The “technological revolution” of industrialized construction is not without risk
The way large infrastructure projects are procured will inevitably be adapted to accommodate modern construction methods along the value chain. At the same time, the ecosystem of companies offering the technology to make the necessary changes requires greater maturity.
Clients and ultimate owners of large projects often want a unique product that features a high design aesthetic and requires a significant amount of customization. Contractors may need to change their standard industrialized scope if a high degree of customization is required, which can have time, cost and quality implications.
Site work and construction elements in the factory take place simultaneously in industrialized construction. This means that the delay of work on site or in the factory will inevitably have an impact on the other.
If site work is delayed and components are ready, additional storage or storage areas may be required. If the site work is completed but the prefabricated elements are not ready, the construction site can remain inactive.
If the parties rely on traditional construction contracts rather than collaboration or alliance contracts, liability for delay and interface risk could make the prime contractor’s participation in the project unprofitable.
Industrialized techniques and technologies with a limited track record may have difficulty obtaining the required financing from lenders. Those who approve these projects may require a large initial commitment of equity or charge higher interest rates to offset what they see as higher risk.
In addition, lenders will often limit the proceeds from the drawdown of these loans to on-site work, component delivery, and project completion milestones. This forces entrepreneurs to maintain more working capital and can also lead to additional upfront costs.
Subcontractor supply chain
The first level contractors are only as strong as the weakest link in the project supply chain. Some suppliers may need additional support to fully integrate into the subcontracting chain: for example, they will have to use the same software or have access to the same data.
All parts of the supply chain need to understand how they fit into the new ecosystem and how they interact with it. This will also affect the contractual arrangements for allocating risks down the supply chain.
While the precast work itself is performed in a predictable factory environment, component-based construction requires additional logistical considerations. Controls should be in place to ensure that equipment and modules are delivered to the construction site on time and in good condition. Size, shape, and materials should be considered, and additional costs should be budgeted for for transportation, packaging material, and insurance. This is particularly the case for items with long delivery times, or those that are too bulky to be transported on public road networks.
Contractors will have to mitigate their exposure to logistical shocks that do not necessarily occur in a traditional construction model: unforeseen events such as the recent blockage of the Suez Canal by a container ship, or social unrest in ports, should be taken into account It may be possible to develop relationships with trusted partners who are willing to share the logistical burden and assume the risks.
To reduce some of the logistical risks and costs associated with offshore manufacturing and shipping, it may be preferable to manufacture some components “onshore”. This will require investments in national factories; hiring, training and development of local employees; and the purchase of manufacturing equipment. However, in collaborative procurement models, it may be possible to share some of these costs.
For the existing construction workforce, significant and long-term changes, or even large-scale restructuring, are likely. Careful management of any such exercise will be necessary to avoid staff turmoil. Early engagement with unions will be extremely important.
Operators and maintainers of major infrastructure assets will need to engage with the modern construction methods used. They will need to have access to intellectual property, data and spare parts in the background in order to properly maintain assets.
Poor perception of the industry
Previous industry experience means that some in the industry view industrialized construction products as substandard and inferior in quality. While this is no longer accurate, work is needed to restore industry confidence.