Corrs High Vis: Episode 53 – COVID-19 and the construction industry: challenges and opportunities (Part 1)

Christopher Horsfall - Hello and welcome to the next episode of Corrs Hi Vis. My name is Chris Horsfall and I’m a Partner in the Melbourne Projects practice group at Corrs. Thank you for joining us for this podcast, which is titled COVID-19 and the construction industry: Challenges and opportunities.

In this episode, two Senior Associates in our team, Alice Hayes and Sam Woff, sit down with two very experienced construction practitioners: Kiri Parr, who is the Director of Kiri Parr Consulting as well as being a Senior Fellow at the University of Melbourne, and Kevin Pascoe, who is the Executive Director of Laguardia PCD.

In this two-part series, the podcast will examine some of the themes in Kiri and Kevin’s most recent article which is titled Will COVID-19 Cure the Poor Health of the Australian Construction Industry.

We will hear Kiri’s and Kevin’s insights not only on the challenges that have come about as a result of the COVID-19 pandemic, but also some of the opportunities it might bring.

In this first part, we ask them to explain their reasoning as to why the construction industry was in poor health, even before COVID-19. We also ask them to expand on their thesis that COVID-19 presents a once in a generation opportunity to improve the landscape of the industry. They say there is no better time than now to drive strategic change.

In part two of the podcast, Kiri and Kevin delve deeper into some of the challenges which the industry faces in light of COVID-19. As an example, while there has been an increase in government spending on infrastructure projects, border closures nonetheless impose geographical limits on labour resources and are likely to impact on successful project delivery.

Given this, we pose the following questions to Kiri and Kevin:

• What should the key areas of focus be for the industry in order to meet the demands and expectations of society?
  
• How can we work better and smarter?

According to Kiri and Kevin, the answer is complicated but worthy of interrogation and ultimately lies in a combination of leadership, culture and technology.

With that, let’s join the conversation.

Samuel Woff - Okay well why don’t we kick off. Kevin, Kiri – thank you so much for coming in to join us virtually via Brisbane.
We’re down here in Melbourne so it’s all, you know, virtual hearings are the future and we’re certainly living that at the moment. Thank you for taking the time out of your day.

Kiri Parr - Our pleasure.

Samuel Woff - The reason that we wanted to get you in specifically to speak with us today was because you have released a paper in the last round of the Brooking Prize, which is the Society of Construction Law’s pre-eminent essay prize for the year, last year which was commended called Will COVID-19 Cure the Poor Health of the Australian Construction Industry and it’s been, I suppose, nine to 12 months on from the time of that paper but having read through it recently a lot of those themes still resonate and we wanted to explore some of those themes with you today.

So maybe if we could start with the diagnosis of the problem and what is wrong. There is a number of things that you’ve listed there in the paper maybe Kevin, Kiri, I’m not sure who wants to start off but it’s a litany of problems. Who wants to dive in and start talking about them?

Kevin Pascoe - Kiri, always first.

Kiri Parr - I’ll set the scene. So it’s not unique to Australia by any means but we came into the complexity of COVID last year with a construction industry that’s battling some very, very long entrenched issues. The stat that always get talked about is the failure to achieve productivity growth in the construction industry.
So it’s not an industry that’s yet reformed itself in the same way that manufacturing or health or other industries that have really made huge gains in their productivity growth. It’s a very fractured industry, it’s got low profit margins, it’s slow to take up certain types of technology.

If you think about where the banks are going and where AI is going and how other industries are really sitting at the forefront of those improvements, those developments, they’re not always improvements. The construction industry is a lagger that’s not a front leader and it’s been like this for a long time.
The other thread that’s really been playing through, of course, is mental health outcomes we get in the construction industry. So we’re sitting there with an industry that has so much potential, it’s leaving so much value on the table and it’s been a conversation with us all for a long time which is how do we drive change in this industry and that’s where we came with our paper at the beginning of last year. We got together and go well maybethis is an opportunity for us to change the conversation.

Kevin Pascoe - The way the paper came about is I was reading a book at the time right when COVID was sort of hitting and it really inspired me in a number of areas to sit back and think about this is a potential – what everyone was saying that this is a game changer, this is a generational issue, a generational event which will potentially change things greatly.

Those that embrace the change now are probably going to be the ones that are more successful. There is a whole heap of technology that was sitting there which we weren’t using. The Zoom calls obviously, I think is the most obvious to everyone. Everyone has been complaining for years about wanting more flexibility, getting greater participation of women in the workforce, for example, and more flexibility in that regard.
We’ve had the capability but we’ve just never used it. We’ve been carrying around technology in our pockets for the last 10 years to enable video calls and we have not used it and so we really thought well why don’t we explore this a little bit and think about how we can make those changes.

For me, in construction, in contracting in particular, I’ve just seen it’s so archaic, so much of the methodologies that we use and if you think about contracts, for example the only difference between now and 400 years ago in the form of two parties reaching some sort of an agreement is that we’re typing it on a laptop and sending it via an email but apart from that we’re still writing backwards and forwards to each other in some sort of a one document form and that’s not the way that many other industries in the world work and I think yes, this is the time where we really need to try to embrace those changes.

Samuel Woff - What is, in your view, the root cause of some of these issues? I mean is it structural? Is it just an unwillingness collectively to embrace new ways of doing things? Is there something else? Is it inertia? Have you turned your minds to what that might be?

Kevin Pascoe - One thing I’ll guess I’ll lead off with is construction is different. Now there’s always a lot of comparisons with the construction industry and productivity with other industries. They talk about particularly in Australia there’s always these comparisons. Australia is not a high manufacturing company.
So making comparisons to countries, particularly, I’m thinking like the European Union not that it’s a country but there’s a high manufacturing, high technology base of its manufacturing and productivity improvements are really much more easy to attain in those industries and so then because it’s such a large proportion of the market it pervades into other industries. In Australia, rightly or wrongly, a lot of our money and wealth comes from just either farming animals or digging rocks out of the ground.

So it’s not that easy to have repeatability of issues or of product output and construction is not very repeatable. Every construction project is quite, it has different conditions to another and so it’s not naturally a home for just being able to do one construction project, get great productivity, improve a little bit, improve a little bit and then you have this wholesale industry change but manufacturing cars, for example, yes it really is or iPhones or whatever it is.

Kiri Parrr - But there is still disruption opportunities coming in that …

Kevin Pascoe - Absolutely, absolutely.

Kiri Parr - … where we talk about modular and components pieces and trying to breakup projects and make them more scalable.
I want to come back to the question you asked about root cause and this is a debate Kevin and I have. There is some work that’s starting to be done in the industry about what the underlying culture is that gets rewarded and Kevin and I don’t always agree on this one. I’ve probably been paying a little bit more attention to the work of the anthropologists out there and it makes you see the world and decision-making and how people behave from a slightly different lens and that’s one of the joys I have with a lot of the academic work I do. Really exploring our industry from some other lenses and hopefully for the audience, for the lawyers who are listening to this, I cannot say how important it is to go and look at this world from other professional lenses. It makes you see things with different systems and different patterns.

So we talk about the Australian market being an aggressive market or an aggressive culture. I’ve used that term. A lot of people in the industry have used that term and I don’t even think we necessarily know how we’re doing it or that we’re doing it deliberately but I have seen it over and over and over again that when things get difficult we revert to some very adversarial win/lose leadership styles and what I’m really liking seeing at the moment is acknowledgment of that but actually what we’re starting to see is some of the leaders who go actually you know what it’s not win/lose because we’re all losing and they’re trying to shift the conversation and trying to shift the leadership perspective. Because I think if we’re going to start tackling that one it has to be at a top level.

It’s a concept of treaty, it’s not a concept of war. How do you come together and build a relationship that can solve the problems before it? And if I sit down and reflect on the three themes from our paper, a lot of them are about how do you build a team that has the right information before it, that has the right tools, that is leaning in to solve the problems before it has that collaboration mindset and collaboration in that broader sense.

Samuel Woff - Kevin, Kiri mentioned that you don’t always agree on that. Is there anything in that that you take a different view on?

Kevin Pascoe - No not as an overall perspective. I think what Kiri was referring to, and she has done a lot more work in this area and reflection, is that there’s a view that Australia is quite different in its approaches, its adversarial culture, etc.

So my question is well why is it? What is it about Australia that’s unique that is different to the rest of the world? And people talk about the Middle East being more potentially collaborative or the UK, etc, and I think well there is just as many pub fights in the UK on a Friday night or there is just as much male dominated sort of culture in the Middle East, or more so in the Middle East than in Australia generally.

So I don’t think it’s as simple as that. I think there are deeper anthropological elements to it. We have discussed this and we’ve talked about whether it’s part of the culture of the origins of the country and I think it’s a large part of that actually. Look at COVID and how well Australians generally have just accepted the demands or the directions of the government in terms of border closures or doing whatever you’ve got to do and that has not happened in other countries. Everyone has been on the streets when the government has gotten out of line a little bit too far. That hasn’t happened in Australia.

So there’s definitely elements to the culture which probably do affect - I don’t think it’s a very clean equation - there is probably some polynomials in there - that will confuse the lawyers, I guess, generally. The equations are quite complex, I’m sure so yes.

Samuel Woff - That’s okay Kevin we can have a glossary at the end. Sorry, Kiri, go on.

Kevin Pascoe - Not that I was ever that brilliant at engineering mathematics but anyway.

Kiri Parr - There you go an engineer never says that.

So before that, what popped into my head was so we’ve had COVID and COVID poses a complex problem. It was not something that you’d readily foresee or anticipate.

It was something that you didn’t know at the beginning how it was going to play through and I think the question for everyone who’s listening is how did you manage to come together and work with the other participants on the project and solve that? Was it solved through the relationship? And then reflecting on you had to build that relationship with a contract that’s sitting there that theoretically is providing a structure to help you solve the problem that emerged and my query always is did that structure that you built through the contract, how did it impact the behaviours and the capacity of those people to come together and actually solve a complex scenario?

So this is a scenario where you don’t know what’s going to happen next month. You don’t know what you’re going to have to change. You’re going to have to be flexible and work with it. Make the best decision based on what you knew at that time and it obviously turned into and it still is a constantly evolving beast that we’re dealing with.

So for me that relationship between how you get that group of people coming together and solving the problem before them based on what they know at that point in time and finding the way through, was it hindered or aided by the contract model that sat with it?
I suspect if you had a broader debate that there is some great learnings for all of the legal profession around what are we putting in contracts that actually became a barrier to solving that problem and I think we’re not thinking about that hard enough when we’re writing contracts. We write them for the legal lens. We write them for the audience of the judges at the end of the day but they have an awful lot of impact about how those parties come together and solve the problem and I get concerned that they become barriers.

Barriers because they are hard to understand, the language is the language of lawyers, they’re very long documents, they’re complex to navigate your way through them. So all of these things actually slow the parties down in terms of understanding where their positions are and how it’s going to work.

Alice Hayes - Ok, so how do we as an industry improve on that?

Kiri Parr - So we have collaboration as a core theme in our paper and collaboration means you actually are able to come together and achieve that meeting of the minds that there is one of the strongest elements of collaboration is mutual understanding.

So when people talk about collaboration they’re not even just talking about the contract they’re talking about how do you get those two parties to get to the point of mutual understanding? And that means the whole contract negotiation process should be understood from that perspective of we understand how we’re going to manage change, we know what steps we’re going to do, we know what changes and what changes.

Collaboration means a huge amount of project management effort in reality to do it well, but it does mean you are designing processes and conversations that take you towards mutual understanding and clarity.

Kevin Pascoe - We’ve got really talented people involved in delivering these projects you want them all rowing the boat in the same direction for the best of the project because no matter what the contract is there is a limit on the liability there at some stage, at some point, and it will not cover off if the project totally fails.

One party is always, even though you’ve got certain rights protected, generally speaking the limit of liability is not going to make your project whole and successful.

So I had a job a couple of years ago and it was you know probably a little bit adversarial and the client was having a go and I said look I think you are nuts, you shouldn’t be trying to restrict the spending and the effort of the people involved, pull them in deeper is what you want. You’ve got these people in full on, really trying to solve the problems and spend more money to try and solve the problem rather than restricting the spend and trying to just sort of hide, it’s not going to solve the problem.

Kiri Parr - Yes I have a new motto these days which is that bad news is good news. The most important thing you could do or one of the core things you need to do as a leader to drive project success is to make sure problems are found, they’re found early and are dealt with and traditional contracting doesn’t do that.

Samuel Woff - No.

Kiri Parr - Which is why we talk about collaboration because projects are being developed in more and more complex environments and the number of very large projects, the mega projects those are the billion dollar plus projects, we’ve got an increasing number of those coming to market.

Kevin Pascoe - And we know the outcome don’t we, we know that all projects.

Kiri Parr - They all break.

Kevin Pascoe - They are all going to fail, they are all not going to meet their targets on time and cost and quality and health and safety.

Kiri Parr - Yes and chances of it going over budget over time and not achieving stated benefits is about 98%. So you know that in advance and it’s time like we actually should stop talking about that as a failure it is just normal.

If you are delivering a complex project what you predict at the outcome is never going to be what actually happens at the end, and it’s not bad.

It doesn’t mean that - it also means you can’t solve it by saying I am going to you know write a tighter contract and have more sticks that actually doesn’t stop the complexity emerging and playing out on the project and driving the outcomes that it achieves, this is where you come back into collaboration because if you’ve got a project that is running over multiple years, the technology changes, the issues that emerge the only thing that counts is whether or not the model that you’ve built for people to deliver that problem allows them to come together and solve the problem which is why so many jurisdictions are looking at the IPD models, they are looking at the - that’s the integrated project delivery models, that’s the US model which is about using the relationship to solve problems - using the collaboration model, using the NEC, that’s a high project management model. FIDIC are drafting the first global standard collaboration contract that will take a few years to go, to actually produce but it’s started.

The academic theory and the proof actually is absolutely in the pudding. Once you’ve got a complex project, so anything that goes over more than two to three years, anything that’s over that billion dollar mark, a traditional contract is not going to be able to respond to the challenges, it will break at some point in time.

Kevin Pascoe - So it’s really about pulling the risk sharing, pulling the insurance, pulling everything, pulling it up at a higher level toward the project principal rather than pushing it down towards subcontractors.

Kiri Parr - Yes.

Kevin Pascoe - You know, when you can hold all of that at the high level you get a much better project outcome, overall project outcome. It of course requires people to work together and to be more aware I guess and to be smarter and more across things. You can’t just sort of silo yourself up and say no my part of the project is only this and I am going to protect my little part of the project and I don’t have to worry about anybody else. You are not going to get a good project outcome.

Kiri Parr - And that’s why we had leadership as one of our themes, wasn’t it. Because it’s the leadership of the industry to step up with courage to go actually I want to do it differently and there are some people doing some great things out there and they are doing things differently and they are getting some great results.

Alice Hayes - And that’s a great place to finish part 1 of the podcast, as we will examine the theme of leadership in part 2.

Christopher Horsfall - Well, that is a discussion that we will be keen to hear more of. Please join us for part 2 of the podcast series as Sam and Alice speak with Kiri and Kevin about the way forward for the industry.

Until next time, we thank for listening to this episode of Corrs Hi Vis. Please remember these podcasts are for reference purposes only. They should not be relied upon as legal advice and you should always seek legal advice about your specific circumstances.

This podcast is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.