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In Hawaii, engineering construction is a $3 billion a year activity, with the state spending about $1 billion for capital improvements and renovation, representing about 20-25 percent of the state's total outlay. Construction is the largest industrial activity in Hawaii, as it is on the mainland. America spends $1 trillion per year on construction activity. No state or nation can progress without construction, and Hawaii is no exception. Construction is the largest single contributor to the gross domestic product. Build it -- and
prosperity will comeNew techniques to reduce
construction costs could help
fund Hawaii's 'new beginning'By Amarjit Singh
Star-Bulletin guest writerNow look at Hawaii's construction expenditure in light of our budget deficit. Apparently, Hawaii is shy by about $200 million for balancing the budget. Obviously, if we didn't construct at all, we would have an enormous surplus. However, short of that drastic measure, the construction sector can contribute to improving Hawaii's economic situation without sacrificing construction activity. It is estimated that enlightened construction procurement and management systems can save an astounding 40 percent of construction costs every year. I am sure the state would like to save that kind of money.
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Construction consists of all the big and beautiful projects that our people want, but wish they didn't have to pay so much for. That construction consists of all buildings and houses, roads, highways, bridges, harbors, dams, airports, tunnels, water and wastewater treatment plants, irrigation systems, offshore structures, coastal structures, factories and industrial construction, pipelines, sewer lines, parks and water supply systems. Just about no development can take place without construction. Little surprise, then, that construction is the largest industry in the nation occupying 10 percent of the workforce.Research in construction in the past two decades has brought about sweeping recommendations for the way we manage, procure, administer, plan, organize and do business in construction. Much of this is not widely known, because the media does not take an interest in construction research. Nevertheless, the public had better wake up to construction realities because that's where the money is going.
The state depends on design engineers, architects and consultants to design quality projects at optimal cost. This is like asking them to do work that is not within their purview and specialty. Our structural engineers, geotechnical engineers, transportation engineers, mechanical engineers, electrical engineers and architects are not trained "cost engineers" or contract administrators. They have no specialty cost and contract training, and mostly have never undertaken a detailed project cost estimate. They do not have detailed education in designing for cost, and our engineering education system has just not measured up in this regard. In the open, free market business world, the private entrepreneurs and designers probably love to take the government for a ride as often as they can. When you have heart trouble, go to a cardiologist, not to an orthopedist. If you want to save costs in construction, go to a cost engineer. And if you are serious, get a cost engineer who can kick butt.
However, cost estimating is not even recognized as a profession by the state of Hawaii, and this at a time when cost is the most important aspect of our economic situation today. The whole approach to how costs in construction are handled must be turned around. We cannot afford to waste our taxpayers' money and then complain about budget shortfalls. Professional cost engineering needs to be introduced throughout our state's construction projects.
Efficient cost engineering entails the ability to perform detailed cost estimating of multiple alternatives, functional analysis, concept design, value engineering, life-cycle cost analysis, cost-control analysis, preparing computer schedules, performing parametric and approximate cost analysis, profitability analysis, calculating efficiency losses in claims, using appropriate dispute resolution techniques and so on.
People and engineers without these skills become the chief advisers to politicians and bureaucrats. Welcome to the real world -- where non-experts govern those with the expertise. Unfortunately, politicians, senior administrators and attorneys involved in construction projects, don't know any better.
Cost engineering is a rigorous science -- and this may come as a surprise to many. The elite Journal of Cost Analysis and Management, run by a military- related organization prefers to accept articles of a mathematical analytical nature. Operations Research techniques, taxation, statistical analysis, and engineering economy are all applied to cost analysis. Year after year after year, Hawaii wastes tens of millions of dollars through faulty cost analysis and management of construction projects.
At every turn, I see lack of creativity, lack of imagination and lack of substance -- money spent non-optimally in construction -- the taxpayer's hard earned dollars going down the drain, literally. Not that we shouldn't have construction. To the contrary, construction has a multiplier effect on the economy. It's just that the know-how is available to do it better. We don't have to think and operate as a Third World country, but too much is beginning to appear like that. Motivational applications are all but missing.
Value engineering is scarcely used on construction projects, when true value engineering itself is proven to reduce project costs without sacrificing quality by anywhere from 2 percent to 80 percent, with the median being around 20 percent. Add to this improved cost savings through better conceptual estimating, usage of functional analysis concept design, and usage of constructability reviews -- none of which are effectively used in state agencies. Further cost savings can be obtained by using innovative procurement systems -- design-build coupled with fast tracking and negotiated pricing systems, for instance. Projects can be completed faster at lower cost, but our administrators seldom have that sense of innovation and imagination. And yes, the sense of adventure is all but gone. And pride never fails to rule.
Construction cost overruns are rampant and change orders excessive. Claims are submitted that neither the construction contractors can fairly justify nor owner representatives fairly evaluate. The blind run after the blind, and attorneys run away with the money. The comprehensive and compulsory application of dispute review boards, partnering, mediation, negotiation and other alternate dispute resolution systems is just essential. The introduction of these improved dispute resolution and procurement systems can be expected to save an additional 10 percent costs. That's already $300 million per year savings for the state. How much will you pay to save that much -- money that could go to our broken secondary and higher education systems, our broken correctional facility systems, our broken transportation systems, our broken hurricane fund insurance system, our low salaries?
The Construction Industry Institute (CII) at the University of Texas as well as the Business Roundtable have documented studies where cost savings can be attained in construction. This must be taken very seriously.
For instance, planned use of material management systems, appropriate use of scheduling and tight cost-control techniques, improved organizational planning, improved construction safety, planned production control, productivity improvement, prevention of substance abuse, among other items mentioned by CII and the Business Roundtable, can help reduce costs by another expected 10 percent. We are now already at a cumulative 40 percent cost savings. That's $400 million per year savings for the state. There's too much at stake here.
We need a new vision. The old glasses are not helping us see.
None of this is trivial, because the state spends much too much on construction. If we wish to make new beginnings, we must focus on addressing costs in the construction sector. Every major public project is a cost concern. Look at our headlines. The University of Hawaii medical complex to cost $150 million; a new prison to cost $130 million; rail transit to cost $2 billion; convention center to cost $200 million; school repairs to cost $240 million; park constructions to cost $75 million; wastewater treatment plant to cost $300 million; UH construction projects to cost $250 million; claims on the wastewater treatment plant at $8 million. How many billions is that already? How many billions more to go? How many more lessons will be lost until we turn around? When will we learn to save costs in one of the most crucial sectors of our economy?
Hawaii can be the first and best in the nation. We already have immense talent in our community. We have inventors and world sports champions; we have scientists discovering new particles of matter and new forms of life; we have noted writers and poets; we have a vibrant cultural and spiritual mix. We can lead the way. Let us start by addressing construction -- the largest behemoth of our state budget. In these new beginnings of a new century, let us pave the way through creative construction cost savings. It is our best opportunity, but perhaps the only and last opportunity of this last frontier.
Amarjit Singh is an associate professor of Construction Engineering Management at the University of Hawaii-Manoa.