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Turner buys Dornan, The Worst Cities to Build In, and Contractors' Software DIY.
57 Plays3 months ago
This week in a totally purposeful bid to switch things up, Jason & Carlos are sinking their teeth into three different topics.
The duo speculate on American construction giant Turner's recent acquisition of Irish firm Dornan before weighing in on the most expensive cities to build in globally, and finally shedding light on the emergence of contractors building software tools in-house.
Follow Carlos on Linkedin | Follow Jason on Linkedin | Check out Aphex
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Transcript
London: Most Expensive City to Build
00:00:00
Speaker
ah The 2024 report, ah which basically published the top ah most expensive cities in the world to build in. And in a surprise to no one, London won.
00:00:14
Speaker
a ah but More wildly, Bristol is 10th. Bristol. That does not make sense. small Small sample size. That one job went massively over budget.
00:00:29
Speaker
Yeah, yeah.
Hosts' UK Visit Plans
00:00:37
Speaker
Welcome back to the offsite podcast. Carlos, how are you, sir? Good to see you. Very well, thanks. How are you doing? I cannot complain. I'm counting down the days till I get to come over and visit you all in the UK. In-person podcast episode.
00:00:55
Speaker
ah Yeah, that's what we're coming over for. We're going to do the whole trip. the the Yeah. Leaving the family at home for two weeks, mainly just so we could record a podcast episode. Completely reasonable. Yeah. yeah Well worth it. May, what have you been reading in the news this week?
China and Russia's Lunar Base Plans
00:01:11
Speaker
Anything interesting? ah One standout must be the ah ah base that China and Russia are going to build on the moon.
00:01:19
Speaker
what which they claim they claim over over six trips they're gonna build a huge sort of base on the moon like full construction project and it's a bit limited in terms of like the scope as you would expect from a project like that but It's like a base. You'd assume it would be easier to launch missions and things like that from the moon rather than trying to like exit our atmosphere every time. Would you assume that? It just seems like all of the stuff you'd need to launch it are on on this planet.
00:01:52
Speaker
um i so um gravity i saw I think Elon Musk said that before. That's the only reason I ever see, I didn't come up with that myself. Like if I could imagine a giant pros and cons of launching from earth or launching from the moon. Yeah. I'm sure the moon's got less gravity, but all the other shit in the list would be like the people, all the bits for the rocket. Yeah. Yeah. And you have to say the rocket there in the first place. Yeah. Yeah. We have to get all to that spot anyway. Yeah. It's
Episode Topics Overview
00:02:21
Speaker
like that, uh, that riddle where you've got like the chicken and the Fox and the boat and you go back and forth and get it all from one side to the other. But I think the new Musk rockets, they're like multi-use, right? Compared to the old traditional ones. So I guess the assumption is once you're there, you're doing lots of trips with relatively low amounts of fuel. You still need to get to the stuff today.
00:02:47
Speaker
yeah Yeah, but then once you're there, you could do like 50 trips for but like Uber pool over there. yeah And then you could do the separate. Yeah, the thing that um made me think was in this article that I read, it said other countries have been invited to join the party. There's no mention of the US. So either it's not that true, or they've gone, this is a stupid idea.
00:03:10
Speaker
I would love to have been in the room when they were discussing priorities, right? So they're doing the like budgeting exercise. Someone's like, we really need like a new dam, a big railway, uh, you know, we've got like this food issue. Uh, and then someone's like, yeah, we've also got that like moon base project. How that made the cut. They said in 2026, they're sending a team up to do surveys. I'd love to see the tender for that. The older GI i team out. But anyway.
00:03:38
Speaker
ah yeah yeah in In a typical construction fashion, it'll be 700 subcontracted contracts down to this one like solo contractor survey. That's going to go up. Yeah. I'd be, I'd be, I'd be definitely pushing through the cost reimbursable contracts on that one. Yeah.
00:03:57
Speaker
like eight days ah very good well i didn't that That was not something I had been, that had not fed into my normal news channel. So that's um yeah good to know. Awesome. So today we've got three topics to cover back to back in a a slightly different format. And all three, we couldn't decide basically which are the which are the three topics. And so at Skirt we'll do all three.
00:04:24
Speaker
So first up, we're going to dive into
Turner's Dornan Acquisition
00:04:26
Speaker
this acquisition by the sort of massive North American contractor Turner, where they've pulled the trigger on acquiring Irish contractor Dornan. The second is, I guess the cities that burned the biggest holes in construction contract as well. It's basically most expensive cities to build in from a report that was released recently. And then finally, we're going to dive into the topic of contractors that have started ah this like trend of contractors starting to do their own software development ah to a degree and building a bunch of these tools that they would ah need in-house.
00:05:03
Speaker
I guess diving first into the the big topic, Dornan, which is ah an Irish construction contractor, specializing really heavily in advanced technology type projects, so think data centers. They have been acquired um by Turner Construction Group. So Turner is a subsidiary of Hock T from Grouper ACS.
00:05:30
Speaker
Turner is the largest construction contractor in the US, turning over about seventeen billion US last year. They do have an international presence with projects in Asia. They built like a whole bunch of, I think they built the Burj Khalifa.
00:05:47
Speaker
They did like Madison Square Garden and the Yankee Stadium and things like that too. So like yeah big public. Yeah. the The strategy here seems to be very much take the ride this kind of technological building wave and really take on the European contractors in their in their own backyard, in the big wave of data center, battery plants, those types of projects that are increasingly where the spend is going. What do you think about this, Carl?
00:06:16
Speaker
Yeah, so i didn't I didn't actually know that much about Turner. They definitely seem like it like a traditional contractor. It's like commercial buildings, healthcare, education, infrastructure, industrial stuff, like all the normal things that a ah major tier one does with a load of projects that people know and recognize. Dornan, yeah, data centers seems to be their thing.
00:06:37
Speaker
complicated M&E fit out, but also um renewables and pharma. So it definitely feels like a strategic buy in the places where every report says all the spend is for the next 5, 10, 20 years. um So it makes a lot of sense. Dawn is not small, 1500 employees. It's not a tiny company. I think Turner was like 10,000. So it's quite a quite a lift on the size of the company.
00:06:59
Speaker
I went quite deep. And this ah this is not me claiming to be Sherlock Holmes by any extent. I was just clicking through Wikipedia. But obviously, so Turner, you mentioned, is owned by Hoptoof. Yeah. They own 90% of Simic. I didn't know that. o And then ACS Above, which is the Spanish company.
00:07:17
Speaker
This is probably doesn't, you probably won't care about this, but I was, I thought it was crazy. The chairman of ACS is Florentino Perez, who's the chairman of Real Madrid Football Club. He's like the biggest figure in football. So he runs both companies. He's worth like three billion. He's like, yeah, the darn of Spain. but um yeah i Yeah, I found that i felt that really interesting when I clicked all the way through to the chairman of Real Madrid. Yeah, we definitely, we I think that's super interesting. I think we want to encourage the one listener that also found that interesting to please write in and and bond with Carlos over that really fun fact. Everyone else that's here for the construction stuff. um so It's definitely
00:07:59
Speaker
it's definitely a um it's definitely big moves. like This is pretty much one of the biggest construction contractors in the world. buying and that you know they do Of the $17 billion in turnover, I think over $5 billion of that now is in data centers, EV battery plants, kind of advanced building. And so Dornan had, I think just under a hundred ah a billion in revenue and one point something in in forward order book.
00:08:26
Speaker
But with that like expertise that ah Turner has, giving them a brand to go and compete in the European market where it's definitely behind the development in US in that that category. I would be, if I was a construction contractor, hoping to ride the wave in Europe of that type of project, you would be increasingly nervous about the competition.
00:08:51
Speaker
Yeah, for sure. It'd be interesting to see if they they keep the Dornan brand or it gets consumed within Turner itself. ah Guns ahead, what would you do? I would keep the dawden brands. If you've
Arcadis 2024 Report on Construction Costs
00:09:02
Speaker
already got a name and a reputation for delivering projects in those sectors to the switch out with a old school contractor name. I don't see the benefit of doing that. Like these data center projects, it's not like you're like high speed two projects. You have to prove like your size and your capacity to deal with losing money, just to win jobs and that the size helps.
00:09:21
Speaker
a data center, I can't imagine it's the same sort of thing and your reputation and brand is probably going to get you in more with technology companies than government infrastructure schemes. so But I think the combination of data center renewables is a clever one as well because like you look at the energy demands of these data centers, the renewable or clean energy side of construction is getting so big to to match it because of all the commitments to emissions. So yeah, I actually think the focus is on data center, but I think the renewables is actually really strong as well because I couldn't find any major examples from Turner in that space. Yeah, I think that my guess is that the they run the standard playbook, right? So the first thing is they acquire and then they keep the existing Dornan brand. And then after a certain time, it comes to it becomes like Dornan by Turner, you know, you get you start introducing that Turner brand. Are we talking? No, no, yeah, it'd be like it'd be like the big Dornan and then the logo maybe changes to the Turner color. And then you normally have like a buy or you know turn a Turner group company underneath the logo and then at a certain point it'll get consumed into the brand. Once people got used to that by Turner thing it'll get consumed into the brand. It's like yeah and eventually it'll be American Accent so then all the Guinness switches to Causelight or something.
00:10:37
Speaker
Yeah. And there's something about the that football guy. Yeah. Yeah. Yeah. You can Google his name after. Yeah. put on those list things i want be um I guess actually before we jump off this point, what do you think of the strategy of like, uh, you know, we talked about, uh, hockey being part of ACS group and owning a bunch of Toyota.
00:11:01
Speaker
What do you think the strategy is ah for these kind of conglomerates that often have competing brands in the same market? So you'll see like Dornan, which is acquired by Turner, which is owned by Hochtief, which is part of the ACS group. Hochtief also have their own division, which build data centers in Europe. So it's like they've owned a direct competitor to themselves.
00:11:22
Speaker
And we've seen that in other markets, like, for example, in the Australian market years ago, ah under the ACS group, there were two of the three biggest contractors, or actually three of the biggest like five contractors were all under that same group, and they would compete against each other on on bids for projects. It's like the ultimate bet hedge. If you're at all the ones competing in the space, you're going to win no matter what. Yeah. um I guess it's it'll be interesting to know, and we're never going to know, how much influence Hubchief would have over-turner in this acquisition. Like, does it really go back through the lines? They own 90% of it. I'd say ah i'd say quite a lot. Yeah, but like, you'd you'd assume they'd have to like, sign it off, but do you reckon direction comes, or do you reckon it's said like a turner idea, then they have to go get approval for, rather than them saying, right, go buy these guys, because we're playing chess at the top and... I'd say, I'd say a bit of column A, bit of column B. yeah you You definitely end up with this dynamic where, okay, yeah, we're definitely like um spreading our risk and opportunity. So, you know, we could theoretically, you know, we've got a couple of bets in the, we're betting on a couple of horses in the race.
00:12:36
Speaker
But you get this other funny dynamic, which is if you do too well and they both become quite strong competitors in the space, you can find yourself as one and two in the bid and then you're being played off against yourself, which is a dynamic that used to happen in the Australian market where two contractors, a lot of latent contractors and a John Holland both owned by Hochtief would be bidding against each other. And ultimately that dynamic would reduce the margin of Hochtief in the end.
00:13:06
Speaker
And it gets you big, because then call the monopoly, and then you get your own issues from that. Yeah, 100%. And oftentimes, there has to be that kind of ah these barriers. Because if there's collusion, it's kind of like collusion behavior, yeah you get exactly that that problem. So it'd be interesting to see what happens in that space, and whether there is any kind of internal merging, like we saw recently with Dragard or some flat iron in the in the US.
00:13:33
Speaker
Very good. Let's jump on to the second topic, which was your favorite topic because it has to do with costs and things being expensive. Sorry, that's a QS joke, not a you like expensive things joke. I'll do that one later. Thanks for clarifying.
00:13:53
Speaker
So Arcadis, which are but sort of an international consultancy, released their international construction costs, which they've abbreviated to the ICC report.
00:14:04
Speaker
there cause Construction must abbreviate. The 2024 report, ah which basically published the top ah most expensive cities in the world to build in.
00:14:19
Speaker
And in a surprise to no one, London won. hey
00:14:26
Speaker
ah but More wildly, Bristol is 10th. Bristol? That does not make sense. small Small sample size. That one job went massively over budget.
00:14:38
Speaker
Yeah, yeah. I don't know, HST went through Bristol. yeah
00:14:44
Speaker
ah the um what are what are you What are your takeaways from from looking at the report? So obviously it's not that surprising. London's overtaken Geneva. Geneva's like, bearing in mind I live in London, I go to Geneva and I realize that London's not that expensive. You get a Big Mac meal for 25 euros and you're like, oh, that's the bar they've set. well um So most of the top 10, like half of them are British, American, Swiss, like, and that that makes a lot of sense with Copenhagen, Hong Kong, which has always been expensive. Digging into more, I guess, the why outside of the usual, like, inflation and availability of labor and all the obvious things that we know are factors. One seems to be specifications and specifically standards for building safety and sustainability. I guess in that space and nothing Australia does not feature on the list of the most expensive.
00:15:41
Speaker
We just didn't send out paperwork in for reporting the cost. Yeah, too chill to be able to do that. But no, is that from working in both markets, would you say there's a massive difference? and Yeah, there's a wall difference. Yeah.
00:15:56
Speaker
yeah yeah yeah we went and visited a project in the uk years ago for a site tour and the amount of work that was happening on site i thought it was like a like a public holiday and then was shocked when i was told by the team that no that's the that was that was actually like a normal day at work yeah it's well it's wildly different Okay, fine. I think the yeah, like you said, there's the like the trends in the in the list are definitely yeah, big cities are expensive to build in that's like a guess a shocker to nobody.
00:16:30
Speaker
that the are The aspects of congested sites, like you can see why that has such an effect, especially when you look at the yeah surrounding area. Certainly. The other trend is like 12 of the top 20 in Europe. um And I think that should be something that worries folks in Europe.
00:16:48
Speaker
So if you think about it, if you zoom out at like a macro level, if if these sort of if if the of top 20 being in Europe are symptomatic of some things that aren't just idiosyncratic to large cities, you know for example, Edinburgh, yeah, it's a it's a city, a Birmingham, but it's not like a massive city.
00:17:10
Speaker
That gives you a bit of a taste that there's something more than just a big city effect happening there in Europe. If you're the government or someone that's funding and building infrastructure across that market, it's it's so I guess it's a worrying sign because every pound, euro, dollar, you know, Frank, whatever currency you're spending in,
00:17:34
Speaker
Every extra one of those that you're spending on a project that you have to build because you're building in one of these places like in Europe that is more expensive is pound euro dollar, Frank, that you don't have to build the ah the next thing that you want to you want to build. And that problem compounds. And if you compare Europe to a US or a China, you know every for every dollar you're spending, that other market can go and build two things for the price of your one or 1.5 things for the price of your one. That compounds day on day day and year on year on
Necessity of Action Against High Building Costs
00:18:05
Speaker
year and you start to get a really big effect in terms of yeah the growth of the the market and the cost of that. you know the The real cost of that, I guess, expensive nature of building. I think it's a worrying sign. I think it should be something that
Factors Driving Up Construction Costs
00:18:20
Speaker
the classic statement was, it should be something that someone does something about.
00:18:23
Speaker
ah Yeah, ah yeah, 100%. And just like a business ah investment point of view, like it must be really off putting when you see the cost and you're thinking about where to locate or relocate to. I think one thing that seemed to be a bit of a trend was land shortages. So particularly like countries like the Netherlands, some of these densely populated small countries in Europe. Yeah, everything's been pumped up by the fact that you're paying over the odds for the land in the first place or removing the structure that was there. There's not a lot of Greenfield or, I guess, Brownfield, like the US and China. So the land grab aspect seems to be quite big. Throw in the sort of safety and sustainability standards accelerates that cost. And then when you throw in, yeah, like in the UK, obviously, we won't mention the B word, but labor shortages, like the cost of- You can throw on this podcast if you want.
00:19:17
Speaker
um Yeah, that doubled down on everything below. So you can see why London's at the top, but it is definitely worrying that it's the rest of Europe too. So it's not solely a Brexit thing. Yeah. and And to be fair, Australia does rank on the list, mate. We have 48, 51, and 54, Sydney, Brisbane, and Melbourne. ah But yeah, definitely the the top half of the list is dominated by European cities.
00:19:47
Speaker
yeah Yeah. I was just fact-checking you on something there where you said, oh, Berwick's not a big city. I was thinking it's probably bigger than Brisbane. Right, I would pause the podcast. I also didn't claim Brisbane was a big city. ah like Just saying. on Yeah, but it's like, yeah, they're similar size. though I'll take that back. It's not a bigger city though, right? In like the Southern Hemisphere. but What is? On that side, anyway.
00:20:12
Speaker
Brisbane. what Is it the third biggest in APAC? No, no, APAC covers Singapore and things, doesn't it? Brisbane. I think you're confusing Brisbane with New York, or someplace that is actually a big city. It's not big at all. Down that way. Down under, I mean. Yeah, if you exclude all the big cities in Australia, it's the biggest. If that's what we're... It is the third biggest in Australia, though, right? After Sydney, Melbourne.
00:20:39
Speaker
Right. i Well, we'll just crack on while the googling happens. It's the biggest. topic yeah
Contractors Developing Software
00:20:45
Speaker
that thing so Cool. Final thing that we had on the list was, I guess this trend does not statistically, uh, demonstrated, but anecdotally.
00:20:55
Speaker
This trend that ah seems to be picking up pace over recent years. Large construction contractors wanting to ah quote unquote digitize and digitally transform and you know all those words and taking the approach of building systems themselves using low or no code tools or platforms.
00:21:20
Speaker
You know, something that we're seeing more and more. I had two conversations with contractors doing exactly that in the last five days, ah walking through with the teams doing it exactly how they're doing it. Is it something that you're seeing as well? And what do you think is behind it?
00:21:37
Speaker
ah Yeah so I come across it quite a lot and in I guess a positive and a negative manner. If we if we separate the cost for now we'll come back to that um and that being like maybe a driver in decision making. There are certain let's just call them forms and things like that which seem perfectly suitable and reasonable for a contractor to use like power apps or something for in-house they own it they control it people use it they collect data and it works for them but like low complexity forms and things like that so that that makes a lot of sense to me and contractors do now have teams in place
00:22:17
Speaker
that do things like Power BI dashboards and things in-house already that they're not buying this experience to build that form. It's like a bolt-on to a team that already exists, so it makes sense. When you move into the complexity or complex tools, it starts to get very muddy for me because Ultimately, someone's making a decision probably based on cost. It's hard to think that isn't the key driver. Build teams in-house outside of the skill set that a contractor typically has to not just build a tool, but to maintain a tool and to keep it up to speed with market. Because if anyone says, right, it's going to cost this to build this tool now, in 10 years, it's gone 100%. At the rate things are moving now, within 24 months, it will be obsolete. so
00:23:05
Speaker
you're not making a commitment to building a tool. You're making a commitment to grow a product team almost forever or indefinitely because there's no way that the value for money exercise works unless you run that app for 10 plus years or whatever that calculation turns out to be. So it seems like a very odd thing to do. I've seen a couple of contractors actually go and build it and then discontinue it because the market has overtaken that tool and teams then say well why are we using this if the market is so far ahead and then you're left looking like a bit of a goose because you've spent all that money and you haven't realised the value because it was only used for a certain amount of time so yeah some people may underappreciate the time and effort it takes to not just build a tool but keep it current and support it um so I think
00:24:04
Speaker
nine times out of 10, building a complex tool in-house feels like a bad choice. to To take the other side of that, you could see that there's this dynamic where construction is, I guess, a little bit later to the party than other industries in terms of adoption of technology. And that gives them this benefit of seeing how that's happened in the other ah industries.
00:24:28
Speaker
ah Specifically, you get this behavior that can happen in other industries where people adopt a tool or a platform or whatever. And the goal of the platform is to lock them into that through pricing, through UX patterns, through integration, a whole bunch of things. Getting off that platform in the future can also be near impossible for a contractor to do. They have to do another like digital transformation to get off the previous digital transformation.
00:24:57
Speaker
the vendor risk is almost the same risk as the build-it-yourself risk because if you don't pick the right vendor or that vendor decides actually we've now won some percentage of the market and it doesn't make sense to keep investing which you just rake in the the cabbage um then you've got like a similar you've got this similar problem that that you're modeling out for building it yourself the other thing that's interesting is so many software platforms All of the hard work is inventing the paradigm or the dynamic of how it should work. And you could take anything and replicate it for a tenth of the cost. You could rebuild Twitter today for peanuts. right you could rebuild So whatever the platform is,
00:25:46
Speaker
There's so much sunk costs that the software vendor wants to amortize in their pricing model and extract over this long-term relationship with customers that you could well basically copy yeah a lot of it in a low or no code tool.
00:26:04
Speaker
Exactly. As you said, provided it's not like complicated in its user interaction. So forms, uh, forms of primo, right? Everyone's building their internal, uh, docket system. Everyone's building their internal diary system. Everyone's building anything. That's like a form based process.
00:26:21
Speaker
because you can quite easily get a form working in PowerApps, in ServiceNow, in whatever low or no code tool you're going to use. yeah you could you you don't have the You don't have the sunk cost of the software vendor that you're trying to recover and you can build it your your way.
00:26:39
Speaker
Yeah. yeah it um By the way, I think you just invented a new phrase, which is raking the cabbage. I just never heard that before. um Yeah, I think it it kind of touches on the the agility aspect. So before, with without these sort of low or no code solutions, you were building something and you had the cost and you had to do the commitment, which means you you're kind of pushed to stick with that decision to realize the value.
00:27:08
Speaker
With these low or no code solutions and the simple form type thing, it makes sense because you can change it in a second, right? But if you look at the complex solutions, I still would be surprised if a switching vendor, because a vendor goes down the wrong path in terms of the product or doesn't deliver what they promised.
00:27:32
Speaker
is probably still a fraction of the cost of building a complex tool in house so i think that yeah i think personally i can get over the hurdle of because even imagine like the the journey go through as a product which is like understanding what the market wants and there's more ideas you have to say no to than yes to imagine doing that in house and every director says that has to do this and they go Yeah, building something we're building something new in-house. So if if the if the company comes and says, here's a set of open-ended requirements or or requirements for a new thing we want to build, that's probably, in my view, a really bad idea to try and do and like invent the new software paradigm. But i had I had a conversation in person with two contractors like literally in the last three days. Both of them were like, we're purchasing software A or software B.
00:28:20
Speaker
And we're spending hundreds of thousands of dollars a year and it's, you know, it's a form and a this and a that. And actually we can build the whole thing in-house and thanks to them, we can copy almost everything that's built into their product and customize the bit that's the bits that annoy us. And so that's the that's what's going to happen. That's the rules of the game. um And so software vendors need to solve the hard problems.
00:28:44
Speaker
not just the easy bit and then and try and I guess lock customers into the product. there's There's very clear benefit for taking on the hard problems that can't be solved easily because that's where the real value is is generated, I think. And you'd assume that there's the difficult problems that you need to solve in these applications, but also the connectivity between these applications will then accelerate them to a level that you just can't match.
00:29:11
Speaker
And you got to keep moving. You got to keep adding the the the next benefit and the next benefit that just makes it really clear as to why someone shouldn't go and try and build it. Because by the time they build it, you'll be ah you'll be seven steps ahead.
00:29:26
Speaker
No, that was super interesting. I really liked the new
Episode Conclusion and Thanks
00:29:29
Speaker
format. I'm very happy. I don't know if it's a new format, but I'm really happy that we couldn't decide on the one of the three topics. All three of them were were were interesting. Carlos, thank you, mate. Why don't you read us out? Yeah, and also I think the three topics also really helps the fact that we have service level knowledge in three areas that we could talk about for less of that time. But yeah, no, no, thank you very much, everyone, for tuning into today's show. um If you enjoyed today's episode, please do like or the video or follow us on your chosen platform. ah We really do appreciate your support. so um And we'll see you next week. I'm off to Google the moon base.
00:30:07
Speaker
ah yeah