Paying for innovation
On September 15, 2020 by Brad Watson, EY
Pushing new solutions on future projects requires both clients and contractors to have a healthy appetite for technology
Dubai is a place that is big on world records and ‘first of a kind’.
Islands in the sea shaped like a palm tree, flying taxis, hyperloop technology, autonomous vehicles – Dubai has a track record of pushing boundaries for the art of the possible.
Given this appetite for biggest, tallest and best, particularly in the field of construction, it is perhaps no surprise that as I look out of my office window, I can see the world’s first entirely 3D printed building. In Dubai, the future is now.
Construction methods have not changed a great deal in decades. But as we are seeing in other industries, not even construction’s traditionalists are immune to the forces of digital disruption. Innovation is impending (and in some cases, it is already here), but in an industry where margins are so tight, are contractors ready for it? Moreover, who should pay for the cost of disruption?
Leading the way
It can be reasonably argued that contractors should lead the way when it comes to new technology – incorporating innovative solutions during the bid process when pricing a project and then delivering on these good ideas throughout construction.
However, ‘first of its kind’ innovation often comes with a development cost or heightened risk that adds to the price. But, without any additional incentives, the price-driven, thin-margin nature of the industry ultimately discourages innovative thinking.
Irrespective of market dynamics, failing to invest in solutions that could boost productivity is ultimately counter-productive. For example, the World Economic Forum estimates that arise in productivity of just 1 percent could result in savings of $100bn a year for the construction industry.
Owners also have a role to play in fostering innovation in the sector. Projects are constructed for the benefit of users, whether end consumers for commercial assets or the general public for government assets.
Owners need to look ahead and anticipate the needs of their users in the future – which should create an incentive to break this cycle of innovation stasis.
‘Low bid’ is not always the best model. Far better to pay now and save later where possible, rather than lag behind the regulatory change or the fickle needs of an increasingly agile customer.
While this is easier said than done, our 3D printing example shows that the technology is there and can be used to create savings by compressing the supply chain.
More than just a trophy structure down the street from my office, Dubai has set a target that 25 percent of buildings will be 3D printed by 2030.
The city of Eindhoven in the Nether- lands has opened the world’s first 3D printing factory for houses. Innovations in modular construction are creating significant efficiencies – in China, a construction company that builds offsite and then ships to the end destination recently built a 57-story modular building in just 19 days.
These are prime examples of how easy it can be to get left behind in the construction sector. But, the conflict of thin margins and the time it takes for innovation to be proven remains real. It will take bold investors to test the waters. Or forward-thinking owners who value this innovation. Or both.
It is here that the government can help. Policies such as Dubai’s goal for 3D printing are examples of how the government can encourage change.
While the government is rightly cautious in its spending, it can and should be willing to pay a little bit extra to further their policy objectives for construction – be it improved user experience, environmental sustainability, or simply longer-term efficiency.
Data from these projects should be collected, collated, and published where possible, to demonstrate how these innovations add value and drive the sector forward.
This will make it easier for others to learn and adopt similar methods.
How can this be done?
At EY, we have found that some of our public sector clients are now allowing proposals that include a ‘plus’ option, which goes beyond the standard specification of the bid and offers innovative (and usually more expensive) add-ons.
Governments can then take a view as to whether they want these extras, and balance the outcomes against the costs, collecting data to demonstrate their ultimate worth that can then be shared.
They can also drive change through regulation or targets that will encourage or attract the sort of contractors with a desire to innovate and encourage owners to take the necessary leaps to these new platforms.
Dubai’s 3D printing strategy is a great example, where the expectation is to reduce labour, materials, transport, time, carbon footprint, and costs.
Better client-contractor relationships can also provide industry-wide benefits. If the responsibility of innovation was shared and agreed up-front, it would ensure fair distribution of risk, thus increasing the appetite for innovation.
This could include contracts that dictate risk and cost-sharing for innovation on a project, thus improving trust on both sides that leads to bolder decisions and better outcomes for the consumer.
Finally, governments can encourage research and development (R&D) on such solutions, making them cheaper and easier to deploy.
Governments can either invest in R&D themselves or, alternatively, provide tax breaks to those that do, as the British government attempted in its Construction Sector Deal in 2018.
Construction is one of the last industries to be truly disrupted by technology, but that wait cannot last forever. Contractors will have to invest and owners must be willing to pay for these innovations.
And as always, the government can play a role – both as a matter of policy, as well as an asset owner.
Innovation will soon be mandatory, not a luxury. Business, as usual, will leave industry players behind – they will end up as houses built on sand. If they don’t embrace disruption, when the rains come and the winds blow, they will fall.
The full report can be downloaded below.
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Though the construction industry is filled with problem solvers and professionals who are committed to finding innovative solutions, the sector lags behind almost every other industry when it comes to embracing change and adopting the latest technology solutions. This report delves into how we can bring about that change from future proofing, planning ahead, teaming up, sharing expertise, data-led intel and funding projects.