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Vendors Jostle and Profess Economic Stimulus Readiness - Part III

Written By: Predrag Jakovljevic
Published On: February 1 2010

Part I of this series analyzed the opportunity as well as the related attached strings stemming from the American Recovery and Reinvestment Act of 2009 (ARRA), a.k.a. the Economic Stimulus Plan. The inspiration came from my attendance of the Deltek Insight 2009 user conference last May, where Deltek decided to fill a market need and interest by convening a separate “track” that was entitled “Stimulus & Beyond (Navigating the Brave New World).”

Part II of this series then analyzed why Deltek believes it can help government contractors, architecture, engineering & construction (AEC) firms, and other public sector organizations in their endeavors to obtain ARRA funds (i.e., the opportunity part) and duly report on them (for transparency and accountability). But what about the construction industry’s current challenges, its outlook, and the market trends? 

The Construction Industry’s Outlook

The second keynote co-speaker at the abovementioned Deltek Insight 2009 track on stimulus was Norbert W. Young, Jr., president of McGraw-Hill ConstructionMcGraw-Hill Construction is the leading source of project news, product information, industry analysis, and editorial coverage for design and construction professionals.

Founded by James H. McGraw, Frederick W. Dodge, and Clinton Sweet over 100 years ago, today the firm has about 1,200 employees and serves over one million customers within the US$5 trillion global construction community. The company’s goal is to provide construction information to the private sector, government, and financial community and to help the industry players save time, money, and energy.

In his session Mr. Young shared his insight into the current and future state of the construction industry, including the economic outlook, the impact of the stimulus package, and the opportunities for growth. The current trends that challenge the sector are as follows: the economic health (or malaise rather these days, as explained in Part I), global demand exceeding capacity (in terms of natural resources and human resources), geopolitics, and globalization.

The globalization trend was illustrated by the much faster real gross domestic product (GDP) growth (in terms of annual percentage changes) of China, India, and the United Arab Emirates (UAE) as compared to the US, both recently recorded and projected for the future. According to the International Monetary Fund (IMF) World Economic Outlook (WEO) Database and the Oxford Economics Department, both dating from January 2009, projected 2010 GDP figures for China were 8.0, for India 6.5, and UAE 4.5 compared to a modest 1.6 percent for the US.

The remaining key fundamentals remain demographics and business (economic) cycle fluctuations (lately trending down). As for demographics, according to aggregated sources from the World Bank’s World Development Indicators (WDI) database in September 2008, as well as the Economist Intelligence Unit (EIU), Goldman Sachs Economic Research, and Deutsche Bank Research’s projections from 2008, in 2020 China will have a larger GDP than Japan and Germany, who currently hold second and third place respectively (after the US).

According to International Data Base (IDB) of the U.S. Census Bureau in 2008, there will be no major shifts in the projected populations ranking of the 15 largest global economies, except for that many European populations will shrink, as opposed to those in China, India, Brazil, Mexico, and the US. The total world population in 2020 is projected to be 7.6 billion, compared to 6.7 billion in 2008.

The presentation was quite eye-opening for me personally, since then and there I realized that the construction sector remains powerful in spite of the current downbeat posture. The industry remains huge and essential in light of the nearly US$ 5 trillion output of the global construction industry in 2007, employing more than 100 million worldwide. The construction sector contributes 10 percent of the Global GDP. Since the same figure is with regard to the US GDP, construction is the second largest industry in the US after the healthcare industry’s 16 percent of the US GDP.

Western Europe and Asia represented US1.4 trillion markets in 2007, with Spain, Germany, the United Kingdom (UK), Italy, and France being the top European countries, and with China, Japan, and Korea being the top three countries in Asia. As for the expected global market growth, the US will continue to be the single largest national market, while hot emerging markets are China, Brazil, Korea, and India.

“Saving Grace” Trends to Answer Current Industry Challenges

In addition to ongoing urbanization trends in many spots worldwide, there are two more trends that could help the construction industry overcome today’s challenges. Mr. Young discussed the importance of leveraging technology to enhance efficiency and productivity and the future of key industry trends including sustainability and virtual design & construction (VDC).

Urbanization presents a long-term opportunity via emerging “megaregions,” where most of the US nation's rapid population growth and economic expansion will occur. The America 2050 site shows a number of expanding regions of multiple metropolitan areas, with interlocking economic systems, shared natural resources and ecosystems, and common transportation systems.

Sustainability offers a promise of worldwide market growth based on a nearly doubling percentage of construction firms that will be largely dedicated to the “green” approach (on approximately two thirds of projects) from about 30 percent in 2008 to about 55 percent in 2013. These projections are quite higher for Europe and Asia, with about 70 percent of construction firms expected to be green (environmental) technology proponents by 2013.

While the US market is never at the forefront of green initiatives, there is an increasing market opportunity there as well. Namely, the green (sustainable) building market has been growing despite declining new building construction in the commercial and institutional market, and is expected to triple in size from 2008 to 2013. Similar holds true for residential green homes even as the total residential housing market falls.

There has also been rapid growth of the US Green Building Council’s (USGBC’s) Leadership in Energy and Environmental Design (LEED) standards in project specifications. LEED-based specifications are growing most rapidly in larger projects (i.e., in 2007, they were featured in 41 percent of projects with valuations over $20 million).

Going Virtual and Lean in Construction

For a long time, traditional information exchange between the usual construction project participants (i.e., city, architect, construction manager, facilities manager, facilities and building owner, civil engineer, structural engineer, heating, ventilation, and air-conditioning [HVAC] engineer, etc.) included a jumble of wasteful and unproductive point-to-point interactions. A much better way of late has been a hub-and-spoke interoperable information exchange (a repository) amongst these participants with a Building Information Model (BIM) at the information hub.

A BIM repository enables efficient exchange and access for all relevant construction project information, such as the following: environmental data, design data, financial data, specification data, owner/occupier data, legal data, sustainers data, and geospatial data. This VDC digital approach shifts the bulk of the project work and effort to the design phase (early in the project lifecycle) to help coordinate building systems and the project, and manage project costs. This is in contrast to the traditional design approach where the bulk of the effort occurs during the construction documentation creation and actual construction phases, when costs of design changes becomes huge and when there is little ability to control costs.

McGraw-Hill Construction believes that BIM has recently crossed the tipping point, with ever more construction firms leveraging it. The business value of BIM comes from multiple potential benefits for every participant. These benefits should result from the following capabilities: visualization, communication, spatial coordination, building performance simulation, cost modeling, model-driven pre-fabrication of major components, schedule coordination, and improved jobsite logistics.

A crucial component here is BIM content with necessary intelligent objects that serve the requested properties to the simulation and analysis tools (i.e., schedule, cost, energy efficiency simulation, coordination, visualization, fabrication, etc.). Key findings from MacGraw-Hill’s recent Construction Users Roundtable (CURT) were that modeling must become the norm in order to promote the construction owner leadership and collaborative project organizations sharing the information.

Therefore, McGraw-Hill Construction’s vision is to transform the global construction industry by setting new standards through connecting people, projects, and products. The company’s mission is to provide its customers with sales & marketing and workflow solutions that will help them get smarter, get seen, find work, and conduct work.

Catering to the Entire Infrastructure Lifecycle

Although Deltek inspired this blog series and while the company caters to AEC firms, its focus and software capabilities are in the design or planning stage of an infrastructure object. But the entire infrastructure lifecycle management (ILM) encompasses the following phases that denote yet another three-letter acronym (TLA) – “PBO”:

  • Plan: manage project pipelines, site development, entitlements, etc.

  • Build: track budgets, contracts, changes, schedules, scopes, and quality

  • Operate: direct asset management, work orders, and maintenance management

Part 4 will conclude this series by talking about some software vendors that cater to the entire construction project’s (i.e., PBO) lifecycle, and these vendors’ efforts with regard to ARRA. Your views, comments and opinions, etc., are customarily welcome in the meantime. If you are a recipient of ARRA funds, I would appreciate you sharing your experiences with dealing with federal or local agencies.
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