PREFABRICATION: the CHANGING FACE of ENGINEERING and CONSTRUCTION 2017 FMI/Bimforum Prefabrication Survey Table of Contents

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PREFABRICATION: THE CHANGING FACE OF ENGINEERING AND CONSTRUCTION 2017 FMI/BIMForum Prefabrication Survey Table of Contents

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Executive Summary Key Findings Business Implications Looking Ahead TODAY’S PREFAB ENVIRONMENT IS DIFFERENT

77% of respondents think today’s prefab The amount of project work using prefab has environment is different than in 2013. almost tripled between 2010 and 2016. 35%

13%

YES NO 77% 23% 2010 2016

Most contractors perform single-trade Project inefficiencies and improved technologies prefabrication. are driving prefabrication.

% 47% %

Provide Provide Provide Multitrade Single-Trade Kitting Prefabrication Prefabrication Services THE BIG STRUGGLE TO MAKE IT WORK

Contractors struggle to make Contractors using prefab on more than 50% prefabrication effective. of their projects are more effective compared to those who do less prefab. 14% 40% 46%

Effective Needs Not Improvement Effective

Three key challenges for making prefabrication 48% of respondents see less than 5% in effective: savings on total annual labor hours related to prefabrication.

Culture Lack of Outdated Commitment Control Mindset he construction industry is back on track since the Great Recession, andT total construction employment has re- bounded to almost 6.7 million workers (still a far cry from its peak of 8 million workers in 2006). “Construction spending in November 2016 hit a 10-year high, with one-month and year-over-year increases in all major segments,” says Ken Simonson, chief economist at Associ- ated General Contractors of America. “Looking ahead, contractors say they expect more work in every category in 2017 than in 2016.”

Executive Summary However, despite being about 16% below its 2006 employment peak, the industry is still struggling to find qualified labor. Compound- The past doesn’t always match the future. ing these statistics, baby boomers are reaching That’s the nature of disruption. Patterns retirement age at a rate of 10,000 per day, of change build gradually until they merge and rapidly reshape the business while fewer, less experienced workers are mov- landscape. At that point it’s too late to ing into the engineering and construction in- respond. dustry. In short, labor has become a key con- straint for contractors that want to take on and Dr. Stefan Hajkowicz, Senior Principal Scientist complete more work. CSIRO

1 Executive Summary Simultaneously, the evolution of design and are based on almost 200 participants—a mix findings also revealed a relatively small, construction functions has taken a leap for- of both specialty trade contractors and GCs/ fast-growing cottage industry of prefabrication ward over the past decade, with the transition CMs—most of whom work in the commercial innovators who are driving change and shap- from electronic drafting to high-resolution sector. The companies that participated in this ing the future of the industry. digital modeling (also known as Building In- study collectively generate approximately $38 formation Modeling or BIM). Ubiquitous digi- billion in industry revenue each year. To gain a deeper understanding of prefab best tal connectivity, cloud computing, 3-D printing practices and promote a constructive dialogue and big data are just a few of the evolving Our study sheds light on big-picture indus- within the industry, FMI will be assessing and trends responsible for the current melding of try trends that are organized around the studying several of these successful firms over engineering, architecture, fabrication, con- following four themes: the coming year. As with many new concepts, struction and other related disciplines. success breeds success. Prefabrication is no 1. Today’s prefabrication environment isn’t different and therefore all industry players the same as it was in 2013. Today, all of these factors are setting the stage must alter their mindsets and educate them- for revolutionary change in the engineering 2. Most contractors struggle to make selves on the benefits of modularization and prefabrication effective. and construction industry and have helped prefabrication. Everyone will need to be open prefabrication and modular construction make 3. Contractors want to double their labor to new approaches to designing, manufactur- investments in prefabrication over the a comeback during an era where low cost, re- ing, sequencing and putting construction proj- next five years. source efficiency and tight schedules are prior- ects in place. Rather than viewing prefabri- ities. 4. In today’s environment, project sched- cation as a threat or disruption, contractors ules are considered a critical benefit of who embrace it will be best-positioned to prefabrication. Within this industry context, FMI and the BIM win in the built environment of today and Forum partnered in fall of 2016 to take a pulse Our insights paint a mixed picture and show tomorrow. of today’s prefabrication developments to see that most contractors are struggling to make what—if anything—has changed since we last prefabrication effective and are slow to surveyed the industry in 2013. Study findings adapt to today’s fast-changing world. Our

Executive Summary 2 Key Findings

The challenge with doing prefab is, it’s not just thinking about prefab. Instead, it’s more about thinking of how your prefab strategy fits within the overall strategy of delivering a project.

Atul Khanzode, Ph.D. Head of Technology and Innovation DPR Construction

3 Key Findings s tdas rearat eret strut deret ared t three ears a n fall 2016, FMI and AGC’s BIM Forum Exhibit 1: Is today’s prefabrication environment in construction different surveyed 156 contractors (both GCs/CMs compared to three years ago? Iand specialty contractors) in the U.S. construction industry. To delve deeper into the key topics identified in the survey, FMI subsequent- ly conducted more than 30 follow-up interviews. The following key findings represent the main takeaways from this research; FMI will continue to investigate these topics in more detail through in-depth industry case studies in 2017. Finding 1. The prefabrication 77% % environment has changed. es Almost 80% of our survey participants involved with prefabrication indicated that Source: 2017 FMI/BIMForum Prefabrication Survey today’s prefabrication environment is different compared to the conditions in 2013 ure 21 ru rearat ure (Exhibit 1). According to many of our respon- Geoffrey Golden, president at Golden Con- Looking back at our earlier industry studies, dents, prefabrication is more widely adopted struction, explained: “Ten years ago, we were the numbers confirm the increased use and across all stakeholder groups (e.g., owners, just trying to prove that prefabrication worked adoption of prefabrication. In 2010, only 26% GCs/CMs and specialty contractors), and proj- (functionally)—that it was a good product. of survey respondents were using prefabricat- ect participants are expanding the use and Today the conversations have shifted to, ‘Just ed assemblies on more than 20% of their proj- application of prefabrication beyond “tradi- how much can we impact projects’ bottom ects. In late 2016, this number was more tional” projects. line and schedule?’ We have transitioned from, than double, with 55% of respondents ‘Does it work?’ to ‘Yes, it works and it has be- using prefabricated assemblies on more come a clear competitive differentiator.’” than 20% of their projects (Exhibit 2).

Key Findings 4 hat eretae ur ret r s urret ashed us rearated When looking at the project work being ac- Exhibit 2: What percentage of your project work is currently accomplished complished using prefab assemblies, the num- usingassees prefabricated assemblies? bers are even more dramatic: In 2010, the average use of prefab was around 13%, and in 2016, that number increased to 35%— almost three times that of 2010. 0 00 Aaron Thompson, VP of Design & Fabrication at Corbins Electric, stated, “When you’re talking about large commercial projects, I don’t think prefabrication is going to be an option in the future. We’re seeing more and more written into the contract that off-site fabrication is mandatory, and the owners are not giving us a large laydown yard on-site. And if I’m already seeing that now, after the past three-year push, I can only imagine what’s going to happen in the next five to 10 years.” 1 t 5 t 1 11 t 2 2

Our data suggests that most contractors perform single-trade prefabrication (47%), Source: 2017 FMI/BIMForum Prefabrication Survey while a third (32%) provide multitrade prefabrication, and 21% provide kitting services ure 21 ru rearat ure (Exhibit 3). Not surprisingly, specialty contractors perform almost double the amount of project work (on average) using prefabricated assemblies compared to GCs/CMs: 44% versus 23%, respectively.

5 Key Findings hh the d u err Other differences include: Exhibit 3: Which of the following do you perform?

Specialty contractors provide almost double the amount of kitting services compared to GC/CMs (24% versus 13%). Both contractor groups perform almost % 47% % the same amount of work using single-trade prefabrication (between 44%- 50%), but GC/CMs provide substantially more multitrade prefabrication (coordination) compared to specialty Provide Provide Provide contractors (43% versus 27%). Multitrade Single-Trade Kitting Prefabrication Prefabrication Services 1a. Project inefficiencies and improved technologies are driving Source: 2017 FMI/BIMForum Prefabrication Survey prefabrication. ure 21 ru rearat ure According to our study, chronic productivity issues and new technology advancements are key factors in driving the broader use of pre- presenting opportunities for companies to in 2013, the need for general contractors to fabrication at a time when lower cost, re- prefabricate with greater accuracy. improve project schedules was listed as the source efficiency and sustainable construc- top driver (see Appendix). tion are becoming priorities. Ubiquitous Exhibits 4 and 5 show a summary of the digital connectivity, cloud computing and most influential factors driving prefabrica- advancements in X-D modeling and 3-D tion as listed by our study participants. Inter- printing are just a few of the evolving drivers estingly, when we asked this same question

Key Findings 6 Exhibit 4: WhatPrimary percentage factors of your driving project work demand is currently foraccomplished prefabrication using prefabricated assemblies?

The need for productivity improvements and 50% Trade/subcontractors lean construction to win bids and 45% increase proﬁts

40% Improved technology allowing for greater use 35% The shortage of of prefabrication 30% skilled labor at the job site 25% edin

20% General contractors to Owners indirectly due to improve construction competitive pricing pressures schedule 15% Architect specifying 10% prefabrication Owners by in the design direct request 5% stage edin 0% 1 1.5 2 2.5 3 3.5 4 4.5 5 Percent of respondents who selected most inﬂuential (5)

Average score (1=least inﬂuential, 5=most inﬂuential)

Source: 2017 FMI/BIMForum Prefabrication Survey

Source: 2017 FMI/BIMForum Prefabrication Survey 7 Key Findings Primary factors driving the demand for

Exhibit 5: Primary factors drivingprefabrication the demand for prefabrication

The need for productivity 3 6 5 40 47 % improvements and lean construction

Trade/subcontractors to 7 7 16 31 38 % win bids and increase proﬁts

Improved technology allowing 4 9 14 36 37 % for greater use of prefabrication

The shortage of skilled labor at 13 12 15 34 26 % the job sites

General contractors to improve 9 17 17 36 22 % construction schedule

Owners indirectly due to 9 19 29 26 17 % competitive pricing pressures

Owners by direct request 45 23 11 10 11 %

Architects specifying 56 21 11 6 5 prefabrication in the design stage %

4 5

1=Least inﬂuential, 5=Most inﬂuential

Source: 2017 FMI/BIMForum Prefabrication Survey

Source: 2017 FMI/BIMForum Prefabrication Survey Key Findings 8 eete s ur urret rearat Finding 2. Most Contractors Exhibitress 6: How effective is your current prefabrication process? Struggle to Make Prefabrication Effective. ete Here’s a staggering statistic from our study: Almost 90% of all survey respondents per- ceive their prefabrication process as inef- eeds t fective or in need of improvement. Only reet ete 14% think their prefabrication process is effective (Exhibit 6).

When comparing specialty contractors with GCs/CMs, specialty contractors are ahead of the curve in regard to prefabrication (see pull- out box). In many instances, these contractors have been doing prefabrication for decades and are finally seeing owners and GCs/CMs integrating prefabrication requirements in 1 2 3 4 5 6 7 8 9 10 their contracts and bids. Not Effectiveness of current prefabrication process Effective Effective (1=least effective, 10=most effective) Steve Foote, vice president and operations manager at Greiner Electric, explained, “I’ve been doing prefab for almost 27 years. I’ve Specialty Contractors GCs/CMs ure 21 ru rearat ure seen a lot of things that worked and were Effective: 14% Effective: 14% worth doing, but that didn’t work as well as Needs Improvement: 47% Needs Improvement: 28% originally desired. I refer to prefab as a ‘pro- Not Effective: 39% Not Effective: 58% cess,’ in that you have to constantly evaluate it and be willing to experiment and try different Source: 2017 FMI/BIMForum Prefabrication Survey

9 Key Findings d u easure eeteess ur things. You stay after it. You HAVE to listen to Exhibitrearat 7: How do you measure erts effectiveness of your prefabrication efforts? the field as they are living it, work out the problems they are communicating to you, and eventually you will hit on it just right. There are very few things we’ve ever done that were perfect right out of the gate, but you keep after it and will get there.”

In conversations with study participants and through our work with clients, we have found that the “effectiveness” issue starts with a fun- 47% 7% 4% % damental problem: Many contractors don’t know what they don’t know because they don’t really understand how to measure and track prefabrication efforts effectively. We Track We Track We Track Other Unit/Labor Cost Savings ROI For example, there are few things as misun- Hour derstood or as poorly managed as developing an accurate projection of costs to complete (CTC). This is particularly true when it comes Source: 2017 FMI/BIMForum Prefabrication Survey to understanding how to estimate the remain- ure 21 ru rearat ure ing labor costs on a labor-intensive project. Specialty contractors live and die by their abil- managers, and, in many cases, the people who Exhibit 7 shows that most contractors track ity to estimate, manage and project labor manage the people who manage the project prefabrication efforts by measuring unit per costs. Consequently, producing accurate CTC managers. Add a new business model like labor hour or cost savings (see Appendix for a estimates is a fundamental and basic project prefabrication to the mix, and tracking labor, detailed breakdown between GCs/CMs and management function. However, the process supplies, time and/or cost accurately becomes specialty contractors). Almost 50% of survey is typically not very well understood by proj- nearly impossible—a reality that can ultimate- participants track prefabrication effectiveness ect managers, those who manage the project ly lead to cost overruns and project delays. on a project-by-project basis while just

Key Findings 10 requet d u tra eeteess one-quarter track these efforts on a weekly Exhibitur 8:rearat How frequently do ertsyou track effectiveness of your basis (Exhibit 8). This again might explain prefabrication efforts? some of the process challenges contractors are running into, based on slow reaction time to problems (i.e., once the project is over) and an inability to make necessary course adjust- ments.

As one survey participant stated, “We are trapped by our ‘project-by-project’ mentality. Defining the activities and coming up with Weekly Monthly measurements that are appropriate for tracking production is something we struggle with 4% % because we think about it per job.” On a project– by–project basis 45% Never 7% 4% tracked Other % %% Quarterly Semi– annually

Source: 2017 FMI/BIMForum Prefabrication Survey ure 21 ru rearat ure

11 Key Findings 2a. Three Key Challenges for that feedback. Ultimately, they’re the ones Making Prefabrication Effective. who have to install everything.”

Timing for fresh and innovative thinking In interviews with study participants, we couldn’t be better. Many younger employees, identified three main obstacles that are hold- particularly millennials, are excellent team ing back many contractors from improving— players and care about their company’s suc- or even kicking off—their prefabrication ef- cess—not just their own jobs (see FMI’s In- “Making prefabrication successful forts. The challenges include: dustry Survey “Millennials in Construction: requires a cultural mindset. CEOs, Learning to Engage a New Workforce”). Vir- project managers, estimators, The Big Culture Obstacle. One of the big- tual design, BIM and prefabrication all re- superintendents—everyone has to gest barriers to change and transformation as quire high degrees of collaboration within buy into it. It needs to be it relates to prefabrication is not technology, and among project teams. Having these throughout the entire company, top it’s culture. Getting people to embrace new young people focused on a common pur- to bottom. That is the only way it ways of thinking and doing work differ- pose, effective processes, excellent communi- will work effectively.” ently is one of the most challenging as- cation and strong teams could help trans- pects of organizational change. Introducing form companies (and our industry) over Aaron Thompson, VP, Design & an innovative concept like prefabrication re- time. quires curious, tenacious people who are Fabrication, Corbins Electric willing to learn new things and take risks. It Atul Khanzode, Ph.D., head of technology is also particularly important to develop a and innovation at DPR Construction, ex- culture in which employees are not afraid to plained, “One of the things that we’ve real- make mistakes and where everyone is open ized is that we need to leverage the ‘democ- to learning from each other’s mistakes. ratization of technology’ to work with the young people that join our organization, and As one interviewee stated, “It’s important for to influence and inspire them to try new the field guys to know that they can commu- things. These innovative ideas are not just nicate the issues they’re running into and coming from one particular place; they can that there’s a willingness to hear and evaluate come from anywhere in the organization.”

Key Findings 12 Resistance to Making a Full Commitment. Exhibit What9: What percentagepercentage of totalof total annual annual field labor ﬁeld cost labor do cost The old saying, “Practice makes perfect,” is you expect to save through prefabrication? particularly true for prefabrication. Our do you expect to save through prefabrication? study shows that almost 80% of participants use prefabrication on less than 60% 50% of projects and are considerably less effective compared to those who prefabri- >20% 16% - 20% cate on more than 50% of their projects 50% (Exhibits 9 and 10). 5% - 10% 40% 11% - 15% In our work with contractors, we often edin

come across situations whereby a project 30% manager or superintendent might be exper- <5% imenting with prefab on a project-by-project basis. But prefabrication is not some- 20% thing you can just dabble in and expect to see big returns from. It is an entirely differ- 10%

ent business philosophy that must be a fun- Percent of projects using prefabrication edin damental part of the corporate strategy. 0% Otherwise, it just ends up being a very ex- 1 2 3 4 5 6 7 8 9 10 pensive mistake. Effectiveness of prefabrication process (1=least effective, 10=most effective) As with all important strategic initiatives, Note: the “business of prefabrication” starts at the Bubble size represents the number of respondents top, with committed leaders who communicate a clear strategy and strong vision Source: 2017 FMI/BIMForum Prefabrication Survey around what the company is trying to Source: 2017 FMI/BIMForum Prefabrication Survey achieve (e.g., start with the question: Why are we doing prefab?). Successful compa-

13 Key Findings Exhibit 10:eretae Percentage of projects rets using prefabricationus and effectiveness nies typically select a champion at the executive level to head up the prefabrication initiative and rearat align everyone with the company’s prefab vision and strategy. This approach often requires close erae collaboration and coordination across different eteess re business groups, such as estimating, VD, BIM, fabrication and the field crews, and ultimately resdets use rearat helps build a better business. 23% 51 rets 7.61 Several of our study participants confirmed that making prefabrication a corporate initiative re- 32% resdets use rearat 6.84 sulted in successful ventures. Some of the com- 215 rets ments include:

“You have to be committed to it, because resdets use rearat you fail more at prefab than you’re going to 45% 2 rets 5.51 succeed. It takes a long time to get some- what good at it.”

Source: 2017 FMI/BIMForum Prefabrication Survey “We have a prefab committee that makes sure all of the project teams are actually do- ure 21 ru rearat ure ing their fair share of prefabrication. Every project that we do must meet a predeter- mined prefab labor goal for that project as a percentage.” “We have a prefabrication manager who came from a manufacturing background. This has been a huge advantage for us.”

Key Findings 14 Before jumping into the world of prefabrica- Needed: A New Sequencing and Control As for lead time, the majority (63%) of sur- tion, companies must learn industry best mindset. With prefabrication, timing is crit- vey respondents indicated having one practices and study a broad range of ques- ical. Only a fifth (21%) of study partici- month or less for putting together prefabri- tions, including: pants plan for prefabricated assemblies cated assemblies (Exhibit 12). Only one- during the design stage (Exhibit 11). third of participants have a lead time of one to What types of customers or work Three-quarters of respondents plan for pre- three months for prefabricated assemblies—a require prefabrication? fabricated assemblies too late in the pro- pattern similar to what we found in the previ- cess—during preconstruction (56%) or con- ous studies (2010 and 2013). How fast will demand grow for this struction (15%)—which can adversely type of work? impact both schedule and budget. Does this fit into your company strategy and vision? What is different about using prefabrication? And what are the implications for your organization?

For example: What are best practices for inventory controls, tracking work progress, packaging, shipping and delivery, etc.? “There is a steep learning curve for prefabrication. It is huge. If you fail at prefab, it’s How do you implement prefabricated expensive. You have to have that mindset of, ‘OK, that was all right, but if we had assemblies effectively in the field? done it like this or used these parts, or done it this way instead, it would have What new skill sets and competen- worked out a lot better.” cies are needed? How do you prepare your workforce to adapt to all of these Steve Foote, Vice President and Operations Manager changes? What are the cultural impli- Greiner Electric cations?

15 Key Findings ur hh ret hase d u aExhibit r 11: rearated During which project assees phase do Exhibit 12:aerae On average, hat what s isur your ead lead timete for r you plan for prefabricated assemblies? prefabricatedrearated assemblies? assees

restrut

strut

ther ess ha 1 ee 13 3 re tha 1 ee t ths ths ths 1 th s eeded shrt te dur strut Source: 2017 FMI/BIMForum Prefabrication Survey

Source: 2017 FMI/BIMForum Prefabrication Survey ure 21 ru rearat ure ure 21 ru rearat ure

Key Findings 16 “Probably the biggest influence In another FMI study focused on U.S. electrical it’s making huge assumptions about where the would be the owners getting contractors, one executive explained, “Design project, your materials and everything else will their design nailed down better drawings have gone from 90% complete five be in the future. Unless you’re paying very before the project starts. We years ago to 50% complete in today’s business close attention to your schedule, updating it start so many projects where environment. Incomplete designs have become appropriately and monitoring at the right level the design is not complete and the contractor’s responsibility. As such, subcon- of detail, these forward-looking forecasts may we have to make allowances tractors have to plan for incomplete designs not necessarily be reliable.” accordingly.” and provide greater engineering.” As this ideological and structural shift in the Prefab Study Participant All of these factors dramatically influence plan- construction industry continues to evolve, we ning, timing and sequencing of prefabrication will likely witness a move from traditional de- efforts and can make or break the business sign-bid-build contracts toward design-build model altogether. Today, successful prefabrica- and new forms of integrated project delivery. tion contractors align with progressive project The transition from traditional design and en- Planning and sequencing are areas where many teams and owners who are reinventing project gineering functions to systems design and contractors struggle to make things work effec- delivery methods, collaboration and project simulation, manufacturing and assembly will tively. In our conversations with participants, sequencing entirely. also likely accelerate over the next five to 10 people listed outdated project delivery models, years as the industry undergoes one of its issues with design quality and ongoing risk Guy Skillett, director of construction at Rhum- greatest transformations. transfer as some of the key challenges to mak- bix, explained, “Construction companies are ing prefabrication work. In one of FMI’s recent accustomed to planning, sequencing and exe- industry studies, “Managing and Mitigating cuting their work using traditional scheduling Risk in Today’s Construction Environment,” methodologies. When you move to prefabrica- many industry stakeholders confirmed that tion, processes for production planning and owners are putting more pressure on project control change substantially. Prefabrication costs and schedules while modifying contract relies on managing just-in-time delivery and terms to place greater risk on all contractor inventory. With traditional construction plan- levels (CMs, GCs and specialty trade contrac- ning methods, you’re pushing your planning tors). out into the future. The problem with that is

17 Key Findings What percentage of total annual labor hours do Finding 3. Contractors Want to Exhibit 13: What percentage of total annual labor hours do you invest Double Their Labor Investments in in prefabrication?you invest in prefabrication? Prefabrication Over the Next Five Years. 100 s r In our previous studies (both in 2010 and u o 90 h

2013), contractors of all types were invest- r

o 80 ing around 12% of their labor hours in pre- b a l

fabrication. In 2016, that number almost

l 70 a

doubled to 20%. u

n 60 n a

Survey participants would like to see their l

a 50 t o

investments in prefab labor hours increase t

f invest in prefabrication 40 y o from 20% (2016 average) to almost 40% on l t

n e

average within five years. Specialty trade e r g 30 r a contractors expect to invest more labor hours t n c u 20 compared to GCs/CMs: 43% versus 31%, re- u c e o r spectively. y P e 10

Exhibit 13 shows that participants currently 0 investing 5% to 25% of total annual labor 1 2 3 4 5 6 7 8 9 10 hours in prefabrication (highlighted area) anticipate a significant increase in those invest- Multiplier of current annual labor hour investments in the next ﬁve years ments over the next five years. This might be (i.e., 1X, 2X…10X) a further sign of contractors planning and preparing for a worsening skilled labor short- Source: 2017 FMI/BIMForum Prefabrication Survey age in the future, and therefore investing more time and labor in prefabrication methods to Source: 2017 FMI/BIMForum Prefabrication Survey gain effectiveness over time.

Key Findings 18 This trend is also confirmed in Exhibit 14, Exhibit 14: On average, what is your lead time for prefabricated which compares prefabrication effectiveness assemblies? with associated labor hour investments. Based on our data, there are two interesting conclu- sions: Current labor hours Labor hours invested invested in prefabrication ﬁve years from now Those that indicated their prefabrication process was effective believe they will invest nearly 50% of labor hours in prefabrication five years from now. This eie is a shift from 30% (2016) to 49% (in 2021). Those that indicated their process was not effective believe they will attain eeds a 30% level of labor investments five een years from now—right where today’s effective prefab contractors are. This would mean a shift in labor hour investments from 14% to 34%, more than double today’s amount. eie

These findings could indicate that contractors Effectiveness of your prefabrication process 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% with less effective processes are realizing they need to invest seriously in both process and people to achieve the true benefits of prefabri- Source: 2017 FMI/BIMForum Prefabrication Survey cation. The industry as a whole also finds it- Source: 2017 FMI/BIMForum Prefabrication Survey self in various prefabrication adoption stages, led by a “cottage industry of innovators” that is paving the way.

19 Key Findings What percentage of total annual ﬁeld labor cost do you expect to save through prefabrication? 3a. Many Survey Participants Exhibit 15: What percentage of total annual field labor cost do you Achieve Minimal Savings in Total expect to save through prefabrication? Annual Labor Hours Related to What percentage of total annual labor hours did Prefabrication Efforts. What yourpercentage company of total annual save labor last hours yeardid your that company is attributable save last year that is attributableto your to yourprefabrication prefabrication efforts? efforts? Almost half (48%) of our survey respondents see less than 5% in savings on total annual labor hours related to prefabrica- Expectation tion (Exhibit 15). Our findings show that ex- Actual pected total annual field labor cost savings through prefabrication can be linked to prefabrication effectiveness. In other words, contractors that have effective processes in place expect to save more on field labor costs versus those that are less effective (Exhibit 16).

Percentage of labor hours saved 0% <5% 5%–10% 11%–15% 16%–-20% >20%

Source: 2017 FMI/BIMForum Prefabrication Survey

Key Findings 20 That said, these numbers must be interpreted ExhibitWhat 16: percentageWhat percentage of total of total annual annual ﬁeld field labor labor costcost do with caution since labor cost savings related youdo expect you to expect save through to save prefabrication? through prefabrication? to prefabrication have varied definitions. Here are some key factors to consider: In most cases, prefabrication shops are more productive on a pure labor hour per unit measurement. However, when 10 the time associated with material han- 9 dling (unloading, staging, packaging, 8 shipping and delivery) is added, total 7 labor savings are diminished. 6 Contractors track prefab labor different- 5 ly. Depending on how they categorize 4 “activities” (e.g., material handling/stag- 3 ing, installation/assembly, packaging, 2 shipping, delivery, etc.), results may Effectiveness of prefabrication process (1=least effective, 10=most effective) 1 vary. Questions to ask include: <5% 5%–10% 11%–15% 16%–20% >20% Do you know what categories of ac- Percentage of total annual ﬁeld labor cost expected to tivity are and are not efficient? be saved through prefabrication Can you improve or eliminate waste? Source: 2017 FMI/BIMForum Prefabrication Survey Are you maximizing coordination and sequencing across all stakeholder Source: 2017 FMI/BIMForum Prefabrication Survey teams?

21 Key Findings Shop labor is typically less expensive What are your additional costs (other These are just a few considerations that can per hour than field labor. Even if a proj- than obvious direct costs like labor, generate a host of new, often unexpected is- ect requires the same number of hours, materials, etc.)? For example, what is sues. For example, Thompson explained, “In if the former is less expensive, then the cost of your shop/facilities, utilities, the past, projects that took about four weeks there is still incentive to use prefabrica- additional equipment/tools and trucks? to install now only take us three to four days, tion. and then our guys run out of work. So we’re How do you charge for downtime or really having to think strategically about how Prefab shops usually leverage a few ex- excess capacity? we schedule our prefab work because it gets perienced people to supervise the work How do you track cost of packaging done so much faster, and now I have a bunch of many less skilled workers. In addi- of guys standing around. It’s a good problem tion to saving labor hours or dollars, materials? What is the cost of delivery and on-site staging and transportation? to have, but we’re having to re-evaluate how this can also help address the shortage we schedule and sequence our work more of highly skilled talent (i.e., there are How do you quantify some of the asso- carefully.” more less skilled people to help fill ciated benefits, such as: these positions). Reduced on-site time Payback time frames on prefabrication investments are shrinking. In 2010 and Tapping a larger workforce by using 2013, most survey respondents expected a lower-skilled workers (i.e., greater payback period of three years. In 2016, the supply) majority of our survey respondents expect- Competitive differentiator in winning ed a payback period of one or two years. new work Again, calculating return on investment on Higher margins prefabrication efforts is challenging for many contractors. There are lots of different, nontra- Better safety and risk control (very ditional variables to consider when develop- important for owners!) ing an estimate. Questions to ask include: Higher consistency in quality output

Key Findings 22 Rank the beneﬁts of prefabrication most Finding 4. Participants Consider Exhibit 17:important Rank the benefits to project of prefabrication success most important to Reduced Project Schedules as a project success Critical Benefit of Prefabrication. Reducing time to project completion 10 39 50 % Benefits derived from prefabrication are mani- fold, and before making big investments, it is Competitive advantage 5 9 37 48 % critical to think through the real benefits that you are trying to achieve through this new Reducing construction cost 7 11 35 44 % business approach. We often come across contractors who prefabricate “just” to save money. Increasing proﬁt margins 7 18 30 43 % In reality, most contractors don’t save money, but instead they realize many other benefits Improvement in quality 5 16 42 35 % such as reduced project schedules, better safe- Reducing the need for 6 6 24 31 34 % ty ratings, reduced risk and increased chances skilled labor on the job site of winning jobs, to name a few. Overall improvement to worker safety 11 24 32 31 %

Reducing rework 7 9 22 33 28 %

Reducing material waste 8 13 27 28 24 %

Ease of recruiting skilled employees 23 17 31 17 11 %

Reducing change orders 26 26 23 17 7 %

4 5

1=Least inﬂuential, 5=Most inﬂuential

Source: 2017 FMI/BIMForum Prefabrication Survey

23 Key Findings Source: 2017 FMI/BIMForum Prefabrication Survey When we surveyed the industry in 2013, top Owners will need to be more educated Because FMI works industrywide with archi- benefits of prefabrication were “reduced time and convinced of the benefits of this tects, engineers, contractors and the specialty to project completion” and “reduced construc- approach and will play a critical role in trades, we are in a unique position to see the tion cost.” The time issue is still one of the top selecting the right teams. positive impacts of prefabrication on the con- factors in today’s construction environment, struction value chain. When planned and Architects but, interestingly, “competitive advantage” will need to embrace the managed correctly, prefabrication and modu- now ranks second—a clear sign that owners possibilities and the constraints of mod- larization will improve productivity dramati- are starting to see the value of prefabrication ular construction. cally in the coming decades. The risks and re- (Exhibit 17). Furthermore, given today’s lack Engineers will need to become familiar wards of prefabrication must be shared among of experienced field personnel—combined with the possibilities and manufactur- all parties that contribute to value creation. with ever-increasing project complexity—pre- ing processes associated with various This will call for better coordination and fabrication will likely become a game changer prefabricated components. alignment among owners, designers, manu- in the realm of safety and risk management in facturers and contractors, and ultimately lead the future—two major areas of concern for Manufacturers will need to become to a more productive and safer industry. owners. involved in project discussions at the outset, and contractors and the special- As with many new concepts, success breeds ty trades should use prefabrication and success. Prefabrication is no different and modularization to reduce project sched- therefore it is essential that industry players ules, improve safety and reduce waste. alter their mindset and get educated on the benefits of modularization and prefabrication. Everyone will need to be open to new approaches to designing, manufacturing, sequencing and putting construction projects in place. Collaboration and partnering skills will be paramount, for example:

Key Findings 24 refabrication is not new, yet our findings show that the industry is still struggling to adopt this Pmanufacturing technique at a broad level. With the rapid emergence of innovative technologies, such as augmented reality, 3-D scanning and printing, XD-BIM, drones, etc., it is easy to get caught up in all the technology buzz and forget about what it really takes to innovate and change.

As discussed earlier, one of the biggest barriers to Business Implications change and transformation as it relates to prefabrication is not technology; it’s people and culture. Table 1 provides some high-level recommendations to consider We always saw prefabrication as a three-step at the strategic, operational and tactical levels when de- process: Create, Innovate and Revolutionize. veloping a prefabrication business strategy. These are Create so it functionally works. Innovate so it general suggestions that can serve as a good foundation holistically works. Revolutionize to improve the for creating a customized approach to prepare your industry. It took us three years of hard work company for the future. through our ‘creating stage’ before we started truly affecting the whole project. We currently reside in our ‘innovate stage,’ focused on making prefabrication affect the bottom line. We continue to see more and more success on our projects and look forward to transitioning into a ‘revolutionize stage,’ impacting the industry and ultimately fulfilling our purpose to ‘Build People, Revolutionize the Industry.’

Geoffrey Golden, President Golden Construction

25 Business Implications I I I

VISION Start by identifying a compelling prefab Develop processes for building “innova Develop specific interview questions for vision and communicate that vision tion communities” that truly inspire and hiring new candidates to make sure clearly to the company. encourage people to test new ideas. they are a good cultural match.

Ask yourself: Why are we doing prefab, Promote a collaborative and transparent eaders need to promote buyin in the and how does it fit within the broader work culture and build strong bridges prefab vision from top to bottom, company vision? between the field and office. across all business units, and remain openminded and flexible. Establish clear objectives for your Attract and retain key employees for prefabrication efforts and investments: moving your prefab vision and strategy Employees need to understand what forward. their career can look like long term in What do you expect to accomplish? the context of a prefabrication business What will be measured? model. What are you willing to spend? How long do you expect a return on investment to take?

Spend your time, energy and resources Develop a framework for idea Create space for nontraditional CULTURE OF on your organiation’s people and sharingboth internally and externally. employees to join your team. External INNOVATION culture. Helping them learn and grow in experiences and perspectives often their thinking, experiences and compe Solicit and respond to input from bring some of the most influential shifts tencies will pay dividends when you the field. in our industry. need an innovative shift. isten for fresh ideas and recom mendations on how to improve. Develop formal learning plans that Don’t expect the leaders to come up leverage new technologies, methodolo with all the innovative ideas. Every role Develop and implement performance gies and outcomes. everage millenni in your business has a different perspec management processes that factor in als in “reverse mentoring” as well as tive on how things could be done better. ongoing training, coaching, development senior leaders in mentorship roles for Provide an inclusive way for all voices to and associated performance metrics that younger employees. be heard—and then listen. are linked to your prefab strategy. Identify new skills and competencies Build a culture that encourages frequent Maintain a strong focus on qualityfrom required, and develop individualied conversations around continuous assembly through installation. career plans and adjust on a continu improvement and better ways of doing ous basis. things. Create a safe place to talk about Create and track project controls failures, learn from those mistakes and for prefabricated portions of work. teach others in the future. Consider packaging, shipping/ trucking and delivery time/costs. Predetermine how you will track inventory, work in progress and finished goods. Plan for onsite unloading, conveyance and storage.

Business Implications 26 I I I

TALENT STRATEGY Develop a talent strategy that aligns with Define performance evaluation and Develop recruitment materials and your corporate prefab vision and strategy. promotion criteria that reinforce the selection processes that reflect the AND CHANGE organiation’s value of a change organiation’s value of a change MINDSET Communicate regularly on the organia readiness mindset and change implemen readiness mindset and a focus on tion’s philosophy around embracing tation success. prefabrication. change and explain why that change is necessary. Develop processes for improving Incorporate innovation within talent collaboration and implement programs to development programs. everage Pay attention to and give credit for solicit suggestions and feedback from the innovation to connect older and younger embracing and driving change. field, prefab shop and office. employees.

Develop a “manufacturing” mindset and Build a focused and strategic prefab talent Have strong leaders and experienced culture: development program that is closely tradespeople lead the prefab shop, aligned with other core operational facilities and people. Minimie rework and waste functions e.g., estimating, project Maximie throughput management, project controls, account Anticipate potential feedback and be Track equipment utiliation ing, etc. and that aligns with the overall open to making changes based on input ook to improve or eliminate corporate strategic goals. from millennials as well as other constitu bottlenecks encies. Develop a communication platform where all employees can provide ideas and Redesign the hiring process to place an suggestions around strategic business emphasis on cultural fit as well as role fit. issues as well as concerns they may have about less effective characteristics of the corporate culture.

27 Business Implications

Looking Ahead

Your enterprise’s business model is already under attack from digital disrupters. It’s time to bite the bullet.

Geoffrey Moore, American organizational theorist, management consultant and author

29 Looking Ahead he year was 1913 when Ford rolled formational disruption across the entire E&C As we look to the next five to 10 years, FMI out its first moving assembly line. space just yet, there is no doubt that transfor- expects the industry to undergo significant WithT this innovation in place, the automaker mation is happening. changes. Even though there is a lot of talk was able to reduce the number of man-hours about technology and robotics, for exam- spent on final assembly from more than 12 While our study findings indicate that the ple, we strongly believe that your people hours to less than three hours. This level of E&C industry as a whole is still struggling to will prevail as the foundation of your suc- mass production led to significant and imme- progress and adapt to these fast-changing dy- cess. After all, it’s more than just the culture diate changes: Within four years, Model T namics, some firms are taking steps to suc- that you create; it’s also about the skills that production rose to 585,388 (from 82,388 in cessfully transform their businesses. For ex- your employees bring to the table. That’s why 1912) and the price dropped to $360 (from ample, a handful of new startup firms are investing in those employees is a critical as- $600). entering the playing field, bringing expertise pect of meeting the needs and requirements of from high-tech companies such as Google, today’s ever-evolving business environment. This year, nearly all Ford vehicles will be built Nokia and Apple to the table, and challenging off nine core “platforms” that not only boost long-held industry paradigms around produc- It’s important to note that systemic and sus- manufacturing productivity but also give driv- tivity, speed and quality. tainable innovation requires patience and will ers the fuel efficiency, features and technology likely involve multiple failures, which are a that they’ve come to expect in their automo- These movements underscore the fundamen- hallmark of a true breakthrough change. It biles. tal tectonic shift that is taking place, geared won’t all be pretty and it won’t be smooth, but toward systems thinking and streamlining. As it will be full of new challenges and opportu- Although manufacturing cars is very different design and construction functions are becom- nity. The firms that remain agile, technically compared to designing and building struc- ing increasingly complex and require ever- proficient and versatile—and that have ex- tures, we are seeing similar advanced manu- more specialization, the disciplines’ segregat- traordinary capabilities in processing vast facturing capabilities and groundbreaking ed silos are crumbling, creating space for amounts of information and data—will come technologies gaining momentum in today’s integrated, cross-disciplinary thinking. There out the winners. engineering and construction industry, dis- hasn’t been a better time for owners, contrac- rupting long-established value chains. This tors, designers and engineers to align with one FMI will continue to investigate and research “silent movement” is happening in pockets another across all market sectors and geogra- these important trends and promote a con- across the country, in different market sectors phies to reinvent collaboration and create in- structive dialogue among all industry stake- and across a range of project types and sizes. novative partnerships. holders as we move down this new and excit- And while this may not be a sweeping trans- ing path.

Looking Ahead 30 Appendix

31 Appendix Survey Demographics What is your organization’s annualWhat is revenue? your organization’s annual revenue? HowHow many full-time full time employees employees are arecurrently currentlyemployed employed at your firm? at your ﬁrm?

More than $1B

$500M to $1B More than 500

$250M to $500B 250-500

$100M to $250M 100-249

20-99 $25M to $100M Fewer than 20

Source: 2017 FMI/BIMForum Prefabrication Survey $10M to $25M Source: 2017 FMI/BIMForum Prefabrication Survey

Less than $10M

Source: 2017 FMI/BIMForum Prefabrication Survey

Appendix 32 Which of the following best describes Which of the following construction segments your organization? Whichrepresents of the followingthe majority constructionof your business? segments Which of the following best describes represents the majority of your business? your organization?

Residential Other 3% 4% 61% 39% Heavy/Civil SUBCONTRACTOR GENERAL CONTRACTOR 5% CONSTRUCTION MANAGER Industrial 13%

Commercial 75%

Source: 2017 FMI/BIMForum Prefabrication Survey Source: 2017 FMI/BIMForum Prefabrication Survey

33 Appendix Factors Driving PrefabricationWhat stakeholders Demand or factors are the primary drivers of prefabrication? What stakeholders or factors are the primary drivers of prefabrication?

2016 2013

The need for productivity improvements and lean construction

Trade/subcontractors to win bids and increase proﬁts

Improved technology, allowing for greater use of prefabrication

The shortage of skilled labor at the job site

General contractors to improve construction schedule

Owners indirectly due to competitive pricing pressures

Owners by direct request Architects specifying prefabrication in the design stage

Source: 2017 FMI/BIMForum Prefabrication Survey

Appendix 34 Tracking Prefabrication TrackingEffectiveness Prefabrication Effectiveness

How do you measure How frequently do you effectivenessHow do of you your measure trackHow effectiveness frequently do ofyou your prefabricationeffectiveness efforts? of your prefabricationtrack effectiveness efforts? of your prefabrication efforts? prefabrication efforts?

Sub GC Sub GC

We track 54% On a project- 43% by-project basis unit/labor hour 36% 50% 27% We track 33% Weekly 21% cost savings 43% 16% 2% Monthly We track ROI 17% 6% 5% 11% We never track Other 2% 15% 1% Semiannually 2%

1% Quarterly 3%

7% Other 5%

Source: 2017 FMI/BIMForum Prefabrication Survey 35 Appendix Source: 2017 FMI/BIMForum Prefabrication Survey Expectations AroundExpectations Annual Field around Labor annual Cost ﬁeldSavings labor cost savings

Expectation Last Year

Not Needs Effective effective improvement

Source: 2017 FMI/BIMForum Prefabrication Survey

Appendix 36 Sabine Hoover is FMI’s content director. Sabine leads FMI’s content and thought leadership efforts and collaborates with a broad range of stakeholders on a variety of industry topics. She may be reached at 303.398.7238 or via email at [email protected].

Paul Trombitas is a consultant with FMI. Paul is responsible for providing strategic marketplace insight for a range of industry stakeholders, including engineers, contractors and industry associations. He may be reached at 919.785.9256 or via email at [email protected]. About the Authors Ethan Cowles is a principal at FMI. Ethan has worked with both general and self-performing contractors, helping them to develop a strong understanding of the financial risks and rewards inherent in operational issues. Ethan assists these contractors to maximize productivity and minimize risk by implementing proactive management processes. Ethan may be reached at 303.398.7276 or via email at [email protected].

31 Survey Methodology About FMI For over 60 years, FMI has been the leading management consulting and investment banking firm dedicated exclusively to engineering and construction, infrastructure and the built environment.

FMI serves all sectors of the industry as a trusted advisor. More than six decades of context, connections and insights lead to transformational outcomes for clients and the industry.

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† Investment banking services provided by FMI Capital Advisors, Inc., a registered broker-dealer and wholly owned subsidiary of FMI. Industry Focus. Powerful Results.TM www.fminet.com www.fminet.com Copyright © 2017 FMI Corporation Notice of Rights: No part of this publication may be reproduced or transmitted in any form, or by any means, without permission from the publisher.