Seeing the Bigger Picture:
A Special Look Into the
Global Capital Projects Outlook Report
Originally aired on 6/28/2023
61 Minute Watch Time
All right. Welcome everybody to our forum for today. We have a great group of panelists assembled today to talk about the nature and the state of the global capital projects industry. My name is Brad Barth. I am Chief Product Officer for InEight. We’ll do introductions here in just a minute and get into each of our backgrounds, but I will be the moderator for today’s session. Really looking forward to [00:00:30] hearing the insights from our speakers today. We do this once a year at InEight. We get into the results from this really unique survey that we do, out to the industry across all regions, across all different stakeholders and different types of organizations that are involved in delivering capital projects. I think we’re in for a treat today to hear from some really unique perspectives from our panelists. But [00:01:00] first, the dreaded housekeeping slide.
Let’s cover some rules of the road here. As you’ve probably noticed as you’ve logged in, you are muted. Everybody will be muted automatically other than our speakers. But we do encourage questions. We’re going to make sure that we leave time at the end for questions. Feel free as we’re going along to use the Q&A feature in your window here. Use that Q&A feature [00:01:30] to put in your questions, and then we’ll be looking at those questions as we get towards our Q&A session at the end and bringing those questions to our speakers.
Let’s talk about before we get into the introductions just of bit on the nature of the survey. At InEight, I’ll give you a little bit of background on InEight here, too, in just a minute. But we do this survey once a year. As I mentioned, we go out to about [00:02:00] 300 respondents and as I mentioned, they’re really all different types of companies, different sizes and in different parts of the world, but they all in one way or another are tied to this capital project’s delivery. Lots of great, very distinct perspectives that we’ll hear as we go through this. Some really nice, I think optimism that we’re seeing in the industry as we are two years, let’s say, from [00:02:30] the global pandemic and recovering from that. Lots of really good signs I think we’re seeing in the industry, some question marks and maybe some red flags as well that we’ll explore with our panelists.
But I think overall, a very healthy and optimistic response that we saw from our respondents of the survey. One interesting thing, the folks that are surveyed for this outlook, it’s a blind survey. Even [00:03:00] though we make sure that the respondents are relevant inside this capital project industry, they don’t know who is doing the research, so we’re making sure that we get good honest responses with no agendas in them. They don’t know who they’re answering for. I think it really helps make sure that we get a good pulse on the industry and good responses across the board. Let’s get into the introductions and then we’ll [00:03:30] get to our questions that I want to throw at our speakers. Again, my name is Brad Barth for InEight. I look after really product strategy and looking at where are we going with our products, how do we engage with the industry, how do we make sure that we’re building software that helps this global capital projects industry?
We’ll talk a little bit more here in just a minute about what InEight does for those that are not familiar with InEight, but I’ve been in construction [00:04:00] my whole life, been in and around the industry, really grew up in the industry, been in the technology side of that really for the last 30 years working on realizing this vision that we have here at InEight, which I’ll talk to in just a second. But before that, let’s go around and let’s get you introduced to our esteemed speakers today. I’ll let each of them provide a little bit of their background and introduce themselves. [00:04:30] First, we’ve got Paul Griffiths. Paul, why don’t you tell the group about yourself?
Thanks. Yeah. So, Paul Griffith. I’m a senior vice president at AECOM. My background is in major projects and program management. I’ve worked client side for the likes of Transport for Greater Manchester, Transport for the West Midlands, and High Speed Two Limited. I’ve worked for consultants on programs such as the Toronto Transit improvements for Metrolinks. My role at AECOM is to lead our program management team that’s engaged in ensuring that [00:05:00] we have the leading sets of tools and processes and practice, and then embedding them right across the AECOM business globally, from front end program management advisory to delivery and on into operations so that we can, to quote the AECOM mission statement, “effectively solve the world’s largest challenges,” so that’s me.
Excellent, and thank you for being with us today, Paul.
Dr. Basu, how about yourself? Can you tell us a little bit about your background?
[00:05:30] Sure. My name is Anirban Basu. I’m an economist. Please hold any further applause. I study the economy. I conduct a lot of construction economic analysis. I serve the chief economist function for a number of organizations tied to the US construction industry, in particular, also the Canadian construction industry. I started a firm in 2004 called Sage Policy Group Incorporated. I continue to run that. I’m out of Baltimore, Maryland. Thank you.
Excellent. Thanks for being here with us. I love the economist with a sense of humor, [00:06:00] so we’ll lean on you to provide the comic relief today, hopefully. And then our final speaker, Jeff Quantrill. Jeff, tell us about yourself.
Hi everybody. Jeff Quantrill. I’m head of account management at EMEA for InEight. What that means is I look after clients, both potential and existing for InEight in EMEA, hopefully helping them match up their requirements and their needs with the capabilities [00:06:30] that InEight can offer and brings to them. Spent eight years working in delivery project control solutions in the UK and the Middle East to Saudi Arabia. Prior to that, I delivered enterprise level IT with IBM, so I’ve got the IT background as well.
Excellent. Thank you, Jeff, for joining us. As you see and hear from the speakers, [00:07:00] different perspectives, different roles in the industry, and then also strategically selected from a geographic perspective, this review and using this global capital Projects Outlook survey as the backdrop for these discussions. InEight will do this twice. The focus on this one is really for North America, Europe, Middle East, Africa, so those areas of the world, and with Paul in Scotland and myself and [00:07:30] Dr. Basu in the US and Jeff in the UK, we’ve got good coverage there across the regions as well. Before we jump into the panelist’s questions, just real quick on InEight that is bringing this webinar to us today, sponsoring this, sponsors the outlook itself and the survey. InEight is a capital projects construction management, project management, project controls solution.
Really, [00:08:00] our claim to fame is our formula is we help expectations equal outcomes. That’s our goal through our software to help, whether it’s on our operators, contractors, engineers, construction managers, designers, all the different stakeholders on capital projects use the InEight solution to help plan and execute these large capital projects. From InEight’s perspective, we are always interested in what this outlook says and [00:08:30] what it tells us. It’s a great source of knowledge for us to keep a pulse on the industry, understand what are the issues that people are running into, what are some of the trends that are driving the way we operate in this capital projects industry? It helps us build better software and helps us understand our customers better. This is an exciting time of year for us as we get the results from the survey, and we get to dive into it and see. There’s always a little bit of surprises and just great knowledge coming out of this [00:09:00] outlook.
Just a couple of things before we get to our first question. I think the overall optimism is holding strong coming out. This is the third year we’ve done this survey, and an interesting thing is one of the things we asked is the spend. Are you seeing spend increase, decrease, or stay the same? It’s jumped about [00:09:30] 10 percentage points each year, so this year, we’re up to 86% recognized or is observing an increase in spending level. Like I said, last year that was about 10 points lower and the year before that was about 10 points lower. It’s on a nice upward trend, which I think reflects the overall optimism that we’re seeing. And then we’re also seeing just continued focus on technologies. A lot of that I think is we’re seeing [00:10:00] the industry is getting more collaborative through contract models and otherwise driving more collaboration, more visibility to data and information. I think that’s driving a lot of technology adoption. That’s one of the things we’ll probe with our speakers here today.
We will do some polls. We’ll do a couple polls as we go through it, but not quite ready for the first one yet. Let’s tee up the first question. I know each of you have had a chance to review [00:10:30] the document and the outlook response that we’ve got in the report. Dr. Basu, let’s start with you. Comment on that optimism that we’re seeing. I think everybody sees the headlines in terms of recession and different parts of the world. Is it coming? Are we in it already? Those kinds [00:11:00] of headlines that seem to create those headwinds, if you will. But this report seemed to be pretty optimistic from the responses that we saw. What’s your take on that, Dr. Basu?
I’m surprised because we economists are taught that when the cost of capital rises, the economy is slow and in particular, interest rate-sensitive segments of the economy and capital projects are sensitive to the cost of capital. They’re capital intensive, large scale in many cases. Have to raise [00:11:30] a lot of equity and debt to finance these projects or at least get government to participate meaningfully. In any case, it takes money. Money has become much more expensive. It’s actually become more difficult to access, including here in North America with the failures of Silicon Valley Bank and Signature Bank and First Republic Bank being taken up by JP Morgan, all of that. Capital is more expensive.
There’s all this talk about recession, pervasive fears of recession, and yet what do we have? This burgeoning number of capital projects, lots of spending, and contractors [00:12:00] telling us, in many cases, construction firms, whether in Europe or the United States or elsewhere, telling us our number one challenge is finding enough workers to get the work done because we’re so busy. I think that was the most surprising aspect of this, that the confidence in the construction marketplace and the capital projects marketplace seems almost unimpacted by these central banks that have been raising interest rates aggressively, whether in England, Europe or the [inaudible 00:12:28] of Europe or North America, and yet [00:12:30] here we are with very busy contractors looking forward to the era of the megaproject.
Yeah, that’s spot on. I was surprised as well. Although I would say from InEight’s perspective, and I’ll get to you Jeff, I’d love to get your feedback on this as well from Europe. But we see in the industry and the people that we talk to; it seems to be what I would categorize as full speed [00:13:00] ahead. To your point, Dr. Basu, the challenge doesn’t seem to be how are we going to have enough work to keep everybody busy? It seems to be quite the opposite. How do we do more with less? The demand for construction seems to be growing faster than the industry’s ability to keep up.
But yeah, great to see that optimism and it’s certainly a good sign. How about Paul, from your perspective [00:13:30] where you sit, you get engaged with customers, with owner operators that are funding these projects, you get engaged, I would suspect early on as these projects get developed and go through pre-planning and so forth. What are you seeing? Well, let me ask you the same question. Were you surprised to see the optimism coming out of this report or does it line up with what you’re seeing as you engage out in the industry?
No, not surprised. It’s [00:14:00] never a consistent picture across the globe. We certainly seen slowing in some areas. Here in the UK, the building and delay into the delivery of HS2 has had some impact on overall delivery and probably on some industry confidence as well, to be honest. But balancing that, you have some really positive drivers. Biden’s infrastructure bill in the US, after a slow start, is starting to pick up and we’re starting to see some of those projects and programs moving through now. The COVID backlog of projects and programs is still there. [00:14:30] As business confidence picks up and people respond to a post-COVID world, that’s created demand in its own right.
That’s going to have a positive impact. There’s a huge amount going on in the Middle East driven by those mega programs in Saudi Arabia. That’s driving a lot of the industry and impacting not just in the Middle East, but it’s also pulling in resource physically and virtually, and of course, we’ve all learned over the last few years how to work virtually. That’s pulling teams from around the globe into supporting projects and programs in the Middle [00:15:00] East. I think we’re still on the up, and I think one of the big challenges is going to be about getting all the people we need with the right level of experience and using technology effectively to supplement that, really.
Yeah, good insight there. It does seem like some of these geopolitical issues that are creating obstacles, [00:15:30] they may be slowing down the growth a little bit, but they don’t seem to be creating any sort of real blockage, and in particular, coming out of the COVID pandemic, how do we get people back engaged? People have learned to work differently. I think we’re seeing some signs, unfortunately, and productivity is actually going up. Everybody [00:16:00] in this industry I’m sure has seen the graphs of productivity has been static in the construction industry for quite some time. But we are seeing some good signs where that’s starting to increase. Just to get a good pulse on our audience here, I want to tee up our first poll around kind of what sort of organization are you? We’re interested in who’s watching this, who’s interested in this data.
I know it takes a little bit here to get this out and if you guys can go [00:16:30] ahead and click on your best answer there, we’ll wait for those responses to come in. But while we’re waiting for that, Jeff, what’s your take from your vantage point there in the UK? InEight is certainly relatively new in that part of the world, but really, really seeing a lot of traction, getting involved in some really big projects, big customers, and it seems like nothing but growth there. But what are you seeing in terms of headwinds or challenges or that optimism [00:17:00] that the others have mentioned, is that playing out in your world as well?
Yeah, I think it was surprising in terms of optimism. Certainly, I remember in the UK back in November talking to colleagues about, we were expecting a budget and there was a lot of talk about which programs were going to be cut and this kind of thing. Actually, there was quite a lot of surprise at the time, I think, when the impact on major projects, certainly from the government, was a lot less [00:17:30] than was expected. I think as well, the impact that potentially the issue with Ukraine, there was a lot of uncertainty about that. But it appears that a large amount of Europe, as in [inaudible 00:17:44] Western Europe, has almost seen that the other wider issues like climate change, net-zero, all the requirements that they had for that were being accelerated by the pressure from Ukraine in terms of getting to [00:18:00] self-generating capacity, things like this.
It’s almost as if the actual impact of things like the war there has been limited to us or a fairly narrow band of countries that have either got direct impact or direct recent knowledge of that regime. I think it’s been surprising and it’s been pleasing to see that the commitments that were made by governments and organizations about this move to net-zero and what have [00:18:30] you hasn’t been impacted quite as much as it might have been by the more general slowdown, I think.
Yeah. I think it seems like, if you start to put the pieces together, some of these issues, whether it’s COVID, whether it’s Ukraine, whether it’s, we’ve had lots of extreme weather events and different things that have forced, I think, the industry to maybe work a little bit differently and whether [00:19:00] it’s how we manage the supply chain, whether it’s how we identify risk early, I think some of those things have blown a hole in the status quo and forced all of us to work a little bit differently. Sounds like you’re seeing that there. One of the questions we’ll get into here in just a second is around the use of technology to help with some of those issues. But first, looks like we’ve got our poll results here, so looks like about 39% or so contractors, [00:19:30] good mix there of owners, public and private, architects, engineers. Great mix here as I was hoping and looks like that’s what we’ve got.
Can’t wait to hear some of the questions. Again, just as a reminder, please go ahead and put any questions that you have in that Q&A box and we’ll get to those as we get towards the end. Let’s turn to technology a little bit. Certainly one of the things that we saw [00:20:00] in the global capital projects outlook response and that report was there did seem to be, as we correlated the data, a nice correlation between on-time and on-budget performance correlated to the use of not only project control software, but taking a data-driven approach, using historic data, using benchmarks and things like that.
It was interesting. As we [00:20:30] categorized the responses that said either always or almost always stay on schedule, they were twice as likely to use historic data and benchmarks than the average. Not a surprise, but the higher performers are better taking advantage of that historic data and leveraging that. I think one of the things we’ve seen with InEight is there’s a lot of [00:21:00] desire to capture that data, capture that historic knowledge and institutionalize it, particularly because it’s hard to find new people, hard to find experience to hire on. Capturing that knowledge, making it accessible, and helping people plan more effectively seems to be translating into project success. But let me ask our panelists, and maybe Paul, let’s start with you [00:21:30] from AECOM’s perspective, what did you see, or maybe even talk to AECOM’s perspective on the use of technology and are you seeing that same kind of correlation in investments in technology translating into success in project delivery?
Yeah, thanks Brian. Great, great question. One of the things that struck me in the report was the idea that just having a project or program management system to help manage whatever undertaking you’re engaged on [00:22:00] is now just table stakes. It needs to be there. I think that that’s absolutely true. There aren’t many clients out there now who wouldn’t be writing in the need for a fully-fledged set of program management tools into their RFPs. They’d be excluding companies without experience of using those systems right at the prequel stage. That demonstrates that across the market, there’s a recognition that without the ability to use technology and manage data, there are going to be downsides in terms of the delivery, either in terms of what gets delivered, the schedule impacts, the [00:22:30] quality, the cost overruns, et cetera. Or alternatively, it’s just going to cost more to get the project and program delivered and we shouldn’t kid ourselves that post-COVID, there is a big focus on cost, so that needs to be there.
I think we’re seeing more and more of the megaprojects, the mega programs, and as complexity goes up, those projects and programs can’t be delivered without the use of technology. It’s just not feasible. From an AECOM [00:23:00] perspective, recognizing that, we’ve been focusing on megaprojects and programs and trying to invest in technology to make sure that when we do get appointed to a role, we can turn up on day one with the technology to hit the ground running. There’s always that danger on larger projects and programs that you reinvent the wheel and start pulling something together from scratch, possibly because the client has some legacy technology or maybe the program manager just likes a particular tool. Well, we’re stopping doing [00:23:30] that as an organization. We’re not doing that anymore. I work with InEight, and you guys have been putting together what we refer to as the program controls engine, and that means that we can turn up on a job with a largely pre-configured set of tools.
All of our people working on the programs are trying to use that system, and we have teams who are there to drive the deployment, specific teams ready for that. We’ve also invested in techno technology to drive the initiation phase. Even before we have [00:24:00] the full set of systems up and running, we have another tool in place that we call program advance that’s getting us going, getting it motoring. That allows us to get everyone across the team and across organizations collaborating and sharing data, as you say. That’s critically important. Through this approach and investing in these tools, we not only ensure that we don’t waste the early days of a program sorting out the basics, which otherwise can waste months, but instead we get everybody feeding data into the systems from day one, establish the right mindsets, and get a head start on delivery [00:24:30] and those improved scheduling cost outcomes that you talked about.
Clearly, we’re going to see continued change in how we leverage technology as we work through the impacts of manipulating big data and AI makes more of an impact. There’s a comment in the report that the impacts of technologies on delivery might be expected to be higher, but the way we look at it, it can be, but it just needs that investment upfront and the people, processes, and tools [00:25:00] to take full advantage of it.
Yeah, that’s really interesting. You hit on a couple of things that I underlined in the report. One of them was there were some number of questions in there around how frequently you deliver on time and on budget and things like that and how do you do that? One of the questions was, what’s your biggest challenge to successful delivery? For contractors, which it looks like from our poll is our largest segment here on this [00:25:30] webinar today, for contractors, the number one challenge was what was described as access and use of data to understand project status. I think we see that as we talk to potential customers of InEight, there’s this feeling that there’s a lot of information that could come to bear to help make better decisions, help make sure we understand where we’re at better. But the challenge is collecting that, getting it into a system [00:26:00] where you can share it and it makes sense and it’s good quality data.
Because I think the other challenge is in some cases we are, there’s just so much data. We’ve got all this data, but we don’t necessarily know how to bring it together and how to make sense of it. It does make sense that that would rise to the surface as the number one challenge. I think it also goes back to making that data accessible as the industry continues to grow and tries to keep up with the demand we’re bringing on, [00:26:30] folks with less experience are perhaps getting involved in projects of a complexity, scope, and size maybe that perhaps in the past, it would be three, four or five years down the road for them. Having that information they can use to validate, that they can use to benchmark, makes sense why that would be a high priority.
Well, one of the things I wanted to ask you, Dr. Basu, I know I think you look at other industries as well. Construction is I think one of if not [00:27:00] your main focus areas, but I believe you, you’ve turned your lens to other industries as well. I’m curious from your perspective maybe what jumps out at you in terms of when you see that result and just getting access to good information that we can use to make decisions, does that strike you as how are we not as an industry already passed that hurdle where other industries may have already gone down that path? How do you compare or rank construction relative to [00:27:30] maybe other industries that you’ve looked at in the use of technology?
No, construction is a really slow mover in terms of adaptation. We’ve seen revolutions in the way in which we shop. We shop out of warehouses now, e-commerce, so on and so forth. We have seen revolutions in the way that we manufacture products, distribute products, so on and so forth. But the typical construction jobsite, at least the United States of America, looks very much like it looked several decades ago. There are a lot of people standing around, mostly men. There’ll be one person actually working on a piece of heavy [00:28:00] equipment. There’s another person holding a sign that says slow and then stop and then slow again. We’ve seen very weak productivity growth in construction. At the heart of the issue is that we have a construction workforce that has a difficult time simply mastering existing technologies and processes. When you’ve got a skills shortfall across the industry, and this is beyond North America. You can see it in the survey data. This stretches into the Asia Pacific region and certainly into Europe. We don’t have enough skilled [00:28:30] craftspeople.
When you’ve got an industry that needs to embrace change, which you don’t have the workers that can embrace change, you end up being pretty static in terms of productivity growth, and so that’s where we are. Now, where do we see the progress? We see it in project management, because there you have people who understand how to work with data, they’re used to seeing numbers, they’re used to working collaboratively with one another with respect to conversations about numbers, about dates, about project delivery, so on and so forth. But in terms of actually delivering construction, we don’t have enough carpenters and the technology [00:29:00] we use is very similar to technology of the past. We don’t have enough roofers and other kinds of skilled craftspeople. Welders, machinists, mechanics, you name it. The demand for construction services is high because demand is a function not just of economic growth but of economic transformation.
Well, we have so much transformation, whether it’s the way we handle data, the development of data centers or whether it’s America trying to rebuild its infrastructure or restore production in the form of computer chip [00:29:30] manufacturing plants, so on and so forth, or alternative energy, whether in Europe, the United States, or elsewhere, and the need to improve the built environment to usher forth a period of renewable energy. In any case, the industry thus far has not been up to these challenges, so construction is very expensive to deliver. More transformation is coming, but we don’t have necessarily more skilled craftspeople being developed. In fact, we have a lot of our most skilled construction workers on the way to retirement in the next five to 10 years. In America, we call that the Baby Boomer generation. Some of them are [00:30:00] already in their seventies and the rest are marching very quickly toward retirement. We’ve got a challenge here, and so construction has been very much behind the productivity curve relative to retail, manufacturing, other industries.
Yeah, that’s spot on. I think the industry is recognizing that we have to do more with less. There’s no savior coming, there’s no light at the end of the tunnel in terms of the skills shortage or the labor shortage, [00:30:30] so the only answer is getting more efficient. How do we remove friction in the delivery process and do more with less? I think as you compare what happens in the construction industry, other industries, I think there certainly is a move to how do we make things a little more methodical? There’s certainly nuances to construction compared to other industries. You’re at [00:31:00] the mercy of all kinds of things that conspire against productivity. But I think the good news is I think the industry is recognized that we’ve got to change, we’ve got to do things differently in order to get more productive just to keep up with the demand out there.
Yeah, great to hear your perspective on that, Dr. Basu. Let’s tee up our next survey and get a little more information here from our audience. While that is going out, once you get that up on your screen, if you can [00:31:30] go ahead and click on what you see from your own organization’s perspective in terms of your investment in technology, specifically around project controls. How are you approaching project controls? Are you looking to invest in improvements in the technology relative to project controls, project management? Stay the same? Going down, going up? I’d love to hear your views on that and while everybody is answering that, Jeff [00:32:00] over in the UK, certainly in your role, you get to hear from a lot of customers that have already made the decision to say, let’s go improve our technology, let’s improve our process, let’s go and make some investments in technology. Jeff, is there a pattern there to the why behind that? When you engage with potential customers, what are you hearing from them in terms of why are they looking to go down that road [00:32:30] and invest in technology?
I think it actually comes back a lot to what Dr. Basu has just said and Paul has just said is this doing more with less and having an environment where delivering on time is seen as being key. One of those things there is that by improving collaboration, there are multiple [00:33:00] successful organizations and projects that are using collaboration to do things like, think about skilled craftsmen. The fact is, if you can actually do things like Advanced Work Packaging and things like this, you remove or reduce the amount of downtime skilled labor has. Well, that has a benefit not only to the fact that you can then use your skilled labor more productively, but the wastage that you would generally associate with it and wastage [00:33:30] of time is removed, which makes it easier to operate.
The key thing there, and I think the bit about collaboration, it’s clear that we are moving to a stage where using technology, people are able to properly take on the mantra of reporting something that happened a month ago and telling me how you intend to fix it next month is just not going to cut it. [00:34:00] You’ve got to get to a point where you are looking at what is going to happen in the next week, what are the blockers to that and how are you going to prioritize your resources and your management expertise to deliver that? That move from report and reactor predict and prioritize is a massive shift and absolutely requires deep collaboration and deep understanding and usage [00:34:30] of the data to provide meaningful information.
Well, that certainly I think highlights a lot of what we saw in the report. The desire to be more collaborative I think reflects that need to be more productive, more efficient, eliminate friction. I think we’ll explore this here in a minute after we go over these poll results. But I think were [00:35:00] seeing perhaps a shift in contract models that reflects that and forcing that more collaborative approach. But before we turn our spotlight on that, just let’s look at our poll results here. Interestingly, so almost 60% increasing investment or budget around that digital transformation, 0% decreasing. Certainly, that’s great to see the industry making that kind of investment. [00:35:30] 33% staying the same, so about a third continuing the pace. But goodness, that’s a great sign right there, just seeing the opportunity that people see investing in digital technologies for project controls, realizing the benefit and the impact they can have.
Great to see that. Let’s turn to that shift that I was referencing and for the first time this year, we included some questions [00:36:00] around contract delivery models that we’re seeing in the industry. I think having personally been in the industry for three decades, what started for me, anyway, a long time ago was the predominant way to do business was what I always describe as an arm’s length model. It was typically a design bid and then build a model, each of those stages [00:36:30] distinct, not a lot of opportunity for optimizing design, for example, based on how could we construct it with less risk and faster? In each one of those stages, the stakeholders were looking at each other with intense scrutiny on I’ll do exactly what you pay me to do and that’s all.
I think we’ve seen a shift of that, in particular I think, over the last few years in particular, we at InEight have noted [00:37:00] an increase in finding software that can help support these shared risk models, these things like integrated project delivery, design build, progressive design build, even as you referenced, Jeff, things like advanced work packaging. Really, the theme of these shifts seems to be more iterative. We’ve got opportunities to adjust as we go along. Let’s be more [00:37:30] collaborative. Let’s look for opportunities to share the risk. I think by doing that, when everybody feels like they’ve got an equal share of the risk, people tend to be more collaborative, they tend to be more forthcoming when there’s not this hold everything close to your vest so that you don’t get into unnecessary scrutiny.
I guess first of all, let’s probe to our speakers here. Are you guys actually [00:38:00] seeing the same shift that was noted in the report? Maybe starting with you, Paul, and maybe even before we get into that, Paul, just from your perspective, I would love to know, do you feel like there is a fair distribution of risk in these large capital projects today? There’s certainly a mindset that the owner has the most economic value of that asset. Even after the project has been built, obviously they have a [00:38:30] lot of upside in recognizing the economic benefit from that asset. Any risks that came up that perhaps changed the ROI? At least there’s 30 years, 50 years, whatever the life of that asset is, to recoup that and gain the upside from an economic value, whereas the contractor is wholly capped around the delivery of that project. That is their upside from a financial perspective. I guess from your perspective, Paul, [00:39:00] how do you feel about that? Where do you see? What do you observe? Is there an equal share of risk today or does that need to change?
Sure. Well, I would certainly agree with the hypothesis that there’s been a major shift towards more collaborative models, the IPD and away from P3 type delivery. I’ve spent most of the last five years working in Canada, and I clearly recall at, I think it was the 2020 P3 Conference and the industry as a whole, [00:39:30] particularly the constructors, standing up en masse and saying, we’re not doing this anymore to the extent where you’re pushing all of this risk to us. It’s crazy. It’s not a way to transfer risk or to run a business, for that matter. I think for me, one of the things is that three contracts tend to build in a lot of those non-aligned timescale issues where you end up with a constructor who’s there for the period of the construction and then you’ve got, [00:40:00] say, a rolling stock operator if it’s a rail project and maintenance, and they’re all working to slightly different timescales and it just builds in a whole load of tensions to start with.
For me, there’s a lot to be said for separating things out again. But for an IPD type contract, an alliance contract, if you like, I think it’s really a positive step in most instances. It builds flexibility into project and program delivery. You can avoid the rigidity of trying [00:40:30] to deal with unexpected situations. You’re always going to get unexpected situations, let’s face it, where you have to just deal with it in a contractual manner. However well you’ve tried to share the risk out in the first place, even if you’ve done your utmost to make sure it’s fairly balanced, these things will crop up and you’ll find that there was something not quite right in there. A collaborative model that allows you to work through the process of delivery to actually figure [00:41:00] that out, it’s a great thing.
We shouldn’t, of course, assume that a collaborative delivery model means that everybody just plays nice together. That doesn’t happen, either. We still need really solid technology to manage the data as well as being able to manage the people issues and the collaboration, and I think that’s an art in its own right. I think in fact in many ways, it becomes more important to manage data and have the technology and tools to support that collaborative effort with the people [00:41:30] and be able to respond flexibly to what’s going on and to the advantage of the project or the program so that you actually do drive the benefits out that way. It can’t just be a model where you sign a contract and come back when everything is done. You need to be looking at that data day in, day out and you’ve got to find the right people to make it happen. It’s the usual challenges of technology and people together and making those happen.
Yeah, it’s interesting. It seems like there’s been this sudden recognition [00:42:00] that more collaboration is better, more iterative approach is better, so let’s do that, and then all of a sudden it’s like, oh, well how are we going to do that? [inaudible 00:42:07], we need technologies and tools that enable that collaboration but still protect the sovereignty, if you will, of the individual stakeholders, and everybody has a little bit of a different view on the data that they care about. That is driving certainly some evolutions in the technologies themselves that enable that kind of collaboration. [00:42:30] Maybe back over to you, Jeff, in terms of what you see InEight’s role, I know InEight is getting involved in some pretty large projects there. Do you see that same sort of desire for more collaboration, more risk sharing, better identification of risks? Is that shifting?
Absolutely. I think one of the advantages that the UK might talk quite proudly about is the whole NEC contracting [00:43:00] capability, the way in which they use that contract to actually drive collaboration. I know talking to people at Thomas Telford that they are seeing a growth of that capability wider than just the traditional heart of it because it absolutely plays to this piece which says, if you can collaborate, if you can talk about risks properly and be open about things, we’re not expecting you to show everything, but at least when [00:43:30] you are pretty sure there is something we should be talking about, let’s have a proper conversation about it.
Let’s share our risk registers. Let’s work collaboratively to solve the problems that will arise. It moves the whole focus of delivery away from the very siloed, this is my bit and I’ll deliver it and because I’m holding all the risk, I will make all the decisions to a bit that says, as a collaborative partnership, we both win. [00:44:00] Owner, contractor, skilled contractors, et cetera, we all win if the project is delivered on time, on budget, and on scope because we’re not wasting our time fighting about variations or having people sat round while we discuss what we should have done last week.
Everybody is actually working to deliver the thing collaboratively and moving forward. It’s a huge shift in perspective [00:44:30] that has been enabled by having that ability to share, in a controlled manner, information. It’s a huge thing that the industry is really only just getting to grips with it and I think it will revolutionize still further in the next five, 10 years where we’re going to get to, especially with AI and machine learning and stuff when we have these big data lakes available to us. It’s going to be really interesting to see.
[00:45:00] Yeah, that NEC approach that you referenced, Jeff, is really, really a good sign. Another nice sign for the industry that there is a commitment to get more collaborative and more iterative and share that risk. Great to see that expand. Hopefully, we’ll see that become more prevalent. It’s good for the industry. Well, let’s tee up our final poll here and while that’s going out in terms of really [00:45:30] goes to what we’ve been talking about, what are some of these iterative, more collaborative risk sharing type models, whether it’s AWP, IPD, you name it. Everybody is familiar with what those are. We listed a couple of them here, AWP and IPD, but that sort of category of more iterative, more collaborative, where are we seeing that? I’d love to hear input from our audience on where [00:46:00] do we see that happening?
Are there certain industries that are more at the forefront of that and others that are not? Would love to hear your thoughts on that from the audience while we wait for the poll results on that, Dr. Basu, I’d like to get a question back to you and that’s we’ve been talking about, I think maybe what you could describe as a groundswell or a recognition from inside the industry that’s pushing up change and driving, whether it’s use of technology or new contract [00:46:30] delivery models. But let’s maybe go look at it from a macroeconomic level, which I think you have a nice vantage point for. In terms of things like government policy or specific initiatives that you’re seeing, are there things at that macroeconomic level? You talked at the very beginning around some of the things that might be creating headwinds. What about on the other side? Are you seeing things that might be a good sign at that macroeconomic level for the construction industry?
Oh, sure. [00:47:00] I’ll give an example that’s quite US-specific, which is the return of industrial policy to the United States of America. For several decades, the Americans had been pursuing what I would call a laissez-faire policy, entered into free trade agreements, and let the global markets determine what activities should be transpiring in America and where production should be perhaps sent elsewhere, and so we saw a ton of offshoring of supply chain from this country and probably some of that [00:47:30] was merited based on laws of comparative advantage. However, I think many policymakers in the United States determined that too much supply chain had left these shores, that we were also facing perhaps some unfair trade. Now, there’s this effort by the federal government in particular to bring more production back home. One could make the argument that it begins under the Trump administration with the emphasis on steel and aluminum production in the United States.
In part, for national security reasons, it’s certainly extended into the Biden administration [00:48:00] with the focus on computer chip manufacturing here, in [inaudible 00:48:04] alternative energy. Obviously, at the same time, the Americans are trying to rebuild their infrastructure. As I say, this is the era of the megaproject. We see this, whether it’s computer chip manufacturing facilities in Syracuse, New York, Columbus, Ohio; Chandler, Arizona; Sherman, Texas; Boise, Idaho; battery manufacturing plants in Georgia, Kentucky, Tennessee, Michigan. Around the country, we have these megaprojects, and again, at the heart of the matter is the federal government pushing a lot [00:48:30] of these activities through tax credits or other mechanisms. Obviously, when the built environment is transitioning so quickly, that’s good for contractors, that’s good for construction work, that’s good for backlog. But of course, it’s also an industry that’s very challenged in finding human capital to do the work. Often, this work is delivered at a very high price and an extended timetable. Nonetheless, if you ask me what’s positive for construction, public policy towards construction in the United States [00:49:00] has been quite favorable.
That’s great insights there, Dr. Basu. You touched on a couple of things that I think are driving that. We talked about the demand for construction outpacing the capacity of the industry to deliver. Certainly a couple of those things you touched on, which are the move to sustainable energy, whether that’s creating new facilities or converting existing ones, and that starts with, as you say, the federal government typically, [00:49:30] but even things like infrastructure. The infrastructure in the developed parts of the world is in many places crumbling and needs a rebuild and in evolving parts of the world, it doesn’t exist in many cases at all, so a lot of investment in new infrastructure. I like your example about even battery facilities. We don’t tend to think of that as part of infrastructure, but increasingly, [00:50:00] that’s a key part of whether it’s energy infrastructure or even transportation infrastructure that is really driving that need for additional construction in those segments.
Let’s see what we got here. Which industries or types of projects do we see these collaborative models coming into play? Looks like a fairly good spread there. Petroleum, oil and gas, power, transportation, 20%. [00:50:30] Fairly equal spread there around the 10 percents and the 20 percents across the board. That’s a good sign. I think some of these methodologies and models, at least from my vantage point I would say started in the oil and gas sector even more than a decade ago, but they seem to be getting more prevalent across all segments and that seems to be backed up here by the response from our audience.
Let me ask one more question of you, [00:51:00] Paul, and then we’ll open it up for the questions that we have from the audience. Paul, I’m curious, there’s a lot of news these days about AI, artificial intelligence and orders of magnitude advances in that world, just in general technology over the last few years in particular. How do you and AECOM view AI? [00:51:30] Is it something that you are investing in? Is it something that you’re keeping an eye on? Are you doing some of that today? Maybe talk to that, if you don’t mind.
Sure, absolutely. Clearly, we’re seeing a massive amount of hype at present, but behind that, there’s clearly benefits to be had starting now and growing as we go into the future. We fully intend to capitalize on it. We are investing already in systems to use those data [00:52:00] lakes and to really analyze the data and avoid the delays and cost overruns of the past, which as I said earlier on, the more complexity we see coming onto megaprojects and programs, the more it becomes essential that we get this. When that’s factored against the shortage of people out there, it becomes more and more important.
I think we’ve certainly moved to a more defined [00:52:30] and focused knowledge management approach as we head into trying to think in a more structured way about how we use AI and therefore, it takes that investment in people in technology and creating a structure around it before you can actually start to capitalize. I don’t think it’s something that you just go and use ChatGPT and you suddenly sold all the world’s issues. It’s a bit bigger and more complex than that. We’re taking it very seriously. [00:53:00] Our digital team is working away on it as we speak, working on our new tools that we’ll deploy on programs in the future.
Very good, very good. Yeah, I think we certainly see similar patterns as we engage with really all stakeholders. I think the focus seems to be on at this point for the magic of AI to do its thing, you need good data to [00:53:30] train it. I think maybe that’s also helping drive this focus on, hey, we got to become a data-driven organization. We got to do a better job capturing data in a consistent way if we’re going to get the benefits of this AI, which of course as you said, is always going to compliment, as we call it, the HI, the human intelligence. It augments that, but lots of, as you say, hype there and lots of progression going on there, so [00:54:00] be interesting to keep an eye on that. Thanks for your insights on that, Paul.
Let’s start to wrap it up. It looks like we’ve got a few questions from the audience here. Maybe I’ll start with one that I think I’ll throw to you, Dr. Basu, from Gabriel. Gabriel says the small companies mostly in construction are still struggling, not seeing the bigger picture yet. [00:54:30] When will it start to trickle down small businesses? Any thoughts on that, Dr. Basu?
Yeah. When I looked at the survey, actually, I saw a fair amount of optimism among many smaller contractors, but different stories out there. Look, if you’re in infrastructure, if that’s what you work on, let’s say in the United States, you’re going to be busy right now. With all this road and bridge work and so on and so forth, vehicle charging stations. But if you’re a contractor that’s wedded to commercial construction, at least in the United States, [00:55:00] the outlook is not particularly positive. We have a real commercial real estate challenge in front of us. We’ve got rising office vacancy rates. We’ve got a lot of vacant and abandoned shopping centers. That frustrates new construction, and on top of that, not only has the cost of capital-facing developers increased, but it’s more difficult for them to access capital in the aftermath of the failures of Silicon Valley Bank, Signature Bank, so on and so forth.
We are hearing from senior lending officers at US banks, we are trying to actually limit our exposure to commercial real estate and we’ve got [00:55:30] about $1.5 trillion of commercial real estate related debt that has to be refinanced in this country between now and the end of 2025. Who’s going to refinance that debt? Project financing and commercial real estate is going to become a real challenge. I would say the same is true in the multifamily or apartment construction category. Those contractors that are aligned with developer-driven activities stand to be very challenged in the year ahead or the next couple of years, at least, relative to contractors that specialize on [00:56:00] infrastructure or megaprojects like major manufacturing facilities or healthcare facilities. It’s going to be a very disparate performance across contractors. Some contractors are going to fare very well going forward, will have more work than they know what to do with. Other contractors face their own idiosyncratic recessions over the next two to three years.
That’s a great reminder that we tend to think of this industry holistically, but lots of nuances inside each of the different segments. [00:56:30] You just called those out beautifully, so thanks for that. Looks like we got another question here from Melissa. Certainly, this one, it goes to you Paul, because it specifically says, what is AECOM doing to address the labor issues? What do you see as ways to take some of the risk out of the ability to find new people and experienced people?
Absolutely, and I can answer that in two different ways really. The first I guess is [00:57:00] looking at the people themselves. Within our own business, we do probably the obvious things. We work with apprentices, we bring people through, we have graduate programs, we have a lot of mentoring to bring people through and to get people the ability and the experience to deliver more and more complexity. That’s internally. Externally, we work with our clients to help them understand [00:57:30] what their supply chain is going to be like and what their need is going to be. I was just doing a study for a major client a few weeks ago and one of the findings that we put to them out of that was around, you need to be thinking about how you’re going to bring the labor right across the spectrum into your teams, into delivering your programs and you need to start that early and you’re going to need [00:58:00] to help it along as well.
That means taking interventions, whether that be in terms of putting in place specific training programs. We’ve seen that done before on the lights of cross rail. That’s I suppose the direct answer piece. The second part of the answer of course is trying to use technology so that we focus people on the things where we really need people and use the technology to make us all more efficient in the things where technology can add value.
Fantastic. Appreciate [00:58:30] that insight there, Paul, on what’s happening in your organization. Certainly you’re involved in many markets in many regions, so great to hear that perspective. I think we are at time here, so let’s wrap it up. I think the takeaways, I think the general optimism I think is still coming through in this report. Seems to continue to increase [00:59:00] year over year despite the challenges that we’ve talked about. I think the other theme and appreciate our panelists here touching on the theme of moving towards a more collaborative, more iterative approach to these projects is great to see. We saw it in the survey results, we heard it from the speakers here. I think those are great signs for the industry and certainly looking at how technology can help realize that sort of a collaborative approach. InEight will certainly [00:59:30] do our part to help in that area.
With that, thank you so much to our speakers here today. Dr. Basu, Paul, Jeff, I really appreciate you joining us today and sharing your thoughts and great insights into this unbelievably important industry for humanity. This is important stuff that you all do, that all the people watching here today do. We appreciate you and again, thank you to our [01:00:00] speakers for joining us today. If anybody wants more information about InEight or to download that report, the Global Capital Projects Outlook report, just visit ineight.com. With that, we’ll call this a wrap. Thank you all for attending.