BIM Cost Benefits – Who Owns the Savings?

BIM promises and it is mostly accepted that it delivers significant costs savings even though it’s not understood how these savings will eventuate, who owns these cost savings today and who will benefit in the future.

In order to create certainty and generate cost savings through collaboration we need to understand who has the most to gain and involve them at the right stage of design and Virtual Design and Construction (VDC).

For different types of projects the people you need to engage, changes. We need to acknowledge that the savings arising out of a building project differs significantly to those of a civil or resource project.

There also needs to be an appreciation of when a construction contract or subcontract is formed as well as the type of construction contract that has been entered into. These aspects need to be kept in mind when considering the supply chain from owner, to head contractor, to subcontractor, to plant hire and materials suppliers. Prior to entering into a construction contract all savings that eventuate from lean and efficient design will return to the owner. After formation of the head contract; and then the various subcontracts, it is the terms of those contracts that will determine who owns time and cost efficiencies.

If we take a commercial scale building project; the indirect costs of preliminaries, head office overheads and margin amounts to about 17% of the construction cost with the remaining 83% being formed by subcontract prices. So, on a building project that is made more efficient by VDC it is the subcontractors that have most to gain particularly when you also recognise that subcontract margins are up to seven times that of a head contractor. It makes sense really because it is the subcontractor that is actually doing the construction work.

By comparison, a civil project like a subdivision is the opposite with only about 17% of the cost being controlled by subcontractors. So the benefit here lies largely with the head contractor.

In the resource sector the type of project also plays a large part in determining who has the most to gain from efficiencies. If we take a pipeline project, for example, the relationship between direct and indirect costs is much higher than any other construction type. The head contractor’s indirect costs are about 45% of the project. Additionally the head contractor owns the plant and employs the labour that will construct approximately 83% of the remaining 55% of direct costs. If a pipeline project is made more efficient after award of the EPC contract he stands to gain significantly in terms of profitability on delivery.

Processing plants within the resources sector typically contain a similar level of indirect costs (45%) but the bulk of the direct costs (88%) are constructed by subcontractors. So it becomes very evident that the head contractor and subcontractors need to be engaged equally in providing advice on the construction of a plant to determine the savings that can be achieved.

In applying BIM in order to quantify savings it is therefore critical to understand who directly owns the costs of the project at each stage as they are the people who must be involved in the early stages of design to realise the efficiencies.

Who Benefits from the Savings Generated?

It’s not necessarily the owner who directly benefits monetarily from improved construction efficiency. By way of example the cost per square metre of a partition wall will not change until that subcontract market learns that construction projects as a whole have become more reliable. Owners will ultimately benefit from the efficiencies that come out of BIM but the value of these efficiencies won’t be realised until the market adjusts and we see reductions in allowances by subcontractors for delay, disruption and rework currently due to poor documentation and site management.

While it will be some years, perhaps five to ten, before market prices show downward pressure there are still a number of savings strategies that can be put into action.

Savings ownership generated through BIM

Additionally there is an expectation that designers need to be able to produce designs that can actually be built in order to generate efficiencies. This belief is deep ceded in our industry history but in modern, specialised times perhaps we should question whether this belief is properly founded. It’s important to recognise that designers aren’t builders and also that different builders have different preferences on construction methodologies. Realistically the building design should be produced, coordinated from a design perspective and then handed to the builder or key subcontractors to be improved while still maintaining the designer’s oversight.

Evolving Our Industry Methodology

Historically, the way construction projects are priced is to allow high contingencies at the outset and to expect redesign, delays, disruption, rework and variation claims. BIM is about being able to reduce the need for contingencies as the gap between project development, modeling and the build narrows.

If we can create a standard methodology that ensures project teams are involved in the BIM at the right stages of design and development, we can bring about leaner building design and construction that will ensure subcontractor costs are more predictable, negotiations are transparent and variations and extension of time are reduced. Ultimately markets will adjust and we will realise reductions in contingencies and savings at the outset of projects and collectively achieve greater savings and cost certainty for the industry as whole.

For more information contact David Mitchell, Mitchell Brandtman, 07 3327 5000.