Over the last few months there has been a series of capital raises and an IPO for Australian construction technology companies. This is a highly competitive landscape that is developing quickly with a focus on large scale procurement platforms. The table does not include the many local startups with products for site inspections and defects, safety and compliance and so on.
In a nice example of spillover effects, after the sale of Aconex founders Rob Phillpot and Leigh Jasper set up Xenoca and Significant Capital Ventures as VC funds for joint investments, and have invested in one IPO and four startups that have disclosed capital raises. Leigh Jasper has also invested with Ian Beatty and Salta Capital’s Andrew Sypkes and David Tarascio in venture fund SecondQuarter, which has raised $50m+ and has invested in Propeller (3D mapping) with Taronga Ventures, and ActivePipe (real estate marketing).
Leigh Jasper is also on the board of Salta Properties. Salta and Smorgon backed the modular Tribe Hotel designed by Mark and Melissa Peters and built in Perth in 2018 by Probuild, with Mantra as operator. Mantra was acquired by Accor, who announced in March 2019 plans to develop more than 50 of the modular hotels.
Taronga Ventures “invests in emerging innovation, technology and business models shaping the future of the built environment. We offer direct venture investment, as well as programs and advisory services to support the growth of our portfolio companies and their impact on the traditional real estate sector.” They also have a few construction tech investments. Their RealTech fund was launched last year, the program director is Julian Kezelman. Their startups are:
Procurement platforms are looking like the next big thing in construction tech. In the UK Pagabo launched a procurement platform in February, mainly for the public sector, using framework agreements. Here is their relevant page which says:
“Benefit from streamlined procurement and best value on all your mid-sized construction projects through our National Framework for Medium Works.
Running until December 2022, this fully OJEU compliant Framework can be used to commission a full range of building works, valued between £250k to £10m.
Providing real value and competition, it includes 46 regional and national contractors, split across 3 project value bands. And there’s complete flexibility in how you award your contract - either Direct Award your preferred contractor or go through a Further Competition with a selected few.”
Where is the technological frontier in Construction?
The fourth industrial revolution has already affected the construction industry through demand for structures for renewable energy and buildings like data centres, warehouses, ‘dark’ kitchens and supermarkets for online delivery services. Some of these buildings and structures already use forms of applied AI in their management and operation.
The construction industry is wide and diverse, and the various parts of the digital construction production system are in various stages of development. Over time the development of AI and associated digital fabrication and production technologies will reshape the existing industry, led by fundamental changes in demand (the function, type and number of buildings), design (the opportunities new materials offer), and delivery (through project management). However, these developments are now starting to affect the industry.
Automation technology is at the point where intelligent machines are moving from operating comfortably in controlled environments, in manufacturing or social media, to unpredictable environments, like driving a car or truck. In many cases, like remotely controlled and autonomous trucks and trains on mining sites, the operations are run as a partnership between humans and machines, or as Brynjolfsson and McAfee put it “running with the machines not against them”. These innovations might reasonably be expected to affect site processes and project organization, as concrete and steam power did in the past. Table 1 has examples of where the technological frontier was in 2020 for plant and equipment and construction materials, as an indication of the range and extent of this wave of innovations. Missing from these lists is smart contracts using blockchain.
Invention and innovation based around BIM, digital twins, digital fabrication and advanced manufacturing technology is starting to fundamentally affect the construction production system through economies of scale. Over time this will alter the balance between on-site and off-site production of building modules and components, and how they are handled, assembled and integrated. Because there are many different types of building in many places, production methods vary widely across the industry, so the use of these new materials and technologies will be varied.
Transport costs have always been important, but the option of site production has been limited due to standardization of mass produced components. The combination of BIM, online design databases and digital fabrication allows on-site production of some building components. Combining robotic and automated machinery with digital fabrication and standardized parts opens up many possibilities.
Past technological changes in construction operated over the three dimensions of industrialization of production, mechanization of work, and organization of projects. Automation and AI can also be expected to work along these dimensions as the fourth industrial revolution reconfigures them by linking data through the life of a project. The role of AI enhanced cloud-based platforms that integrate design, production and delivery of components and materials with digital production technologies that allow mass customisation will be significant in the production of components and materials.
Table 1. Examples of the construction technological frontier in 2020
1.1 Plant and equipment
Autodesk BUILD Space – Boston
UK construction manufacturing hub
Exoskeletons – Esko, HULK
Remote control equipment – CAT, Komatsu
Drone monitoring – Skycatch, Icon, Vinci
Smart helmets – Trimble Hololens, Daqri
Platforms – Katerra Apollo, Project Frog
Build autonomous skidsteer
FBR Robotics ‘Wall as a service’
Otis ‘Elevator as a service’
Sensor fitted cranes
Automated engineered wood factories
3D concrete printing with boom system – ICON, Aris, 3D Constructor
3D concrete printing with gantry suspended nozzle – D-Shape, BIG, US Marines
Onsite metal printing – GE, MX3D, Aurora
3D printing of combined steel and concrete
Roller press printing of smart fabrics
4D printing of shape memory materials
Molecular engineering of materials
Improved concrete additives and sealants
Components with cloud-linked sensors
Cloud-based fixtures and fittings
For mechanization, the characteristic changeability of construction sites is challenging for automated and robotic systems, and it might take decades of investment for machines able to do site work or for humanoid robots to do human tasks. In some case a human supervisor operating a team of robots or several pieces of equipment, each with limited autonomy, might work better. A worker with a smart helmet could monitor these machines both on the project and in the site model. Beyond site preparation however, there may not be many tasks left if site processes are restructured around components and modules that are designed to be assembled in a particular way, and machines to assemble those components and modules can be fabricated for that purpose. For an industry with an aging workforce there is the potential of exoskeletons for site work, a form of human augmentation that combines human skill with machine strength.
For organization of projects digital platforms providing building design, component and module specification, fabrication, logistics and delivery can be expected to become widely used. Platforms provide outsourced business processes, usually cheaply because they are standardized, and are available to large and small firms. Also, platforms use forms of AI to monitor and manage the data they produce, the function of intelligent machines. Examples are Linkedin (matching jobs and people), Skype (simultaneous translation of video calls), AWS and other cloud-computing providers, and marketing, legal and accounting software systems. Cheap, outsourced, cloud-based business processes can lower fixed costs and thus firm size, because firms can focus on their core competency and purchases services as necessary as they scale, leading to more entry and more innovation. If these digitised business processes are cost-effective and become widely used, they can provide much of the data needed to train machines as project information managers.
The BIM model of the project links the design and fabrication stages to the site and the project[i]. Digital fabrication produces components and modules designed to be integrated with on-site preparatory work and assembled to meet strict tolerances. Project management would be more focused on information management, and the primary role of a construction contractor might evolve into managing a new combination of site preparation work and integration of the building or structure with components and modules, some of which may be produced on-site in a Fab if economies of scale permit.
In this case, the industry would, perhaps slowly, reorganise around firms that best manage on-site and off-site integration of digitally fabricated parts. With outsourced business processes and standardized site and structural work, that would be a key competitive advantage of a construction firm. Firms would become more vertically integrated if they become fabricators as well, reinventing a business model from the past when large general contractors often had their own carpentry workshops, brick pits or glass works and so on.
While firms involved in construction of the built environment are facing technological advances that will affect many aspects of the technological system, this is a process that happens over years and decades. It takes 30 to 50 years between invention of a major new technology like cars or computers and its use becoming widespread, examples are discovering the double-helix and biotechnology, the dynamo and electricity, and the first electronic computers in the 1940s.
How long a transition to a new production system largely built on automation and digital fabrication coordinated by AI takes might take is unknown. While machines can replicate individual tasks, integrating different capabilities and getting everything to work together is another matter. Combining a range of technologies is needed for workplace automation, but solving problems involves specific technical and organizational challenges, and once the technical feasibility has been resolved and the technologies become commercially available it can take many years before they are adopted.
This suggests there will be many new roles emerging in construction over coming years, for project information managers, BIM supervisors, integration specialists and other fourth industrial revolution workers. Because these jobs will be primarily on new projects, they will not quickly replace the many existing jobs in the industry that maintain the built environment.
Nevertheless, the technological frontier is moving again, and new construction projects will generally utilise the most cost-effective technology. Current AI technology provides services such as GPS navigation and trip planning, spam filters, language recognition and translation, credit checks and fraud alerts, book and music recommendations, and energy management systems. It is being used in law, transport, education, healthcare and security, and for engineering, economic and scientific modelling. Advanced manufacturing is almost entirely automated.
In the various forms that AI and digital fabrication takes on their way to the construction site, they will become central to many of the tasks and activities involved. In this, building and construction may no different from other industries and activities, however the path of AI in construction will be distinct and different from the path taken in other industries. This path dependence can vary not just from industry to industry, but from firm to firm as well.
[i] In 2019 the International Standard 19650 was released, providing a framework for creating, managing and sharing digital data on built assets. https://www.iso.org/obp/ui/#iso:std:iso:19650:-1:ed-1:v1:en
Updated: Feb 17
US Survey Data and the Construction Industry
The previous post was on the United States Census Bureau Annual Business Survey (ABS). In 2018 the ABS included a technology module with three questions about the extent of technology use between 2015 and 2017: the availability of information in digital format (digitization), expenditure on cloud computing services, and use of a range of advanced business technologies. The first results were released in a working paper from the National Bureau of Economic Research in January. There were 583.000 responses to the survey, and two thirds of the firms employed under 10 people and were less than 20 years old.
The survey links technologies across firm size and age categories, as well as the co-presence patterns for the technologies at the firm level. It also identifies which technologies are in the early stages of diffusion as indicated by the rates of testing versus the rates of actual use of technologies by firms. The survey shows construction is not significantly lagging other industries in the US in digitization and use of cloud services, however it is doing less testing and development of advanced business technologies.
The main finding of the survey was “Despite increasingly widespread discussion in the press of machine learning, robotics, automated vehicles, natural language processing, machine vision, voice recognition and other advanced technologies, we find that their adoption rates are relatively low. Furthermore, adoption is quite skewed, with heaviest concentration among a small subset of older and larger firms. We also find that technology adoption exhibits a hierarchical pattern, with the most sophisticated technologies being present most often only when more-basic applications are as well.”
Size and number of firms in US construction
The structure of an industry is the number of firms categorized by size, typically the number of employees. Firms are classified as small, medium or large, with the numbers used varying by country and industry, as the tables below show. Data on firms (often called enterprises in the statistics) is presented using the International Standard Industrial Classification. Section F in ISIC includes the complete construction of buildings (division 41), the complete construction of civil engineering works (division 42), and specialized construction activities or special trades, if carried out only as a part of the construction process (division 43). Also included is repair of buildings and engineering works. Although there are national variants on the Standard Industrial Classification format SIC codes therefore represent industries, and firms are classified (or often self-classify) to industries on the basis of common characteristics in products, services, production processes and logistics.
In the US the Census Bureau collects data on industries and enterprises, the latest data for 2012. The website has this notice: “Due to limited resources and competing priorities of critical programs within the Census Bureau, the Enterprise Statistics Program has been suspended.” Reflecting the scale of the American economy, the size range of firms is much greater than the EU and the largest firms much larger. Over 95 percent of US firms are small, in this case with less than 100 employees, and have on average five or six employees. However, there were 212 firms with 1,000 or more employees that had a total 630,000 employees, of which nearly 160,000 were employed by the nine largest firms.
Table 1. US Construction 2012
The data, which emphasises the number of firms, is deceptive because of the very large number of small firms the entire industry is often characterized as unconcentrated. Viewing the construction industry as predominantly made up of small firms supports the view of the industry as fragmented with the characteristics of perfect competition. That description is too broad, some segments are much less fragmented than others. Competition among large contractors and among specialty supplier firms is oligopolistic, while small contractors are closer to perfect competition. There are few significant barriers to entry to the construction industry for small firms, so labour-intensive subcontractors and small contractors can be assumed to operate under perfect competition. There are relatively few contractors capable of managing large projects, and the barriers to entry at this level in the form of prequalification are significant, based on track record, financial capacity and technical capability.
Technology Testing and Diffusion
The testing-versus-use rates across different technologies are used to assess which technologies are in earlier phase of diffusion, that is, where testing is high relative to use. From the survey data the Construction industry is neither a leader nor a laggard in the availability of information in digital format. Manufacturing, Information and Professional Services are the industries with the highest rate of adoption of digitization, with firm size the primary correlate of adoption. For expenditure on cloud computing services Construction is lagging, with use rates below the average and well behind Professional Services. Overall, cloud services purchases have much lower diffusion rates compared to those for digital information. On these two questions of digitization and cloud usage Construction is comparable to the Agriculture, Retail and Transport industries on the extent of adoption, which is significantly lower than the rate in Information, Professional Services and Health Care industries.
Where Construction is well behind is in the testing and use of a range of advanced business technologies. The butterfly chart below shows sectoral diffusion rates for all business technologies considered together. Manufacturing leads with about 15% of firms indicating use of at least one business technology, followed by Health Care (14%), Information (12%), Education (11%) and Professional Services (10%). The lowest diffusion rates for the technologies are in Construction, Agriculture, Mining and Utilities, Management and Administrative, and Finance, Insurance and Real Estate sectors.
Figure 1: Extensive and Intensive Margin Measures of Use and Testing Rates for Business Technologies by Sector
Across all AI-related technologies, the aggregate adoption rate for all firms in the economy was 6.6% meaning that approximately 1 in 16 firms in the US were utilizing some form of AI in the workplace. The AI adoption rate varies greatly by firm size. Adoption rates (defined as usage or testing) increase from 5.3% for the group of firms with the smallest number of employees to 62.5% for firms with 10,000+ employees. Scale appears to be a primary correlate of AI usage, and its use by large firms means the employment-weighted adoption rates (estimates of the fraction of workers employed by firms using the technologies for advanced business technologies) are five times higher than the firm rates (i.e. because large firms are using AI the number of employees working with AI is five time greater than the number of firms using AI). There is increasing concentration of both employment and advanced technology adoption in fewer, larger firms.
The analysis finds “In general, the business technologies explored in the module’s third question are more prevalent in larger and older firms. This skewness in technology prevalence suggests that these technologies may have a disproportionate economic impact despite their generally low adoption rates’ and “This may potentially have far-reaching implications on topics such as inequality, competition and the rise of “superstar” firms, especially if AI is shown to have widespread productivity benefits. If only a select group of firms are able to fully realize the benefits of AI, we can expect further divergence for the “frontier” and most productive set of firms.”
From table 1, in the US in 2012 there were 9 construction firms with 10,000 employees and 17 with 5-10,000 employees, employing nearly 280,000 people between them (out of 580,000 firms and 5 million employees). Although there will be small, young firms experimenting with AI and other technologies, the data suggests some of these large firms will be investing in advanced technologies like AI, robotics and augmented reality at a scale the rest of the industry cannot. This has already been seen with the use of BIM, which is spreading to smaller firms in the industry a decade after many larger firms began the process of implementation. Another example is the way some large contractors are already running their own platforms for procurement and project management, which their suppliers and subcontractors have to use. These are closed, internal platforms. However, there are also open platforms developed by digital systems integrators such as Project Frog.
It seems clear that digital platforms providing building design, component and module specification, fabrication, logistics and delivery will become widely used. Platforms provide outsourced business processes, usually cheaply because they are standardized, and are available to large and small firms. Also, platforms use forms of AI to monitor and manage the data they produce, the function of intelligent machines. Examples are Linkedin (matching jobs and people), Skype (simultaneous translation of video calls), AWS and other cloud-computing providers, and marketing, legal and accounting software systems. Such cheap, outsourced, cloud-based business processes can lower fixed costs and thus firm size, because firms can focus on their core competency and purchases services as necessary as they scale, leading to more entry and more innovation.
Table 2. Dimensions of Development
In the various forms that advanced technologies take on their way to the construction site, they will become central to many of the tasks and activities involved. In this, building and construction may no different from other industries and activities, however the development path in construction will be distinct and different from the path taken in other industries. This path dependence can vary not just from industry to industry, but from firm to firm as well. Because the construction industry’s technological system of production is so wide and deep this will affect a large number of firms and people, and through them the wider economy and society. Invention and innovation based around BIM, digital twins, cloud computing, digital fabrication and advanced manufacturing technology, will fundamentally affect the production system through economies of scale and scope.
Advanced Technologies Adoption And Use By U.S. Firms: Evidence From The Annual Business Survey, by Nikolas Zolas, Zachary Kroff, Erik Brynjolfsson, Kristina McElheran, David N. Beede, Cathy Buffington, Nathan Goldschlag, Lucia Foster and Emin Dinlersoz. 2020. National Bureau of Economic Research, Cambridge, MA Working Paper 28290 http://www.nber.org/papers/w28290