In my last post, I discussed the future of the E&C industry from the standpoint of integration of tech and manufacturing processes. A slightly less disruptive but important trend that I think also needs attention is the merging of construction and engineering firms. Given that the traditional way of doing business is driven by an antiquated legal and insurance landscape, this is a much welcome change.
Historically, the most common contractual delivery structure for a project has been the Design Bid Build (DBB) method. In a DBB contract, the design and construction phases occur within different contracts sequentially. A more modern delivery method, having gained prominence in the past two decades, is known as the Design-Build (DB) delivery method. It’s success is attributed to the integration of the design and construction phases under one contract with both phases occurring simultaneously. This contractual solution has resulted in many companies, mainly large construction firms and developers, to provide their own [in-house] engineering service. This is typically accomplished through acquisitions and or new hires. While such a move is mainly driven by the growth in popularity of DB contracts, this adaptation also addresses many issues within the industry that have become commonplace as a result of the traditional DBB environment. Some examples include incomplete design packages from engineering firms that are faced with unrealistic project timelines and more complex scopes of work, a lack of coordination/teamwork between engineering and construction entities, who have their own best interest in mind, and the occasional knowledge gaps that exist between engineers and builders.
One company which has fully embraced this evolution is Kiewit. Officially established in 2011, Kiewit Engineering group utilizes in-house engineers within each market sector to provide solutions for ongoing construction needs. The firm occasionally also takes on the risk of designing (and signing and sealing) the full contractual scope of a design project. The organization structure encourages engineering staff to work closely with construction managers who are more knowledgeable about the physical build environment. Two studies from the University of Texas and the Construction Institute show this scheme of delivery to be more cost effective and leads to a shorter schedule. Similarly, Kiewit cites DB prominence, incomplete designs, inexperience in logistical challenges of physical project delivery and of course profitability as why this trend is picking up pace.
In the coming years the demand to adopt is purely market driven. As design build contracts become the most preferred delivery method, especially for public contracts, construction firms will need to develop their in-house design capabilities. The graphic below, although anecdotal, highlights this market trend.
Figure 1 - Survey of General Contractors and their opinion of integrating design services within their own firms.
While this type of trend may lead to consolidations, with large construction firms buying out engineering firms, I believe in the long run it will bring about a more profitable industry.