambiguity. As organisations digitally mature the burden of administering contracts will reduce, as will non-compliance and dispute.
Recognise human factors
In the past decade, the volume of research into project success and failure has grown with a notable focus on human factors. Recognising human fallibility will catalyse wider acceptance of technology to assist in managing complexity and raising awareness of unconscious biases.
Good communication improves transparency, reduces surprises and facilitates commercial negotiation. Conversely, lack of communication that typifies adversarial culture and mistrust undermines the rationality that enable projects to be delivered dispute-free.
If the industry continues to fall behind the technology adoption curve, the gap between the volume of project data and an organisation’s ability to process it will increase. By enabling data-driven decisions, the risk-laden practice of making instinctive decisions will be minimised and communication will improve.
By its very nature, management has a role to play in all causation factors. Accepting that poor managerial skills are a risk, it should concern executives that teams operate in silos, moving between projects and failing to incorporate best practice.
Misguided loyalty can result in underreported problems, whilst familiarity can lead to overconfidence in the team’s ability to recover time, cost or enhance quality. It is not uncommon to find evidence of resistance to adoption of new technology amongst such teams.
Tech savvy ‘up-and-coming’ management will be critical for overcoming widespread executive resistance to change, unlocking the forecasted US$ trillions in value over the coming decades.
British BIM specifications are being converted into international standards and the sharing of graphical 3D models and non-graphical data, including but not limited to time (4D) and cost (5D) data. The extent to which organisations incorporate non-graphical to drive decisions is what makes 3D models an indicator of digital maturity.
With a growing expectation that 3D models and connected data are used to inform claims and disputes to contextualise facts and better communicate complex issues, legal and dispute resolution practices without the capability risk are falling behind developments in the markets they serve.
As many developed BIM providers rely on outsourcing from developing nations, it is likely that these will mature more rapidly as they look to avoid the impacts of protracted delay to the technology adoption seen in developed construction economies.
Consider data not just documents
The mantra ‘records, records, records’ is still relevant for informed decision-making, dispute avoidance and resolution. Digitally adverse professionals can compromise supply chain relationships, contractual and legal prospects, and profit margins.
Poor information liquidity, an underutilised risk indicator, often has its roots in past practice where the form, function and intent of paper processes have not been reviewed in a digital context. Suitably structured enables data from disparate sources to be searched, aggregated and analysed in near real-time – dramatically reducing the latency in decision-making.
Those issuing or receiving information requests should first look to understand the organisation’s information architecture. It is only by understanding the flow of data that the totality of records, both data and documents, can be considered. This understanding allows the administrative burden of record-keeping and legal discovery to be reduced.
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