A wide-ranging debate rages in engineering and construction, regarding the extent to which the industry must change to align more closely with contemporary business and broader societal expectations.
The debate concerns a raft of challenges facing the industry, with highlights including win/lose rather than collaborative behaviour, long-anticipated acceleration in harnessing technological innovation to transform industry productivity, and slow progress regarding cultural reform with respect to diversity and inclusion. Of particular note, the war for resources – with the Australian Constructors Association referring to a shortfall of 105,000 construction workers by 2023 – has morphed from the traditional East Coast transport and water infrastructure versus Western Australia mining industry challenge to an international competition for labour and skilled technical resources. I can’t help thinking the issues I’ve just touched upon are inextricably linked.
In all the discussion I’ve recently heard and participated in, a few key points have stood out.
Collaboration in theory involves project owners and contractors working together for the greater good of the project and the industry in general. The broad consensus from an industry perspective, is that collaboration feels more like project owners appropriating good ideas from contractors and reflecting these back to the market in competitive tenders.
Similarly, innovation is commonly understood to be about contractors raising opportunities with project owners to achieve better project outcomes. How this often plays out in current practice is “it’s too late to take your idea on board, and in any case it’s too hard to change the design/development approval/environmental assessment etc”.
In these circumstances then, who needs to make the first move in shifting current industry behaviour?
It seems obvious to me that the onus is on the public sector project owners – largely the buyers in the infrastructure engineering and construction game and the source of planning approvals for developers – to take the initiative in leading change.
What should be tackled first?
One refreshingly plain-speaking interviewee at a recent Infrastructure conference, proposed a range of key success factors for major projects based on his experience of international best practice. Two of these stood out.
The first success factor concerns clients demonstrating an up-front commitment to collaboration. This commitment needs to start well before the development phase of individual projects and involves clients making longer term commitments to a smaller number of key contractors, rather than considering the industry as an endless source of new options to be sampled and discarded in favour of the next hungry option. This commitment-oriented approach enables trust-based relationships to be built over multiple projects. Trust in turn creates the environment for transparency between the parties, a critical behaviour enabling the inevitable challenges that arise on a given project to be identified early and solved in an equitable manner.
The second key success factor relates to alignment of incentives. Contextually, this looks like an owner achieving a project outcome on time and under budget at the agreed level of quality. What this should look like for the concerned contractor, is maximum profit as the result of achieving the client’s desired outcome. My takeaway from this is that much of the current industry focus on debating the prevailing contract models – fixed price, Public Private Partnership based project frameworks versus more alliance-based regimes – risks missing the point. The intent of the parties – best possible outcome for both client and contractor – needs to drive the selection of an appropriate contract model and the allocation of risks such as cost escalation, ground conditions etc for a given project, not the other way around.
Industry productivity is a subject which I have explored on more than one occasion. In a separate article I quoted a NSW Treasury “green paper” titled “Productivity drives Prosperity” as follows:
“Productivity is the most powerful tool we have for improving our economic wellbeing. It represents the organisation, capital and technology we apply in the production of the things we need and want…” and
“Our future prosperity depends upon how well we do at growing more productive – how smart we are in organising ourselves, investing in people and technology, getting more out of both our physical and human potential.”
Productivity as currently measured, concerns the extent to which labour and capital investments are efficiently utilised in generating economic growth as measured by Gross Domestic Product (GDP). What labour and multi-factor productivity indices do not effectively capture however, are the social or environmental impacts associated with improved efficiency.
As the engineering and construction industry looks to gear up and embark upon a massive investment in enabling infrastructure in a quest to achieve net zero emissions, this question regarding the effectiveness of infrastructure investments will be a key measure to capture and manage. Why? Because what cannot be measured is likely to prove difficult – if not impossible – to manage.
Returning then to the issue of cultural reform with respect to diversity and inclusion, it is clear that current industry practices with the expectation of long work hours that spill over into weekends, are a barrier to family friendly work lives. It is equally clear though, that the “old school” management approach to getting the job done, with the stress of deadlines passed down the line in an increasingly aggressive tone, will no longer be acceptable if we’re to attract tomorrow’s talent to an industry that desperately needs more talent.
All of this may seem of passing relevance to business owners in the residential housing sector of the market, under pressure from home buyers facing delays in completions and unanticipated cost increases in circumstances where the agreed price on their fixed price contract was their expected outcome. With home and apartment builders closely monitoring their committed forward workloads, chronic labour shortages and rapidly escalating materials costs continue to create an uncomfortable squeeze on job margins across the industry. This is playing out in the form of an increase in business insolvencies, exacerbated by the reported shift in the Australian Taxation Office’s approach to pursuing outstanding debts via court actions from the relatively benign approach adopted in the wake of Covid-19. Indeed, it appears that the ATO role is reverting to be more in line with its historic role as a primary driver of business insolvencies. Added to this is the spectre of deteriorating economic circumstances, both locally and abroad.
In these trying circumstances Builders might ask themselves, why should we change? The meta-risk of course is one of business obsolescence, relegated to the role of a minor player in yesterday’s industry.