Transcript: Construction Trends to Prepare for in 2018 - Part 2

Hello, and welcome to the Constructor Podcast, The Best Way to Build It, Episode Number 56. I'm your host, Brittany Campbell-Turner, and this podcast is dedicated to helping property owners have certainty in their decisions about their construction projects. We talk about fostering trusting relationships, help you to understand how to lower risk, be under budget and on schedule, and most importantly, exceed your end user's desires. Last week, we covered some of the trends to be looking for in 2018. We did a review of some of our past interviews that hit on some of our most exciting and important topics that we covered this past year.

We did a review of the status of the industry and concluded that there is a change that is gaining momentum and that change is overdue. We talked about how in the future we need to be keenly aware of the following trends. Millennials and the impacts on corporate real estate, buildings and infrastructure, and recruiting and retention. The trends in corporate real estate that are affecting retail and the economy on the whole. And last but not least, how companies should be looking at sustainability and health programs in their organizations.

So if you haven't listened to that episode yet, check it out at Constructor.com slash EP55. In this episode, we're continuing our 2017 review and looking into what we should be paying attention to in 2018. Our main topics of focus today will be technology, culture, and contracts. I'll be pulling in from past interviews the nuggets of wisdom around technology like AI, AR, VR, IoT, BIM, machine learning, and of course blockchain. We'll cover how this affects culture and the nature of how our contracts and insurance will look like in the future.

So we're going to be referencing a number of past podcasts in this episode. Don't worry, I'll include the link for each one of them that we're mentioning in the show notes for you to have access to. So let's hop in and listen to David de Yarza, CEO of BuilderBox, where BuilderBox is a construction management and production control software. David speaks candidly about his perspective on a culture that exists among many practitioners today. We are really in line with some of the philosophies that you have been talking about at Constructor.

And it's not just building buildings, but it's building a better culture of building, if you will. And I think it's no secret the challenges that we face, the inefficiencies that we have, essentially decided that we're going to live with and the people that pay our checks at the end of the day, I believe don't necessarily know everything that goes into building a project and all the inefficiencies and all the problems that our collective culture as builders really create. I think that in any other industry, if you were to say that you're going to throw away 30 cents out of every dollar that is spent, I think they would look at you like you're absolutely insane and they would give the job to somebody else.

Best practices and lessons learned from things like Lean and NIPD and enabling workflows to follow naturally those paths and for documents, for example, to work the way that you would want them to in a Lean environment. And we've created some tools that enable that, right? But in addition to that, we've created what I call a social layer on top of it. What that aims to do is to capture the context to every decision. So if there's a decision on a submittal, if there's a decision on a change order or on an RFI, I want to have a way of capturing everything that led to that decision being made that way, which typically now gets lost in emails and nobody ever finds them again.

So we've got a social interaction layer to the entire system. Where we have found really great success is where, whether it be the owner or whether it be the project manager or somebody in a leadership position and the project has decided that, you know what, this is what we're going to do. We're going to talk to one another and we're going to capture it here. If you send me an email, I will delete it. So if you want to weigh in on this conversation, have it on this platform.

And that's when we've been very successful. On the other hand, we've had a leadership team that's wishy washy about it and doesn't really care. You can email, you can do this or, oh, you guys are going on Slack and these guys are doing that over there. Wonderful. Everybody do whatever you want.

Our product, quite honestly, has not been that successful at those implementations because we just end up being another silo of data, another log in. So this begs the question, how do we change a culture? David gives a great example here about how we can model the safety culture in the AECO industry. If you don't have a culture that values a higher standard of care, it's like saying that you don't have a culture that values innovation or a culture that doesn't value safety. You're not going to put an emphasis on those things.

You're not going to empower your people to do that. So if you do, you have to make it very clear that you do and really empower your people to do the right thing for their clients. And in fact, I think some of the resources out there, like you were talking about, we talked about the blog earlier. Because I'm not historically a software developer or I've not been a CEO of a software company, most of my focus on our blog has been around this topic. For example, I published a blog a few days ago on using the safety culture as maybe a model for innovation and standard of care.

And it's really not that long ago that we were really arguing about having to wear hard hats on our site. And people were against it. It was something that, oh, it gets in my way. Or having to spend an hour doing a safety orientation at the beginning of the job, that seems very wasteful. There's a lot of money spent on that.

But there's a mandate for that. You've got, first of all, you've got OSHA and rules like that. And you've got your insurance company saying that you're going to have higher premiums if you have a certain recordable rate. There have been a lot of project pursuits trying to sell a client on hiring us to build your project. We had a big slide with our EMR directly up on the slide.

And the lower, the better. And we would tout all the safety awards that we've gotten. Well, maybe we should get a slide in there that shows all the VDC awards we've gotten and what our standard of care is to our customers. I think that it's a very similar thing. You've got something that was not necessarily well received.

It seemed like it would go against your bottom line. But it's done by a group of specialists at your company. And now you do every job. And you start with a safety briefing. So why are we still having a conversation about whether we're going to use VDC on a project or not?

Why isn't it the same exact model? So speaking about safety, we spoke with Pete Shermuhorn, president and chief operating officer at Triax Technologies. He talks about implementing a new tech that is easy to use. And that's how you really get the value. All the worker has to do is clip it to their belt and wear it.

There's no active maintenance of the system. People only use this type of technology in these systems if they're easy to use and they're not a hassle. So one of the guiding principles we had, and this is based off of what we learned in sports, was as we built the spotter system, how do we make it as absolutely user-friendly and local maintenance as possible? And that's where the year of battery life comes from and the fact that the worker really doesn't need to actively think about the fact that they've got it on or maintain it.

They always have it and it's always ready for them to use. The spotter system tackles safety and it tackles productivity and efficiency. So by allowing you to have interior geolocation, so the location of workers within a building where GPS won't work, there's some really unique abilities to know what workers you have on a job site, where they are and how much time they've spent in those areas. That's both real-time and historical. So Pete talks a little bit about what it means to be proactive or reactive with the use of technology in addition to why it's so important for technology to be easy to use.

On the safety side, we like to think of it as really there being some reactive and proactive safety devices or safety features. So on the reactive side, there's an automatic slip, trip and fall notification that's triggered anytime someone has one of those incidents occur to them. So if someone were to fall off a ladder, say the safety supervisor and the foreman on the site immediately get a notification with that person's name, the location on the site and the fact that they had this type of incident, we can tell how high they fell and how hard they fell, which gives important information.

On the more proactive side, we have a alert button on the device that allows the worker, if they're injured in a way that wouldn't trigger that slip, trip and fall notification, to send an alert, same type of alert, to their safety supervisor, letting them know that they need assistance immediately. And the same thing gives the worker's name and where they are on site and the fact that something has happened to them. And it's not an emergency situation, but there's an unsafe work condition or something that needs to be addressed, the worker can push the button.

Because we know where workers are on site, if there is something like a building collapse, you know who you have on site and you know where they are. Using the dashboard, you can set off that alarm on everyone's sensor at the same time, which means evacuate and go to your muster point. So when we collectively have a higher purpose in mind to convey when you're planning on using a particular use of technology, it's so much more effective. Listen to what Pete had to say about this.

The company was started with the mission of keeping kids safe on the sports field. And we've expanded that mission to keeping workers safe on the job site. The construction environment, the open air, the constantly changing sites. We liked that challenge and we thought it squared pretty closely with the challenges we found out on athletic fields and teams going to different sites. We're building this to keep guys safe on the job and to make sure you got more going home healthy at the end of every shift, end of every weekend, end of every month, end of every year and there's continual improvement there.

They're not alone on the site anymore, no matter what part of the site they're on. If something happens to them, they push that button. It doesn't matter if it's their first day on the job or they've been there for a hundred days. They don't need to have the safety supervisor's cell phone. There's help available to them right away.

The workers also like the fact that they get credit for being an active part of the safety culture. Almost every single construction firm that I've ever interacted with has value statements about a safety culture and making sure that everyone buys into that. This really gives them a tool to effectively change the safety culture and to enhance it and to get credit for it when they do the right thing because again, everything gets logged on the system. You go up a level to the subcontractor and the subcontractor loves having the data on what their workers are doing and where they are and that helps them with estimating.

It helps them with future job bids. You go up another step to the CM or the GC. They have now much greater site visibility as to the human resources that are on the job and how long they've been there. That word you use, trust, is a really important one across the whole site. There needs to be trust between the clients and the CM, but there also needs to be a high degree of trust between the CM and the GC and the subcontractors and the actual workers.

I think part of what will drive that is transparency and part of what will drive that is again, empowerment of the workers themselves, the CM and the GC and the subcontractors and the actual workers. It only improves outcomes for everybody. Kind of the core principle on wearable tech. People are only going to use it if it has a good outcome for them and it's easy to use. As we start to employ this type of technology on construction sites, it needs to improve outcomes for everybody involved and particularly for the person that's attaching it to their body.

So you'll be hearing a little bit more from David later on, but I wanted to switch gears because we had a lot of talk that covered building information modeling. Believe me, I didn't endeavor to talk about technology simply for technology's sake. It is really to identify the tools that can promote collaboration and better decision making and BIM just kept coming up. So you'll hear from Abel Matiel in a little bit, but he described BIM from two aspects, from a technological aspect and a process aspect. So you'll hear a little bit more about this distinction in my interview with him, but I wanted to distinguish that many will use BIM interchangeably with virtual design and construction or VDC, especially in the U.S.

But I think of VDC as the technological aspect of BIM. So who better to start the recap about BIM but Bill Dewebeck, the host of the BIM Thoughts podcast. He gave us his perspective on what BIM management really is. Let's define what a BIM manager is because I have a little bit different definition for a BIM manager than most people do. I think there's three levels of BIM management.

The first level is the principles and the principles of the firm are defining the direction that they want the firm to go with technology. They're defining this is where we want to be in the future. The BIM manager is the person who takes that information and figures out which technologies, which training, which software, which hardware needs to happen, which settings, all of that stuff needs to happen in order to get the designers to do to reach that goal. And then the third level is the modeler or the lead modeler.

And the lead modeler is almost a traditional BIM manager level person. They know all about Revit or whatever software they're using to get the model done, but they're in the trenches. They're doing the work. They're the lead modeler of the project. And that's where all the feedback comes from on how we can make things better from our ID perspective.

What is working? What technology have we introduced is working? What technology have you found that we need to research and see if it fits within everything else? And so those three levels working with each other and knowing their purpose really makes things work quite well. So that culture discussion comes up again, huh?

Let's talk with Nathan Wood, Chief Enabling Officer with Spectrum AEC. I don't think I'd do a presentation without this slide that BIM is just a tool. That tool is only as good as that person using it. And even that person can be only as effective as the process allows them to be. And again, we get back to contracts, we get back to incentives, and we get back to skill sets and training, but not just training.

I talk a lot about the difference between education and training. Because in this day and age, technology is becoming so much easier that it's more about how do we figure out quickly how to use the technology, but understand more about the ins and outs of how it works so that we can train the technology to do our jobs better than we can. And that's really what machine learning is all about. And until we stop being afraid of machine learning, taking our jobs and realizing that it's only as good as the power of our brains, then we'll really take over the industry and fix our productivity issues.

Interestingly enough, we'll be picking up this discussion about machine learning and BIM later on when we talk with Abel Maciel. But I wanted to highlight the demographic concerns that we spoke about a lot last episode. Let's hear about this topic from Nathan. Any company that has more than a couple of regional offices, you'll find that there's certainly a cultural difference across offices. So I get some of the folks that, you know, just walking into the room, you can see their face that they're going to be resistant to anything that's not the way that they've always done it because they're proud of whatever they need to be proud of.

And that's fine. And I want to help them understand that they have a huge legacy, a huge amount of knowledge that they need to share. And that even though they're going to be resistant to the technology, that the guys below them are going to be using it and that if they can't somehow impart their knowledge and their information and their lessons learned on the next generation, that, you know, they're giving away their value and they're giving away their IP. And so that's really where I'm hoping that the culture of sort of this baby boomer generation, a lot of the superintendents that are retiring now that they're recognizing that, you know, just because they're not building with their hands anymore doesn't mean that there's not, you know, a ton of value in their heads that can be translated through technology and partnering with them with younger millennials.

We should be curious. We should be thinking, you know, it's not just if this then that. We should really be figuring out why and how, especially in an industry like construction, where it's all about understanding constructability and unique situations and one-offs and imparting that knowledge. And the only way we're ever going to have big data is if we start collecting the data, you know, out of the heads of these great minds. Totally agree with Nathan here.

As you guys know, I'm a big proponent of lean and more collaboration, which definitely takes into account taking the wisdom from all practitioners from every aspect of the industry, no matter what generation you fall into. So if we're all going to adopt more technology, we have to understand what we have, especially the game changing tools and BIM in addition to machine learning. So I'll let Bill discuss some more BIM technology that we should be looking to use more of in 2018. Iterative design and generative design, because I think that's where the next evolution is.

Because if we look back at the history, AutoCAD is what 30 some years old right now. And when Revit came on board and started taking off, it was AutoCAD, I think was 16 years old. Today, Revit is 16 years old. So if we look at history, there's got to be something new coming along as far as what's going to replace Revit or make Revit different than it is today. And I think that is Dynamo, which is iterative design.

And then so generative design with Project Fractal is taking what we're doing now with iterative design and Dynamo. A classic example of iterative design is looking at those buildings that twist, for example. And so we can do that programmically. We can say how far we want them to twist per floor and things like that. Or another example of iterative design that's all the rage now, according to Bill Allen, is randomness when it comes onto your curtain walls.

That seems to be in vogue as well. And Dynamo can do that with iterative design. And so you use Dynamo to do that. Let's take the curtain walls, for example. And so you can hit a button and it will randomize all of those panels in the storefront.

If you don't like it, you can hit the button again and it will randomize it again. And then you can take whichever ones you like after you've done like three or four that you've found or five or six. It depends on what's going on. And then you present those to the client and say, well, which one do you like? So iterative design helps you do that quicker.

So you don't have to do that meticulous task. You can do that in a day and a half as opposed to a day per one. Generative design is a bit different. Generative design is where we take the building program, not the program as far as the computer program, but the program as the owner has described it. I need this much square footage for this, this much square footage for that.

And we put all of that into the program and then it starts laying out things. We give it some more parameters, how tall we want the building to be, what the area we can use. And it starts to figure out how to fit all of those pieces in there and gives us options for different kinds of designs. And that's generative design as it's sitting today. I think that's where things are going.

I think where we're going is to a point where we're going to be telling the computer what we want instead of instructing the computer of what we want. The other two things that we're interested in is energy analysis and VR. And VR right now is big. Everybody wants to do VR. And the tools that we have today with Enscape, with HTC Vive, with Revit, with Lumia, and some other products really make VR sing.

So today you can throw on an HTC Vive headset, launch Revit, connect it with Enscape, and Enscape is rendering your Revit model real time. So as you move something in the Revit model, it re-renders it real time. The person in the Vive sees it almost instantly, within a half a second to a second. Our client can be inside of the HTC Vive looking at the model and says, I want that over this a little bit further, move that door a little bit. The designer can just move the door and they don't even have to hit the sync button.

It updates instantly inside of the Vive, which is very, very cool. And the other thing that I found out about the Vive is your sense of space is pretty darn close to your normal sense of space. So if you walk into a room and you feel that the room is too small or too big or just right, it's pretty darn close to what it will be when it gets built. Augmented reality interests me more than virtual reality. An augmented reality is the Microsoft HoloLens.

So with the HoloLens, you can get multiple people with HoloLenses on, all looking at the same model at the same time. And it takes it to a whole new level. Because what happens is, you're there with the client to learn what the client wants. And the client's going to have a few reps with him. You're going to have a few designers with you.

And you're all trying to talk out the design and how you can make the design better. If one person's sitting inside of the HTC Vive and you can't share that experience, then what the heck is the meaning for? Because you need to collaborate with each other. So I think where it's going next is the augmented reality. So that you can actually see the person that you're in the meeting with through the lens.

You're seeing them in real time because they're standing right next to you. And you're seeing the design, you're walking through the building at the same time. I just recorded an episode of BIM Thoughts with Paul Aubin. I think he's a leader in Revit and leader in BIM as far as the technology and teaching goes. And he was showing us a product where you can use the Google Cardboard.

So one person can use the Google Cardboard and look around, but you're streaming what he's seeing on a big screen. So it takes it a little bit further and it makes it portable, if you will. So you don't have to take this huge case with all the HTC Vive stuff on it. You can just bring a Google Cardboard with the model. Everyone can download the model on their own phone and they can view the model or they can just sit back and watch the big monitor and what the guy's looking at at the same Now we're going to start covering some aspects of potential blockchain use specific to BIM.

I'll give a similar description here of what blockchain is in case you missed it in the five part series on blockchain and construction. Blockchain is a centralized database that stores a registry of assets and transactions across a peer-to-peer network. It is the exchange of value in order to increase transparency and lower uncertainty about one another in a transaction. Blockchain is a record of transactions, a transparent and tamper-proof digital ledger that allows users to share information quickly, freely, and without fear that it can be altered without users detecting it.

Essentially, it's a public registry or ledger of who owns what and then who transacts what. So you'll be hearing from Abel Maciel, Director at Design Computation and he's the main coordinator for the Construction Blockchain Consortium. Blockchain is really a wonderful piece of technology. It's a new type of database architecture. It's a distributed, supported architecture for database.

What is interesting about blockchain is the properties of immutability and provenance of data. So this is really core to the discussion. When you can guarantee immutability and provenance of data, you can start to understand what sort of utility people are realizing on that data. There are many things we don't know and there are many tools that we are imagining today that they don't exist yet. There is a lot of speculation on how blockchain and other intellectual tools like game theory can help on design.

In the interview with Abel, I set a baseline for a couple of definitions including game theory, behavior economics, and machine learning. I'm going to give the same thing here. Just want to give some context about specifically these three areas so you can get a good understanding before we discuss how blockchain and BIM can be applied. So first is behavior economics, second is game theory, and third is machine learning. Behavior economics is the intersection between economics and behavior psychology.

It provides a framework to understand when and how people make errors. It is the review of orderly decisions or biases that recur predictively in a particular situation. Behavioral economics help us to understand why only one third of Americans floss daily, why most people's expensive home treadmills turn it into overpaid coat racks, and why motivating humans is more complicated than ever before. So moving on to the topic of game theory, game theory is the science of strategy. It attempts to determine mathematically and logically the actions that players should to secure the best outcomes for themselves in a wide array of games.

In game theory, there are two types of games. The first game is a zero-sum game. It is a game in which the gain of one player comes at the expense of another player. The second game is a non-zero-sum game. It is a game where the gain of one player doesn't come at the expense of another player.

It can be mutually gained or mutually harmed. It comes up in really three different ways, where you have mutual wins, mutual losses, or conflict. But the games all share the common feature of interdependence. That is, the outcome for each participant depends on the choices or strategies of all. The last topic that I wanted to talk with you guys about is machine learning.

Game theory and machine learning is a science of getting computers to act without explicitly being programmed. Speech recognition, web search, and self-driving cars have been born of machine learning. Game theory is really like an exogenous decision-making modeling device in economics. So by exogenous, I mean the decisions that the two or more people make when they have to collaborate or when they have to coordinate something. Opposite to behavior economics, which is more of an exogenous decision-making process, game theory is more interested in the information one individual has, how that information will impact on the decisions of some other individual or a group of people.

And the opposite as well, how you gather information so you can have a better informed strategy to make the most rational choice you could possibly make. Underlying all this, we have a utility function, so how important something is for you and how not important something else might be for you. This utility function informs you of the best choice you can make. So it's really about decision-making. The advent of blockchain and the advent of property in data of being mutable, the fact that you know where the data came from and you can guarantee that as well.

You can calibrate your game theoretical model. You can calibrate your utility function in a given game theoretical model to make the best choice possible. And you can really design an interaction method so you attain the best result possible in a collaboration in this integrated team. And of course the perfect framework for that is a built information model because if you have the built information model running on a common data environment, then you really have the kind of infrastructure to run a game theoretical model to assist the team to make the best decisions they can make in any given point in time.

I think it is possible to do it without blockchain, but you wouldn't be able to do it very well if you don't have this immutability and provenance of data. Because of blockchain and because of some scripting language we have out there that uses blockchain, we have this new field of smart contracts. They are actually starting to be very disruptive because they are little robots as a queue team, contracts and distributing information to a team or to two or more parties like a buyer and a seller and so on.

With game theory we have the opportunity to make smart contracts even more smarter. Behave economics is almost the opposite of game theory from the perspective of the interface of the decisions. So in game theory there is this idea that when you are making a decision with somebody else you need to somehow externalize some information, that information will be computed by this other agent or other person. This will inform how they want to go about making a choice in relation to that situation. So it's an exogenous mode of decision making.

With behave economics it's an endogenous mode of decision making, it's like you yourself make a decision about something happening to you. So you have nature, you have the environment and then you need to make a decision. A very simple example is it's raining, decide if you will use your raincoat or if you will use your umbrella and it's really up to you to make that choice. So you have the environment, you have the rain and then you make that choice. So lots of behave economical models, they use different menus to categorize different decisions or to calibrate the utility of your choices in different ways.

So there are lots of risks and prospects and you have different internal models to make that decision. And it is very connected to machine learning. Machine learning, it's a field in computer science that gives computers the ability to learn without being explicitly programmed. When computer scientists develop some machine learning code, it's not like an expert system in the sense that they write every possible behavior of what an expert in that field would do. They just write a machine learning code that might be mimicking some biological process like neural networks.

The program itself learns how to deal with that situation. And you have different methods of doing that in computer science. Recently in the last few years, because we have more computational power and we have a better understanding of neuroscience, neural nets are really coming back and they are proving to be very powerful. Of course nowadays we have deep learning, which is basically layering many neural network software or little programs, layering them, processing them as a batch. It's also proving to be some sort of generic intelligence.

You can put it to learn wherever you want it to learn and it will adapt very quickly and will do things extremely well. Deep learning nowadays can recognize images better than human beings. That's quite striking. When you add the lay of behavior economics, then there is something really fascinating going on because machine learning is on its infancy as well. So it's developing very quickly, but it's not doing as much as we believe it will do.

We believe it will do much more. Behavior economics gives some indication of what direction we need to go. Lots of economists are writing models of behavior economics, which behave a little bit like a game theoretical model, which is very exciting as a hybrid. Jordan Williams, chief technology officer and co-founder at IntelliWave, spoke with us further about the use of blockchain, but specifically in the use of material management. And before we speak with Jordan, I wanted to give a really brief explanation as to what a smart contract is.

A smart contract. It is a contract that self-executes, where it handles the enforcement, the management, performance and payment. It is a computer protocol intended to facilitate, verify or enforce the negotiation or performance of a contract. It is decentralized code that can move money or information after a condition is fulfilled. And one of the problems we were looking to solve was, you know, if we had a global contractor, a global construction unit that was using our software, and we wanted to make sure that they had access to one of the data centers that was located, you know, anywhere they were working.

So they had the fastest response time to that data center. So we were looking at ways to make sure that the data was replicated securely and quickly. Across the multiple data centers at a time. And blockchain was a really good natural fit for that. And being, first of all, the way that we store transactions in a sequenced manner, where each transaction was in sequence and related to the previous transaction.

And also, you know, securing that information. So it was encrypted while in transit. And then being able to replicate that or have that distributed across our different data centers around the world. We turned to blockchain to help store those transactions. So really, it's a great natural fit, I feel like, for construction because of the nature of the transactions that are performed during construction.

So you have your purchasing transactions. So you have your purchase order transactions. Once the purchase order is approved, that order goes out. And then you have your delivery information that comes in. So delivery transactions as far as it's been loaded out, the tracking information for the shipments.

Then you have the formal material receipts that are performed on site. And then that actually triggers an activity, the materials received on a purchase order, that triggers an activity of actually paying that off. So talking about smart contracts really is putting in the logic actually into the blockchain to say, is this purchase order now fully received and all the materials have been accepted by the site? And if that's the case, let's trigger this payment to happen. So using smart contracts in a blockchain and using blockchain in general to store these transactions gives you a lot of benefits.

The main benefit is being able to distribute this information to the multiple parties involved and also then being able to automate some of these manual processes in terms of identifying purchase orders that need to be paid or automating receipt of goods and the acceptance of those received goods against the purchase order line items. So smart contracts can accomplish all these things in the blockchain and tie it to the And also the linking of the transactions help enable this as well in terms of the sequence activities that occur for the material receipts from the orders to the material receipt really paints the full picture of what's happened for these ordered goods and helps enable the automation of the completion of a lot of these activities that right now it takes a lot of legwork just to gather the information required to, for example, close out a PO and pay it

out. So those are a few examples of really how smart contracts can come in and help automate some of the manual transactions that occur in procurement along the supply chain. We had Dave Hughes with Keepsight mention about risk transference last episode a bit, but in terms of potentially doing so with blockchain and dispute resolution, I wanted to highlight it here. There's an opportunity to change the structure of the contracts within a construction project by helping clients manage more direct contracts. If you consider how we do it now, there's a client who employs a design team and typically they will have a contract with each of those consultancies to work together to design the building.

But when they go to onsite, they employ a general contractor, a main contractor to manage all the subcontracts and actually manage all of the suppliers as well of all of the material that the client requires to build the building that they want. So I think there's an opportunity to make all that transparent, to change the structure so that the site manager and the contracts manager are actually, they're a service provider in the same way that the design team are. So that's all direct contracts then with the client and the subcontractors.

But you could actually go further I think, and this would help try and get clients closer to the suppliers. When you consider that a client is effectively, a client is buying a piece of mechanical plant through at least two other agents, but in some cases three. So if you consider that they pay, whatever, $50,000 for a big piece of mechanical kit for air conditioning say, well the first person that actually buys that is the subcontractor and they'll put a percentage markup on that. And then the main contractor will also put a percentage markup on that.

And then the percentage markup on top of that for the construction costs as well. So the client's picking up costs all the way through when actually all he's paying for is the transfer of risk. So if the client could actually have a contract direct with the supplier, the manufacturer of the kit, he understands much more what he's paid for. And then you could use the blockchain to transfer the risk. There'd be a cost associated with that.

It's almost like insurance. But initially the payment would go to the manufacturer and they would hold all the risk on the piece of kit not being damaged. But once it was delivered to site and taken by the subcontractor, then they would take some allocation of that risk. And then once it was approved that it had been installed correctly, then the main contractor would take some allocation of that risk. And then at handover, the client would take the risk.

Jeremy Barnett is one of the founders and a director of the Construction Blockchain Consortium as well. And he's also a practicing lawyer. So he has a very interesting perspective. The online dispute resolution community were focusing on consumer disputes, high volume, small disputes. And I always felt that the role for the technology is in heavy, big, multi-party disputes where people are around the world possibly.

And there's what we call a need for speed. We waited for the new technology to come along when people were moving on to new communication systems. So we looked at blockchain. And I always fancied construction sector because it's a huge sector. Somebody described it as the industry that time forgot.

It's one of the biggest sectors, I think, apart from finance in the world. It's a huge global sector. And the figures are quite frightening, really. Some people think that nearly 10% of the spend on construction contracts goes in litigation. So there's a great scope for introducing technology.

The two things that blockchain bring are verified ledgers, trusted information. And the second thing is automation. So if you put those two things together, then, in our experience, you can start building streamlined systems to get parties around the table quickly using techniques, some of which involve artificial intelligence, some of which are about assembly of relevant documents, discovery, disclosure, sentiment analysis, and the like. Jeremy will give us an example about this in order to provide some context. A big building project, say somewhere in Hong Kong or in China, where contractors and designers are from all over the world.

And it goes wrong. And everybody's threatening to walk off site. The question is, how can we pull everybody together very quickly to focus on the issues? Can we get the right documents to the right people and then start mediating? We're not talking about arbitration.

We're not talking about going to court. We're trying to see, can we get people working together to see if they can get the building back on plan again? That's really what we're doing. And we're talking about using blockchain, one, as an anchor for the accurate material, and two, to automate the process to get us to a hearing. The vision that we have is that the cases will be dealt with a lot quicker in a more streamlined fashion, so a lot cheaper.

But the other side of the coin is it means more people might say, hey, we can try and settle this rather than we'll just carry on. So in our view of the world going forward, there'll be more cases, but there'll be a lot quicker. And the people will have better phrases, access to justice. That's one of the objectives that's often spoken about in terms of IT and the legal system. Jeremy and Jordan talk about some of the benefits that blockchain or distributed ledger technologies can provide.

Jeremy also shares what to look for when you're thinking about which areas in business blockchain can help. Some of the benefits of using blockchain specifically in smart contracts from the owner's perspective really come down to visibility. So the owner really gets unprecedented visibility into all of these transactions, being at the top of the project hierarchy. So we talked a little bit about that project hierarchy permission system. Well, the owner is really at the top of that.

And if they can see all of these transactions and they can sync all these transactions into their system, then they really know exactly where the project is at. So one of the primary benefits to the owner is having access to timely and accurate information about the project status so they can make educated decisions about what's going on with the project from a cost perspective or resource perspective using blockchain technology and smart contracts. And especially tying that in with the sensor play and getting source of information that's automated in terms of when materials are detected at a specific location or certain actions happen.

Having these transactions completely transparent and visible to all parties really gives that owner that visibility into what's happening. They can have the full picture. A lot of the times on construction projects, if you call a vendor, they'll say, yeah, it's been shipped. Of course it's been shipped. That's what the PO says.

So we shipped it out. So they'll just look at the PO and say the contract delivery date was yesterday, so it was shipped out yesterday because that's what they're supposed to say. Whereas if you're not calling the vendor and you're just looking at the transaction history for that particular project and that particular resource or material, then you're actually seeing exactly what happened, exactly when it arrived on site, when the material receipt was processed, the status of that material, if it's been issued or not. So you have access to all this information without having to drudge through what people are saying that may or may not be accurate and try and find that you have that complete picture of what's happening.

And then just aggregating all this information up into whether it's the owner using an ERP system or working with EPC or a primary contractor on these projects to figure out what's going on, then they have that visibility without having to put in a huge amount of work to get it. So I think that's the primary benefit. Other benefits in terms of reducing overall cost and then also improving overall quality of delivery in terms of just having better track and trace histories on materials and information just gives you overall better quality picture of your construction.

So for example, one issue in construction is counterfeit materials as well. So if you're using better track and trace systems, you'll be able to identify that easier and determine that the right grade of material was put in the right location for their building or plant or whatever construction project they're working on. So those are a few advantages. But I guess the number one for owners is it's a really good way to reduce overall cost of a project by increasing that visibility over your construction resources. For blockchain specifically, it's really early in the construction world.

I know they've started to talk about it at some of the industry consortiums. There hasn't been a lot of movement around committee formation in terms of committees in either Fiat Tech or CII or some of these industry-wide consortiums. From what we've seen so far, we haven't seen a lot of committee formation or standardization around the use of blockchain. So I would say it's still really early in the lifecycle for blockchain. I think just in general, what we're seeing from a broad perspective is a lot of industries and a lot of organizations are looking at blockchain as a solution to a lot of problems.

And they're starting to implement blockchain mechanisms within their systems. So some examples are Oracle and SAP or IBM, for example, who are all investing in R&D and investing in implementing blockchain technologies into their core products. I think along with smaller technology vendors like us and others are also doing the same thing. That's really just going to lead to better collaboration, not in the next year or so, but maybe in a few years. There will be solutions that allow fully integrated project systems using a blockchain and also allow this level of visibility where contractors or subcontractors have access to blocks and transactions and to the blockchains.

That's based on their permission level on the project and really giving that visibility throughout the whole project lifecycle. So it's something that's really going to get legs and in the future will definitely be contributing to more efficient projects and more efficient collaboration on these projects. Hopefully it's within the next few years, but construction tends to move a little bit slower than some industries. So maybe five years or so. First step is to really understand the power of the technology.

And you do that by looking for things that you're doing all the time where an accurate record would help and also reporting that information to somebody else would help. So going back to real basics, it's a DLT, a Distributed Ledger. It's a ledger of information. It's an authenticated ledger. So if you can think in any business that you're involved in of how having a ledger would really help.

So next time you do something, you can go straight to the ledger and that can trigger an action. Look for truth. Where is truthful information going to really help? And then look for where does automation help? Are we doing stuff the computers could be doing?

Look in your own business at how you could improve things. But it's a great journey. It's really interesting times. And I feel for one, it's marvelous to be given the opportunity to be in the real center of what's really happening in the world. This is fast.

This is exciting. And it's breaking things. And I like that. From the owner operator perspective, we have a lot of contribution to the discussion as to what makes sense. And you'll be hearing from a couple of people, most of them you've heard from already.

But to start with here is Bill. The missing part is what's best for the client? What's best for the building owner? Does getting this piece of software really help get the vision of the building owner done? Get the building built the way the owner wants it built?

I think a lot of IT departments lose sight. We aren't doing this for the user. We're doing this for our client to make the client's dreams possible. And that's where you need to be. That's where you need to think.

How is this going to help the product? The work that you're doing at Constructor is very important because you're focusing on owners. And at the end of the day, you said it. It's going to come down to the owner and what the owner requires and what the owner puts down on paper as their spec for how they want people to behave. We see that with IPD.

We see that with design, build, and with some other more collaborative contracting methods. The owners that get it and that are knowledgeable, they're getting very creative and they're putting really good frameworks in place for good work. Like you said, there's nothing wrong with making profit. In fact, I think that you should let that be the filter that you make decisions with. But you have to take a long view.

Is the profit you make in a change order worth not getting that client to work with again? Paul Doherty, president and CEO at the Digit Group, is a property developer now and an architect by trade. He's also a software entrepreneur and he had a hand in the early days of Revint, Buzzsaw, and Trirega. He speaks about smart cities and the mindset it takes to think beyond how we deal with technology today. But we're not really focused in on the American market.

A lot of that has to do with the fact that there's some pragmatic things here. We're getting innovations involved. We're in a very litigious society. We're our own worst enemies. We have this technology.

We have this great intellect. We're the gold standard in the world with everything the U.S. does. If it's made in the USA, and I've lived in Shanghai for five years, I've lived in Delhi for three years, I've lived in New Zealand for almost two years, I've lived in Australia, still to this day, being an expat most of my life, the United States is still yards ahead of anyone else. But we don't do it for ourselves.

It's almost like the Cobbler's son. David shares his perspective on this here. A software developer dictating how something should work just because they think that that's the best way to do it. I think that you need to have the flexibility to let project teams really make those decisions. There's nothing wrong with having some out of the box guidelines that, hey, these are probably going to cover most cases, but I would rather save that for a blog post than for a software setting.

The tools are more advanced than a couple of different things that happen. Number one, the contractual obligations that have to change, which are now fundamentally being coerced by the insurance companies that if you don't do this and you don't do this, we're not going to cover you. Well, that bodes well for innovation, right? Because you put handcuffs on people. And then the roles and responsibilities of people that the technology is asking you to take risks and do things that are beyond what you're normally contractually obligated to do and what your skill set is.

And we're wondering why people are looking at the technology saying, well, what's wrong with it? No, our process is wrong. So we are now no longer going to be part of this world that says we're going to build tools for others because everyone else is sucking at using it, even BuzzFeed, even Tri-Rega. Eight years ago, I pulled the plug and said we're no longer going to be developing software for others. We're going to do it for ourselves.

And what we're going to do is start to do real estate development ourselves. And how we're going to do it is through high performance urban environments. Paul discusses how he got involved with high performance built environments here. What I really liked was this idea of a roll up of this idea of called Smart Cities. That was a great branding exercise.

But holy cow, when I start to see how the different organizations within a municipality work so independently, where there's no sharing of data, sharing of information, because they're focused in what they have to do in order to make a city function. That's when I saw the opportunity. What we did was we started to take a look at both existing cities and new cities, what's called Greenfield. Getting involved with the White House was a really, really important step because we then got introduced to the Department of Commerce, Department of State, Department of Transportation, Department of Energy.

And in the Obama administration, we were introduced and then made friends with those secretaries and then the staff. And that was huge because it got us involved with things like trade missions. The reason why I'm mentioning that is because unless you have top down support with foreign countries knowing that the United States government has your back as a small medium enterprise, that actually caught the attention of central government in Beijing. We've been working with President Xi and Premier Li now for a period of about four and a half years working with their different government agencies, including what's called the NDRC, which is their main group that goes out to do rehabilitation of existing infrastructure and new cities and whatnot.

State Grid is another partner of ours that works with the largest power company in the world. When you're involved with energy, when you're involved with waste and water and health care and education, all the stuff that make up urban environments, now you start backing that into smart cities and you start to think, aha, so now all of a sudden you have ways of creating new jobs. You start the flow of people heading to those bigger cities because it's a nice environment. In mid-November, we've been invited to join President Trump on his trade mission trip to China, along with all the big boys, all the Microsofts and the GMs and the Boeings and all that stuff.

And we'll be representing Small Business America. As a result of the trade mission trip to China, Paul signed a contract to develop the first virtual reality theme park. There among others, I would like to highlight now a very real technology that is upon us as we discuss the future of smart cities. So next, I'd like you to hear from Ryan Smith, author and professor at the University of Utah in the College of Architecture and Planning about offsite or prefabrication. And you'll hear Paul's validation as to the extent it is being used now overseas.

Glenn Ballard, who wrote a paper on what type of production is construction. There's a great paper out there on that you might want to link people to, which is a very different kind of production, say in producing say an iPhone or any other manufactured product. And he outlines three peculiarities in construction that make it different than producing say an iPhone. Number one, the location, the location in which it's produced, the building, is different every single time. The scope, the program, the form is different every single time.

And the labor that produces that product is mutable and inconsistent every single time. To think that we could somehow gain productivity and control in producing buildings in some ways is laughable given those three peculiarities working against us. It goes against everything we know in the 20th century manufacturing mindset. It goes against everything the Toyota way would suggest. Prefabrication fundamentally, not even considering say core lean theory, just looking at prefabrication.

Let's look at the first one, location. Well certainly the buildings are going to be set in a different location every single time. But the elements that go to produce that building certainly can be produced in a factory environment that is weather controlled. The sun always shines in the factory as Ted Benson says. He's a manufacturer up in New Hampshire.

Workers come to the factory, they know every day they're going to be working and they're going to be working a consistent shift and they have a predictable scope of work. Second item, which is the scope or the program or the form is going to be different in the building, that's true. But that doesn't mean that the elements that go into it have to be different. In fact, there's a great effort going on now that I'm part of to try and standardize some of the prefabricated elements that go into buildings, much like the automobile industry had to go through in other industries to ensure compatibility.

And then it becomes a game of connections, how things connect, which is how the IT industry has developed. It's all about how things join to one another, as simple as the outlet on your wall, for example. The third, which is labor, mutable and inconsistent, it's not in the factory. That labor can be very consistent in the factory. We're not talking about unskilled labor, we're talking about skilled labor and there are great efforts to manage union factories now.

That issue has gone away. There's quite a bit of control that can be gained by these three peculiarities being overcome vis-a-vis offsite construction. Look at what Google's doing because of the lack of affordable housing in Silicon Valley, that they're doing prefabricated housing for their own people just to keep the talent there. Same thing with Facebook. They actually partnered up with a prefabricated housing group to make that happen.

The industrialization of the AAC industry is upon us, not because there's some guy on a podcast saying it. It's not because there's this group of evil people that are plotting against taking your job away. You've got to understand that we have been doing things so inefficiently and making money off of it that it's just good enough that it makes it cool that we can just go home and drink a beer and wake up the next morning and know that the project's still there. When we start to take a look at things like prefab, and I'm not talking about trailer park stuff, and buildings that look like cubes and elongated rectangles, those days are gone.

When you have the power of BIM being able to be put into a CNC machine that can route out and cut out all the panelization necessary for a 2,500 square foot building in under seven minutes with zero defects, a 10-year guarantee, and clipped together within one week for people to move into, the housing industry, as we know it, died. We are working with an organization in Shanghai that's doing this right now, 2,500 square foot homes. They're gorgeous. No one is alike because the machines can adapt to what the information that's being put into it is outputted.

What that does is that it creates the industrialization that we are fundamentally not getting around the critical path of the schedule. We're blowing it up. We have no need for subcontractors. I showed this to the leadership of a very large equipment and tool manufacturer. It was with their leaderships, with the CEO.

He got so unnerved that he sent a guy out to our factory in Shanghai. He reported back and said, this is for real. There's not one tool that's used in our manufacturing process. We have 4,000 units being built that would be completed and manufactured, fabricated, and installed by the end of December in Queensland, Australia. We have another 1 million units over the next two years to build out for Saudi Arabia.

There's not one tool being used. There's not one subcontractor being used. Again, how do you get zero defects? A 10-year warranty at a $250,000 per unit affordable housing unit. Business is driving innovation.

The innovation is going to have winners and losers. People are not going to like a lot of things I said on this podcast. But you know what? I don't care. This is what's happening.

This is a report. And what's cool about it is that there's a lot of people that can make a pivot and start to embrace what's happening around them. And what's cool about it is once you make that pivot, there are no rules. The things that we thought were always going to be there forever are being totally disrupted. We are the last major industry in the world to be disrupted.

This discussion can get very large when you talk about smart or conscious cities. But since this podcast is dedicated to the owner perspective, don't neglect that this is how big of an influence you and your company can make, especially on the economy, your city, to the citizens, patients, employees, consumers, clients, parents, students, any end user that touches your built environment. I'm encouraging all of us to think about the day-to-day, everyday practical application of how. You know, first build your why. Whether it's simply that you want to take part in this amazing culture that is growing in the AECO industry, or it's that you want to impact your end user in a more impactful, more effective, more efficient and fulfilling way.

So the future is what we make it. And technology is one way that we can certainly influence how we learn, connect, create, live, and grow. There are three people you'll be hearing from before we wrap up. You'll be hearing from Bill Dwebbek and David DeYarraza again. But the last voice you will hear is that of Peter Anchor-Sternie, CMO at ISS, the largest facilities management company in the world.

Because one of the challenges you have as an IT person, or even as a non-IT person as the user in air quotes, is you say, hey, I want to use this product. I want to use this statistical software. And then they ask the IT department, I need this software. Well, the challenge for the IT person in that is, does this software, is it overlapping with something we already have? Is the licensing structure going to work for LPA?

How much is it? How much value are we going to get out of it? What hardware does it need? What other software does it need? So it just isn't going out and buying the software and installing it on somebody's computer.

When you've got 300 people that you have to support and you introduce one piece of software, you've got to see what it does to all the other software because you don't want to break something. And that's why it takes so darn long to get something approved through your traditional IT department. Standard of care is one of those things that I believe a lot of people in this industry are still hiding behind. And I say that sort of under the framework of some of the industry events out there.

If you take, for example, the AGC BIM forum, you know, happens twice a year and it's been going on for a number of years. And it's one of the events that I have attended year after year with regularity. And at the end of the conference, undoubtedly there's a Q&A session where somebody says, oh, this is all wonderful. This is all great. But here are the reasons why I can't do it.

What I'm hearing year after year is this hiding behind, well, the contract type doesn't let me do this or insurance company has certain requirements. And if we do this, we're going against them. And I'm opening myself up to all this liability. There's all this willingness to move forward and explore and use new technologies. But at the end of the day, we tend to revert into our safety zone, which is this quote unquote standard of care, which essentially has been around, haven't really changed much in the last hundred years as far as what we consider the standard of care.

And everybody hides behind it and everybody silos. The contract types are by definition, we're going to war with one another, if you will. So the architect is siloing their information and making sure that their responsibility somebody else is. The consulting engineers do the same. The contractors build a framework around it so that they can then start to poke holes at the information and everything can become a change order.

And let's face it, there's I mean, I think that we have to be honest about this if we're going to move forward and nobody ever really wants to say it, which is there is a profit motive behind that inefficiency. If I sell you a product or I'm trying to sell you on a product where I tell you that my pricing structure means that I'm going to save your project engineer six hours a week, some people might think that that sounds great. But other people look at that and say, well, wait a minute, those six hours a week are hours that I'm billing and I'm paying that project engineer a lot less.

So you're taking money from my bottom line by being more efficient. So that's what I mean when I say the standard of care. We need to make the standard of care whatever it is that we want to make it. At the end of the day is whatever you want to do. So if you're going to do BIM on a project, you're going to do VDC, well, then decide that you're going to do VDC on all your projects.

And that is your standard of care. Don't hide behind, well, the customer didn't ask for it. Before we ended up with all these problems that became change orders. Do it because you believe in it. Do it because it benefits you in some way beyond just the bottom line.

I believe because I have lived it and because I have seen it that when you make the decision that you're going to be efficient, when you make the decision that you're going to use technology and find the problems, at the end of the day, you end up with a product that may be the same and may even cost the same amount of money to arrive at. But people along the way have been a lot happier and there's going to be a lot less conflict and a lot less putting out fires.

You know, we have this tendency to prioritize what's urgent at the expense of what's important. And I think that that's cultural mind shift that needs to happen in this industry before anybody really is able to disrupt and everybody wants to disrupt everything. What we really need to disrupt is the mindset and the contracting nature of the work that we do in the industry. You need to make services personal because once you make it personal, the whole experience changes. What can we as businesses, as organization, do to make work more efficient, to have an ability to use the workplace to attract and retain talent, to make it more fun, engaging, inspiring to come to work?

Because we don't need to anymore. I mean, the technology allows us to work from anywhere we want, because I would actually argue that the workplace is probably one of the biggest culture enablers that you can work with in an organization. There's a lot of organizations talking about we need to break down the silos between the various departments. You want to start with doing that, then start by breaking down the physical silos, the department silos. If you hide people away, constructed silos in the workplace, then it's going to be very difficult to break down those organizational silos.

So moving into open plan spaces and moving into people where they can accidentally bump into each other, have water cooler talks and coffee machine talks and open plan meeting spaces, whether you could just have that ad hoc meeting that you want to have that's only 10 minutes, just catching up on a few items. That's how you want to work on some of the design elements in your office. We're filling up our workplace now with sensor technology and all sorts of sensors, smart sensors, in order to really drive that level of efficiencies into the workplace and optimize the whole workplace experience, also using technology.

And that opened up some entirely new avenues of both in terms of savings and optimizations that we can do for our customers, but it also opened up new avenues in terms of creating and predicting behavior that we can go in, then prepare for that before it actually happens. That is just something that offers a huge, huge potential. And that's going to drive efficiencies down double digit numbers. And for that, we're using what we call service design thinking, customer journeys. That type of thing that we go in and map.

What are the critical aspects in the life of an employee in this organization or come into the building, even from before coming into the building, finding a parking spot and entering the building, moving through the building, finding a free desk, sitting at the desk, getting coffee or soda or whatever, going to lunch, going to meetings, picking up packages and picking up things that are relevant for you and your work, having guests visiting and that type of thing. Each of those touch points you can then optimize using technology and then provide an extraordinary experience.

You can start where you are, so don't hesitate. I am so grateful to all of the guests that I've interviewed this past year, and I'm so grateful to all of you who were mentioned in this particular episode and the last recap 2017 and introducing 2018. Thanks to all of you who've been listening all year. If you learn something valuable in this episode or any episode in 2017, please share this episode with your friends and colleagues so they can get a snippet of what it all has to bring.

You can also let me know you enjoyed our discussion today by connecting with me on Twitter at Brittany underscore CT or find me on LinkedIn. You can email me at BRITTANIE at ConstructRR.com. To give you a quick mention about the next episode that's coming up, I'll be speaking with Keeman Onuma. He builds architecturally informed environments for the digital and physical world. He is the creator of BimStorm.

We will be talking about what a BimStorm is and how this pursues the culture of an always growing technological AECO industry, appreciating the wisdom that we have in the minds of our global practitioners and how we can make sweeping impacts on how owners standards and specifications can be created. I wanted to give you some sneak peek information about what will be coming up as far as events in the future. And I'll be speaking at the Congress on the Future of Engineering Software Conference. It's an invite only conference.

But if you're interested in possibly going, go ahead and drop me a line at Brittany at Constructor.com. There's also a trade contractor organization I may be speaking at, so more information coming on this. Lastly, I'm working with the Chicago Blockchain Center to schedule a few events here in Chicago about blockchain use in AEC for March. I'll be coming out with the Save the Date sometime late January, so sign up to my email list if you haven't already to hear more about the details. I will let you know when information is more finalized, but I'm pretty excited and will keep you all posted.

You can subscribe to get email updates from me at Constructor.com. If you haven't already subscribed to the podcast, you can do so at iTunes and Stitcher, Google Play, TuneIn, iHeartRadio, and you can find the replays on Periscope if you're linked to me on Twitter as well. Please leave a review to show you support and let me know you're enjoying the podcast. I look forward to talking with you guys next week.