Wednesday, February 20, 2008
More on construction & engineering:Industry Charts:Construction and Engineering (PDF File)
sidebar: Engineering Company Cashes In On E-Services
EETimes Construction industry digs into 'by-wire' (5/22/00)
EETimes Startup College Dedicated To Engineering -- Single-Minded School (2/14/00)
Send Us Your Feedback t has never been particularly easy to wear an IT hat in a hard-hat industry. Until recently, old-line design and construction companies viewed their technology departments as yet another cost, along with the truckloads of asphalt and pipe. When management finally lent CIOs an ear, the first thing they often heard about was the need to untangle decades' worth of spaghetti systems before IT would be able to start contributing to the bottom line. And in a sector where paper-thin margins depend on controlling the cost and quality of far-flung projects involving hundreds of engineers, purchasers, managers, and contractors, the companies that build airports, dams, power plants, and roads have struggled to convince project managers and subcontractors to replace cumbersome pencil-and-paper calculations with Internet tools.
"There hasn't been much done for the construction industry in the way of computerization," says Larry Hazen, director of IS at Granite Construction Inc., a $1.33 billion heavy civil-construction company in Watsonville, Calif. When Granite and multibil-lion-dollar builders such as Bechtel, Black & Veatch, Gilbane Building, and last year began fast-track deployments of online collaboration and project-management tools that could shorten cycle times for designing and building projects, lots of back-slapping ensued.
Perhaps some of it was premature. This year's flow of venture capital into business-to-business Web commerce has led to a flurry of alliances among construction companies, dot-com startups, and technology suppliers. Welcome to E-business, heavy-industry style. These companies aren't just made of brick and mortar--they're buying the stuff, along with electrical and plumbing systems, pressure vessels, turbines, and other heavily engineered, hard-to-procure items.
The complexity of purchasing these products online--a single product could cost as much as $1 million--combined with engineering companies' reluctance to beat up big suppliers over pricing and subcontractors' lack of technical ease, means most construction companies are selectively experimenting with Internet procurement. "The large engineering guys are sitting on the fence, looking," says a top executive at one prominent marketplace vendor. "No one's done anything substantial yet."
Cephren Inc. and Bidcom Inc. are among the leading players building marketplaces for exchanging information and price quotes for the construction industry. More established software vendors that serve the construction and engineering industry, such as AutoDesk, Bentley Systems, i2 Tech-nologies, and Primavera, are also launching Internet initiatives. All are angling for a share of the industry's procurement, which totaled $724 billion in 1998, according to Cephren.
"Web companies see massive procurement in this industry, so it's attractive to them," says John Thomas, CIO of Parsons Corp., a Pasadena, Calif., engineering, procurement, and construction company with an estimated $2.47 billion in annual revenue. "They come in, beat up the vendors, and say, 'We're going to save you money.' The downside is that their model isn't developed for this industry." Rather than cutting procurement costs by putting pressure on their suppliers, construction companies' IT departments must devote resources to integrate CAD, enterprise resource planning, project scheduling, and other systems to reduce job-cycle times, says Thomas, an employee of Perot Systems Corp., which manages IT for the engineering company. "This is primarily a service business. Construction is just one piece, and probably not the most important piece."
Cephren CEO Rob Majteles sees it differently. Cephren was formed this year when project-management software vendor BlueLine Online bought E-marketplace developer eBricks.com. It has emerged as a player to watch after closing a $41.5 million pre-initial public offering round of funding in January, which included investors such as Bechtel, the San Francisco construction and engineering company; Goldman Sachs; and GE Power Systems. Cephren in Palo Alto, Calif., operates ProjectNet, a Web site that lets construction companies and project owners share technical drawings and other documents electronically. Cephren's MarketNet site for materials and equipment bidding went live in May; Bechtel and GE Power Systems are among its early customers. But connecting all the right components to such systems is an enormous challenge--one that not every company is prepared to meet. According to Majteles, a project's construction, design, and procurement "require a huge flow of documents, all of which are very technical in nature. A lot of documents are authored in tools that were never designed to support the Web."
Meanwhile, Bidcom, a marketplace for construction project collaboration and workflow management, claims Ford Motor Co. and Lucent Technologies Inc. as customers. The Web startup has also teamed with Oracle and the nation's five largest home builders to develop Homebuilders Xchange.com, a procurement site. Additionally, i2 Technologies, the supply-chain planning and scheduling software vendor, has been talking with large construction companies about forming alliances.
"The Internet is still very much the $64,000 question," says Matthew Phair, senior technology editor at Engineering News-Record, an industry publication. Unlike sectors such as manufacturing or software development, construction and engineering companies can't keep refining their products before they go into production. "This industry builds something different each time," Phair says. "You only get one shot. All the while, you have high potential risk and low margins."
So IT executives are evaluating whether to jump into untested online procurement or risk being late to market. "Everyone's still going to get their margin, but there's a new player--the E-commerce site--who's making a little margin on each sale," says Keith Authelet, CIO and VP of IT at Gilbane Building Co., a $2.3 billion construction management company in Nashua, N.H. "Whose pocket do you think that's going to come out of?"
Nearly all of the construction and engineering companies that InformationWeek spoke with are at least contemplating alliances that can bring efficiencies of purchasing via the Web. For now, however, most are talking to potential partners, running the numbers, and limiting procurement to indirect materials, such as office supplies, that don't go into companies' finished products and therefore to the bottom line. "You always want to do the easy things first," says Brian Bertlin, CIO of Washington Group International Inc., formerly Morrison Knudsen Corp., a $2.2 billion construction company in Boise, Idaho
