“Many already use the Internet, yet I doubt many are using it for construction management. The speed of connectivity and the range of companies committed to working on the Internet are growing so fast that this will cease to be a business obstacle within a very short time frame. Your entire team will build the project knowledge base together and share information in real time. Broadly defined, this will include key users, consultants and vendors, who will have access to information from start to finish: from the initial evaluation of pro forma alternatives through to project completion.”
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Corporate real estate executives under pressure to contain, if not reduce, new project costs can find some relief by using construction industry consortiums that use a strength-in-numbers approach to obtaining building materials and other services less expensively. What makes such alliances effective today is their ability to leverage Internet technology, which is notable, given the construction industry’s reluctance to apply such technology to its business practices so far.
A case in point is Twentypounds (www.twentypounds.com), based in Redwood City, Calif., which is a consortium of commercial general contractors that was formed in late 1999 to develop a Web-based procurement and bid management system designed by and for the construction industry. Such systems currently under development do not necessarily have the construction industry’s requirements built in.
“The members saw a fundamental shift taking place in the industry that was driven by the Internet,” says Leo Linbeck III, CEO of Linbeck Construction Corp., Houston, who is a founding member of Twentypounds. No single player in the construction business could make a substantive difference single handedly, he suspected. “We realized that the way to take advantage of that was to get a group of people together that represents critical mass, and that was the genesis of the group.” Not by coincidence, the critical mass of uranium is 20 pounds. “It’s about making the industry more cost effective, which will benefit the corporate real estate industry.”
ABOVE: Eric Lamb, Twentypounds
Eliminate the Distributor
Creating a community of suppliers and subcontractors online will help automate the bid-solicitation process and the procurement of materials and supplies. And obtaining materials specified by architects can be time consuming, expensive and inefficient, due mainly to a complex distribution network. “One can visualize in construction a lot more direct purchasing through manufacturers where distributors may not be adding value to the process,” says Eric Lamb, CEO of Twentypounds. “This ultimately will make it a less costly delivery process for materials and equipment.” The consortium ultimately hopes to put in place a more efficient way to transfer information and better manage the procurement of equipment and services.
More than two dozen companies have joined the consortium, which seeks to realize cost savings similar to those outlined in a recent Goldman Sachs study analyzing potential savings in the automotive industry. That study showed that doing business online with suppliers and subcontractors could cut the cost of building a car by as much as 14 percent. But where there are just three key players in the U.S. automotive industry, there are hundreds of general contractors in the construction industry.
The ENR (Engineering News-Record) Top 400 contractors represent US$160 billion of a roughly $260 billion commercial construction industry. The Twentypounds participants represent $25 billion to $30 billion of that universe, as of mid-April. “Virtually all of our owners look to us to manage our supply chain efficiently and effectively for them” says Linbeck. “We are very committed to bringing our entire supply chain online so as to reap those benefits that will translate into savings.”
Empowering the Corporate
Real Estate Community
Owners, too, increasingly recognize that they have an important role to play in improving the cost-effectiveness of the built environment. And the Twentypounds consortium may well empower the corporate real estate community, because members will have better information. “The involvement of the corporate real estate executives and the owners in decision making earlier in the process and with better information will be accelerated,” says Hoyt Lowder, senior vice president of Raleigh, N.C.-based FMI Corp. (www.fminet.com), a construction-consulting firm. Lowder works in the firm’s Tampa, Fla., office. “The owner, the architect, the engineer, the contractor and the construction community — the supply side — will all be operating with the same set of information, rather than dealing with different sources of information and the conflicts that arise from that.”
End users of the Twentypounds environment should recognize both increased efficiency and actual cost savings. Lower costs will drive demand higher, adds Linbeck, referencing the automotive industry example. “But the big beneficiary is the consumer, because ultimately, the car companies compete with each other for the consumer to buy the car. The same thing will happen in our industry,” Linbeck asserts. “We will compete with each other to satisfy the client more effectively, and the beneficiary is the users of real estate.”
Actual efficiencies to date are primarily in the collaboration, or information-sharing, realm of “hundreds of projects across the United States where people are adopting this technology,” says Lamb. “The biggest benefits we see are where the quality of information is better, the turnaround of information is much faster, and we are able to deliver projects more quickly in that environment.”
Lamb says the next step is to incorporate e-commerce and electronic procurement processes to add more efficiencies on the supply side, further reduce costs and increase productivity. But here, the path is less clear. At press time, Twentypounds had not yet committed to an Internet partner but was in discussions with several. Industry-specific e-commerce applications and sub-applications are still in the formative stages of development, but robust applications are on the way.
Issues for the Twentypounds consortium members to deal with as such applications come online is whether one electronic procurement system for building materials suits the needs of all the members, and whether one procurement system will adequately serve the myriad purchasing requirements of the members.
Why Technology Matters
“Communication is the glue that makes it all work, and people need to communicate better right now, which is what our business is about,” says John Macomber (left), founder and president of Collaborative Structures (www.costructures.com), a Boston-based developer of Web-based project communication hosting systems for the real estate and construction industries.
“As people figure out the online trading and purchasing [applications], we will be able to work with them.” Twentypounds is a potential client of Collaborative Structures.
In the meantime, says Macomber, it behooves corporate real estate executives to stay in touch with the implications of Internet-based business applications. The success of their very careers may soon hinge on how they play their technology cards within their organizations.
“Once you remove the uncertainties and inefficiencies, what’s left is people and their core skills,” says Macomber. “The corporate real estate function is seeing this anyway.” Consider the bigger picture, he suggests. Inefficiencies in pricing of money to invest in real estate have lead to the surge of real estate investment trust (REIT) activity. And efficiencies in the capital markets have lead to public companies feeling pressure to get real estate off their balance sheet. “Rising efficiency and rising transparency makes the focus less on proprietary information and shuffling paper and more on good judgment and hard work,” says Macomber. “I believe ultimately these technologies will be what takes all that noise away, letting people rise based on their capability. Technology will be the equalizer, not the differentiator.”
Another implication, says Macomber, will be the need for fewer people to do the same amount of work. “Since there is efficiency of information, the work will gravitate to the people who are good. That’s very good news for the people who are good and bad news for the people who are not.”
