Are we paid to be inefficient?

The construction industry needs to work on becoming more efficient in order to improve existing workflow and increase its bottom line. Or at least so I thought...

Recently, I sat in a meeting with a client and found myself gob smacked.

“Yes, this tool saves us a huge amount of time on site, but as we are on a cost plus contract, if I spend less, I make less profit.”

It took me a moment to truly understand what I had just heard… “We don’t want you to make us more efficient and save us money on this project… because the more we spend, the more profit we make”. Well… I couldn’t very well argue with that.

I’m pleased to say that we are still working with this client, however we are building the business case from a different angle. But it got me thinking… are our developers and infrastructure clients (in reality the tax payer as most of these are government funded projects) aware that they are actually incentivising people to be inefficient?

All of a sudden the headlines “Construction is the only industry that has shown a DECREASE in productivity over the past 20 years” don’t seem quite so surprising. We (as an industry) have literally been PAID to be inefficient.

I guess this is the point at which I should caveat this article by saying that, not every project is on a ‘cost plus’ contract, and that the continued struggles experienced by the construction industry are not solely down to poor procurement practices. But the more time I spend in this space, the influence that procurement has on constructions ability to move forward, seems only to grow in significance.

Where innovation requires a change in behavior, or the elimination of a role, much of the industry is still deeply resistant. We can comfort ourselves by saying “these people are not early adopters” and “they will come around when the pioneers lead the way”. True as this may be, it does highlight more of a systemic problem within the industry that cannot simply be overcome by pioneering contractors or designers. It requires a complete re-think of the relationship between developers or asset owners, and the engineers charged with delivering their vision. It requires the careful consideration of shared risk and cost, in order to drive improvements in the industry.

The mentality that “Yes, we’d love the industry to innovate and be more productive… but not on my project, we can afford to do things differently, we can take the risk” has to change.

By the looks of it, this change has to come from a higher level; the lawyers. A report from 2007 discusses the value and benefits of paying for performance in construction contracts. Perhaps this is a more productive approach to change the mentality towards project efficiency. If the upside and downside of productivity is built in to the contract, construction companies will have more incentive to focus on project efficiency. And for further motivation, consider this. A McKinsey report states that if the global construction sector caught up with the world economy’s productivity, it would add additional output valued at $1.6 trillion, which is approximately the equivalent of half of the world’s infrastructure needs.

I therefore challenge to both contractors and developers alike. When setting up these contracts, consider what unintended consequences you are endorsing, and how might these be overcome? Are you incentivising inefficiency? Are you putting up barriers to innovation and controlled risk taking?

There are so many great engineers and innovators, both inside and outside of your organisations that are desperate for change, and willing to go above and beyond to help you achieve it, you simply need to open the door.

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