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Has Tech Truly Improved Construction's Commercial Process?
77 Plays1 year ago
This week, off the back of Ingenious.build's sizeable $37 million raise, Jason and Carlos venture forth into the land of construction's commercial processes.
The duo set out what happens on a project commercially from the point of tender, lean on Carlos' QS years to reveal how all of this complexity was handled as well as expand on an area of commercial that has not yet been improved by tech solutions.
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Transcript
Introduction to Offsite Podcast
00:00:01
Speaker
I'm just shutting things now. I just closed about 25 Spotify that go team. Sorry, you had 25 tabs going on and you're running by the internet slow. My simple mind tells me that it only does stuff when you're clicking. well like you You know that tab you had open that said download the internet. I think that might have been
00:00:28
Speaker
are You're listening to the Offsite Podcast with Jason and Carlos, where we talk all things construction and technology. Join us for discussions with industry leaders and insights into latest trends in construction.
00:00:45
Speaker
Welcome back to the
Complexities of Contract Management Software
00:00:46
Speaker
Offsite Podcast. Today, we've got some big news to talk about in the world of commercial technology for construction projects. So Carlos, there's no one better that I would want to be talking to about the super interesting and not boring at all world of ah software for contract management and construction. How are you, mate? Rich Woods is someone that spends all day talking about Gantt charts. Yeah. The world is built on Gantt charts. There's nothing you can't do without a Gantt chart, except have friends or something like that. You can't build anyone without contracts, payments and everything else too. So, you know, it all goes to cycles. If we did everything on a handshake, I think, but that's a whole nother podcast.
00:01:33
Speaker
Yeah, that doesn't seem risky at all. The old spit shake can crack on. Nice. Yeah, that's how the mafia operated. They didn't have contracts. That all worked well, didn't it? Yeah, yeah. 100%. How's the insurance? You don't follow the contract, you just need to hide enough consequences. It's like this like ah calculation, um this other podcast, that Scott Galloway, this podcast I listened to talks about the algebra of deterrence, right? Where as long as the likelihood of getting caught times the cost of getting caught equals a number bigger enough bigger than the gain, then it'll stop people, it'll keep people in line. So if like The likelihood of getting caught in the like mafia system is like 0.1%, but the consequences you get shot and put in a river, then you have to weigh that up but against whether you're going to make an extra hundred K on the doing the dirty on the contract. So I think rather than all these contracts. Yeah. Yeah. I think if the consequences are high enough, that's, that's all you really need. Yeah. Yeah. yeah That doesn't sound like a stressful world at all.
00:02:41
Speaker
definitely It definitely would be stressful. Yeah, yeah. Yeah.
Funding Success for start.build
00:02:46
Speaker
ah said So today we are talking about some news in the last handful of weeks where a new software relatively new software company called Ingenious start.build, which is an American um SaaS platform for construction and real estate, um has just secured a US$37 million u funding round, a series A funding round, which is a decent chunk.
00:03:14
Speaker
That'll get you a lot of like office lattes, yoga chairs, bean bags. We haven't got any bean bags yet. the So this company is, yeah, they've raised the money to advance their platform. I would say they're like a direct competitor to say a pro core. Their customers sit across real estate development and construction contractors. So they're both like client side and contractor side.
Manual Contract Management Processes: Challenges
00:03:40
Speaker
Their main ah value proposition of the area operators around the like commercial management, project financials, contract administration. and There is definitely a lot of things in that space ah that could be improved. I'd say the broader issue of like contract management is
00:04:00
Speaker
There are companies that do lots of things in spreadsheets. There are other companies that do they have a platform to do the whole thing, but all of it ah from from my experience is to some degree still very manual and clunky. I thought we could dive into the topic of um off the back of this news, dive into the topic of how contract management and like cost value management and procurement is typically done on um like large infrastructure and and building contract projects around the world. What do you reckon? It's good to see a ah decent looking product in the space. I don't know if you've seen any of the old sort of commercial tools but they're pretty old school.
00:04:42
Speaker
But they their head content, a little bit of a gripe, it's really hard to see what it actually does. Like there's some pretty broad categories, like we sell productivity and we give you insight across like contract management and forecasting. It's like, cool, is that is that what you're going to give us? But um yeah, yeah and it makes you wonder whether it this the steak is as good as the sizzle. Yeah, yeah, yeah, absolutely. So yeah, trying to dig into a bit. It looks like it's covering the right spaces. I'd love
Real-life Construction Tools and Spreadsheet Dependency
00:05:12
Speaker
to see it in more detail. They got pretty impressive revenue and obviously valuation um in line with that raise. So it must be popular.
00:05:21
Speaker
um And yeah, outside of Procore, I can't think of another major one, like the well-known commercial sort of system is coins, but that's really more to do with things like payments and um yeah other bits and pieces. So it'd be good to just like stepping back and pretending I'm a dummy. You might not actually need to pretend, but if you pretend I'm a dummy ah in the world of ah commercial and commercial management of ah like a large infrastructure project. If we step through like what I imagine, if I sort of paint the picture and then you tell me whether
00:05:55
Speaker
It's like right or wrong that we can dive into it. that like There's some element of building up packages. So you get a contract, you've got to build up packages for different subcontractors to kind of let out. You go and get pricing and and they come back and then you select and award a contract to them. And then there's some matching of like that versus like what a budget was
Complexities of Change Management in Construction
00:06:18
Speaker
ah in involved in that process to work out whether you're winning or losing on the whole thing. And then as the sort of time goes on, there's sort of maybe two processes. There's like work gets performed. So there's like an invoicing and working out cost um and where cost is going to end up. And then there's this other thing around change.
00:06:38
Speaker
ah where maybe there's change that is um ah between you and a subcontract and then there's probably change with you and ah like a client if you're a general contractor. Are there any other like bits to that whole a puzzle that I've kind of missed in there? Yeah, so I think let's put aside change for just five minutes, because that's the thing that actually adds the complexity and reality. Yeah. um So we've got the foundational stuff, which you mentioned. So um you've got this original sort of budget that you won the job with. And that's like, that could be a bit of quantities. So like first principles, and then you go through this process of going like, right, this stuff sits well together. So I'm going to bundle that up and call it a package. And we're going to go to market and procure
00:07:23
Speaker
um either decide to self-deliver or to procure it through the supply chain. um So that all gets divvied up. So you kind of got your prelims, which is your staff, your office and that sort of stuff. And then you've got your packages and then all of that sort of adds up to a number, which then you apply some fee and some overheads and things like that. You're then procuring packages, so large jobs, ah smaller jobs, the QS would just do it. ah In Australia, obviously, the engineer would probably do it. um Large jobs, you would just have a procurement team because they're churning out like 100 packages and a major a job in a short period of time.
00:07:57
Speaker
You then obviously got contract negotiation with each of those and you're trying to get it as back-to-back as possible with your own contract, so it doesn't leave you at chilly situations. And then you ultimately have a budget that you're letting works against and ideally, immediately, you're making some sort of return because you're able to procure the works at a lesser value than you secured in the tender with the the ultimate sort of client. You've let these subcontract packages. One part of commercial is really the sort of, it co it kind of comes in document control. I wouldn't say that's a commercial only thing, but you need like an Aconex or
Need for Integrated Construction Solutions
00:08:31
Speaker
like a CMR to make sure you're doing contractual communications. Other software is available. yeah Yeah, exactly. So I think like this ingenious app, they do cover that. That's a bit punchy because most of these tools are dictated by the client. And then you're tracking actual cost. Most of that comes from records. So it could be site diaries, could be swipes. You obviously get payment applications from the subcontractor, but you've got to validate what they're asking for against completed tasks and spend. So each of those subcontract packages each month, you're going through that valuation process.
00:09:01
Speaker
That whole process, from what I saw, that's all on spreadsheets. The procurement part in particular, there's Peculoprome and other people that we've spoken about that are starting to make waves there. Yeah, that's so that's a really useful kind of like map of the the process. And what would be and like if I'm a contractor, ah many of those things seem very tightly connected to the previous thing or the thing following, i just you know the step before or step after. And so i'm I'm going to desperately want to have those, whether it's all in one system or ah there's multiple, but they're connected in in a way, I would be, I guess I'd be agnostic too, because I am like an advocate for best in class.
00:09:44
Speaker
our tools to a degree. yeah But it'd be good if you could cast your mind back in a few years and and you're you're managing QS on ah on an infrastructure project in the UK. What is the reality of how that looks? like Is it one tool? Are there multiple tools? Are they connected together? What does it look like? When you're procuring works, it's just a spreadsheet and it'll be the spreadsheet from whoever the procurement lead is from their last job, right? So you just bag in some information, send out, and you might have an app which manages the sort of back and forth part of the anonymous tender to win the works.
00:10:22
Speaker
any he quotes to the ah the client for any sort of contract change spreadsheet like awful yeah kind of spreadsheet. If you are receiving a quote from the supply chain you basically look at the numbers and you go oh that one looks higher then you might ask a few people and you might check what people previously paid and that's really all you had to work with because there was no system to go in and see market rates for things. Actual cost is loose like I remember assessing like a piece of change and I would have a stack of maybe like a hundred allocation sheets and diaries from um the supply chain member and the engineer and like half of them were blank, half of them weren't signed, some of them you can even read and there was coffee spill on them and like
00:11:06
Speaker
nightmare. So yeah you kind of have to look at what a typical week looks like, base that and look at the others. So maybe we should, maybe should I should have flipped the question. Are there any parts of it that are in a system or connected to the other parts? Or is it literally just a spreadsheet goes to a spreadsheet goes to a spreadsheet goes to another spreadsheet? Comes in document control is the only like commonly digitized part. So all your contracts, yeah um communication, um which obviously isn't just commercial, but it's important to commercial because you have timelines related to every type of communication. So like, if the contractor, if the client says, like, give us a price for this, we'll instruct you, you've got a time to respond with a quote, and they've got a time to accept the quote, and things like that. I actually text a friend a couple of days ago, he's a senior commercial director at one of the big 10 contractors, and I was like, man, I just want to check that I'm not out of touch now, um because I'm running a running an episode on commercial management. Are you guys using apps for everything yet?
00:12:03
Speaker
He said, yeah, we're we're in this transition. And ah by next year, we'll start to use Power BI for reporting. No apps to actually do it. so They're looking at apps to automate. Yeah. Yeah. So to the output. OK. Yeah. So. So you said right, but you said before this idea of like, okay, you said put changes like, cause that's the thing that makes it complicated. But it, it sounds like, it sounds like, well, there's tons of running room, uh, to make this taking up all the packages during the procurement step of the packages. And, you know, we spoke to, to all the other week where they're like nailing that. But then there's this piece of.
00:12:42
Speaker
okay We've got these contracts, they're being delivered, costs are coming in. you know so It sounds like there's like a PDF sent through at the cost and someone's manually typing that into some spreadsheet. and Then that's kind of getting maybe incorrectly entered and that there's all sorts of problems in there. It seems like a some way to systemize that has got tons of running room. Just just diving into change. so As you said, change makes it way more
Managing Client-initiated Changes
00:13:08
Speaker
difficult. and I'm imagining things like design and construct, bump the difficulty even more to a degree. what is What's good look like or what's the state of play when we're on a sort of large infrastructure project, we've got some change occurring, that change maybe say client initiated or or impacting us upstream and then impacting us with a number of partners downstream. What does that actual like process look like yes i guess in managing a single a single piece of change?
00:13:39
Speaker
Yeah. So I guess to, yeah, to paint a picture, like client issues, a variation, so or change or whenever they call it, every contract type has it. They just have different names for it. Yep. So a change QS or the commercial manager receives this instruction effectively and looks at the instruction and goes cool, like how does that affect scope? And they'll start checking works information and documents and drawings and everything to try and piece together what they think that sort of variation means. So yeah they start to pull together a quote. hey Right, yeah we've got this instruction for views, this is what they're going to cost and they'll also work with the planner to work. But before you do that, don't you need to like go and do it? Don't you need to like tell the supplier, don't you need to tell supply chain, does does people on site need to know about this change? No, so there' there's two ways you manage it. One, they just do the quote on a forecast.
00:14:28
Speaker
And one, they do it retrospectively based on prices from the supply chain. Once you know prices from the supply chain, you can't do the forecast because you're aware of that price. So you've got these these two choices. Do we try and win on a forecast or do we actually go and find out what the cost is and then use that to substantiate the claim? But there's a risk that if you do the forecast version, you can't actually get the price that you forecast with the supply chain. So it can be one of those two. But there's this one individual that's typically managing that and trying to work out. And yes, major subcontractors, they'll probably go and get asked for a quote for their element of the works to make sure it's back to back because you don't want to take the risk. um But at this point is like the work already done on site or are they still waiting for this process to happen before the work's done on site?
00:15:09
Speaker
Let's assume they're doing it correctly, which is we're going to instruct you to do something. Yeah, because I was testing whether you were going to lie or not, because yeah there is zero percent chance that the the construction team are waiting for this whole thing to happen. But yeah. Yeah, yeah, yeah. Let's assume like Dreamworld where the first time we know about this work is when we get an introduction and it's not already been built and we're retrospectively working out. yeah And in that example, by the way, you then go to actual cost. So if it's a retrospective infrastructure, you have to adjust what the cost was plus fee. So the commercial manager takes this and they're going, cool, right. This is going to affect these packages. So I'm going to let the QS know on those packages that we got this change. And those QS's then have to go and instruct their supply chain members.
00:15:57
Speaker
okay So they sort of divvied up the scope. There's no real check to know if that was fully divvied up and it's all completely covered. And you need to make sure there's no ambiguity between the downstream instructions. So like one instruction from the client could mean five instructions below, for example. Yeah. And to be clear, they're probably two different systems. So you get the instruction on some system and then they downstreams in a different one. I've never been on a project where they're the same. Okay, cool. Yeah. You've then got QS's instructing and negotiating price, right? The upstream commercial manager could already have agreed a price and locked it down. And then the QS below has agreed a greater price that's higher and yeah you're already losing. um So these are kind of working independently. Yeah. So nothing really sort of matches from that point of view.
00:16:42
Speaker
I imagine got this flight i'mmagi you' got this timeline where you've got some supply chain responding on some random timeframe, some quick, some slow. You've got your head contract notification period where you've got to respond on some timeframe. yeah and like ah ah Certain instructions, some of the works might be way down the line. You haven't even procured a package for it yet. It's just to set there as a budget. right so yeah What we don't have is so you of the commercial manager going, here's all that cost that's being distributed down. And the guys at the bottom don't know what the quote looks like going upstream. you'd You'd think that they would all review, but when you've got 500 instructions above and 10,000 below, no one actually knows. In reality, what's this look like on ah on a project? you've got You've got one system and you've got all these people that are like QS's managing downstream packages.
00:17:34
Speaker
sending letters to the to the supply chain, chasing them. Why haven't you responded to this? And they've probably got spreadsheets with registers of all the life changes and they're manually updating spreadsheets in those registers. of They have responded to this one. They haven't responded to that one. And then presumably like at no point is any of this really agreed because you're always waiting for the thing to be agreed upstream before you can agree to things downstream. If you're instructed upstream, so you're instructed by the client to do something, you have to do it. You can't wait until you've agreed the quote. So What you'll see is there'll be hundreds of these unagreed quotations are tied to instructions that you have to start because they've told you to. And you've got the same deal
Systemization Needs in Contract Management
00:18:12
Speaker
going downstream? Yeah, but they're typically subcontractors would be much more on it because they want to agree their change and they're giving you pressure to actually get things agreed. So you're normally more
00:18:22
Speaker
sort of defined downstream and upstream. So your cost is more a little more certain than your budget. So I want to ask you the question, like, you know, in the context of this, ah you know, the company the like the IngenioStop build raise and just talking about commercial management. And you said right at the start, put change aside because it makes everything hard. It does feel like there's the procurement piece, which is one whole piece, which is go out, let the packages bring them back in, work out where your position is, which like a platform that does procurement that covers like that bit. It does feel like to me, there's like, there's literally three pieces to this whole thing. There's a procurement piece, there's a getting cost in and working out where you sit on cost.
00:19:02
Speaker
each month or whatever cycle it is. and Then there's some change package management piece. would would you If you were to break up the sort of parts of you know what needs to be systemized, it is it those three bits or is there is there something else in there? Yeah, for sure. the The change management piece is definitely the part that I don't think has been served properly. um like You have systems, and it looks like like a genius does who it says, this is your budget, and this is what you're going to spend, and one minus the other is yeah profit or loss. So there's loads of systems that do that. There's the contract management side. There's loads of systems to do that. And it's really hard to like build an all in one because the client are going to dictate that at the end of the day. So you can't just use a full system. And the procurement side is quite a defined thing. It's its his own little silo. like It's all pre-contract, really. So it's a nice stepping point. But the platform
00:19:55
Speaker
Yeah, you've got this. Sorry, sorry to cut you off, by the way, but you've got this like platform piece where ah you've got these these two, the two bits I described in the bottom, which is like, we're kind of doing some forecasting each month, we're getting cost in that cost is propagating into a system. It does feel like that system is super tightly connected to the change one. Or would you think that they're somewhat separate? ah They should be connected, but they're currently very separate. So like ah ah on on our projects, the cost and value reconciliation, which is our sort of ah profit and loss type of It's separate to your like bottom up forecast, which is what are we going to spend? Because that's its own oh right individual beast. And there's it's very difficult to tie the two together without like a system that is specifically built to do that.
00:20:46
Speaker
Yeah, because it does feel like the genius thing does sit on the like, procurement that goes into a table, you see, you know, total budget and what the package value is, and and the hard bit is still like, kind of unsolved. And like, I know, ah you're the right person to talk to, because I know right at the start, before, before kind of AFix got off the ground, you had this idea for a piece of software in this, in this space, what Where was it sitting? and Without disclosing too much, what was the kind of core idea that improved some of it? This is back when I was naive. I was like, oh, we'll just do the planning tool in year one and then we'll be build the commercial tool. Are we easy? 27 years in, we're still building the planning tool. Yeah, so it it's kind of sits it sits within that the cost and the cost and value sort of space. So the CBR thing that I mentioned, um as well as the the forecasting forward. yep And really,
00:21:47
Speaker
It's not that complicated, but I was imagining in a world where like you get instructed something, the person who's in charge of that instruction, they start putting together a quote. As part of that, you're like tagging the packages that they're part of and the the coding structure, so you're building this thing. yeah the package managers are being notified that, hey, you like this part of this quote is your package. So it's like steps down in a nice structured way. And then when they start building their quote, they see the live budget that they've got. And when they're building their quote to the person at the top also sees what this cost is in real time. So like the two are inherently linked.
00:22:23
Speaker
And then when you're doing your forecast, you've got spend against each one of them, each variation as well as the contract works too. So you've got all three things in one space then. And that sounds simple, but it's like that is, some would say that's a niche thing to build, but it's a problem that's on every major scheme. It does does like it doesn't seem actually like that technically complicated. Not saying that we should stop building the planning thing and go and do it. It does feel like Other than potentially integration at the cost side of things, yeah like to get the cost in, and then integration with the procurement side to like propagate the packages from their contract values and stuff.
00:23:06
Speaker
what I've just described with like a variation from the client and then everything tied in below, you've also got like the original bill of quantities with the sub contract packages. So everything steps down all the way. um But then when you actually start to think about it and you go, oh fuck, then you'd have like live like exchange rates and material prices and then you'd want actual cost feeding in from swipes to show actual cost. And suddenly it would, you would obviously be able to blow that up into something pretty mega um but that core thing in the middle hasn't been done there's a lot of systems that do the stuff around it yeah so if you were to take top 10 contractors in say uk how many of them like what is the state of play for that process for ah spreadsheets from what you know with it's still oh yeah you reckon still have all spreadsheets
00:23:53
Speaker
yeah that i was Some parts of that, even when I was yeah like so when i was like guess on the tools, that we had we had some like internally built and it we did like a single bit of it. It was like you would do a bit of it in this system, then you'd have some spreadsheets and then there'd be another system. Everything was kind of tacked together with an export yeah manual spreadsheet bit important to this other thing. yeah Yeah, like people do it, but they're making do, right? So even if you had a systems that did some of the things that we know exist in the market, it's still human intervention and import from this thing, put it in a spreadsheet, do some work and and punch it out. And it's the risk of gaps and ambiguities and double bubbling, like certainty is terrible.
00:24:36
Speaker
Yeah, from what I've seen, no one's done it. I think maybe people would assume that it's a niche problem, but it's not. It's a problem on everything, on every major scheme. Yeah, yeah, yeah. And so that's really the pitch, right? So the takeaway, is anyone listening that wants to be the fun Carlos into building this? I'll take it for set. I'll give you the idea and let me know how it goes. Okay, yeah, or if they want to kick a Royal to him royalty to him or some advisory shares. He's open to it. But I think it is like one of those things where someone needs to have been deeply probably involved in that process too, because there'll be all sorts of things, right? There'll be bits where
00:25:19
Speaker
You want to put cost in at the bottom level from the supply chain, but then you also have the ability to have stuff that's in there that's hidden because you probably want to... There's certain bits that you want to show, certain bits you want to hide, certain bits you want to pass up, some bits you want to keep to yourself. So there's all that kind of like contingency management throughout the process. It's going to be views and permissions related to the client and the supply chain and the buyers and the project director. Yeah. Yeah. Anyone that wants to cast will do the advisory shares or or direct funding either. I said to my boss, and i the last job that I did, ah like, this is a fucking nightmare. Can we get a tool for it? He just went, if you find a tool, I'll pay for it. Because he knew like fully well it didn't exist. So yeah, that was part of the ah where it came from.
00:26:10
Speaker
Yeah, and it doesn't seem like even this, even engineers stop.build or even Proko, the change management pieces is still, it's it's not to that level of sophistication. And just to be clear, they do a lot of stuff, like they will track the original budget, they will have a change tracker, they'll have subcontractor change checkers, but the clever thing of saying profit and loss by CE or variation, and and and they're not really, yeah, it's still ah quite manual. Yeah, exactly. So yeah. So I guess moral of the story, key takeaway of the episode and the discussion is once again, construction is a series of disconnected software tools held together by people, exporting data, massaging a spreadsheet and then jamming it back into another system. So big surprise to nobody. That's
00:26:56
Speaker
that's But they do plug it into Power BI, so you know wherere we're moving forward. It is in Power BI. i so that At the end of the day, someone gets a chart. There's about 400 people putting fake data into a system so that some management head honcho can look at and go, what a system. I can see exactly where all the projects are. yeah I get regular messages from a ah ah very senior commercial director saying, have you built that tool yet? Uh, so now he's going to, there we go. So call up bring your advice and your first customer is you're bringing advice and your first customer. I think someone needs to pick this up and run with it.
00:27:34
Speaker
yeah Cool, mate. I think we're out of time. ah Thank you everyone for listening. Once again, if you do ah like what we've covered or don't tell us about it, the feedback that we get really helps shape the things that are interesting in the way that we talk about topics. We do this because it is a conversation that we would have had anyway unrecorded. It's a conversation that helps us think about, ah stick the head above the ah the above the fray for a little bit of time every week. um Think about things that are happening outside of the day job. And yeah, hopefully that's interesting to other people. Yeah, so the people that send us feedback, thank you very much. It's super, super valuable. And yeah, see you next week. Thanks everyone.