aeco industry construction

Statistics show that one of the top worries of business leaders in the AECO industry (Architecture, Engineering, Construction and Operation) is the capacity of their companies to deal with claims. This can be explained since the industry culture is claim-driven, so it is deeply rooted in the history of the value chain itself. 

 

The situation

On a larger scale, the AECO industry is a fragmented industry with smaller players or roles, allowing them to partner in different constellations over and over again, depending on the project. This fragmentation is very flexible but does not facilitate reorganization, continuous improvement and specialization of a monolithic company. At the same time, contractual responsibilities and risks are distributed among all these players, making it very difficult to align overall interests. 

Because the construction industry is cyclical, meaning that it can go from booming to very weak, depending on the country and global fluctuations, most of the players that have survived have adopted a strategy of flexibility and the ability to grow and shrink rather than very long-term investments. The main priority is to acquire the next project; everything else is secondary. If there are not enough projects, companies just shrink again. This is not the ideal ground for sustainable, quality-oriented medium- and long-term strategies. 

 

What companies need as an environment to professionalize all of their processes and operations is first to meet the challenge of generating a predictable cash flow, that is, a predictable number of projects coming in year after year. And that is not the case. An important factor to understand is that in order to have a predictable flow of incoming activity, you must first understand and influence the origin of that activity. 

The origin is bipolar: on the one hand, construction with public money; and on the other hand, activity emerging from private investment. Players are trying to acquire new clients and make sure their work is so good  they will continue with them on future projects. In addition, professionals are constantly participating in public tenders in hopes of capturing a portion of this market. 

 

The private owners or developers are not  constantly launching new projects. The public sector is also unpredictable, if it comes to a company trying to scope exactly how much business it will see in the next 3 years. But, the most interesting factor is the fact that projects end up over time and budget, and this is kind of an accepted concept (probably originated in the public sector) . Depending on the countries, the players offer their services 20 to 30% below the price, knowing  there is a mechanism to win back that money. This is historically accepted, even the private owners budget contingency buckets, knowing that this will happen. Last but not least, the amount of time that players need to put into their "acquiring system" is high. So the  industry is enormously fragmented into little individual pieces working project-based together starting with budgets that are more than tight. 

In Spain, there is an expression that says: "White and in a bottle". The perfect ground for economic tensions and conflicts of interests, as the economic health of most of the participants depends on how many change orders in terms of services or materials they are able to fight into the original contract.

See article: Generate new business models

 

The challenge

This is not to paint a negative picture of the construction industry, but it is what it has been since the Romans. It's important to understand that a strong claim management capability is the foundation for the survival of the participants and then their business. Originally, for each of them, there is a contract that defines what is to be delivered. During the months of project execution, they will have to deal with delivery of what was expected, late delivery, incorrect delivery or even non-delivery . 

All these changes will be reflected in different types of communication workflows: 

  • Informal: for example email, WhatsApp, etc.; 
  • Formal: for example a set of published drawings or documents with annotations; uploaded into the shared data platform; 
  • Super formal: including the official deliveries of information that are an addendum to a contract.

The AECO players know that all this may sound simple, but it is a complex machinery to keep people informed about what is and is not officially part of the project today. And all claim management is based on "attacking" these information flows, trying to prove that someone didn't do exactly what was agreed with them. Internally, most companies have no problem with these information flows, data and decisions. Moreover, no one is going to go to court internally to claim it. 

 

So the real challenge is to build a "trading platform" or system that covers each participant's risk and helps them prove compliance. Even in the BB years (before Building Information Modeling (BIM) technology), people understood the concept of a single source of truth. The single point from which data was distributed in packets of information to the participants. On paper, this was already a challenge, as we were designing primarily in 2D, and interpretations could generate different results. Adding a few more Ds resulted in more standards, participants, rules, and digital information. AECO stakeholders are still learning the meaning of these. Even the legal frameworks are not clear on this, and even less so when it comes to international projects, as the law is different in different countries (article on standards, compliance). 

 

The answer

This being said, what is "white and in a bottle" again is that project participants need to cover 3 aspects when it comes to controlling claim management.

  • They need a space where the documents of the project live (the up to date ones and the archived ones);
  • They need a space where the virtual models live (the up to date ones and the archived ones);
  • They need a space where the communication is centralized and has the capacity to involve or link directly the models and the documents.

These three dimensions need to be unique (not multiplied many times for each participant) and then filtered, so that each participant can decide what is shared and what is in progress.

Most importantly, because these projects are long and the software ecosystem changes every year, these three dimensions need to be based on neutral and open formats and standards (e.g., Open Common Data Environment, BIM Collaboration Format BCF, Industry Foundation Classes IFC), so  they can be accessed in the future, regardless of whether or not you have a particular  software application.

See: Five Good Reasons to Use Open BIM.

 

Andrés Garcia Damjanov, Head of Sales at Catenda.

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