Why the Construction Industry Needs to Transform

[00:00:00] Gary Fischer, PE: All right, very good. Maybe I could get all our panelists here to turn on their video and audio as well. So, as you just heard from Todd, you know, modern construction brings three things together on a foundation of operation science, and these are the basics that are mastered in any efficient manufacturing industry – autos, electronics, con, consumer products – and this modern construction requires a fresh approach, which really has some big implications, big changes in our industry.

[00:00:28] Gary Fischer, PE: And we tapped a group of panelists today that I’m really excited to have here. And they’re all on different points on this journey to modernize construction, but I think it’s important to understand their perspectives and what they’ve learned along the way.

[00:00:50] Gary Fischer, PE: So let’s get started by first getting to know them a little bit. I’m just going to handle it in alphabetical order. Dick, maybe raise your hand there. Dick is a Vice President of Colliers Project Leaders. He’s a licensed attorney having practiced construction law in Colorado, California, Idaho for the past 45 years.

[00:01:09] Gary Fischer, PE: He’s been around the block even a little bit more than me. He’s internationally recognized as an integrated project delivery and lean leader for his work with the Realignment Group in Canada and in Colliers Project Leaders. Dick was the first executive director of the Lean Construction Institute and has served on many different boards in diverse industries.

[00:01:29] Gary Fischer, PE: So Dick, thank you for your time today. Let’s move on. (My pleasure.) Dave— Let’s move on to Dave Connell. I’ve got two Daves on the panel, so I’m going to have to resort to last names here shortly. So, Mr. Connell, he’s a Project Execution Consultant at Chevron working to modernize Chevron’s project system to encompass operations science, digital systems and standardization as well as supporting ongoing projects.

[00:01:54] Gary Fischer, PE: Dave, too, has been around the block. A little bit of time, 40 years in the industry with Chevron, working in a wide variety of roles in all kinds of projects and all phases of development, both in the U.S. and internationally. His project experience includes in the industry – upstream, downstream, fertilizers and chemicals.

[00:02:17] Gary Fischer, PE: So he’s well traveled and been around the block as well. So, Dave, welcome. Jan, you’re next in the queue. He is with McKinsey and Company. Jan is a partner at McKinsey in Amsterdam. He brings extensive experience in improving capital productivity and capital investments, particularly in the energy and material sector.

[00:02:36] Gary Fischer, PE: His experience includes working with, for example, an Asian shipyard to strengthen late stage construction execution for an offshore mega project with improvement over 50% and prioritize productivity metrics within the first three months. So this guy knows how to get it done. He holds a master’s of sscience and aerospace engineering in design and production of composite materials.

[00:02:59] Gary Fischer, PE: That’s pretty cool. From Delft University and an MBA from INSEAD, he is also a member of the European Construction Institute’s Project Delivery Direction Group. Thank you, Jan. Dave McKay. Dave, recently retired as Vice President, Well Factory Execution Bakken for Hess Corporation. In this role, Dave applied lean philosophy to develop a well factory assembly line from initial scoping of wells or drilling and hydraulic fracturing to the handover to production.

[00:03:33] Gary Fischer, PE: Pretty cool. He is an innovator and a leader in his own company and helping modernize construction of field development. Prior to joining Hess, McKay spent 13 years at Aera Energy LLC. Early in his career, he spent 16 years in various production operation roles with mobile oil corporations. So again, another guy that’s been around the block, he holds a bachelor’s degree in mechanical engineering from the University of Colorado in Denver.

[00:03:59] Gary Fischer, PE: Thank you, Dave, for your time. Sauvir Sarkar. There we go. He’s responsible for Construction and Infrastructure activities at Arab Shipbuilding and Repair Yard Company, also known as ASRY. This includes ship constructions, offshore constructions, pressure vessel building and construction of ASRY’s first indigenously designed multirole landing craft.

[00:04:19] Gary Fischer, PE: I’ve got to see a picture of what one of those looks like Sauvir. He has also implemented various infrastructure projects, which have improved energy efficiency in his company, in his working career of 36 years. He spent over 12 years with the Classification Society Lloyd’s Register and 24 years in shipbuilding and ship repair yards.

[00:04:38] Gary Fischer, PE: He has been involved in the design, production engineering and construction of various ship types, including 60 vessels during the boom period of 2005-2010, many of them being the first of its class. So this guy’s an innovator as well. He is a graduate Naval Architect and received a post graduate diploma in business management.

[00:05:02] Gary Fischer, PE: So as you can see, we’ve got an incredible experience and deep knowledge base here for us to share with our audience. So let’s, let’s get the ball rolling with the, with some good questions. We’re going to start with you, Jan, at McKinsey, you’re well positioned to see kind of the big picture of the state of the construction industry globally.

[00:05:26] Gary Fischer, PE: So what’s your perspective on the broader industry need and urgency to modernize and how big and important it is?

[00:05:35] Jan Koeleman: Thank you, Gary, and thank you to all of you at PPI for being, for the honor of being able to be with you today. Look, I wanted to get back to the number that you were mentioning, right, the 13% of GDP.

[00:05:45] Jan Koeleman: If you look at what’s happening now globally, you know, with COP going on and also the need to basically provide for real estate and infrastructure for a growing population, there’s a tremendous capital spend out there, right? As you said, it’s between $10 [trillion] to $12 trillion a year. And we actually did a survey last year where we, where we, um, surveyed 300 decision makers, CXOs, top executives on their perspective, on the need and urgency to transform the industry.

[00:06:14] Jan Koeleman: And that probably might be a little bit more interesting than my personal one. And 75% of those responded that there was a, you know, a need to either sit partly or completely redesigned product delivery. Mm-hmm. Right. And the survey also indicated that there was a shared perspective that the impact potential of

[00:06:41] Jan Koeleman: modernization of construction could yield, you know, 30% more on cost and more on schedule— faster schedule. Now, if you put those two together in terms of the investment that we need to do to achieve net zero by 2050 and the need to modernize and increase the real estate and infrastructure, you put those two together with a 30% impact potential, it would mean that what we can achieve in 10,

[00:07:05] Jan Koeleman: we can actually achieve in seven. Right. It also means that would cost society, you know, $10 [trillion] to $12 trillion a year. Yeah. Or it could cost, you know, less than that – $8 [trillion] or $9 [trillion] – if you put that together with some of the numbers that are being put out there on what the additional cost for net zero is by 2050, which is around $3 [billion] to $4 billion a year, right?

[00:07:31] Jan Koeleman: If we would be able to modernize construction, we could deliver net zero by 2042 and make it cost neutral to society, right? So from a potential societal benefit that we can bring as an industry. In addition, just making our lives more pleasant generally.

[00:07:50] Jan Koeleman: Right, I mean, that’s a whole different thing to say, but it’s like, the impact potential we have is absolutely huge.

[00:07:58] Jan Koeleman: And that in itself, for me, is what personally most motivates me to say that I see, you know, a real need and an urgency to modernize.

[00:08:07] Gary Fischer, PE: Yeah. That’s really insightful. So, 10 years to seven years. Who, who was the survey of?

[00:08:16] Jan Koeleman: The survey was people in the construction industry. So we talk about, you know, product directors, executives responsible for capital projects, product managers, but both from owner organizations and contract organizations and suppliers.

[00:08:31] Jan Koeleman: So it was a really very broad survey.

[00:08:33] Gary Fischer, PE: Yeah, that’s an excellent perspective. So big and important and important to society. Important to the world, absolutely. Sauvir let’s move to you. You people don’t always think about ship building and repair as, you know, as an important part of the equation, which, you know, it is a serious issue and it’s, and it’s really important.

[00:08:52] Gary Fischer, PE: And ship building is something a little bit closer to what I would think of as a manufacturing situation. But repair, man, that’s, that’s wild. That’s totally full of surprises along the way. And you have to do work to find out what work you need to do. Do you see a need for modernization of ship building and repair?

[00:09:12] Sauvir Sarkar: First of all, Gary, thank you very much for having me and thanks to the organizers. A very, very relevant question, Gary, and there’s no doubt about it that ship repair surprises all the time. However, if you have to make your job safe and less expensive, that’s the need of the hour today. Otherwise you would just fall back both in terms of safety and price.

[00:09:38] Sauvir Sarkar: I’m talking about safety in particular because of repair. You know, repair like, it’s like when you get a tanker to a shipyard, it’s like a bomb next to you. So you have to be good in terms of doing things safely. And if you don’t do things at a lower price, you’re out of the game. Secondly, you have so many tools available today, like never before.

[00:10:02] Sauvir Sarkar: You can handle terabytes worth of data. You have sensors, scanners, you have 3D visualization aids, softwares like never before. You have portable gadgets, which can be used to monitor a job from home, from offers from the ship wherever you want to away from the ship. You have machines to cut pen form numerically through computers.

[00:10:28] Sauvir Sarkar: Well, and most importantly, you’ve got people who like to embrace technology. We will also find it difficult to find skilled people, traditional ship building or ship repair people slowly. So the short answer to your question is, yes, we have to modernize. We don’t have a choice at all.

[00:10:48] Gary Fischer, PE: Mm-hmm. Very, very well put.

[00:10:51] Gary Fischer, PE: You have to, you just don’t have a choice. It— Excellent. Well, Dave, I mentioned your pioneering work with Hess.I will ask you a little bit of a different kind of question. Why did you start this journey to modernize construction within Hess? Was that just a Hess thing or is that industry-wide?

[00:11:14] David McKay: Well, thanks, Gary. Thanks for the invitation from you and from PPI in general to participate in this discussion. It’s really, I, you know, actually you mentioned that my work with Hess was preceded by my work at Aera, and that was actually the first place I encountered some of these kinds of concepts and the need to do this where I was not

[00:11:42] David McKay: out of the traditional project realm, I was actually more in the operations and production realm of mobile oil and then air at that time. But, charged with a daunting process of putting on drilling and putting on production a thousand wells, relatively shallow wells, but a thousand wells in one year in the Bell Ridge oil field.

[00:12:03] David McKay: And that level of activity was such that— my first attempts were to, you know, to learn as quickly as possible on a very steep learning curve. The concepts of, you know, conventional production, manage critical path management. And, you know, I built out all the tools and played like I was actually somebody who was going to actually manage this project.

[00:12:27] David McKay: And I was struck very quickly because of perhaps just the nature of this kind of a project, with the fact that I couldn’t use SSUR to kind of explain away why things were progressing the way they were. I was supposed to be putting on production on a continuous basis throughout the year, and that production was not coming on because, despite my best efforts, you know, using conventional methodologies, the work in the field was in a state of,

[00:12:58] David McKay: you know, we weren’t managing the production as has been mentioned a couple times there. The day-to-day operations of all the many facets of facilities and subsurface work, and all the coordination that had to go on in planning and design and all of that, was happening really unmanaged, to be quite honest, and was resulting in a state of chaos that

[00:13:25] David McKay: not only was I not meeting any of the production quotas that I was required to be meeting, but you know, there were real concerns for safety and chaos in the field that was creating situations that were just untenable. So, so I, you know, I was fortunate to come across some of these ideas that had first come out of obviously manufacturing, as has been mentioned.

[00:13:52] David McKay: And other sectors of the industry that were managing this production on a much more specific level. And this kind of concept of applying lean concepts and then really kind of going deeper than what I would call conventional lean down into the operations science

[00:14:11] David McKay: was something that people like James Chu and Iris Tomlin and Glen Ballard helped me with early on at Aera. And then we transferred that same concept to when I went with Hess to the Bachchan project, where again, managing production and utilizing some of what we know now works in other sectors

[00:14:37] David McKay: made the whole well factory concept a much more viable idea. So, that’s kind of where I came from on all of this. And I think, you know, I think I’m convinced now that if you don’t understand the underlying operations science, and you’re not using these principles that Todd hasn’t talked about, that you will result in chaos, whether it’s in a well factory or if it’s in construction of an LNG plant or a commercial building somewhere.

[00:15:10] Gary Fischer, PE: So born out of the chaos of work. That’s what happened to all my hair. Very insightful. Dick, you come at this from a totally different unique perspective. I’m anxious to hear your thoughts. Does the building sector need to modernize? How, how important is that? How urgent is it?

[00:15:35] Dick Bayer: Well, thanks so much Gary, and thanks for having me. Like everybody else, I’m really honored to be on this panel and I share so many experiences with the folks on the panel.

[00:15:46] Dick Bayer: I was a deckhand on a workover rig in Wyoming in 1971, and I owned a company that did 2000 barrels of 17 gravity oil in Los Angeles. And I went to the University of Colorado, Dave, so I’m a Golden Buffalo myself, having been born and bred in Denver. So thanks for having me on the panel. And the real topic, I think, Gary, from my perspective is, is not just commercial building.

[00:16:15] Dick Bayer: You know, so much of the work that we do is in institutional buildings. So colleges, universities in municipal infrastructure like bridges, community centers. We’re into, you know, most of the medical field with hospitals and clinics and those kinds of things, and that institutional work is supported by tax dollars and it’s supported by

[00:16:41] Dick Bayer: growth in communities and has a huge impact on how communities respond, how they grow, whether they are, you know, isolated in gated communities or we’re really talking about how to kind of rebuild a sense of community in the world. And so I’m completely convinced that what you’re, what we’re calling modern construction—

[00:17:04] Dick Bayer: I’m loving that. I’d love to get to post-modern construction, whatever that might be. But certainly the idea of challenging the institutional approach that contractors especially have had to do the business where they just don’t think that they’re in the production business. They think that they’re managing P6 and diving deep into estimation software.

[00:17:31] Dick Bayer: They’re in the business of creating assumptions and being surprised that those assumptions don’t come true. And it, it really is, it really is that point in the Thomas Kune cycle where you talk about the model. It’s not only drifting, but the model is under so much pressure that you really need to rethink it.

[00:17:49] Dick Bayer: And the difficult thing is divesting some of these much, you know, these giant construction companies from their investment in P6 and critical path and all the rest of that stuff is getting them out of that so that they can see. And what they are is a facilitator of production. You know, most of these large contractors really don’t do any work.

[00:18:10] Dick Bayer: They just manage work. So we need to focus on the trades and help them understand that they are part of a production cycle. And I love Todd’s reference to work in process, not in progress, because it is that – the science of construction is really the art of connecting things, right?

[00:18:31] Dick Bayer: And if you don’t have a plan for understanding how you connect those things, and if you don’t have an understanding of how quickly you can connect those things to get the project done, you know, we are just wasting billions and billions of dollars that that could go for much more important things.

[00:18:49] Dick Bayer: I noticed last, to Dave Connell’s credit at Chevron, they’re, they’ve started to link executive compensation to meeting some global-warming goals. So what if we started linking executive compensation at construction companies to modern construction goals? Productivity and safety were the two different— were the two things that you look at

[00:19:13] Dick Bayer: when you are leveraging executive compensation, rather than writing in and saving a project that most of your people had a hand in messing up in the first place. And the final thing is, the one statistic I love in our business is that for every hundred trucks that show up on a construction site, there’s 37 trucks behind them picking up trash from that site and taking it away.

[00:19:37] Dick Bayer: And that just seems— So I’m excited to be here and to continue my learning with Todd. I had him on the podcast and it’s my highest rated podcast so far because people are really starting to turn to what you’re talking about, Gary, in terms of modern construction. So thanks for having me here.

[00:19:56] Gary Fischer, PE: Yeah. And I’ll give a plug to that podcast if our listeners haven’t heard about it or seen it. You could again connect it up with our website. That was an excellent interview. Very thought provoking conversation that the two of you had. So Dave Connell, you’ve been on the front lines and seen it happen.

[00:20:16] Gary Fischer, PE: Made it happen, forced it to happen. I like that. You know, contractors create assumptions and are surprised when they don’t come true. Been there, done that, and I know you have as well. So what’s your perspective on the need for capital projects in the energy sector to change modern, especially as companies like Chevron contemplate the energy transition.

[00:20:40] Dave Connell: Yeah, so I’ll start off just with a simple example. Many years ago, early in my career, back in 1984, I was working on a fertilizer plant and we had to buy a sulfuric acid plant as part of that. And so we went out to bid, lump sum, three bids, Monsanto came back, clearly the winner, 20% cheaper, 20% faster.

[00:21:01] Dave Connell: And they have data to show they can deliver on their promise. So what do we do? We take the number two bid because they complied with our liability and insurance requirements, and they were using an engineering office where our plant was going to be the first plant. That office had been engineered as a grassroot plant.

[00:21:24] Dave Connell: You can imagine how that went, um, and what it did to the cost, the overall cost and schedule of our facility. But if you look at the energy business, what we do with projects is, you know, we’re tasked with finding and developing a resource that’s in the ground. Okay? So the energy that we have

[00:21:47] Dave Connell: already exists, right? The valuable thing is there, you know, worth a trillion dollars or whatever for a big one, and, you know, whatever the amount of money it is there. And so quite often the cost of the project to get it out of the ground and into a pipe or onto a ship, is relatively small compared to the value of the resource.

[00:22:09] Dave Connell: So if we’re inefficient in that project or in the development of the resource, it really doesn’t hurt our overall economics. So particularly in the upstream part of our business, I think many times we were lazy, you might say, because it didn’t overall impact the business, the bottom line of the business that much.

[00:22:32] Dave Connell: And we do see, you know, in our downstream and chemical businesses where they’re working on a margin, their project performance typically is better than in the upstream side of the world. And then to your question there, Gary, about the transition. So if we look forward, you know, and what does the future look like in a carbon-free, carbon neutral world, we have to create the energy, right?

[00:23:00] Dave Connell: Whether it’s wind or solar or geothermal, the projects will be to both create the energy and then get it to the end customer. So now we’re much more, we’re more as a whole—

[00:23:13] Dave Connell: the energy system is much more of a margin business like downstream and chemicals. If we are not efficient and cost effective in delivering projects, we are going to be in trouble.

[00:23:27] Dave Connell: I think. And we’ve seen, if you go back to my Monsanto example, you know why, you know, I remember this very vividly. I was just furious that the lawyers decided, you know, who we were going to pick and we couldn’t go with the obviously the winning bid and the one that made the most sense. So that’s understandable.

[00:23:50] Dave Connell: But the thing that I didn’t do and that our company didn’t do, was say to ourselves “how and why?” “How does Monsanto deliver their sulfuric acid plants so much faster and cheaper than everybody else?” And if you think back a few minutes ago to Todd’s little roadmap, Monsanto was like on step, kind of, three or four.

[00:24:15] Dave Connell: They had standard designs. Monsanto had built 700, this is in ‘84, had built 700 sulfuric acid plants around the world, and they had a little team of people, and that’s all. They had standard designs, they had standard suppliers. You could tell ’em. And, and this is like, you know, they would not change their contract even if it meant losing the business.

[00:24:38] Dave Connell: That’s the way they did it. They knew how to deliver on time, on schedule, way better than anybody else. And you know, they applied and they basically had a sulfuric acid plant factory that turned out 20 to 30 sulfuric acid plants around the world, and almost every single one was on time and on budget.

[00:25:00] Dave Connell: The only thing you told them was your feed stock and your product requirements. And we did not. Then look at that and say, “How do we apply that thinking right to what we do in projects?” You know, I mean, when I do a project, you know, I’m going into it as a new country, a new company, new partners, new logistics, everything’s unique.

[00:25:22] Dave Connell: That’s the way we look at it. Everything is bespoke. I have built 10 to 12 works of art around the world.

[00:25:33] Dave Connell: Okay? They’re beautiful, right? Every one is totally unique and kind of as Todd mentioned about steelwork, you know, welded versus bolted. It’s not just welded versus bolted. I got complex and simple connections, local or offshore fab.

[00:25:48] Dave Connell: Do I want to have high tensile, low weight, go for cheaper steel more? Here’s, here’s a thousand decisions I can make just on making the steel. It’s so much fun. Right.

[00:26:01] Dave Connell: But that comes to variability. We’re just, you know, because we’re not doing things the same, we’re not standardizing, we’re not thinking with a production and mindset.

[00:26:14] Dave Connell: We introduce, you know, it is perfectly acceptable on our projects to put a billion dollars worth of materials on the ground for a couple of years while we wait for construction to consume them because the project is not charged for the time. Value of money, right? But the cost. Then I have to build warehouses.

[00:26:34] Dave Connell: I have to protect and preserve some of that material that ages and has to be thrown away. So, you know, changing our mindset to an operation science approach, thinking about production. We really need to do that. We have, Chevron has, in a few instances, pockets of the company. We’ve been able to manage to do that.

[00:26:58] Dave Connell: And where we have, we’ve seen some very, very interesting and stellar results and we just need to get that spread more broadly, not just around the company, but I think as Jan mentioned at the very beginning, you can see what that would do for the world if we could get this to be much more broad, broadly and compassed.

[00:27:18] Gary Fischer, PE: Yeah. So hold that thought. I’m going to come back to you, but I neglected to talk to our audience before we started this. If you’ve got questions for our panelists, please drop a question in the Q&A. We’re monitoring that, so we’ll, if we have time, we’ll work those in as we go here. So, Dave, let’s continue on with that thought.

[00:27:38] Gary Fischer, PE: You know, that’s a great observation and I couldn’t agree more.

[00:27:45] Gary Fischer, PE: Why? Why are we where we are? It feels like, you know, we’re stuck in the systems of the past. What’s keeping us from changing? What’s so badly needed. Why hasn’t it changed like other industries have?

[00:28:00] Dave Connell: So that’s an excellent question. One that we have wrestled with a bit. I think our project professionals that do this, as was mentioned earlier, they see the P6 schedule as what’s going to happen, not what could happen, and they don’t understand the difference between an aspirational schedule and something that could happen.

[00:28:29] Dave Connell: And then how do I create a project execution plan and a production system that will deliver that schedule and then the metrics of your production system that are different than the metrics? You know, progress and production are two different things. Okay. And it baffles me ‘cause I, we do this, we are still doing it today.

[00:28:53] Dave Connell: You know, we have our S curve that we start out with, and the slope of your S curve is your production rate in very broad terms. We get a little bit behind schedule and so we replan, come up with some mitigations, and the slope of the curve gets steeper, but we still have the same end date, which means our production rate increased.

[00:29:15] Dave Connell: Nobody asks, “Well, what did you do to increase the rate of production?” I have a person I’m working with right now who’s getting to the end of a project and he is in trouble and he’s now seeing production data that shows that he’s handing over, you know, 50 systems and the plan is a hundred or not the plan.

[00:29:40] Dave Connell: The plan isn’t even, it’s more than a hundred. He’s handing over 50. His forecast from his guys is a hundred, and he finally figured out he needs to go ask, “Why are you forecasting for next week that you’re going to complete a hundred systems, when for the last six weeks you’ve only been able to do 50?”

[00:30:00] Dave Connell: Yeah, what’s going to be different? He’s finally asking him a production question. But he’s at the end of the rope. It’s too late. Speed. You know, we bring project professionals in from all the ranks of engineering. There are very few industries, I don’t know if there are any, I think there are two, maybe, industrial engineers in Chevron.

[00:30:23] Dave Connell: Nobody comes to meetings with an operations science bit of training. You know, I was a chemical engineer when I started and you. The things I’ve done, I often say to myself, you know, I don’t remember that when I was back at the University of Arizona. Nobody taught me that. But the background of most of our project professionals is non operation science.

[00:30:49] Dave Connell: There’s very few people that have that resource here to draw from. They basically learn on the fly how to do project management. So we also have a variety of approaches. Basically, each individual does it their own way, so there’s not even a standardization of how we manage a project in many aspects.

[00:31:10] Dave Connell: You know, we basically award a contract and expect that to happen. We wonder why the contractor does the big stuff first and doesn’t do the small stuff because we keep writing in there that that’s the way he’s going to get paid. I wonder what’s motivating him. Instead of, you know, writing in there that as the contractor, I’m going to pay you in this lump of work.

[00:31:34] Dave Connell: I can have a lump sum contract, but I can stage my payments based on the sequence I want the work done. But we don’t do that, right? For decades, we haven’t done that. And then we always complain that the contractor does the work in what’s his best interest, not in what’s my best interest, but we don’t structure the compensation.

[00:31:57] Dave Connell: So there’s just so many ways we are not looking at our project issues as production issues.

[00:32:05] Gary Fischer, PE: Yeah. Yeah. I’m not seeing it as a production system as at the core, so Sauvir, can I ask you the same question? Maybe slightly differently. It’s fantastic that your company has recognized the need to modernize, but I can say why now and what are the implications if you don’t?

[00:32:26] Sauvir Sarkar: That’s a very good question, Gary. Like I stated, in order to make your work safe and competitive, we need to modernize. So what are the reasons? Why should we do that now? Why not later on? I’ll give you a few examples. With respect to our company and the place where I am in Ashry is a shipyard. In Bahrain, any modern technology attracts youngsters

[00:32:54] Sauvir Sarkar: and improves localization. This is a very important component in this part of the world. To train locals to them, to have locals as a part of the work process, give them things which are very interesting, organization, automation, digitization, all these, they really are attractive to youngsters, and that’s the way a company can have fresh talent coming

[00:33:22] Sauvir Sarkar: and taking the organization forward. Second, I talked about safety a bit. Ship repair has to be a very safe operation now. That means to make it safer, we need to do the work away from the ship. Just imagine you have a tanker, you’re doing a steel fabrication inside it, you’ve got a welder cutter, et cetera, and then you have five safety NELS standing behind you to ensure that you know things are done safely.

[00:33:56] Sauvir Sarkar: If there’s a fire, how do you mitigate it, et cetera, et cetera. So the need of the hour is how do you do that? Can you take the job away from the ship and do it in the shop where things are in a much more controlled atmosphere? So that’s the second part of it. The third part is skilled production, it’s going to be very, very difficult to find skilled people as we go.

[00:34:21] Sauvir Sarkar: Take, for instance, you have to sort of put in a new pipe spool into a ship. The owner has told you that you have to put in this pipe. We need a new pipe. So now if you look at the traditional way of doing things, you’ll have a guy, you stage that place, you’ll have a guy, you know, visualizing what’s the route going to be out there.

[00:34:44] Sauvir Sarkar: And then he creates a spool and fits it into position. With today’s technology, you can scan that place. You can go back to your office, nicely rooted, fabricate it through a pipe bending machine, and put it on board. You’ve made the operation so much more safer and simpler, and you have also created a record of what you have done.

[00:35:10] Sauvir Sarkar: So this record is very important. Unless we have data for whatever we have done, we don’t know whether the work process we have created is optimal or not. Remember, in the sort of industry we are in, any particular work, in a day, we possibly work at hundreds of locations. And to make a process optimal for all these locations, you need to have data and [the ability] to go back to your data and see how you optimize it.

[00:35:40] Sauvir Sarkar: So all this with the view to reduce cost and make your operations safe. So the answer, the simple answer, is yes. It has to be done now. So you can be—

[00:35:51] Gary Fischer, PE: So you can be competitive and safe.

[00:35:56] Sauvir Sarkar: Absolutely.

[00:36:00] Gary Fischer, PE: That’s the bottom line. Absolutely. So Dick, you’re a big voice for change in your world. What’s, why have other industries modernized but not the building sector, and what are the implications if it doesn’t happen now?

[00:36:11] Dick Bayer: Well, thanks for the big voice comment. I guess it’s just not big enough. What’s really interesting, I think, is, you know, Paul Teicholz has told us for the last 15 years that productivity in construction has lagged behind every other industry. So it’s no, um, news to anybody that we continue to lag behind because we’re not modern.

[00:36:40] Dick Bayer: But I think that second part of your question is really much more important: why aren’t we doing it? And what has to be now? What has to change? What’s the paradigm shift that has to change? It really is a paradigm shift. We have to look at things differently, and yet we, there’s data out there. I really appreciate Dave’s comment that every one of his projects is bespoke.

[00:37:03] Dick Bayer: Because knowledge has been gained, but it hasn’t been shared. It hasn’t been used, and it’s, as Sauvir said, when you create data, you can use that data. Just think how much data we have from projects in the world that we have never synthesized and used to say, “Wow, there’s a real problem here, right?” We keep waking up the next day like it’s Groundhog Day and saying, “Oh, we got a new project.”

[00:37:25] Dick Bayer: “We’re going to have to invent a way to build it.” We don’t really have to invent a way to build it. I mean, we’ve been using stickies on the wall since Glenn and Greg started talking about the last planter system, and at Parkland Hospital we reduced resources by 30% and finished 11 days early. That’s a 2-million-square-foot hospital.

[00:37:43] Dick Bayer: What a 1.65 billion. We keep looking at things and trying to adjust for the symptoms. I think what Dave was talking about is the problem of looking at his schedule after 30 days and saying, “Whoa, we have a problem,” and now we’re rallying around and we’re trying to figure out how to recover from that.

[00:38:01] Dick Bayer: We’re looking at trying to fix a symptom when the problem happened 90 days ago. So what we have to do is, we have to make our production systems visible. So if work that we thought was going to be in progress is not in process, we need to look at that right away. You know, that’s the theory of constraints.

[00:38:22] Dick Bayer: We have to rally around that. We have to pull the end on quick. We have to, we have to jump on it. We have to focus on whether we’re meeting— what those milestones are. Um, every time we’re trying to get them going. You know, one of our mantras has always been “inventory is waste.” And yet when Todd and I were talking, you know, a few months ago, he said, “Well, your project wants to be lean, but it doesn’t want to be anorexic, so we need to start not only thinking about”

[00:38:50] Dick Bayer: “better ways to do this, but we need to think about analyzing them every single day and seeing whether they’re working and using our plan to act and, you know, plan to check and adjust cycle so that everybody is tuning up the machine on a regular basis because that carburetor in that 51 Chevy”

[00:39:09] Dick Bayer: “needs to be adjusted every single day.” And that’s really what we’re doing is we’re driving a 51 Chevy when we want to be driving electric cars or we want to get into, into some kind of Swiss tube, you know, Swiss log pneumatic tube where I get from here to the hospital in like 11 seconds pally. You know, we aren’t thinking about things really broadly.

[00:39:29] Dick Bayer: And, you know, I think the COVID crisis has pointed out to us how important the building industry is in the world. There’s so many people, not only in poverty, but many don’t have buildings that— there are indigenous tribes in Canada who don’t have drinking water, who don’t have the necessary shelter that they need in their communities.

[00:39:53] Dick Bayer: And this is a country, you know, there’s 33 million people in Canada. They’ve turned their attention to it and they can’t seem to solve it because it always seems like a political problem. It’s not a political problem. We’re working on a building right now, for vaccine production and research, that is going to be, you know, 80,000 square feet.

[00:40:11] Dick Bayer: And I’ve said to the team, we can build this in eight months. And they’re going, “Are you crazy?” I said, “No, we can do this. If we put our minds to it, we can figure out how to get this building built in eight months and operational in a year.” And this is something, you know, vaccines don’t roll out of that building until it’s built and it’s been certified and commissioned and all the rest of that stuff.

[00:40:35] Dick Bayer: And that’s a problem that needs to be addressed right now. So, I’m passionate about really taking operational science and operations science and trying to get it into these, you know, into the industry, and the pressure in my industry, really, my part of the industry, is coming from the owners. It’d be really nice if the pressure came from the trades, the vendors, the contractors, the designers, instead of just the owners, because until people start making new offers in the market, we’re going to be stuck with what they have to offer.

[00:41:10] Gary Fischer, PE: Well, that’s a really good point. Needs to come from more than just the owners that pressured for change. Jan, from your perspective, what do you have to add here? Why are we so stuck in the past? Oh, why is manufacturing blown past by construction. You know, mini folds, why are we stuck in the past?

[00:41:32] Jan Koeleman: Yeah. Firstly, I think, I mean we’ve spoken about this failure to appreciate that a product is a production system, but I’ve ventured to go one step further to say that participants in a product don’t recognize that they’re actually together in one single production system, right? Mm-hmm. So like even on an EPC lump sum contract.

[00:41:54] Jan Koeleman: The production system will have participants from everyone involved in that same thing, being dependent on each other’s performance, right. To get it right. So that’s one. And the second thing is, I think, and this also comes a bit through that survey as well, right? If we look at where we are as an industry, we’re still stuck a bit in a, you know, a lowest bidder mindset.

[00:42:15] Jan Koeleman: We might not go with the lowest, we might go with the second. ‘Cause the second one is still a little bit better than the lowest. So I’m not saying it’s always the lowest, but there’s a strong desire. And I think if I would almost make it an emotional thing, right, we don’t want to be the fool that got, you know—

[00:42:34] Jan Koeleman: that caught the short end of the stick. Yeah. And so there’s a strong focus on these penalties and incentives and that’s been driven in there for decades, right? Which then gets to kind of like a second point, which is the inertia, right? So the whole industry is trained in a traditional product management approach.

[00:42:53] Jan Koeleman: That’s the language we speak. That’s the thing we understand. So managing risk and incentives in that structure, people understand it. If you want to go to, you know, production, operation science and that— it’s a completely new domain. Right. And if you fight for that, you might be considered the fool. You might be considered theoretical.

[00:43:12] Jan Koeleman: You might be considered conceptual. Right. You’re weird. Yeah. And you can imagine if you’re a consultant coming with that, it’s even worse. Yeah. But that’s another point. And then I think, I think the last thing is also to the point just made before, right? Players pointing towards each other.

[00:43:31] Jan Koeleman: Again, in this survey, it was very interesting. One-third said, if you want to start modernizing construction, it’s a joint effort. One-third said, it’s the contractor, and one-third said it’s the owner. Right? So there’s only, there’s a good part that recognizes something to do together, but there’s still very much kind of like the mindset of,

[00:43:53] Jan Koeleman: “Why should I be paying for this?” Right? Because the effort needed to modernize construction. Yes, you need to invest, but rather than asking the question, you know, “Why should I pay for this?” Isn’t that their, shouldn’t they be doing that? I think a much more interesting and empowering question is, “How do I get the most return on this investment?”

[00:44:16] Jan Koeleman: It’s much more interesting. Right? And I think where, yeah, if, you know, if the way I look at it, you know, it just holds massive value potential, but it requires bold visionaries, you know, that want to start from a mutual point of trust in a contracting discussion that are extremely keen to learn, right?

[00:44:39] Jan Koeleman: That actually want to understand the data in the daily production, the daily execution, that they know that and own that so that they can go into a contracting situation, actually discuss what are realistic production rates that are being put forward. Guys, does this make sense? How can we actually achieve this together?

[00:44:57] Jan Koeleman: Right. And so that willingness to learn, and lastly, that willing to challenge that status quo. Right. And accept being called crazy for a while. Yeah. But they are just willing to go against the grain on that. And I think that what really will be needed is, like I said, these bold visionaries that are willing to exhibit behavior.

[00:45:20] Jan Koeleman: That’s a little atypical for the industry.

[00:45:22] Gary Fischer, PE: Yeah, really good point. We’re getting some great questions by the way, that I’m going to let you guys have here shortly, but before we take our first question, Dave, I want to give you, Dave McKay, a chance to opine on why haven’t we changed before?

[00:45:42] David McKay: Yeah. I think the points that have been made are, I guess, all I can add to that is I think, well, as I mentioned in my first monologue there, that I was somewhat unburdened by knowledge from previous project management and I think there is just a very kind of strong status quo that sits in place, especially in the construction industry that I found through,

[00:46:14] David McKay: you know, throughout my career in this part of the business, that became some of the biggest resistors that we had to kind of work through. And I think that is actually a reality both on the ownership side and especially out there on the contractor side. And I think that also leads me to the comment that, you know, I think in the end a lot of this

[00:46:39] David McKay: has to start happening kind of in the C-suite of both the ownership and in the contractor realm where some of this inherent resistance that sits in the ranks can be, that’s the only place it can really be overcome. And what it, what I mean by that, is that people, executives can’t just—

[00:47:01] David McKay: The details of how work is being done, I mean, you know, Ford and GM were doing a lot of that until, you know, really, 2008 forced them into finally changing, you know, and C-suite executives started becoming interested in what was going on on the production floor, not just delegating it to somebody down there that was going to get the work done.

[00:47:23] David McKay: And they were, you know, the C-suite folks were looking at spreadsheets and managing the numbers. I think it will take, you know, leaders at the highest levels on both, in all parts of the industry to start, you know, getting interested in how the work gets done and understanding that this different way has really got to become part of how their business functions.

[00:47:49] Gary Fischer, PE: That’s a really good point. You jogged my memory when Todd and I got to visit the Ford operation and see how much they had changed after their near death experience. They made a decision to standardize components, so everything that the customer doesn’t feel, the non-customer-facing components, they’ve standardized.

[00:48:08] Gary Fischer, PE: And to reinforce that because engineers like to tinker and create things and make beautiful inventions, they created C-suite metrics on the percent of things. On each vehicle. Yeah. So that went right from the top right down to the ranks to saying, “We are going to reuse these components.” A simple key metric drove all kinds of really interesting behaviors.

[00:48:33] Gary Fischer, PE: We talked with them, so let’s go back to questions. I have a great question for you, Dave Connell. It says, “You mentioned the example about Monsano, which was decades ago, but today we are competing against players from Asia, including China and Korea, which use a similar approach, standardized production approach.”

[00:48:54] Gary Fischer, PE: “How can we compete as an industry if we did not change as an industry? Where do we start the change from the owners or the contractor’s perspective?”

[00:49:04] Dave Connell: To me, that’s a simple question. It kind of comes to what Dave McKay just said. It has to start with the, and what you just said, Gary, about, you know, Ford.

[00:49:19] Dave Connell: If the C-suite is not measuring and looking at the right things and asking the right questions and creating the right expectations, then people are going to continue to do what they’ve been doing, what they’re comfortable with, doing what they know how to do, regardless really of what the outcome is. You know, I had an example, you’re fully aware of it, Gary.

[00:49:46] Dave Connell: We had a pipeline failure on the first day of startup of a facility and it shut down the facility. So now I’ve got billions of dollars on the ground ready to go, and we’re not making any money because of this little problem and the vice chairman calls and says, asking for a schedule. He just wanted to know when we are going to be making oil.

[00:50:08] Dave Connell: And so we didn’t look at this as “we need to create a schedule.” We looked at the problem, and I don’t know why we approached it this way, but it was “we need to put together a production system.” We had basically installed 15 kilometers of injection pipelines incorrectly, and basically required we dig them up.

[00:50:33] Dave Connell: They liked them all. The whole pipeline had to be daylighted in the trench, straightened out, and then reburied properly. This was an interesting little specification, and we had to do this in Kazakhstan in January, and all of the pipelines were below the water tape, and you’re not allowed to do compaction when it’s freezing, so it was a tricky thing.

[00:51:01] Dave Connell: And if I’d used the schedule and the normal P6 approach, I don’t know how many months it would’ve taken, but we got the first two pipelines up in two months, and the rest of them up in four, and another two months up and running because we put together a production system of, you know, here’s the first step.

[00:51:16] Dave Connell: And we just had, it was like a production line that moved down the pipe doing the work and we started with the, and we managed our work in process. We didn’t know what we were doing. But we figured out, let’s start with the simplest, easiest pipelines first, that are the easiest ones to fix and get them done and on stream.

[00:51:37] Dave Connell: Took some pressure off our backs. That’s no longer a work in process. Those two pipes were making money, right. We didn’t think about it as work and process, but that’s essentially what we were doing. So because we were faced with a totally different situation than normal it was a project, but the pressure, the approach was completely different than the normal project approach.

[00:52:00] Dave Connell: We approached it from a production mindset without knowing that. So that tells me, and I’ve seen this many times, what people are capable of doing. It’s not that hard where, you know, it’s not rocket science. I can’t remember who was the aerospace engineer, but it’s easy to do, but the resistance, and it really comes down to, and I’ve seen this time and time again in all, everything I do, is you get what you measure. And so if we’re measuring the right things, we will get the right performance.

[00:52:46] Gary Fischer, PE: Very good point. Do our panelists want to add anything?

[00:52:51] David McKay: Well, I guess I just want to, you know, I mean that’s exactly what I was describing, Dave’s experience, what I was describing when I first encountered all this, all these concepts, where nobody wanted to see an S curve. You know, they wanted to see oil online, so my challenge was to get a well online, you know, and then another one.

[00:53:09] David McKay: And then another one. Yeah. And so, you know, all the batch drilling and all the brilliant ideas I’d had about batching and, you know, that seemed so smart, were— I had to throw them out the window though, and actually just start focusing on let’s get one out the door and make it produce.

[00:53:27] Dick Bayer: So the Dave story reminds me of a hotel that I worked on in a major American city that was supposed to be the headquarters for the Super Bowl one year.

[00:53:37] Dick Bayer: And the schedule said that they were going to finish in April of the year that the Super Bowl was going on when the Super Bowl happened in February. So that really wasn’t going to work. But they were so wrapped around the P6 schedule and they called me in April. So from April until December, we only—

[00:53:53] Dick Bayer: we had to take five months out of a 12-month schedule in seven months. And so I didn’t think of this as taking any time out of the schedule. I thought of this as a production problem. How do we divide up the place? Where do we put the superintendents that we need to have? So instead of having two zones, we had nine zones, and had stickies all over the wall, everywhere.

[00:54:14] Dick Bayer: And we had the first body in a bed in the middle of December. So we were able to do it by reorganizing our thinking around how work was going to be put in place and not about whether we were meeting the schedule or not.

[00:54:31] Gary Fischer, PE: Yeah. So there’s no doubt if you want to compete, this is the way to get there.

[00:54:35] Gary Fischer, PE: Modernized construction, thinking about production systems, being intentional about it. Jan, I have one question for you. Says, “The current owner-contractor relationship is all about allocation of, rather than productivity, how do we change that dynamic?”

[00:54:54] Jan Koeleman: Yeah. So for me, I think what Dave was mentioning, it does start with the definition of success for a contract and procurement effort, right?

[00:55:06] Jan Koeleman: So what is success in contracting? That’s one. And that needs to be something that a C-suite defines. And I think the second thing, and that’s what we see in clients, increasingly, is clients are looking at their portfolios of projects and actually making them into thematic sub-portfolios, and then actually going for portfolio contracting, right, to make it

[00:55:29] Jan Koeleman: more interesting for contractors to actually invest, co-invest, whatever the proposal is. Mm-hmm. Like to drive the learning curve within a micro portfolio, and then the competitive element remains because a contractor is incentivized to bid also on another portfolio like in another micro portfolio or another. So it’s the competition to ensure you get fair prices is not within the unit of a project, but in the unit of

[00:55:58] Jan Koeleman: micro portfolio. Right? So that’s something that we see coming up. Then I think there’s also a mindset shift, which is when you’re doing contracting, you’re selecting a partner, not a contractor. Okay. I think that’s also if people can really take that to heart, you go in differently as well. Right?

[00:56:17] Jan Koeleman: Then another way to do it is, you know, creating a valuable, and this was a very interesting concept, obviously that comes from the IPD contracting, which I saw in for a hospital in San Francisco that was, you know, creating a shared upside value pool that gets shared pro rata if we outperform, right?

[00:56:37] Jan Koeleman: So if we improve and make each other’s lives better, that shared pockets become bigger. And if we collectively fail, then it becomes collectively smaller. But there’s a shared incentive to actually outperform. But it needs to not be on a one-to-one basis between a contractor and owner, but it needs to be across the subcontractors and main contractors that are involved.

[00:56:54] Jan Koeleman: Right. And then the last thing I would argue is rather than an owner, depending on bids to become smart on potentially realistic production rates in a particular, like if an owner actually understands what realistic production rates are because they’ve tracked it using, mm-hmm, you know, the production thinking in the past, then you’re actually trying to have a discussion with your contractor, which is what is a realistic bid based on facts and data.

[00:57:24] Jan Koeleman: Not, you know, your back is up against the wall, we’re just going to accept it or whatever. But that you actually have a real conversation around what a de-risked competitive bid looks like that protects the contractors. Profit margin while protecting your schedule and cost aspiration. Right. And to have a really mature conversation around that.

[00:57:43] Jan Koeleman: But because as an owner, you know, you want, you have an understanding, right. That’s the difference. Because then you can actually have a conversation. So those are some thoughts, maybe.

[00:57:49] Gary Fischer, PE: Excellent.

[00:57:51] Dick Bayer: I feel like that’s, fastball right down my right at me, Gary, because we’re talking about the IPD projects and IPD form of contract.

[00:58:05] Dick Bayer: And that was really something that, you know, came out of LCI and the work that was done very early on, and we’re using those forms of agreement in Canada and you absolutely can’t build a vaccine facility in eight months unless you’re using a collaborative contract, a relational contract of some kind.

[00:58:24] Dick Bayer: Just think how much bidding costs us in the world. Every contractor has 20% of their annual cost, setting up these, you know, systems to go chase bids, find bids, make bids, do all the rest of that. And it’s driven by, really, two things. One, this kind of false assumption that you can sell risk to individuals, to the little pieces and parts of the project.

[00:58:51] Dick Bayer: And the second one, that there is some owner guilt here, where they think we might be able to get a building for actually less than the cost. If we really went to market, we might be able to really put somebody up against the wall. So, I think, you know, Ian McNeil had been working on this since the 1970s on relational contracting, and we just have to refocus our efforts in the contracting field

[00:59:14] Dick Bayer: to get back to what Ian McNeil was talking about in terms of a relationship and what Jan said. You know, your partners out there and there is data available to be able to see whether rates are reasonable and what’s happening in the market. So it’s not that hard of a turn. So sorry to jump in, but it just felt like it was.

[00:59:34] Dick Bayer: Hey, great. Right in my, right in my wheelhouse.

[00:59:37] Gary Fischer, PE: Yeah, absolutely. Thank you, thank you all. We just have a few minutes left. I just want to ask the panelists for one thing. You’re all on different points in your journey to modernize construction based on your personal experience. What’s the one thing that you would provide as advice to our listeners along that journey? And so, Jan, let’s come back to you and start with you.

[01:14:02] Jan Koeleman: Yeah, so my one piece of advice, I mean, just go for it. Just do it. Like the Nike slogan. I mean, it’s like, that’s it. Just try it.

[01:14:10] Gary Fischer, PE: Just try it. Dave Connell?

[01:14:15] David Connell: Yeah, you need metrics and leadership expectations.

[01:14:20] Gary Fischer, PE: Dave McKay?

[01:14:25] David McKay: Yeah, I think, get started doing it and the earlier you do it, the better. But if it’s late in the project, still start doing it.

[01:14:54] Gary Fischer, PE: Excellent, Sauvir?

[01:15:00] Sauvir Sarkar: Think about the next generation, the youngsters, you know, and make sure you digitize, make the job more interesting for them.

[01:16:00] Gary Fischer, PE: That’s a very good point because, you know, if we don’t have people coming into our industry, it’s going to be a pretty tough industry. We think it’s tough now. It’s going to be really tough without people working in it. Absolutely. And Dick, what’s your one thing?

[01:16:32] Dick Bayer: I think my one thing, I’ve learned from having to, having tried to boil the ocean, is you have to take people where they are and inspire them to go to a different place.

[01:16:49] Gary Fischer, PE: Excellent. Well, there’s a lot packed in those answers there for folks to think about. I’m going to have to replay this and write those down and ponder on those a bit. So I want to thank you all for your time in freely giving your advice and your experience to our audience. Thanks again.

[01:17:04] Gary Fischer, PE: And Roberto, we’re going to give it back to you. Just a couple minutes to spare.

[01:17:14]  Dick Bayer: Thanks for the opportunity, Gary.

[01:17:19] Sauvir Sarkar: Thank you very much.

[01:17:25] Jan Koeleman: Thank you, Gary.