Worldwide events over the past three years have exposed serious deficiencies in the Australian construction industry. Builders and Contractors are failing in alarming numbers, with one or more reported every week. Construction now represents around one third of all insolvencies in Australia. Everyone suffers - staff, subcontractors, suppliers and especially clients, from home owners to governments.
The losses incurred can not be recovered. They reduce individual, corporate and government capacity.
Change is not synonymous with progress
Whilst the sector’s capability has been exposed by events, it is not some sudden change, and hardly a surprise to many insiders. It is the result of a fifty year cultural shift, from a rules-based, orderly, cooperative, transparent system to a chaotic, isolating, aggressive, silo’d system for managing construction contracts. The yardstick of success became personal or corporate gain before collective success.
The change was driven, or at least supported, by contracts that focus on risk minimisation, where risk is sold down the contractual chain with no regard for whether the person required to bear the risk has any capacity to carry the risk they have assumed. These contracts are not founded in the reality of allocating risk and reward, whilst enabling the construction process. In fact, they inhibit orderly process, and, in many cases are practically impossible to comply within the pressure-cooker environment of a construction project. Because the industry is extremely price-competitive, from top to bottom, there is little ability to include adequate risk premiums, or even engage sufficient qualified resources to manage risks that may be manageable.
The first step on this long journey will be to understand the complexity of data transactions, map the inhibitors, and develop process and contract to release innovation and productivity.
Construction is one of the most distributed, cooperative processes in the nation. But contract management is entirely defensive, building and manning walls between the participants, instead of building systems and processes to manage and facilitate the process, that is, in the end, the only function of a coordinating contractor.
The quality of management is at a very low ebb. There is little understanding or implementation of modern cost management techniques, earned value, programming and reporting. The need for quality management and upskilling will become even more urgent with the tightening Payment Trust Legislation in Queensland that will prevent builders funding cashflow from the "Bank of Subcontractors", and subcontractors from claiming payment without proving their entitlement.
Contractors and major subcontractors resist systems and technologies that are designed to facilitate communication and management if there is any indication that another party (especially lower in the contractual chain) might be enabled; even though they can be proven to generate significant productivity gains through the entire supply network.
This change overwhelmed existing systems through aggressive lobbying at the highest levels. The opaque system that developed allowed for the emergence of corrupt tendering and management behaviours that have become accepted as “the way business is done”.
There is little trust between stakeholders. Paraphrasing Dr Martin Barnes PhD, CBE, father of modern project management, "When contractors and subcontractors have to focus on getting paid they stop focusing on the job".
We know that there is no algorithm for predicting the effect of cultural change (J. Bronowski, “A Sense of the Future”). We just have to wait to find out. Change is not necessarily synonymous with progress. Anyone who has wondered at the ruins of Rome, Athens, Istanbul or the Easter Islands would know that sometimes change can lead to a dead end, or at least a fork in the road.
Most industry leaders now recognise that the system, as it developed, is unproductive, under skilled and under resourced, stuck in a deep ravine, and change is in the wind.
However, change must be driven by all stakeholders - governments, clients, contractors, architects, engineers, quantity surveyors, subcontractors and suppliers. The key to success will be the ability to knit all these skills into a cooperative, modern process model. Success will not be achieved by continuing with single self-interested parties taking control of the entire process.
Transformation, that everyone is seeking, will require new ways of thinking. The relatively new techniques for visualising complex data, pioneered by Manuel Lima help to disclose and understand the complexity of data transactions in a construction project. These insights will help us find faster and more efficient ways to manage transactions in an ever-accelerating contractual environment.
An analysis of almost any current contractual process in use today will demonstrate that it is inefficient and ineffective, and that small changes, combined with existing and emerging technologies will deliver impressive returns to the entire construction network.
Significant technologies are already available, or readily developed on the back of existing and emerging technologies, to facilitate processes and leverage productivity. However, new processes, backed by innovative forms of contract will be essential to release pent-up potential.
There is an implication that co-ordinating contractors will be required to up-skill to prioritise managing mission-critical processes, as well as contract, and that subcontractors will be required to lift their contract management and technology capability.
Governments, clients and financiers can no longer afford to stand aside from the industry. They must take the lead to begin to turn construction towards a client focussed, rules-based, transparent, cooperative, productive sector.