April 1, 2012 by David Bowcott
The Canadian Construction Association (CCA) Conference in Savannah, GA, last month, was appropriately themed “The Changing Face of Construction.” Seems a bit cliché, but never was a conference slogan so true. I was fortunate enough to sit on a panel that discussed Trends in Construction Delivery Processes, and my fellow panelists did a fine job going through various trends that are changing the traditional marketplace and forcing all contractors to rethink their move-forward strategies.
Without a doubt the traditional asset procurement models are changing and there isn’t one solution; in fact, there are many. Some of the more pervasive project delivery models outside of the traditional design-bid-build include: 1) Construction Management (CM) at Risk, 2) Integrated Project Delivery (IPD) and 3) Variations of Design-Build-Finance-Operate-Maintain (often used by the public sector under the name Public-Private Partnerships, or P3s for short.)
From the insurance and risk management sectors perspective, some of these new delivery models seem to be creating greater collaboration, transparency and communication amongst project stakeholders. Whether it’s paranoia forcing the collaboration as is the case with P3s, or whether it’s an honest drive to create a partnership through some of the shared risk models such as CM at risk or IPD, the models have some credibility and appear to be creating greater value for money from the owner’s perspective. As owners look to develop their assets with whole life costs more clearly in mind, these models appear to be helping deliver the value they are seeking. Whatever the reason these models are being adopted, what’s interesting from the insurance/risk management community, is they also appear to have better loss ratios. Better planning and better collaboration seems to be breeding better loss ratios, and that is worthy of notice.
The following is a brief rundown of some key trends that were discussed at the CCA session:
• Greater collaboration—Regardless of project delivery model, project stakeholders are working more closely to allocate and manage project risk through collaboration. Greater communication and collaboration amongst design, construction,
operations and finance is leading to improved risk management.
• Increased transparency—there is a much greater degree of transparency in communication and contracts. Some owners publish their contracts online for transparency purposes. Transparency creates clearer understanding of responsibility.
• Increased levels of counterparty risk due diligence—Stakeholders are scrutinizing potential partners more carefully.
For example, more owners appear to be using Requests for Qualification in order to short list the bidders for their projects; to ensure they choose contractors capable of delivering.
• Proper risk allocation—More and more owners are looking to engage the construction community on ideal risk allocation, realizing improper risk allocation often leads to higher costs and greater likelihood of cost overrun and schedule delays.
• Increased up front planning and clarity of risk responsibility—several of these models are forcing greater dialogue on
project risk management prior to the contracts being executed.
• Total cost of ownership view by owners (ie. P3s, lifecycle, sustainability)—sustainability is a trend within several industries and construction is no exception. Owners are looking more and more at whole life costs of ownership.
• Increased paranoia—there appears to be a greater trend towards accepting the project risks and by doing so making paranoia your vehicle to success. Skin in the game ensures undivided attention.
Several of the above trends are pointing to a greater role for the contractor. The contractor, whether they like it or not, is the prime party responsible for integrating design into labour and materials in order to create the asset. Further, the asset’s operations will often hinge on how effectively that integration has taken place. This role has left the contractor with a significant amount of experience in design procurement, construction and operations of an asset and now project owners appear to be attempting to unlock that experience as they seek certainty in their asset’s performance. There is a significant opportunity for contractors in the coming years and every contractor (both large and small) should pay close attention to these trends to ensure future competitiveness.
David Bowcott is senior vice-president, national director of large/strategic accounts, AON Reed Stenhouse Inc. Send comments to firstname.lastname@example.org.