After years of being little more than an ideal, the revolution to bring paperless trading to the construction supply chain looks set to grip the industry. Last week, it emerged that five major contractors are leading the charge to establish a whole new way of working that is a central plank of Sir John Egan's vision for a more integrated industry.
The five – Laing, Bovis Lend Lease, Balfour Beatty, Amec and Kvaerner – have been in talks since December to create the first comprehensive, industry-wide electronic marketplace. In this brave new world, suppliers, contractors and even clients will communicate over the net. And the new technology will mean that every stage of the process, from tendering, costing and ordering materials to invoicing, will be controlled by the click of a mouse.
Not only will electronic trading cut waste and increase margins, it will, say observers, change the nature of the industry – flattening the traditional hierarchy and breaking down barriers between factions.
For Laing Construction chairman Jim Armstrong, who brought the five players together, a comprehensive e-commerce site is needed if construction firms are to hold their heads up in the Square Mile again.
Clicks are all the rage on the stock market. But soon it will be bricks and clicks
Jim Armstrong, Chairman, Laing Construction
He says: "The e-commerce scenario should certainly help raise the share price. Construction has taken a pasting in the City. It's clicks that are all the rage on the stock market. But soon it will be bricks and clicks, that will be the story. The City will come to realise that it is real businesses where the profit is to be made."
However, if the industry is to harness the benefits of e-commerce, collaboration is vital, says Armstrong. "The thing about construction is that it is no use setting up a venture bilaterally. It needs critical mass. It will have a major impact on the business. It builds on everything Egan is doing in terms of supply-chain management."
The contractors say that they are setting up the venture to ensure that they get the service that best suits the needs of the industry, rather than wait for an outside organisation to launch an e-commerce service. So far, the five have been meeting to discuss proposals and hope to have a strategy by spring. Other contractors could then be asked to get involved.
They are not alone in exploring e-commerce: a number of organisations are thought to be looking at producing e-marketplaces, or portals, for construction. One way that the major contractors may proceed is through a link up with communications firm Interlock. The company runs Construction Industry Trading Electronically, a body with 180 member firms that has been working since 1995 to establish protocols to ease electronic data interchange across the industry. Now Interlock has joined forces with construction software specialist Causeway Technologies to develop a portal called Buildingwork.com, an e-commerce site that will be launched in the spring.
There is room for only one major site. We need collaboration
Ross Taylor, Group President, Bovis Lend Lease
Since Christmas, new sites for ordering materials have started to be created thick and fast. The first comprehensive service, Build-Online, was launched in January. Last week, Swedish IT firm Eu-supply announced that it is launching a web site in the UK that could save housebuilders up to 30% on materials. And only this week, three leading players in the construction industry signed up to a facilities management venture called Prop.Com.
"It's a bit like the emergence of the fax machine or mobile phone," says CITE's Tim Cole. "At first, only a few people got them and the rest said they could do without. But suddenly, everyone couldn't run their businesses without the technology. We're at that stage with e-business where there is a considerable interest and upsurge in activity – there's a commitment to make it happen."
The protocols that Cite has thrashed out have eased the way for the electronic exchange of project information. And the trading and sharing of electronic data among the construction team is increasingly becoming a way of life at the top end of the business, usually through project-based extranets.
"What the web has done is make it possible to interface with all business partners. And increasingly, people are recognising that if they don't do it, their competitors will. By the end of this year, people will be doing things differently," says Cole.
E-commerce will force people to be open. It’s a very intimate form of partnering
Ray Crotty, C3 Systems
Exactly what impact e-commerce will have on the nature of business and the traditional roles of those in it is a subject of debate.
"I don't think e-commerce itself will cause great changes, but it will force those that use it to act in a whole new way. The transparency it requires forces people to be open. And a lot of the industry works, and makes its money, by being secretive," says Ray Crotty, former IT director at Bovis and founder of project communications specialist C3 Systems.
"I think the industry has a fundamental psychological barrier to overcome – that is to open itself up to partners. It's another wave of transparency on top of what Egan has proposed. It's a very intimate form of partnering. IT systems will challenge the role of main contractors, as designers will be able to talk to trade suppliers," he predicts.
Ove Arup & Partners associate director Stuart Cowperthwaite agrees: "Because of the transparency of bills and contracts on-line, there are fewer places to hide. E-commerce will sort out the good from the bad."
People are recognising that if they don’t do it, their competitors will
Tim Cole, Construction Industry Trading Electronically
Privately, contractors worry that they will not be able to control the flow of information in the way they usually do and that document management protocols are not secure enough. Legally, though, there are no fundamental barriers to exchanging documents electronically. An e-commerce bill going through parliament will, say lawyers, smooth the way even more.
Cole believes that sharing information will free up professionals to do more skilled work, and will give employers better value for money. "There's no doubt that e-commerce will provide lower costs and better project turnaround. It's a realigning of the process. It's not about doing what we do on paper faster – that is the tip of the iceberg. The real value of e-business is to redefine the process in a more effective way."
Many firms expect electronic trading to reduce costs, but are themselves trying to come to terms with what the e-commerce revolution will mean to them – what information will be on these sites and where it will come from. One scenario is that they will draw on data that already exists commercially, for example, Constructionline, the database of government-approved contractors, might be fed into a new portal.
Ross Taylor, group president of Bovis Lend Lease, who is leading the firm's e-commerce development, predicts a number of stepping stones to producing a comprehensive marketplace. "It starts with collaboration in the supply chains. Then you have the knowledge and specification content. Then I think we will start to see all software applications and design tools join in with the platform. Once all these are brought into a construction portal, that's when we really start getting efficiency gains.
The sites will be desperate for cost and pricing data
Paul Morrell, Senior Partner, Davis Langdon & Everest
Like Laing's Armstrong, Taylor predicts big change: "There's no doubt that it will change the industry and the way we do business. The consensus is that there is room for only one major site to serve the industry. What we need is industry collaboration – the last thing we need is for a whole lot of competing platforms. "
There is little consensus as to how this new way of doing business will pan out across the project team. For example, you might expect the role of quantity surveyors to diminish if so much information becomes available for free. Not so, say the QSs. If anything it is going to be a bonus rather than a threat. Paul Morrell, senior partner in Davis Langdon & Everest, says: "The companies operating sites will be desperate for content such as cost and pricing data."
Cite's Cole thinks the change may make the QS more valuable to the team. "The traditional role, say, of the quantity surveyor is to work for the client," he says. "With all the information shared and with access to it from everyone, they might become more part of a team."
On the other hand, David Thompson, senior partner in AYH, wonders if the impact will mitigated by the way the industry works. "I think the influence will be limited because, in construction, relationships are key," he says.
Guy Griffith of Gardiner & Theobald sums up the industry's new-found enthusiasm for e-commerce: "In the past 12 months, we've come a long way. Now all our projects have electronic document exchange. The e-marketplace is good for materials, labour supply and international business and knowledge transfer. It is also a good idea because it will boost cash flow."