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Creating a New Business Model for Capital Projects

This presentation discusses the Operating System 2.0 (OS2) update for the LCIC and the development of a new business model for capital projects. It explores the history of the Construction Industry Institute (CII) and its research and development initiatives. The presentation also highlights the challenges faced by the capital projects industry and how OS2 aims to mitigate escalating costs and improve project delivery. The opportunity to get involved in OS2 and the potential benefits for owners and service providers are also discussed.

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Creating a New Business Model for Capital Projects

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  1. Operating System 2.0 Update for LCICreating a New Business Model for Capital Projects Stephen P. Mulva, Ph.D. Director, CII The University of Texas May 29, 2019 Chicago, Illinois

  2. History of CII Founded in 1983 by 28 organizations; now 149 Organized Research Unit (ORU) of the Cockrell School of Engineering (CSE) at the University of Texas at Austin (UT) First structured owner-contractor-academic research collaboration for the constructed project Collaborating widely with other industry groups such as LCI, CURT, COAA (Alberta), NCCER, AGC, etc.

  3. CII Member Companies – Owners

  4. CII Member Companies – Contractors

  5. CII Member Companies – Service Providers

  6. CII Member Companies

  7. CII: Research and Development for Capital Projects • History of Industry Best Practices Leadership • Zero Accident Techniques, Constructability, PDRI, Advanced Work Packaging, Planning for Startup

  8. CII Themes: Keys to Future Success • Process (Innovation) • Near-term (industry sector) • Long-term (overarching R&D) • People (Capacity Building) • Leadership and business acumen • Organizational behavior • Technology (Enabled Transformation) • (New) Business Model

  9. Industry Platform • Modern business is confronted with: • Systems (legacy models and MIS) • Enabling technologies (Blockchain) • Point solutions (applications) • Platforms (Android, AWS, etc.) • No dominant single information platform for projects exists for the capital projects industry • OS2 is “creating a new platform for a healthy capital projects industry that fosters organic growth”

  10. Cost Impact (OS2 Will Mitigate Escalating Costs) $600M $568 M $500M Nominal $100M Heavy Industrial Project Data Averaged Across Multiple Capital Projects (1998 Baseline, adjusted for inflation) $400M projected $300M $222 M $200M OS2 35% $100M $100M 2038 2018 1998

  11. Fragmentation and Complexity with Larger Projects TODAY ($1000s M) 1960s ($10s M) 1990s ($100s M) BANK BANK OWNER OWNER BANK BANK OWNER BANK BANK ENG. GC ENG. GC OFF-SITE FAB. OFF-SITE FAB. ENG. GC S v GC ENG. v v S v S v S S v S S S v v S S v v v S S v S S S S S v v v S S S v S S v S v S S S S S Vendor / Supplier S Subcontractor v

  12. OS2 Business Model (vs. OS1) (40% Transactional Cost) Capital Markets (Owners, Private Equity, Bonds, MLP’s, Syndicates) Banks (Open Source, Cloud-Enabled Thin Platform) Owners vs. Commercial Finance Integrator (IT) Tax EPC / CM Labor Logistics IT Sureties Regulators CM Legal Forex Insurance Tax MRO Labor Subcontractors Logistics Licensors Regulators Contractors Engineering Manufacturers Large Risk Mgmt. Vendors / Suppliers Raw Materials Cos. Distributors Manufacturers Raw Materials Companies (4% Transactional Cost) OS1 OS2

  13. Main Sources of Transactional Waste Layer-upon-Layer of Additional Cost End Users EPCs / GCs Subcontractors Vendors Distributors Suppliers Raw Materials

  14. Research and Development (Lead Entities) RESEARCH DEVELOPMENT (OS2 Platform)

  15. OS2 Research and Development

  16. Aerospace Platform Case Study • B787 Development Cost: From $10B to $6B (-40%) • B787 Development Time: From 6 Years to 4 Years (-33%) 50 Tier 1 Suppliers demands Engineering Engineering Ecosystem Fabrication Assembly PO’s HIGH Transaction Costs LOW Transaction Costs Construction Progression Fabrication supports Suppliers

  17. Schedule Impact (EPC vs. PEpC vs. OS2) Analysis performed by CII Performance Improvement Group (March 2013) * Each project was normalized to $250M

  18. Industry History of Delivery Systems (Platforms) OS2 I2PD IPD D/B D/B/B 2020 2030 2010 2000 1990 1980 1950 1960 1970

  19. Raising $22 Million for R&D ($8M for Research, $14M for Development) Getting involved in OS2

  20. Industry Groups and Companies Supporting OS2 “By the industry, for the industry”

  21. Participate as an investor Cost: $0.50M or $0.25M/year for 3 years (other amounts possible) Royalty-free use of PrairieDog platform and related solutions Potential to earn a return based on performance of the PrairieDog business Owner benefit: 35% lower cost, 50% cycle time reduction, 60% improved ROCE Provider benefit: 250% more volume, 300% improved profitability Participate in R&D efforts Pilot projects OS2 / PrairieDog Opportunity

  22. UT Industry Affiliates Program (IAP) Membership

  23. Committed Organizations • Committed and/or Paid: • CII • COAA • CURT • ExxonMobil • NCCER • Suncor • Final Stages of Commitment and Payment: • BHP Billiton • Cenovus • Petronas • SABIC • Shell

  24. Questions? Stephen Mulva, Ph.D. Director smulva@cii.utexas.edu (512) 232-3013

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