Fixing the Construction Industry

A new way of looking at an old problem.

Thursday, January 21, 2010

A Day In The Life
• Margin Erosion
• Conﬂict & Litigation
• Talent Loss
• Commodity Perception
• Low Bid Procurement
• Third Parties
• Risk & Liability
• Challenge of Selling Value-Add
• Increasing Costs
• Experience is not Valued


Perception Can Be Reality
• Contractor: A gambler who never gets to shufﬂe, cut or deal
• Bid Opening: A poker game in which the losing hand wins
• Bid: A wild guess carried out to two decimal places
• Low Bidder: A contractor who is wondering what he left out
• Project Manager: The conductor of an orchestra in which every musician is in
a different union
• Critical Path Method: A management technique for losing your shirt under
perfect control
• Completion Date: The point at which liquidated damages begin
• Liquidated Damages: A penalty for failing to achieve the impossible
• Auditor: A person who goes in after the war is lost and bayonets the wounded
• Lawyer: A person who goes in after the auditors to strip the bodies

The S-Curve and Architecture’s Mono-culture
“Unfortunately…many of the services
and project delivery technologies – as
well as the prevailing economic business
model – used by architecture and
engineering matured long ago. Firms
cling to their tried-and-true methods
with the mistaken belief that somehow
things will turn around…”

“The lack of business model diversity
among architectural and engineering
ﬁrms has left the entire population at
risk.”

Kyle Davy, Value Redesigned


Client’s No Longer Trust
• Current Message:
• Pay more now for long-term beneﬁt
• Current Triadic Trade Off:
• Price, Quality or Schedule (Pick 2)
• Current Context:
• We don’t trust you
• Opportunity:
• Pay less now, get higher quality AND
long-term beneﬁt through Integration


Who we are so far…


What mindshift is…
A thought leadership group of multi-disciplined individuals related to the construction
industry.

Formed in 2007 Mindshift is dedicated to evidence based development of:
•new delivery models and philosophies for the built environment
•elimination of waste
•holistic business case drivers
•highest performance through trust based teams, early collaboration, integrated
design and delivery and shared risk/reward incentives


What we have learned…

• THE CURRENT SYSTEM CREATES BUILT-IN WASTE THAT GENERATE UNNECESSARY FRICTION,
DYSFUNCTION AND COST

• THERE IS A TREMENDOUS WILL AND ABILITY AMONG STAKEHOLDERS TO CREATE BETTER RESULTS

• THE KEY? INDIVIDUALS, ORGANIZATIONS, PROFESSIONS AND THE INDUSTRY AT LARGE ACCEPTING
THE HARD FACTS. THEN CHANGING BEHAVIORS, RELATIONSHIPS AND PROCESSES IN ORDER TO
DRIVE NEW RESULTS

• THOSE WHO HAVE EMBRACED THESE FACTS AND MADE THE SIGNIFICANT CHANGES ARE REALIZING
SUPERIOR RESULTS

• OWNERS, CUSTOMERS AND END-USERS WANT MORE THAN THEY ARE USED TO RECEIVING

• WE NEED TO ENGAGE OWNERS WHO ARE THE ULTIMATE DRIVER FOR CHANGE


More Evidence for Fundamental Change


Acknowledging the Elephant in the Room
Project DNA:
•Complex
•Require trust
•Relational
•Need tight coordination
•Fluid
•Interactive
•A system
•A Discovery Process


Artificial Project Structure

•Fragmented
•Silo’d
•Linear/Sequential
•Hierarchical Owner

•Adversarial
•Scope Based
•Anticipates Litigation
•Low Price / Bid


The Bid Game vs. Project Success Factors
•The bid ≠ the business case
•Negative correlation between low
bid and ﬁnal cost
•Dilution of commitment
•Winner’s curse
•Bidding is not apples-to-apples
•Cost of bidding gets recouped
•Fallacy of value engineering
•What does the bidder actually win?


The Bid Winning Game vs. The Building Game
Examples
• Campaigning vs. Governing

• Romance vs. Marriage

Two Structures - Two Outcomes
• Limited information

• Low price bias

• Game the system

• Win to reprice


A Tale of Two Teams

2004 2008


Phased Ignorance

•80% of the Knowledge
•80% of the Cost
•All Key Decisions Made
•Cost of Change is High

“All of the big mistakes are made on the first day.”
Big BIM little bim

Leaks Happen at the Intersection of Contracts


Has it Sunk In?
Abstractions or Emotionally Felt

• $500 billion annual WASTE
(buildingSmartAlliance)

• 50%+ Waste in the System
(buildingSmartAlliance and Lean Construction Institute)

• 70% Over Budget and Late
(Egan report)

• 48% of Green House Gases
(Energy Info Admin Statistics and Pew Climate report)


Have We Connected the Dots?
• Labor = 50% @ 30% efﬁciency = 35% waste

• Materials = 40% @ 70% efﬁciency = 12% waste

• QTO = 10% of the cost

• Bidding = 5% of the cost of a project

• Change orders = 10% of the cost

• Fluff factor built into pricing?

• 3-7% is lost in project cost reduction by not
maximizing Construction Tax Planning


How Do We Find a New Value Proposition?
• Removing Waste
• Client Deﬁned Value
• Upstream Strategies
• New Knowledge
• New Numbers
• New Narrative
• Trust
• Early Collaboration
• Integration

Nine Keys (4 Principles, 4 Tools,1 Hidden Opportunity)
• Trust-based turnkey teams
• Early collaboration
• Built-in sustainability (quality)
• Transformational leadership
• Big BIM (Building Information Modeling)
• Integrated Project Delivery
• Shared risk/Shared reward
• Leverage Offsite Fabrication
• Improve Workplace Performance!


The ROI of Trust
• LogicaCMG study of 1200 contracts: 20% to
40% difference on service, quality & cost

• Profitable Partnering for Lean Construction:
strategic partnering delivers up to 30% in
cost savings of construction

• Speed of Trust: distrust creates a 50% tax
on work

• Edelman Trust Barometer: 20% higher ROI
over a 10 year period

• Warren Buffet: Handshake deal for McLean

Trust: From Deficit to Dividend
Trust Tax -80% -60% -40% -20%
Environment Hated Toxic Stressful Worry
Focus Conflict Escalation Pre-emption Process
Relationships Anger Hostile Disrespect Indifferent
Process Open defeat Sabotage Hidden agendas Chain of command
Behavior Punish Micromanage CYA Do my job
Outcomes Grievance or Law-suit Gotcha Politics Slow
Systems Disintegrated Dysfunctional Distracting Hassle
Ethics Your ruin Your harm Self-interest Compliance

Trust Dividends Neutral 20% 40%
Environment No worries Positive Uplifting
Focus Scope Outcome Mutual success
Relationships Cordial Cooperative Collaborative
Process Task at hand Keeping promises Making it easier for others
Behavior Respect Partnering Transparency
Outcomes Efficient Learn from mistakes Improve
Systems Does not get in the way Supportive Adaptive
Ethics What is expected What is right What is good


REAL Results
Early Adopter

Aardex - Signature Center
Golden, Colorado

LEED Platinum

$3/sqft less than conventional
21% lease premium
- 45%

Tenants reported increased productivity


REAL Results
Brand Promise

Guaranteed Price
Guaranteed Move-in Date
No Change Orders
2-Year Warranty
1 Page Contract


Emerging Tools & Practices
• Building Information Modeling (BIM) - The Technology
• Integrated Project Delivery (IPD) - The Team Structure
• Lean Construction - The Process
• Shared Risk/Reward Incentives - Financial Alignment


Financial Alignment: Outcome Based Incentives


REAL Results
Fed Up

10% under budget
$1 million a bed
6 months early
$1000 per square foot
6 change orders for MEP


Value Propositions
Examples of client based criteria

Freemium - free BIM work for gain sharing
Free green retrofit for performance compensation
Cutting original move-in timeline by 70%, with guarantee = big bonus
Achieve under 5 year payback for high performing green retrofits
Equity stake as part of the compensation
Tie design model through to CAFM and create new role as BIM integrator
Partner with steel fabricator to design a pre-fab rebar frame for shotcreet
walls. Cuts 16 weeks and $750k in general conditions


Paradigm Obstacles
Yes but...

Who owns the drawings?
This is outside our scope as an architect
What if someone on the team sandbags?
How do we recover our higher cost using BIM?
Creating high performing sustainable buildings requires an up front premium
Collaboration dilutes our role and position as an architect
Sharing risk means the architect will get screwed
Our goal is to shed risk not take on more


Change: Outside the Comfort Zone
Off Road Innovation

Comfort Zone

Learning Zone

Adventure Zone

Panic Zone

Transformation


Call To Action
•Educate ourselves and owners about the impacts of
the current system (i.e. sustainability)
•Collect new stories
•Free ourselves from the constraints of the current
system and focus on outcomes
•Develop new value propositions (look upstream)
•Find early adopters and “fed-ups” to create POC
projects
•Build social capacities along with technical skills
•Build alliance networks for integration
•Prepare for the culture shift and brain rewiring (be
the change we want to see - Ghandi)

rex@rexmiller.net
214-498-3055
•Off Road Leadership Skills
•Designing New Value Propositions
•Market Repositioning
•Creating Integrated Alliances
•Business Development
•Educating Owners
•Change Management
•Training
•Speaking


Fixing the Construction Industry

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