2017 ended with a tailwind of increased architectural activity. The ABI records architectural billings on commercial building projects. Any value greater than 50 means that architecture billings are increasing; conversely, any value less than 50 means billings are decreasing. The ABI is a leading indicator of commercial building construction by approximately nine to 12 months.
While weaker than November's ABI of 55, the December figure of 52.9 is still a strong result. The new project inquiry metric increased to 61.9, up from 61.1 in November.
Here's is the regional breakdown for December 2017:
Sector Averages for December 2017:
Overall, this month's data is pretty strong, with the Northeast showing the only declining billings. Let's hope this tailwind carries us to a strong 2018.
For the past few years, the Construction Financial Management Association has invited me to give a presentation that consists of a recap of current economic trends in the construction industry and offer some basic predictions for the year to come. As an amateur economists (seriously, amateur at best) and a nerd with a deep interest in construction trends, it is a presentation I look forward to giving. The slides from this year's presentation, on January 18, 2018, are below. If you have any questions, please reach out to me at email@example.com
Please read this article:
The Lessons of Carillion's Demise
Pay particular attention to this quote:
"...The structural problems in the U.K. market, though, go way beyond Carillion. The market is fragmented and highly competitive. Operating margins are estimated to be in the low single digits, about half those of France.
Competition is a double-edged sword. It's good if taxpayers get a better price from a diverse array of bids, but bad if overly aggressive bidding to secure contracts leads to delays in completing projects or even their failure. A March paper commissioned by the Business Services Association warned that only one in five of the largest public-service providers made a commercial return in five years. Focusing myopically on price can lead to unexpected long-term costs."
Sure this happened in the U.K. But if you think the same cannot happen in the U.S. with the issues we have with low bidding on public works projects that have chronic issues (read anything about the state of tunnel construction in the U.S. as Exhibit 1), then you are fooling yourself.
Wow, it has been almost two years since I have made a post. That is going to change in 2018 and I am going to kick the year off with some commentary on a site visit I was lucky enough to attend last week. I, along with some students in the Sac State Construction Management program and some friends from industry (Bob Kjome and Yvone Hobbs of Roebbelen Contracting) attended a site visit at the Rudolph & Sletten UCSF Precision Cancer Medical Building in San Francisco. The site visit was arranged by John Elwood, a Senior Project Executive at R&S and involved several people from R&S's preconstruction and field operations and from two of their key trade partners.
The entire site visit was very illuminating, yet there was one theme I want to highlight with respect to the title of this blog post. Stuart Eckblad, the Vice President for Major Capital Project at UCSF, was describing the innovative way that UCSF selects designers and contractors. In a nutshell, they start with a CM at Risk delivery model, allowing them to hire an architect and general contractor separately. They shortlist the qualified architecture firms to three (typically). Then, they select a general contractor based on fees and billing rates. Once a general contractor is selected, they as the GC which architect they want to work with out of the three shortlisted and that team is combined into a project team that will complete the construction of the project under a design-build delivery model. Specialty trades are then selected based cost (per public sector contracting rules). Sounds complicated, right? It is, yet it allows UCSF the best of many worlds (independent selection of designer and GC with a single contract and competitive pricing from qualified teams; I could discuss this forever if there if people want to dig deeper).
However, it is the qualitative portion of the selection of the GCs, in addition to fees and billing rates, that most intrigues me and shows how the construction industry is changing. Stuart asks two key questions during the interviews of shortlisted GCs: 1) "What are you going to do to cure cancer?" (UCSF is a leading cancer research and treatment institution) and 2) "What will you do to bring collaboration to the project?" Again, I could talk about these questions and their significance forever, but there are two key points I want to make. First, Stuart makes the tacit point that he doesn't really care about how the selected GC is going to actually build a structure. He knows that the GCs being considered are all capable of building complex and technical structures because they are shortlisted by qualifications. But he is truly interested in how the selected GC is going to enaqble and enhance UCSF's mission. In other words, UCSF is not hiring a general contractor, they are hiring a partner in their war against deadly diseases.
Secondly, Stuart wants to know how the selected GC is going to work well with others. Not just the architect and owner's construction management team, but also with doctors, nurses, research scientists and, most importantly, patients and their loved ones. In fact, they have the design-build team meet with patients to gain a first-hand understanding of the curing process and what patients need for successful outcomes. I will guarantee you that patients rarely, if likely never, bring up construction topics like change orders, general conditions, maintaining the critical path, etc.
As the site visit concluded, John made a key point that also highlights the changing nature of the construction industry: construction is a people business. Many people in the construction industry already know this, but this concept is accelerating and, on the flip side, the days of hard bidding and only building what is represented in the plans and specifications without care or consideration of owners' and end users' needs or desires, is decelerating. As builders, it will be increasingly important to work with owners and end users to meet higher-order goals and to truly understand their missions. This is a positive change.