BIM Mandates and Construction Industry Policy

BIM as Industrial Strategy 

 

Construction of the built environment is subject to many government regulations, legislation and policies. On the demand side interest rates, taxes, public infrastructure spending, urban development and housing policies are all important, but are also external to the built environment sector itself and they determined by a wide range of factors beyond the sector. There are the effects of planning and environmental regulations, and restrictions limiting the supply of new housing or infrastructure, an issue that has featured in recent debates and spills over into other issues around affordability of housing and the cost of major projects. All costs the complex institutional and policy environment entail are crystalised at the moment a contract is signed for a new building or construction project, as part of a total cost that typically includes finance and land, or access to it. The remaining share of the project cost is design and delivery, so that is what built environment industries can affect. On the supply side the issues are about efficiency, productivity and production costs.

 

A brief, general discussion on BIM and industry policy follows, before discussing the importance of BIM mandates. The pervious post was on the experience of the UK after 2011 in promoting use of BIM. That is an example of an industry policy that has worked, after the UK government launched a new broad-based industrial strategy to improve competitiveness with a BIM mandate for public construction included. 

 

 

Promoting Building Information Modelling

 

BIM had its origins in 1960s 2D drawing programs that developed into architectural drawing software. Two companies dominate the market, Autodesk was founded in 1982 and Bentley Systems in 1984. The first version of ArchiCAD’s file exchange solution was released in 1997, which allowed multiple designers to work on a collaborative platform. At this point enthusiasts began believing in BIM as a universal panacea for the problems and issues endemic to construction. Twenty-five years later they are still waiting, despite the fact that BIM is no longer a new technology but an application widely used in construction, one that is now offered as a cloud-based software-as-a-service (SaaS) to manage and maintain project digital twins.

 

Countries took different approaches to promoting BIM. Broadly, Scandinavian and western European countries, Singapore and the UK followed a government-driven approach, but Australia and the United States (US) a more industry-driven approach. However, the US General Services Administration (GSA) established the first public sector program in 2003, the National 3D-4D-BIM Program, on best practices for design and construction teams. The GSA was also the first client to require mandatory use of BIM in 2007, for program verification. The first government BIM roadmap was from Singapore, for 2010-2015, by the Building and Construction Authority, with a second in 2016 that included BIM for facility and asset management and the BIM for DfMA Essential Guide for integrating BIM and DfMA.[i]

 

The UK Government Construction Strategy 2011–2015 mandated fully collaborative 3D BIM for all public projects by 2016. Importantly, the UK also began publishing BIM standards to provide guidance for industry on how to produce, exchange and use information in BIM. In 2015 standards BS 8541-5 and 6 on offsite construction and modular buildings were released. The Construction Strategy was extended to 2016–2020, with a single shared building model to be held in a centralized repository for operation of assets over their life cycle[ii]. By 2020 most western and northern European countries had plans to mandate BIM in some way, although the level of use varied greatly between countries, with BIM adoption in the UK, Denmark, Germany and France similar to the US, Canada and Singapore, but Southern European use much lower. 

 

In the US many land use and building codes are local,  and a range of different approaches has been followed. The US also has standards and guides from both government and industry. The GSA 2009 Guides were on 3D imaging and 4D schedule management, extended to life-cycle management in 2011. The American Institute of Architects published six series of guidelines after 2007 for the use of BIM in the design and operations of projects for architects. The National BIM Standard was published in 2009, updated in 2012, and is in its third version. The US followed an industry-driven approach and, compared to Singapore and the UK with their BIM mandates, the government was less involved.

 

In Australia, the Commonwealth Government released a national BIM initiative in 2012 and recommended requiring full 3D collaborative BIM for all Australian government projects by 2016. However, with no mandates or targets for use nothing actually happened. As in the US, policies and uptake varies across the states. In 2018 the Queensland government started mandating BIM, to be expanded to all built assets by 2023[iii]. Other states are following.

 

Industry Policy and Industrial Strategy

 

 These is little practical difference between a country’s industry policy and national industrial strategy. They are both typically framed around competitiveness and productivity, focus on innovation and R&D, and follow pathways and roadmaps through scenarios and scoping studies. Some industries like agriculture, steel and automobiles are regarded as strategic and have always been surrounded by rules and regulations and subject to government intervention. Governments’ have science and technology policies that influence industrial structure and macroeconomic policies that affect economic development. For many countries the emphasis in industry policy has shifted to industry 4.0 technologies and AI, as governments and industry respond to these technologies.   

 

Government policies targeting supply side issues are not as high profile as others, they don’t get regular updates like monthly unemployment or quarterly GDP statistics and capture attention like announcements of interest rate changes. Because productivity has become the measure used for industry performance, despite the statistical questions that raises, it has often been the target for government policy. However, many policy measures affect productivity in the long run, such as education, training, infrastructure, innovation and R&D, tax and capital expenditure subsidies, and pilot or demonstration projects. When the intention of such policies is to influence a country’s economic structure and performance they are described as industrial strategy or industry policy.  

 

Industry policy was out of favour for a couple of decades before the financial crisis in 2007-08, especially in countries like the US, UK and Australia, although the European Union and many Asian countries followed well developed national strategic plans. In the West this was partly ideological, a view that it is about government intervention and picking winners, and partly because some issues traditionally addressed by industry policy like tariffs and market access moved into negotiations around trade policy, at both the global level with the WTO rounds and in the increasing number of bilateral trade agreements. Traditionally manufacturing was the focus for industry policy, but after 2007 the approach became more about coordinating a wide range of policies to achieve objectives across the economy and society. The rollout of protective equipment and vaccines during the Covid pandemic in 2020-21 both tested and accelerated this new approach.

 

Following the financial crisis governments looking for sources of economic growth and employment creation began focusing on specific sectors in manufacturing and services where they saw opportunity in global value chains. Industries like pharmaceuticals and biotechnology, semiconductors, aerospace, IT, AI, cars and steel have featured in the industry policies of many countries since then. Any policy intervention intended to strengthen the economy is an industry policy, and governments establish priorities and target industries. Countries protect or favour industries with legislation for many reasons but some of them are strategic and long term, like innovation programs with their associated challenges, roadmaps and milestones, and many of these programs currently involve digitisation in some form. 

 

While it is a fact that governments can have major impacts through regulation, tax, and R&D these policies are spread across departments, there are significant institutional constraints on government buying power. What history generally does show is that it is hard to get industry strategy right, implementation is difficult and outcomes are uncertain in dynamically evolving economies. There is also the problem that results take time to happen and thus take longer than the electoral cycle to develop, and there is often little benefit to the government of the day even if a policy is working well. Although inquiries in the UK, US and Australia into construction industry performance recommended leveraging purchases of materials, machinery and equipment and buildings and structures to push industry reform this was not widely used, despite being common practice in Asian countries like Singapore and Japan. 

 

Infrastructure is often found within a country’s national strategy for science and technology, required for building out the networks underpinning modern society and the economy. There is unrelenting pressure from public sector clients for the lowest possible cost of work, given the circumstances of the industry, and in many countries the public sector is the largest single client for construction work. Housing is another area with complex overlapping issues that affects the cost of delivery. The cost of major projects and lack of productivity growth in construction has been an issue for governments and major clients for decades, since productivity statistics first became available in the 1960s.

 

BIM Mandates and Industry Policy 

 

Building information modelling (BIM) has been promoted as the solution to the problems of poor documentation, fragmentation and lack of collaboration in building and construction for many years. It has not, however, been disruptive as we understand the idea, at least not so far. BIM has its origins in 1960s drawing programs, and Autodesk was founded in 1982, so this is not a new technology. Therefore, BIM does not qualify as transformative, rather it is the required enabler of further developments, a necessary foundation for the transition to the construction technological system in the digital age. BIM is more like digital plumbing underpinning digital construction than an elevator to higher performance.

 

BIM is plumbing because the digitized construction data it generates gets shared across the different built environment industries. At a basic level this is just sharing files and managing documentation. However, BIM can run on platforms, it allows access to cloud manufacturing, it is being combined with virtual reality (VR) and augmented reality (AR) systems for a holographic 3D virtual project that contains every detail of a building, and that information can be shared through a project management platform with all project participants. At this point the expectation is that VR will be used more on the design side by architects, planners and engineers, while AR will have a larger footprint on construction sites, although some construction firms have started looking at using VR in areas like safety and training. BIM is obviously central to these technologies. Other uses include drones matching site work to BIM plans for buildings and excavators measuring earthworks. Some clients are demanding as-built digital twins to manage their buildings with. 

 

Two reasons why BIM is not more widely used are inertia of industry culture and the incremental process followed by clients in requiring BIM. These are both discussed in the context of the UK below, which provides a good example of the policy approach now being followed by many governments. These policies broadly follow roadmaps with stages for BIM adoption, using both level of use and size of project as targets, that are intended to allow time for industry to adjust. A small number of countries have implemented national BIM mandates:[iv]

2004 Singapore for public construction projects 

2007 Finland for all public projects over 1 million euros 

2007 US General Service Administration and the Army Corps of Engineers required use 

2010 South Korea public construction over KRW 500 million from 2016

2011 UK for public building

2018 Spain for public construction

2019 Abu Dhabi for all major projects 

2020 Germany for Federal infrastructure projects

 

Many countries have published roadmaps, standards and guidelines since 2015 without so far following up with a mandate, for example Austria, Australia, France, Switzerland and Japan are at this stage. In every case the underlying assumption is that BIM will become business as usual over the decade of the 2020s, but at the beginning of the decade countries that were early movers like Singapore, Finland and the UK have the highest use of BIM.There are also state and city level mandates in the US and Australia. Wisconsin required BIM for projects over $5 million in 2010, and Queensland for public projects in 2018. By 2021 most major projects for both public private clients worldwide are done with BIM.

 

BIM mandates are important because the use of BIM unlocks the potential of digital construction, and affects the organisation of suppliers of materials, products and services for construction of the built environment as well. The deeply embedded nature of the culture and processes of this production system, and the large number of small firms involved, slows technological diffusion and limits voluntary uptake of new technologies like BIM. Therefore, government mandates in particular and client’s mandating BIM in general are needed. The experience of the UK is a good example.

 

 

Conclusion

 

The UK construction strategy applied to all firms involved in projects, and thus included designers, consultants and suppliers as well as contractors and subcontractors, and targeted technology adoption not the separate industries of residential building, non-residential building and engineering construction and the distinctive characteristics of each of those industries. The differences in the subcultures of these separate industries accounts for the differing rates of uptake found across firms in the UK since the launch of the strategy. Also, national and local governments, universities, regulators and industry bodies were all given significant but loosely specified roles in these policies to support industry engagement. 

 

Achieving industry policy goals requires a great deal of coordination, determination and long-term commitment,[v]qualities not always associated with government policy. Over the decade after the UK government launched the new Industry Strategy in 2011 and the Construction Industry Strategy in 2015 there was investment in capability, new standards were developed, and BIM requirements increased usage. This new conception and practice of industry policy was about collaboration between the public and private sectors,[vi] rather than imposing unrealistic outcomes on the industry. Industry policies do not have to be original or innovative to be useful and effective, as the success of the UK after 2011 in promoting use of BIM shows. 

 

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[i] See Jiang et al. Government efforts and roadmaps for building information modelling implementation, 2021. BCA, BIM Essential Guide for DfMA. 2016.

[ii] UK Cabinet Office. Government Construction Strategy 2016-2020.

[iii] Queensland Government, Digital Enablement for Queensland Infrastructure, 2018.

[iv] Lee and Borrmann, BIM policy and management, 2020. Links to the relevant documents for each country can be found in the article. 

[v] Aiginger and Rodrik, Rebirth of Industrial Policy and an Agenda for the Twenty-first Century, 2020.

[vi] Chang and Andreoni, Industrial Policy in the 21st Century, 2020.

Industry Policy and the UK Construction Reform Movement

 Policy Effectiveness and Industry Culture

 

The broad categories of residential building, non-residential building and civil engineering have wide ranges of customers and projects and are different enough to call for different types of contractors and delivery processes. Therefore, they should be regarded as separate industries. The distribution of projects, firms and output all support the idea that construction is a collection of industries, not one single industry, albeit with overlaps between them.  The combinations of products, parties and processes are distinct, so it is important to recognise that these differences exist and they need to be taken into account by government, industry and researchers. Considering construction as a single industry leads to analyses and prescriptions that may be appropriate to some parts of construction but are certainly not applicable to all. Government policy needs to recognise their differences.

 

Separating construction into three industries provides a different perspective on the long history of attempts to reform or transform construction in the UK. The UK reform movement is particularly well documented, there are a dozen reports between 1944 and 1998 summarised and discussed in Murray and Langford (2003), who concluded those reports agreed on the poor performance of construction with minor differences between their explanations for poor performance and recommendations for improvement. The last two of those reports by Latham in 1994 and Egan in 1998 became particularly influential as the UK government became the leading advocate of reform.

 

The public sector is typically the largest client of construction, although procurement is typically widely distributed across departments and levels of government, so it is not surprising the construction reform movement was led by government with inquiries, commissioned research and funding for demonstration projects. Although the reports discussed many issues, such as productivity, quality, training, contracting and documentation, the fundamental issue was the cost of construction, reflecting the UK government’s role as both a major client and the initiator of the inquiries and research. However, contractors typically had limited involvement in the inquiries and reports, and private sector clients largely stayed at arm’s length from the public sector’s reform strategies.

 

That this series of reports (and many others not included in Murray and Langford 2003) were required, averaging over two a decade for 50 years, shows how ineffective they were in developing policies to address the issues raised. The explanation for this policy ineffectiveness offered by Latham and Egan is industry culture, broadly seen as the custom and practices underlying the business model in UK construction. Latham focused on procurement and contractual relations with recommendations to change an adversarial culture, calling for more collaboration between clients, contractors, subcontractors and consultants, and more cooperative practices. He recommended ‘Partnering’ between clients and contractors to realise this. 

 

Egan began his report arguing industry improvement required changing the industry culture, recommending lean production methods using examples from car manufacturing, steel-making, grocery retailing and offshore engineering by promoting offsite manufacturing in the Modernising Construction (National Audit Office, 2001) and Accelerating Change (Strategic Forum for Construction, 2002) reports, and supported the reform movement with legislation and by establishing Rethinking Construction, Construction Best Practice and the Movement for Innovation, which were brought together in 2004 as Constructing Excellence “to achieve a step change in construction productivity by tackling the market failures in the sector and selling the business case for continuous improvement. Through focused programmes in Innovation, Best Practice Knowledge, Productivity and Engagement, Constructing Excellence has developed a strategy to deliver the process, product and cultural changes that are needed to drive major productivity improvements in the sector.” 

 

Prior to Egan the reform movement relied on industry participation, with little effect on how projects were procured and delivered. Contractual relationships were the focus of much of the reform agenda to improve industry performance. Egan introduced benchmarking against best practice to improve productivity, and Constructing Excellence documented demonstration projects. Murray and Langford thought the “demands on the industry cannot be met and so lead to an industry that cannot attract staff to deliver buildings on time, with increased costs and questionable quality.” (2003: 7). Other critics attacked the reform movement for its technocratic and managerial approach (Green et al. 2002) and the language used (Fernie et al. 2006). More relevant was a review of progress since Egan by Wolstenholme (2009), which found there had been little change in the industry: clients still awarded projects to the lowest bidder while contractors offloaded risks and maximised profits.

 

Sixty-five years after the Simon Committee report on building contracts (the first in Murray and Langford)Wolstenholme again called for cultural change “to integrate and embrace the complex picture of how clients and contractors interact” (2009: 8). Industry culture is clearly important, but it is also clear that culture is not malleable and does not change easily or quickly. A better explanation for the lack of impact of these reports, their recommendations, and the ineffectiveness of public policy in reforming construction is required. Simmons (2015) blames the policy making process as resistant to evidence and subject to ministerial whims and churn, with issues becoming politicised once they enter public debate. Carroll (2010) suggests that regulatory proposals typically don’t have a convincing evidence base and there is poor integration of impact assessment with policy development processes. Wond and Macaulay (2010) argue that generic ‘problem-inspired’ strategies developed by central policy-makers have to be interpreted by the ‘problem-solving’ implementers responding to nuances of local context and capability. 

 

Construction is better viewed as three industries when the differences between residential building, non-residential building and engineering construction are taken into account. If the culture in each of the three industries is different, recommendations and policy directed at construction as a single industry are unlikely to be relevant across the three, and will thus be disregarded by many firms and clients. Clients are also different and can be generalised as households, businesses and the public sector, and their relationships with contractors varies accordingly. Another example is design, where house builders have pattern books, commercial building uses architects, and infrastructure is designed by engineers. These structural differences between the three industries affects the way clients, contractors, designers and suppliers will interact, thus each industry has developed individual characteristics over time that become that industry’s culture. The specific nature of these industry cultures makes recommendations and policy directed at construction as a single industry ineffective.

 

With separate industries and separate cultures, separate policies are required. A broad industry policy of the sort that targets construction as a single industry will be challenged by three deeply entrenched cultures with limited similarities.Research and reports that treat construction as a single industry have the same problem, although there is an economic activity called construction in the SIC the characteristics of the three sectors makes them different industries.The manufacturing SIC includes glass, wood products, steel, plastics and concrete, but they are regarded as separate industries and are not grouped together under a construction products SIC. An industry policy for the steel industry is not thought to apply to plastics or concrete because it is not relevant to those industries. 

 

More recent construction policies in the UK have moved on from the industry culture debate, although the government’s objective to improve construction productivity through better procurement remains. With the launch of the Government Construction Strategy 2011-2015 and the Government Construction Strategy 2016-20 increasing the use of BIM became the target. The 2011 policy required BIM Level 2 across centrally funded construction projects by 2016, with BIM operating within the existing construction contractual framework using a legal agreement (the CIC BIM Protocol) added to professional services and construction contracts. The 2016 strategy required Level 3 BIM for public projects. BIM maturity levels were defined as: 

·       No BIM: Information is generated manually by hand

·       Level 0: Basic 2D Computer-Aided Design (CAD) use for minimal collaboration.

·       Level 1: Use of 3D and 2D CAD for documentation and works information.

·       Level 2: Models are shared between the project team using a common data environment.

·       Level 3: Wholly integrated information model across the project, with the team working collaboratively in real-time.

 

The Government Construction Strategy was within the broader UK Industrial Strategy, which included Construction 2025 and targeted a 33% cost reduction in the initial costs of construction and whole life cost of built assets, 50% faster delivery from inception to completion for new build and refurbished assets, 50% lower greenhouse emissions on construction projects, and a 50% reduction in the trade gap for construction products and materials. Further initiatives to support the policy were the Centre for Digital Built Britain in 2017, at the University of Cambridge, and the Construction Innovation Hub in 2018, a collaboration between the Centre for Digital Built Britain, BRE and the Manufacturing Technology Centre with £72m in government funding develop digital and manufacturing technologies in construction. The UK Industrial Strategy was revised in 2017 and included funding for a Construction Sector Deal, with the government committed to using Modern Methods of Construction through offsite construction for relevant departments from 2019. This was followed by the publication of Transforming Infrastructure Performance by the Infrastructure and Projects Authority (2017, updated 2021), setting out a long term programme to improve performance and delivery. Finally, in 2018 a BIM Framework based on a new ISO 19650 series of standards was released.

 

Ten years after the launch of the Construction Strategy progress towards BIM Level 3 remains patchy. Architects, engineers and large contractors in the UK have adopted BIM faster than services engineers, facilities managers and smaller contractors employing less than 50 people. One annual survey found nearly half the 200 respondents used BIM infrequently and thought adoption of was proceeding slowly, the other half used BIM often or very often. Only 6% thought progress was rapid, although 14% were using ISO 19650. Another 2021 survey by the UK BIM Alliance with over 1,100 respondents found 65% were implementing BIM and used it on around half their projects and 30% were using ISO 19650. However, over half the subcontractors and cost consultants, and over 40% of project managers and facility managers, were not implementing BIM. Nevertheless, 56% of respondents thought BIM would become business as usual in 3-5 years and the other 44% thought it would take longer. Any industry strategy that approaches a technology adoption target of 100% in less than two decades has to be regarded as effective. 

 

Compared to the limited effects of the construction reform movement’s promotion of MCM and offsite manufacture, which remains confined to niche markets, the BIM strategy has seen a significant increase in the use of BIM and the UK is seen as a leader in adoption. The government mandate on use of BIM on public projects has been much more effective in 10 years than six decades of exhortations and recommendations to change industry culture. Recognising this, the provision of clauses covering contentious issues in construction contracts (such as intellectual property and data ownership) worked with rather than against industry practice and culture. The BIM Framework provided a roadmap for the firms and clients and the development of standards provided a toolkit. 

 

Industry culture is a complex outcome of social (Beamish and Biggart 2012), institutional (Davis 1999) and economic (Powell 1990) factors. Because of the range and dynamic interplay of those factors it is not an appropriate target for industry policy, as the history of construction reform efforts that argued cultural change was necessary for industry improvement in the UK, documented over decades in a series of reports, clearly shows. When a new construction strategy was launched in 2011 the focus shifted from using public procurement to foster cultural change to requiring BIM on public projects, and over the next decade succeeded in increasing the use of BIM to around half of firms and the majority of public projects. Despite all the claims made for BIM changing industry culture and increasing collaboration (BCG 2017), if it were to come about it would be as a consequence not a cause of industry improvement from the construction strategy. 

 

Policies that bring together issues around productivity, innovation, skills and technology do not have to be original or innovative to be useful and effective (Chang and Andreoni 2020). The construction strategy applied to all firms involved in projects, and thus included designers, consultants and suppliers as well as contractors and subcontractors, and targeted technology adoption not their separate cultures. The differences in the cultures account for the differing rates of uptake found across these firms and industries. Also, national and local governments, universities, regulators and industry bodies were all given significant but loosely specified roles in these policies to support industry engagement. Achieving policy goals requires a great deal of coordination, determination and long-term commitment (Aiginger and Rodrik 2020), qualities not always associated with government industry policy, and over the decade since the UK government launched a new Industry Strategy and the Construction Industry Strategy there was investment in capability, new standards were developed and BIM requirements increased. This new conception and practice of industry policy was about collaboration between the public and private sectors, rather than imposing unrealistic outcomes on the industry. 

 

 

References

Aiginger, K. and Rodrik, D. (2020). Rebirth of Industrial Policy and an Agenda for the Twenty-first Century, Journal of Industry, Competition and Trade, 20:189–207.

 

Beamish, T. D and Biggart, N. W. (2012) The role of social heuristics in project-centred production networks: insights from the commercial construction industry, Engineering Project Organization Journal, 2:1-2, 57 70. 

 

BCG, (2017). Digital in Engineering and Construction: The Transformative Power of Building Information Modeling, Boston Consulting Group.

 

Carroll, P. (2010) Does regulatory impact assessment lead to better policy? Policy & Society, 29:2, 113-122.

 

Chang, H-J. and Andreoni, A. (2020). Industrial Policy in the 21^st Century, Development and Change, 51(2): 324–351. 

 

Davis, H. (1999). The Culture of Building, New York: Oxford University Press. 

 

 Fernie, S., Leiringer, R. and Thorpe, T. (2006). Rethinking change in construction: a critical perspective. Building Research & Information, 34(2), 91-103.

 

Murray, M. and Langford, D. (2003). Construction Reports, Oxford: Wiley-Blackwell.

 

National Audit Office (2001) Modernising Construction, National Audit Office London: The Stationery Office.

 

Powell, W. (1990). Neither market nor hierarchy: network forms of organization. Research in Organizational Behavior, 12: 295–336. 

 

Simmons, R. (2015) Constraints on evidence-based policy: insights from government practices, Building Research & Information, 43:4, 407-419.

 

Strategic Forum for Construction, (2002) Accelerating Change, Rethinking Construction. London:

 

Wolstenholme, A. (2009). Never Waste a Good Crisis: A review of progress since rethinking construction and thoughts for our future, London: Construction Excellence.

 

Wond, T. and Macaulay, M. (2010). Evaluating local implementation: An evidence-based approach. Policy & Society, 29:2, 161-169.

 

Industrialized Building and the Failure of Katerra

Why Modern Methods of Construction Don't Work

Offsite manufacturing, modular and prefabricated building have been transforming construction like nuclear fusion has been transforming energy: they have both been twenty years away from working at scale for the last 60 years. These ‘modern methods of construction’ have a dismal track record. The brutal economies of scale and scope in a project-based, geographically dispersed industry subject to extreme swings in demand have always bought previous periods of their growth and development to an end. 

 

While the history of prefabrication features major projects like the Great Exhibition in 1855 and more recently the Oresund Bridge in 2000, the reality is that prefabrication has only been successful in specific niche markets such as institutional buildings, or house manufacturers like the Japanese and Scandinavian firms Sekisui and Ikea. Failures like Katerra in mid-2021 and the mail order houses sold by Sears Roebuck a hundred years ago in the US are common. In the UK 2017 Industrial Strategy Construction was one of the four Sector Deals along with AI, the car industry and life sciences, with the aim to change the way buildings are created with a manufacturing hub for offsite and modular construction. By 2021 the focus had moved on, to the energy efficiency of buildings and new design standards. 

 

The up-front capital requirements of prefabrication make it a capital-intensive form of production, which brings high fixed costs in a cyclic industry characterised by demand volatility over the cycle. This means macroeconomic events often determine the success or failure of the underpinning business model and the success or the eventual failure of the investment. A batch of new US prefab housing firms failed during the GFC after 2007, for example, demonstrating the importance of the relationship between economic and business conditions and the viability of the business model for industrialised building.

 

Manufactured housing in the US also provides an insight into the institutional barriers to industrialisation in construction that exist in many countries and cities. Although the Department of Housing and Urban Development hasa national code, US cities discriminate against manufactured housing as local and county governments use a variety of land use planning devices to restrict or ban their use, and often place them in locations far from amenities such as schools, transportation, doctors and jobs. Despite these barriers, in 2021 there were 33 firms with 136 factories that produced nearly 95,000 homes. 

 

An ambitious attempt at offsite manufacturing (OSM) and industrialized building was made by Katerra, a US firm that was reinventing construction but has now gone into receivership. The manufacture of building elements and components somewhere other than the construction site has been variously called prefabrication, pre-cast and pre-assembly construction. Types of offsite construction are panelised systems erected onsite, volumetric systems that involve partial assembly of units or pods offsite, and factory built modular components or pods. The degree of OSM and preassembly varies from basic sub-assemblies to entire modules. Katerra manufactured prefabricated cross laminated timber (CLT) structures.  

 

 

Katerra

 

Katerra was a Californian start-up, founded in 2015. In 2017 it reached a $1 billion valuation, The company’s goal was complete vertical integration of design and construction, from concept sketches of a building to installing CLT panels and the bolting it together. On their projects the company wanted to be architect, offsite manufacturer and onsite contractor. This led to issues with the developers and contractors the company dealt with most of whom, it turned out, didn’t want the complete end-to-end service Katerra offered. 

 

The company started by developing software to manage an extensive supply chain for fixtures and fittings from around the world, but particularly China, and then added a US factory making roof trusses, cabinets, wall panels, and other elements. In 2016 the business model changed because architects weren’t specifying Katerra’s products. Katerra would design its own buildings and specify its own products. In 2017 it built a CLT factory that increased US output by 50 percent. The factory shut in 2019. Dissatisfied with design software that didn’t meet its needs, it developed a custom suite called Apollo. This was to be a platform for project development and delivery, well beyond the document control and communication of then available software from Oracle Aconex, Trimble Connect, Procore and SAP Connect. Apollo integrated six functions: 

1.      Report: use an address to find site information, zoning, and crime rates etc.; 

2.      Insight: design with the two building platforms; 

3.      Direct: a library of components used in the building; 

4.      Compose: for coordination between the different groups working on a project;

5.      Construct: for construction management (similar to Procore and Bluebeam):

6.      Connect: for managing the workforce on a project, with a database of subcontractors.

 

One of the company’s three founders was a property developer, and his projects provided the initial pipeline of work that made the company viable. Initially, buildings were designed by outside architects, but in 2016 the company started a design division. A second founder had a tech venture capital fund, the third and CEO did a stint at Tesla. Their ambition was to leverage new technologies to transform building by linking design and production through software, designing buildings in Revit and converting the files to a different format for machines in the factory. 

 

In 2018, after raising $865 million in venture capital led by SoftBank’s Vision Fund, Katerra acquired Michael Green Architecture, a leading advocate of CLT, and over a dozen other architects and contractors. In 2020 the business model changed again, by taking equity stakes in developments to boost demand. Katerra struggled to complete the projects. Accumulating losses and cost overruns during the Covid pandemic overwhelmed the company and in June 2021 Katerra Construction filed for Chapter 11 bankruptcy. 

 

In six years Katerra had grown to a 7,500 person company. That growth cost both money and focus, of the total US$2.2bn raised, SoftBank invested $2bn between 2018 and 2020. Without a clear focus, Katerra didn’t have a target customer base and got distracted by software and developing internet-of-things technology. The executive team was dominated by industry outsiders, but Katerra hired architects and engineers from traditional firms. Tension was inevitable. The fatal problem was execution, Katerra didn’t vertically integrate acquisitions into a company that did everything. It was fragmented and didn’t have a product platform or Apollo ready in time.   

 

With Apollo, Katerra was actually behind other companies developing platforms that manage design and construction in various ways. These platforms are at the technological frontier, a fourth industrial revolution technology for OSM with automated production of components. Other firms have developed different approaches to digital manufacturing and restructuring of firm boundaries to Katerra, integrating design and construction through development of digital platforms that provide design, component specification and manufacturing, delivery and on-site assembly. 

 

For example, in 2018 Project Frog released KitConnect, bringing together a decade of development into prefabrication and component design, and integrating BIM with DfMa and logistics. US start-ups in the wake of Katerra like Junoand Generate also don’t build factories but outsource assembly. Outfit offers homeowners a DIY renovation from its website, then orders and ships the materials and provides step-by-step instructions for completing the work (the Sears model again). Also in 2021, the IPO for PM software company Procore raised $635 at a valuation near $10bn, a record for construction tech. Rival Aconex was bought by Oracle in 2017 for $1.2bn. Platforms are in the process of becoming a basic part of construction tech. In the UK Pagabo launched a procurement platform in 2021, mainly for the public sector, using framework agreements for building work valued between £250k to £10m. Australian 2021 procurement IPO Felix had local start-ups Buildxact, SiteMate, Mastt, Portt and VenderPanel with competing platforms.  

 

 

Conclusion

 

The idea of construction as production was based on OSM, but after decades of development has yet to become a viable business model. There have been successes in manufactured housing, but often macroeconomic factors undermined their viability. Niche markets exist in institutional building, or wherever it is the most effective or efficient piece of technology available. This manufacturing-centric view of progress in construction, endorsed by numerous government and industry reports, is the end point of the development trajectory from the first to the third industrial revolutions.

 

The technological base of OSM is a mix of those from the first industrial revolution, like concrete, with second and third revolution technologies like factories and lean production. Despite all efforts this has not become a system of production because OSM does not deliver a decisive advantage over onsite production for the great majority of projects. Instead, construction has a deep, diverse and specialised value chain that resists integration because it is flexible and adapted to economic variability. Policy makers may neither like nor appreciate this brute fact, but economies of scale are the economic equivalent of gravity and OSM has not delivered. 

The constraints of OSM have outweighed the drivers and benefits. At this stage the market share of OSM remains small and niche, estimates are low single digits of total construction work in the UK, US and Australia. Success elsewhere is restricted to a few specific markets and project types. The problem is not the technology, which can be made to work, but the expected economies of scale are difficult to achieve because of a range of factors. Some of these factors are internal to construction, but others are external. In particular, macroeconomic events like financial crises or energy and commodity price changes can quickly undermine a business model. 

Norman Foster said in an interview ‘A building is only as good as its client’. With industrialized building the client is the producer, which is not necessarily a bad thing, however this has restricted its use to niche markets. How to apply the technologies of the fourth industrial revolution so they work with the economies of scale for onsite production in construction, beyond the OSM paradigm that has been followed for years without success, is the challenge