December 28, 2000, 9:54 AM — COMMERCIAL CONSTRUCTION has the potential to be the poster child for the age of e-business. That is, experts say, if a large number of industry professionals can be convinced to change their traditional, paperbound ways.
"The value proposition is huge," says Matt Sanders, an analyst at Forrester Research, in Cambridge, Mass. "The construction industry has been wrestling for years for better management tools."
The overall potential of construction e-markets is impressive. Online market trade for the $3.2 trillion global construction industry will reach $43.7 billion in 2004, and another $97.3 billion will move online via extranets, according to Forrester Research.
Still, it seems that the construction industry hasn't yet completely embraced the Internet, although it's not for lack of investment. Venture capital firms have invested $2.5 billion in 217 dot-com start-ups aimed at the architecture, engineering, and construction markets, estimates Paul Doherty, principal at The Digit Group, a technology consulting group for the building industry, based in Memphis, Tenn.
By serving as a common ground for collaboration and procurement, the Internet could drive out inefficiency and cost, analysts say. A single construction project may involve hundreds of people in ad hoc, far-flung teams linked by FedEx packages, faxes, and bike-riding couriers bearing reams of duplicate blueprints, change orders, and other documents. As a result, industry observers say, many construction projects are late and over budget.
By offering the ability to track projects via browsers, online systems will increase the predictability of results, reduce risk, and bring accountability to all involved parties, supporters say, adding that online services that bring together the many different industry players could hold great sway.
"The winner in this space will be the operating system for the global construction industry," says Daryl Magana, founder of San Francisco-based Bidcom.com, an online service.
But a lack of market acceptance blemishes the rosy picture painted by service providers. Online services still struggle to get building professionals to take advantage of collaboration tools, let alone complete transactions.
"The vast majority of people in the industry don't know what the hell these [online] services are," Doherty says. "It's not a technical question, it's a cultural one. The highest level of IT in the industry is the fax machine."
E-commerce faces several other challenges, notes Paul Levin, a consultant at Navigant Consulting, in Washington. For one, contractors build personal relationships with subcontractors and suppliers, making them reluctant to use companies found online. Also, he said, the lack of standard definitions may make it difficult to specify materials.
Fragmentation also makes the construction industry a hard sell. The top five U.S. construction companies account for less than 2 percent of the dollars spent on construction, says Chris Bradshaw, vice president of marketing at Buzzsaw.com. Although these leaders are early adopters of online services, they won't make a great impact unless they require their subcontractors -- often the least technically inclined of the building professionals, say observers -- to use the online system.
"It's very hard to force the prime [contractor] and the subs to use an Internet system," says Harlan Kelly, chief city engineer for the city of San Francisco, which hhas used Bidcom.com to track projects.
Eager to cash in on the e-commerce boom, the services that have established Internet beachheads as collaboration tools are expanding to include procurement solutions. Bidcom.com is augmenting its project management service with an online exchange system called AEC Connect from PurchasePro.com, in Las Vegas. Also, San Francisco-based Buzzsaw.com, which was spun out of CAD powerhouse Autodesk, has forged an alliance with e-commerce solution provider Ariba, in Mountain View, Calif., to create a centralized global marketplace for building materials.
The case for using online collaboration seems strong. More than 10 percent of the $400 billion spent last year in the United States on commerce construction went to transmitting plans and specifications and making estimates, notes Arol Wolford, president and CEO of the CMD Group, a construction data company in Atlanta. Online collaboration could save a significant percentage of those dollars, he says.
