a new era in construction growth, capacity and innovation” by mike lomas
TRANSCRIPT
A NEW ERA IN CONSTRUCTION GROWTH , CAPACITY AND INNOVATION”
By
Mike Lomas
A WISH LIST?
”The client will champion best practice in design, team working and innovation”
“The client structure and responsibilities will be clearly identified … to ensure continuity in leadership”
“The client will produce a clear brief before design commences”
“Designers will be selected according to ability and quality …” “Procurement decisions will be transparent, made on best value rather than lower cost …”
“All designs will address health and safety issues and all projects will have a risk register …”
”Risks will be clearly identified, financially quantified and allocated in line with each party’s ability to manage risk …”
“All contracts will have an informal and non-confrontational mechanism to manage disputes”
“To ensure effective and equitable cash flow for all those involved, all contracts will incorporate fair payment practices such as 30 days, no unfair holding of retentions etc”
“All members of the construction team will be identified and involved at an early stage, particularly during the design process and encouraged to work collaboratively”
”An overarching Sustainability Development Strategy will be developed”
“Project specific agreements will be established between Unions and Employers”
“All projects will aspire to be injury and accident free”
IS IT A WISH LIST?
NO IT’S FACT
CONSTRUCTION COMMITMENTS FOR THE 2012 OLYMPIC GAMES IN LONDON
STRATEGIC FORUM 2012 TASK GROUP CONSISTING OF 24 MEMBERS FROM GOVERNMENT, CIC, CONSULTING ENGINEERS AND CONTRACTORS SIX KEY AREAS VITAL FOR DELIVERY
CLIENT LEADERSHIP DESIGN QUALITY PROCUREMENT AND INTEGRATION COMMITMENT TO PEOPLE SUSTAINABILITY HEALTH AND SAFETY
“Profits are the reward for successful risk-taking in a modern competitive economy” …. “London Stock Exchange – A Practical Guide to Corporate Governance”
“The target is to achieve a proper balance between risks incurred and potential returns to shareholders”
…. “Malaysian Code on Corporate Governance”
THE GOALTHE GOALTHE GOALTHE GOAL
CONTRACTORS
WORLD
SHAREHOLDERS
MARGINS &
CASH FLOWINCREASING
COSTS
BANKS
COMPLIANCEBEE/SAFETY
SKILLS SH
OR
TAG
ESPR
OD
UC
TIVITY
EMPLOYEES
EXPECTATIONS
DELIVERY
& RISK
CUSTOMER & ENG
EXPECTATIONS
CONSTRUCTION INDUSTRY PRESSURESCONSTRUCTION INDUSTRY PRESSURESCONSTRUCTION INDUSTRY PRESSURESCONSTRUCTION INDUSTRY PRESSURES
SOURCE: M.H. LOMAS
POLITICAL
PRESSURE
CORE VALUES APPETITE FOR RISK MANAGEMENT PHILOSOPHY MARKETS (LOCAL AND INTERNATIONAL) CUSTOMER BASE PRODUCTS AND SERVICES GROWTH ASPIRATIONS FINANCIAL STRENGTH TECHNICAL COMPETENCE HUMAN CAPITAL
THE BUSINESS IN CONTEXT THE BUSINESS IN CONTEXT THE BUSINESS IN CONTEXT THE BUSINESS IN CONTEXT
The Board and Management team need to be clear on the
Organisation’s:
GROWTH OF CONSTRUCTION INDUSTRYGROWTH OF CONSTRUCTION INDUSTRYGROWTH OF CONSTRUCTION INDUSTRYGROWTH OF CONSTRUCTION INDUSTRY
Source: BER, Stellenbosch
Rm
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1981 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 2015
Public Sector
Private Sector
FORECAST
Real Total Contractors Industry Growth
MARKET OUTLOOK – SOUTH AFRICA MARKET OUTLOOK – SOUTH AFRICA MARKET OUTLOOK – SOUTH AFRICA MARKET OUTLOOK – SOUTH AFRICA
Growth momentum set to continue well past 2010
2010 is only a milestone
INFRASTRUCTURE LAGGING ECONOMIC GROWTH
SOURCE SARB
% Points difference GDP/Capital Stock growth
-3
-2
-1
0
1
2
3
4
60 65 70 75 80 85 90 95 20
Perc
enta
ge (%
)
5 year moving average
STOPPED
THE
DECLINE
IT’S AN UNDENIABLE FACT
THAT ALL THINGS BEING EQUAL
THE INDUSTRY WILL ENJOY AT LEAST
10-15 YEARS OF CONTINUED GROWTH
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
RISK AND REWARDRISK AND REWARDRISK AND REWARDRISK AND REWARD
Global E&C Industry Profit Margins
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
EB
ITD
A M
arg
in
Asia
Global
North America
Europe
Global Trend
?
“Global” 1991
Recession
“Global”2001
Recession
5-Year GlobalTrend
E&C Profitability Trends
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
200620052004200320022001200019991998
Ind
ust
ry (
Sam
ple
) EB
IT M
arg
in
US EBIT Margin
Europe EBIT Margin
Asia EBIT Margin
Global EBIT Margin
Adjustments for KBR, Colas, Ferrovial, Bouygues, Vinci, and Formento de Construcciones
Industry reacts to risk implementation procedures
Margins rapidly increasing from
2002-2003
Reaching 4-6.5% by 2006
SOURCE: ENGINEERING AND CONSTRUCTION RISK INSTITUTE
CONTRACTORS REVIVAL - MARGINSCONTRACTORS REVIVAL - MARGINSCONTRACTORS REVIVAL - MARGINSCONTRACTORS REVIVAL - MARGINS
Source: South African Federation of Civil Engineering Contractors (SAFCEC)
Civil Engineering Turnover (2000=100), Inflation (%), Margin (%)
5
7
9
11
13
15
17
19
21
23
25
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 ’02 ’04 2006
Billions
0
2
4
6
8
10
12
14
16
18
20
22
7.1%6.5%
5.2%
20%
17%
%
Civil Engineering Turnover
MarginInflation
HISTORIC MARGINS IN SA CONSTRUCTION HISTORIC MARGINS IN SA CONSTRUCTION HISTORIC MARGINS IN SA CONSTRUCTION HISTORIC MARGINS IN SA CONSTRUCTION
HANDOVER OF
RISK
FROM CONCEPT TO COMPLETIONFROM CONCEPT TO COMPLETIONFROM CONCEPT TO COMPLETIONFROM CONCEPT TO COMPLETION
OWNERS RISK PROCESS??
CONTRACTORS RISK PROCESS?
CONCEPT DESIGN & ENGINEERING
TENDER
HANDOVER
FINANCIAL FEASIBILITY
AWARD CONSTRUCTION COMMISSION
THREE FUNDAMENTAL QUESTIONS FOR THE OWNER (Given competition for funds and skills for every project)
Can the development be physically engineered and constructed Does the technology exist to engineer and construct the development project to meet the
purpose intended? Does the expected benefit of the development project justify the cost of
engineering, constructing and operating the project? MIKE LOMAS
Key Risk Issues in effective infrastructure project structuring
Low Risk High Risk
Payment
Design Development
Schedule
Status of Partner
Low Bidding
Client Management
Portfolio Risk
Project Development
Growth & Expansion
Risk vs. Reward
Contract Models
Qualified Resources - skills
Risk Management Process
Change Management
Source: ECRI
STRATEGYSTRATEGYANDAND
INNOVATIONINNOVATION
STRATEGYSTRATEGYANDAND
INNOVATIONINNOVATION
The themes of construction strategies of nine countries around the world
AustraliaCanada Finland France Germany Ireland Singapore Sweden UK USA
Globalisation√ √ √
Innovation/R&D√ √ √ √ √ √
Exports/Competitiveness
√ √ √ √ √
Construction &ProductionProcesses
√ √ √ √
Integration – Processes & People
√ √ √
IT
√ √ √ √ √ √
Repair & maintenance –existing stock
√ √ √
Procurement &Project delivery
√
Service Provider
√ √
People/workplace/culture
√ √ √ √ √ √
New Technologies
√ √ √ √ √ √
Environment/whole life/sustainability
√ √ √ √ √ √
Urban/CityDevelopment
√ √
Governance – Codes & Standards
√ √
End-userDemands
√ √
Recent International Study by Co-operative Research Centre (CRC) “wish list” fromClients/Engineers/Contractors
In top five – to drive “innovation”
Improved management of design and construction Avoidance of adversarial relationships Fairer distribution of Project Risk
Involve Contractors earlier in the process
Similarities with: 2012 construction commitments Risk management
CRC STUDYCRC STUDYCRC STUDYCRC STUDY
OBEDIENCE
DILIGENCE
INTELLECT
INITIATIVE
CREATIVITY
PASSION
HUMAN RESOURCE CHALLENGE HUMAN RESOURCE CHALLENGE
“How do you get people to want to add more day by
day?”…
NEW HIERARCHYNEW HIERARCHY
Innovation needs the top three of the triangle
MIKE LOMAS
Cannotforce these
Policies&Procedures
Implementation of Best Practice – Implement the best
Off Site Manufacture – better quality control, SHE, environmental benefits
New production processes – organisation and management of site activities and supply chain
Virtual Prototyping for Design and Manufacture – “Try before you buy”
Environmentally sustainable construction – Next 10-15 years looking at eco-efficiency evaluations tools for stages of construction Preferred Employers
Currently Construction Industry lags other Industries on Innovation
INNOVATIONINNOVATIONINNOVATIONINNOVATION
RSA market set for 10-15 years strong construction growth
Must learn from International Risk Management lessons – cost of failure getting higher Beware overtrading, could be casualties The question is “Should RSA have an overarching Construction Industry Vision/Strategy – RSA 2015??”
If so, what would it encompass? – From “transformation to innovation”
SAICE/ICE
CONCLUSIONCONCLUSIONCONCLUSIONCONCLUSION
THANK YOU AND QUESTIONS THANK YOU AND QUESTIONS THANK YOU AND QUESTIONS THANK YOU AND QUESTIONS