Every cloud has a silver lining…or so the saying goes.

Today, Engineering Construction is blanketed by some threatening storm clouds. So, is there a silver lining hidden somewhere amongst these seemingly treacherous conditions? I believe so.

For more than 25 years there has been a growing need for change to the way in which Engineering Construction projects are conceived, procured and delivered – a great deal has been written on the subject. In the same period, Engineering Construction productivity has stagnated or declined compared with other industries competing for investment – again, much has been written on the subject.

While market demand for, and the price of, oil have fluctuated over this period, both have been sufficiently stable to mask the deficiencies in Engineering Construction contracting arrangements and the corresponding wastage inherent in declining productivity.
Although there have been several productivity and performance enhancing initiatives over the period, these have not been widely adopted. The potential benefits of previous “silver linings” (such as the 2014 / 2015 oil price collapse) to change the approach to projects and improve productivity and performance were sacrificed in preference of preserving the status quo. But, with few exceptions, Engineering Construction productivity, performance and project out-turn results continued on their relentless decline.

Today, we are in a different world of:

1. Economics
Plant investment costs and delivery times are typically, respectively, too high and too long and there is considerable uncertainty regarding the forecasts of the final position on both. Conversely, supply chain margins are generally unsustainable, thereby restricting the investment necessary to upgrade competences, expertise and capability. Taken “in-the-round”, Engineering Construction is not an attractive investment prospect.

2. Oil Price
Following a reasonable recovery after falling to less than USD 20 per barrel at the global onset of COVID-19, the price of oil has regressed today to around USD 40 per barrel as demand continues to remain depressed and production is relatively high. The corresponding negative impact on Oil Majors’ share prices has been reported widely.

3. Competing Providers
What was a burgeoning renewables industry 25 years ago, especially wind and solar, has now become a major energy sector player and a serious competitor to fossil-fuels. However, with the development of new energy sources, there was not, despite the opportunity, any new thinking about the way these projects are conceived, procured and delivered – most follow the conventional system and we can observe the results.

4. Covid-19
While the pandemic will eventually be overcome, there is no certainty at the present time when this is likely to happen. The full effect on the world economy has not yet been determined but it may be expected that this has some long-lasting effects, not least for Engineering Construction globally.

So where is the “silver lining”? I suggest it resides in a combination of:

• Identifying and learning from missed opportunities for change in the past, e.g. industry has not made the most of collaborative working practices that have existed for the last 20 years or more
• Accepting that the “traditional contacting arrangements” – the race to the bottom in terms of price, risk and conditions – are no longer fit-for-purpose
• Recognising that emerging new energies (e.g. “green hydrogen” etc.), like renewables before them, provide an opportunity to conceive, procure and deliver projects completely differently and far better
• Knowing of, recognising and understanding the positive results already obtained from innovative working practices and adopting and progressively developing these, e.g. Advanced Work Packing and associated interventions
• Building on the “benefits” of COVID-19 such as remote working, effective communication, less travel etc. and being aware of and providing against the downsides
• Embracing fully, digitalisation and transparent data and making the most of artificial intelligence
• Driving standardisation in Components and Sub-Systems across common Industries, e.g. JIP33 in Oil & Gas driven by IOGP
• Recognising that, notwithstanding technological advancements, it is people who deliver projects and will be so for the foreseeable future – driving improvement in “people performance” and reinforcing underlying competence and experience is fundamental to delivering projects successfully.
• Recasting the workforce capacity in terms of quality and quantity and making Engineering Construction an industry attractive to the younger generation through latest technologies
• Removing unnecessary bureaucracy and keeping processes lean for faster and more reliable controls and reporting

The recording from the webinar on Advanced Work Packaging held on 25 June is now available to view at GoToWebinar.

You can also download a copy of the slides that Stuart Block from Fluor used to introduce the topic. If you are interested in finding out more about Advanced Work Packaging and the work that ECI doing on it, this work is being led by Stuart Block from Fluor and Luigi Anselmi from Tecnimont.

Since the outbreak of COVID-19 and its effects on global Engineering Construction projects, I have held the view that the only sensible way for project stakeholders to address and resolve the challenges confronting them as a result of this pandemic is by collaborating together to find solutions that provide the most effective, productive and economic means that are fair and work for all concerned. In this context, there are two key areas that must be addressed;

• Re-commencing or continuing projects. Re-baselining in terms of project organisation, completion dates, time schedules, execution plans, material & equipment deliveries and resource loading, based upon what is needed, is realistically and reliably available and becoming available. Availability of cash will be fundamental.
• Additional costs. Realistic assessments of the additional costs involved in continuing and completing projects together with a viable apportionment of such costs based upon those stakeholders most able to bear them taking the greater amount of the burden. It is unrealistic to consider that, in the current circumstances, a single stakeholder on any project bears all the additional costs or that others will avoid bearing any.

Allowing the project challenges to escalate into disputes is unthinkable. In the UK, the Construction Leadership Council (CLC) has expressed concern “…that the construction industry will become embroiled in costly and long-running disputes over the effects of the pandemic on projects if it does not look to engage in collaborative discussions to resolve these issues…”. In this context CLC co-Chair, Andy Mitchell CBE, said: “…it is vital that we all work together to minimise potential disputes in order to secure the industry for the long-term…” – follow this link 

The CLC COVID-19 Task Force has published practical guidance on how to minimise potential disputes. These were endorsed by the UK Government on 7 May 2020 to which the CLC said “…We welcome the endorsement of our approach from the UK Government in its Guidance on responsible contractual behaviour in the performance and enhancement of contracts impacted by the Covid-19 emergency…” and “…We anticipate that all businesses will understand the unprecedented situation we find ourselves in and work collaboratively…”.

While the foregoing relates to the UK construction industry, the underlying principles of avoiding disputes and litigation by finding collaboratively driven solutions, applies equally to projects undertaken by the global Engineering Construction Industry.

Collaboration is not an easy option, but it is the one most likely to achieve satisfactory and lasting resolution of the challenges currently confronting project stakeholders. For those interested in a taking a collaborative approach to resolving commercial / contractual issues on their current projects without getting into dispute, as recommended by CLC, and are unsure how to approach collaboration, then the Engineering Construction Industry Training Board (ECITB) Project Collaboration Toolkit (PCT) which embraces, amongst others, ISO 44001 and the Engineering Construction Institute’s Active Principles, could provide some useful guidance, particularly regarding the behaviours that need to be practiced in finding solutions to the challenges on projects collaboratively – follow this link

While the PCT provides the means for the collaborative procurement and running projects in replacement of traditional methods, and was not intended as a dispute avoidance process, the principles which it embraces could well be applied to finding solutions to the challenges now confronting global Engineering Construction.

However, COVID-19 is not the only crisis currently confronting the Industry. The recent collapse of the oil price has added to the burdens created by COVID-19. Investments in new projects are likely to decline significantly unless measures are taken quickly to bring down costs, reduce schedule durations and assure delivery in line with the commitments made so that realistic business cases can be established, endorsed and implemented. The traditional procurement methods that have been in use for decades will not enable these objectives to be achieved – these methods are broken beyond repair and are ineffective for addressing the challenges confronting the Industry today.

On 6 May 2020 the Engineering Construction Institute and Constructing Excellence joint Webinar: Major Projects – Driving Long Term Value Through Collaborative Procurement, addressed the actual benefits experienced by Industry of collaborative working practices over “traditional” procurement methods – significant cost reductions, shorter delivery times and dispute avoidance. In this context there are many current initiatives that are geared to the elimination of wastage, improved efficiency and greater productivity (eg. AWP, BIM, Artificial intelligence, Digitalisation, Factory Thinking, Digital Twin etc). In order to obtain maximum benefit from these initiatives collectively or individually, collaborative working is essential.

The current crisis confronting global Engineering Construction – the combined effect of COVID-19 and the Oil Price Collapse, provides the opportunity for the Industry to fundamentally change the way it undertakes projects. That change can be started immediately by stakeholders finding collaborative solutions for the re-commencement and completion of current projects – enlightened owners are taking this approach already. The learning from this experience can then be applied to new project investments to be undertaken utilising collaborative procurement and for which there is now growing support.

We only need consider how other industries, (eg, automotive, aerospace, shipbuilding etc.) embraced radical change, driven by crises and that created transactional solutions to existential challenges. The global Engineering Construction Industry would be wise not to waste the opportunity for change that is now presented with.

John Fotherby

Chair

European Construction Institute

Download the slides from the session:

• Introductory Slides
• Collaborative Procurement and Risk Management What needs to change?, David Mosey 
• Procuring for Productivity – ‘Transforming Procurement to become the Enabler’  #CE Nuclear Productivity Series, Adam Newbould   
  (Download the full report)
• ECITB Project Collaboration Toolkit – Learning to date

The saying don’t fix what isn’t broken is sometimes good advice, but when something is broken beyond repair, then replacement is the only effective option.

A great deal has been written about why mega projects fail and many hypotheses have been expounded. The simple truth is that engineering construction projects, mega or otherwise, succeed or fail because of human endeavour and behaviour.

The procurement models in common use in Engineering, Procurement, Construction arrangements (eg. Lump Sum Turn Key, Lump Sim etc) are not of themselves bad; it is the way in which they are used and abused that sows the seeds of project failure and because, most frequently, there is little or no opportunity for collaboration and improvisation.

In the long history of humankind…those who learned to collaborate and improvise most effectively have prevailed (Charles Darwin).

Collaborative style contracts have been around for several years. However, it is not the contract itself that brings the results, it is the people using the contract that practice collaborative working within the legal framework of the contract that drives success. Mindset and the willingness to do things differently are the basic levers for success – collaboration and improvising to prevail as per Darwin’s observations.

Those that have practiced collaboration and improvisation on their projects effectively have generally been successful – performance and delivery is achieved safely and to the required quality, in less time and at less cost than other procurement methods and provided a satisfying experience for the people. What is there to disagree with? In engineering construction, use of the ECITB’s Collaboration Toolkit has shown significant improvements compared to “traditional” methods of contracting in the UK North Sea sector.

So why has collaborative working practices on engineering construction contracts not been adopted universally when the benefits are so obvious to substantially reduce or eliminate the risk of project failure or put another way – increase considerably the possibility of success?

Simple:

• although those procuring engineering construction supplies, work and services often recognise the obvious benefits of collaborative working, many prefer the master – servant relationship that resides at the core of LSTK EPC and similar contracting arrangements, and
• those financing the projects often prefer that the supply chain takes and absorbs the risks, even though it is invariably well-recognised that they are not the parties most able to bear and manage many of the risks.

Here lies the origin of project failure. Those continuing to participate in this approach are destined not to prevail. Except in specific circumstances where used and applied as orignially intended, the LSTK EPC and similar contracting models are broken beyond repair and no longer fit for purpose. What further damage will be done to the engineering construction industry by perpetuating procurement of EPC work on the basis LSTK and similar contracting arrangements?

Conversely, those organisations willing to adopt collaborative working practices within the framework of suitably crafted contracts will create the opportunity for successful project delivery, leading to greater and more certain investment and industry sustainability.

The European Construction Institute in collaboration with Constructing Excellence, is holding a WEBINAR on 6 May 2020 – COLLABORATIVE PROCUREMENT. This will explore, through case studies and the personal experiences of a panel of practitioners and specialists from a wide spectrum of industry, including an exposition of the successes achieved thus far with ECITB’s Collaboration Toolkit, the benefits of collaborative working for the engineering construction industry and the actions needed to be taken to accelerate the use of this procurement model.

This WEBINAR is open to owners / investors, contractors, manufacturers, suppliers, specialists and consultants engaged in global engineering construction projects.

To register your participation and receive details of the WEBINAR, go to https://www.eventbrite.co.uk/e/major-projects-driving-long-term-value-through-collaborative-procurement-tickets-100806232154

Join us and help to transform your industry and put an end to failing projects.

John Fotherby

Chair

European Construction Institute

We had a lively and productive day at the joint ECI and Constructing Excellence workshop on Eliminate Waste – Maximise Productivity – Become Successful.

ECI John Fotherby from Kingsfield Consulting provided a stark message that if the industry does not change itself, disruptors will and urged a holistic approach across the four key areas of People, Process, Technology & Organisation.  We are thankful to the excellent facilitation provided by Constructing Excellence members Aspen Global to drill into delegates priorities and viewpoints.

Attached is a paper that covers a summary of the key points arising from the pre-event survey output from delegates, output from the event and proposed approach to getting the Revolution underway. We have prepared this in PowerPoint format so that you have a good visible representation of the workshop that you can share with your colleagues, management, customers, subcontractors, vendors and consultants – we seek your support to “spread the word” and generate interest in the Revolution that we agreed at the Workshop was necessary if the industry is to be sustainable. We would also appreciate you and your colleagues’ input / comments / suggestions regarding the way forward proposed in the attached paper.

We encourage you to join the ECI portal on Microsoft Teams. Those who were present on the day should already have received an invitation link to Teams. Please email [email protected] for further invitations or help logging in.

Help us prepare for the next event in February 2020 where with your help and support we will drive the Revolution to the next level.

Thank you for your continued interest, support and commitment.

In 1829 Stephenson’s Rocket was cutting-edge but became not-fit-for-purpose due to changing market conditions & requirements, technological innovation and business demands – the world moved-on.

Engineering Construction Business

According to the US Heavy Construction index, as reported by Yahoo! Finance, contractors’ average profits in 2018 were 1.8%. This year, the same index is tracking a $400 million collective industry profit on $94 billion in revenue which is equal to 0.5% profit! What does 2020 hold? The supply chain is not doing much better, if at all.

Those that are doing better than the average should be grateful, but nobody can afford complacency – the contracting business environment is far too fragile. Contrast this with the owners’ experience of uncertain and delayed completion and start-up, substantial cost overruns and challenges in bringing industrial facilities up to and maintaining their full specified operational performance. Whichever way one looks at it the industry does not paint a pretty picture and is not attractive for existing and potential investors.

The Case For Radical Change

While many in the industry are not sitting idly by and hoping for better times to come but are considering and taking measures to improve their lot, the fact is that without radical change the engineering construction industry is not sustainable in the medium term. It is not a matter of tampering with the current models to get slightly better results, because even if these are achieved the ‘success’ will be short-lived. Most of the potential cost and schedule reductions have already been taken out of the traditional-model supply chain.

30-Year-Old-System Not Fit-For-Purpose

The concepts for project delivery and contracting methodologies that have served the industry for the last 30 years or more are no longer fit-for-purpose in today’s world. The notion that obligation and risk can be passed down to the lowest bidders in a supply chain of twelve or more levels and expect effective, efficient and economic performance back up the supply chain is misguided. The amazing thing is that this is nothing new – John Ruskin in mid-19th century England said of doing business “…if you pay too much for something you lose a little money, that is all, but if you pay too little for something then you run the risk of not achieving the thing you wanted…”. How often do owners not get the things that they wanted? … and why is this?

Recent “Successes”

Recent reports of some owner project successes in terms of delivery times and costs may suggest a turning-of-the-corner but when one digs a little deeper into the reported “successful deliveries”, these are not all that they are made out to be. And we must consider that those projects were delivered at a time of low project investment and a high level of resource underutilisation with the result that they attracted a lot of experienced attention. It is not too surprising that they went tolerably well.

Radical Change – What Does It mean?

So what does radical change look like? Stephen Mulva (Director, Construction Industry Institute (CII), University of Texas, Austin, TX) illustrates this well in his presentational slide OS2 Business Model (vs. OS1):

The triangle illustrates ‘OS1’ – ie., Operating System 1 which is the 30-year-old model, and contrasts this with ‘OS2’ which is currently being researched and developed under the auspices of Stephen and the CII. The striking thing is that the inefficiencies of the transactional arrangement in the multi-layered supply chain account for more than 40% of project development costs. The component parts of that 40% are illustrated in another of Stephen’s presentational slides;

It is to be noted that the sum of the figures listed amounts to more than 40%. This is because the CII researchers applied a formula to accurately reflect the overall effect of the individual items listed to arrive at the 41.43%.

But there is another benefit from removing this waste – shortening schedules. This means owners get the products from their new plants to market far quicker.

Tampering With The Old System Will Not Reduce The Costs or Schedule

The fact is that no amount of tampering with OS1 will reduce significantly the transactional costs because they are an intrinsic part of the 30-year-old system. Hence, the system must go and be replaced by something far more efficient – OS2. This will operate on an Open Sourced, Cloud Enabled Thin Platform specifically developed for this industry – currently there is not one. For more information on this follow the link to https://www.constructioninstitute.org.

What Evidence Is There That Such An Approach Works?

Stephenson probably had many nay-sayers when he developed the Rocket – this new-fangled technology will not catch-on – it won’t replace horses! How often has this been said in other contexts – telephone, airplanes, the “wheel”? But Stephenson’s cutting-edge technology in 1829 was soon overtaken by “events” and became not-fit-for-purpose.

Firstly, like it or not, we are living in the age of technology and have been for some while. If like me you are of a certain age, today’s rapidly evolving technology is a challenge! However, the issue is the present and the future, not the past. The industry is already embracing technological advancements cloud-based computing, BIM, digitalisation, artificial intelligence, drones, off-site factory fabrication etc. OS2 utilises these and goes much further.

But other industries are far more advanced in this area than engineering construction – shipbuilding, automotive and aerospace are but three examples. Engineering construction is a relative newcomer to technological advancements – why? Again, Stephen Mulva in a presentational slide illustrates Boeing’s approach to the 787 (Dreamliner) development:

It worked – the plane has been operational for some time and is the best thing in the air from an ordinary passenger perspective. Boeing set the tempo that others will have to follow. But think of what Boeing achieved in terms of engineering construction – 40% reduction in development costs and 33% reduction in schedule – and that is fact not myth! I know what will be said – manufacturing in a factory is quite different from construction work on site. Absolutely correct! but isn’t that why the construction industry is turning to maximise off-site factory fabrication and site installation – rather than on-site stick-built construction?

European Construction Institute (ECI)

As ECI Chair I am passionate about fundamental change to improve engineering construction, not just from the commercial business results and sustainability perspective for owners, contractors and the supply chain but also as an attractive career for the next generation of well-educated women and men – it is high time the industry is available to 100% of the population instead of 50%!

The ECI is committed to supporting the CII OS2 initiative. As part of this our focus is on productivity improvement across all construction sectors by working with and learning from organisations engaged in construction sectors in addition to engineering construction. Follow this link to see our approach http://eci-online.org/news/output-from-eci-member-forum-3-april-2019/

What can you contribute to and / or learn from this debate? Why not join in a see what prosperity in engineering construction in the 21st Century might look like. To learn more about ECI and its activities contact us via http://eci-online.org/.

John Fotherby – Chair, European Construction Institute
Chairman, Kingsfield Consulting International

Thanks to those of you who were able to join us on 3^rd April for our Spring Members Forum.  Please find the event report and links to presentations here. Please let us know if you have any questions or queries.

There are some immediate opportunities for you and your teams to engage in the following activities:

• Nuclear conference: Moving on from the productivity challenge to disruptive technologies, 2nd May, London
• Safety Critical Issues in Mega-Structures, 17th May, London
• CE Member Forum : Offsite Manufacturing & Technology Showcase, 4th June, London
• G4C Annual Conference, Generation4Tech- Better, Faster Stronger – 18th June, Leeds

We look forward to actively working with all of you to advance this agenda.  Don’t hesitate to get in touch to share your ideas for how we can work together on this.

The seventh annual Engineering Construction Industry Training and Development Awards which took place on 11 October at the Bloomsbury London,celebrated the achievements and successes of individuals, companies and training providers across the engineering construction industry.

ECI was pleased to sponsor the Large Employer of the Year Award.

You can find a list of the winners here