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An Industry Study on Overruns, Delays & Disputes


I have spent most of my entire career working in the Construction Industry, but I am not an actual builder. I was what you call a “Construction Consultant”. Prior to forming my tech company, my career was spent helping various stakeholders involved in Construction to help minimize cost overruns due to delays, inefficiencies, and resultant disputes on projects all over the world.

When I started my career in Consulting, it didn’t take me very long to realize that the Commercial Construction Industry has a number of problems related to budget and schedule control. That’s really why I had a job; because so many projects finish late and/or over budget in Construction and they needed a specialist to understand all the issues that led (or were leading) to that. The statistics are so bad, and currently there is more work than the construction consulting industry can even handle. As a result of my experience, I have questioned the entire construction management process. How can an industry as old as mankind be so inefficient?

As an Industrial Engineer, trying to figure out why these problems keep happening and finding a solution these problems seemed like A LOT more fun to me than wading through a bunch of old construction project correspondence to prepare another “forensic” analysis of delay and a claim to go along with it. As a result, I shifted my career focus to working towards solving this problem as opposed to benefiting financially from its existence.

My belief was that it could be solved by technology, but I wasn’t sure what kind of technology. I had some ideas, but these ideas were based mostly on my own experience. I needed to study the problem in its entirety to really understand it. I believed that the smartest route to accomplishing this would be through the minds of industry veterans who had vantage points from the entire construction industry – not just my viewpoint. So, over time I met with and interviewed thousands of industry folk from all levels. I met with General Foreman, Tradesmen, Superintendents, Project Managers as well as Project Controllers, Schedulers, Accountants, CEO’s, CFO’s, COO’s of companies of all types and sizes both on the construction side and the owner side. I even met with Architects, Engineers, Consultants and Lawyers to get their thoughts as well.

What did I find out? Well, a lot. The most important bit of information that I found is that the construction industry wasn’t always like this. This confirmed that there is in fact a problem, it has developed over time and that it is probably reversible. From what I found, the shift in the industry came sometimes in the early 1980’s. This was roughly the point in time where the industry went from having very few disputes, to having significantly more. According to many sources, prior to the 1980’s, Owners hired General Contractors who self-performed a large percentage of the work and did so very efficiently and effectively. Projects were generally completed on time, on budget and litigation was rare. There was no scheduling software, yet project teams were able to schedule very effectively. Resource management wasn’t an issue like it is today either. Contracts were relatively simple and Owners and Contractors worked well together.

This was all very surprising to me. First off, it was very interesting to me that people may have “scheduled” better before they had scheduling software. This perplexed me because I know that CPM scheduling systems, if managed properly, can be very effective in Construction. In addition, it was interesting to me that resource management and coordination wasn’t a big problem 40 years ago – whereas I found resource management to be a major pain point these days by most GC’s and Owners. Finally, I thought it was very interesting that litigation didn’t occur much back then, whereas today it seems like disagreements about money and damages are fairly typical.

So, what all changed? Probably many things, but my research led me to believe the following were the leading causes of the industries decline:

  1. The schedule development process changed from a collaborative process where several project team members sat together in a room to hash out a legitimate schedule in a simple format that everyone understood. This changed to a more disjointed process where subcontractors submit electronic schedules to a “project scheduler” who sat in an office with or without a PM building a “Master Schedule”. Outputs went from a schedule on one or two giant sheets hanging on a wall that were tracked against constantly, to schedules that are printed out on multiple pages stapled together and handed out on a regular basis. As I understand it, the quality of schedules has suffered and the ability to comprehend schedule has suffered as well.
  2. In my opinion, a much more impactful industry change is the shift in resource management. This being when GC’s went from self-performing most of the work to hiring specialty trade contractors to perform the work. Historically, GC’s managed all aspects of Construction, which placed financial risk on the GC for both project management and labor overruns. This kept them on their toes. I believe that this little change has affected everything and is a driver to the challenges the industry faces in coordination and scheduling. It seems that GC’s chose this route to transfer the risk of direct labor overruns off of them. However, the complexity of managing the schedule of multiple separate “businesses” on the labor side is significantly more difficult than managing all laborers under one roof. This is primarily due to the fact that each subcontractor is focused on its own profitability as oppose to the profitability of the group.
  3. The fear of constant litigation has resulted in a lack of transparency of information, and the combination of all these issues has sent the industry into a decline. These days Contractors are very guarded with what data gets transferred, which has limited one of constructions most important drivers of success – collaboration. This has resulted in the further decline of the effectiveness of the scheduling process. These days, Contractors fear litigation and loss so much, that they refuse to show (and/or accept) any delays. This is achieved in the continuous and haphazard modifications of logic, duration's, etc. of activities from one update to the next. These changes are done to keep the end date “on time” while the schedule slowly becomes infeasible. This puts everyone at risk because it is very hard to identify the real issues that impact schedule and budget, when the schedule is broken - often resulting in the parties being at odds.

So, how might you fix these problems? There is clearly a scheduling issue and we have to assume that subcontractors are here to stay. In my opinion, what it all boils down to is better data management & analytics. Stakeholders need to keep their finger on the pulse of the project, and they don’t do this very effectively these days. That is a significant piece that was lost in the industry’s metamorphosis, as GC’s no longer feel compelled to manage things like manpower and productivity because they don’t feel that pain very much anymore. Back when GC’s managed everything under one roof, they had access to all of the data and it made all the difference in management of trade flow. To be quite honest, this is exactly how consultants solve these problems – with data analytics but this isn’t scalable to the industry, nor is it cost effective (that’s why we only get hired in extremely costly situations).

So, what’s the better way to solve this problem: industry wide education or technology driven systematization of a solution? Or both? I honestly believe trying to educate the entire industry without technology to assist will not work very effectively, so I tend to lean towards the “systemization” route which I believe can be accomplished in one of two ways:

  • Giving the GC’s a system that helps them manage and understand data better (through automated data analytics);
  • Giving Owners a system to make sure that GC’s are managing schedule and resources effectively (through automated data analytics).

I honestly believe that it’s up the Owners to drive this change. They own the contract and write the checks. I have also determined that the problem is far more painful to the Owners than the GC’s, so that is reason enough for the Owners to take this bull by the horns. I wholeheartedly believe that if Owners can “see” as much as the contractor can "see" as it relates to true progress and performance, this problem goes away because it will force accountability to both parties.

The reality is that is very hard for Owners to do this on their own, because A) Owners lack the capabilities of a “construction data analyst” and B) Owners are also not given much data these days. But, I know from my personal experience that the data they are given is enough. It’s just very time-consuming to go through that data effectively and requires an expert analyst. So, Technological Systemization and Automation will solve this problem.

And so, we have developed data management technology for both contractors and owner’s which have proven to have resulted in less loss for both party’s.

Author: SmartPMTech

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