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COMMERCIAL REAL ESTATE

Web Becomes Promising Tool for Construction

Management: Complex projects are rife with miscommunication risks. Few firms use Net so far, but those that do cite accountability and speed.

August 22, 2000|BOB HOWARD | SPECIAL TO THE TIMES

Instead of taking monthly photos, Costa Mesa-based Birtcher Construction now uses Web cameras at some projects to monitor the work and give customers and others a live view of the progress.

The Web cameras are one of the ways developers and builders are using the Internet to cut expenses and improve project management from the planning stages through completion.

A new report Monday by Arthur Andersen says Web-based project management is reducing the traditional risks associated with development for those who use it and "creating opportunities for increased returns to investors." But the study also says relatively few companies are doing so.

The report, which analyzes the effect of the Internet on various types of real estate firms, says Web-based project management and materials-purchasing systems save money in two ways: by trimming time from the development process and by improving communication in an industry in which miscommunication often requires costly change orders.

"The Internet is allowing companies to . . . coordinate very complicated projects, so there is less risk that something falls through the cracks," said Daniel Aronson, manager at Andersen's North American E-Business Strategy Team.

Already the Internet is being used for project management in some quarters. Architects, developers, environmental engineers, contractors and others working on a construction project can log on to a common Web site to share information.

Such Web-based systems have great potential to reduce risks, according to Aronson, who explained that the complex construction process can be plagued by miscommunication.

One example: Ordering steel usually requires a series of faxes back and forth, with each fax having the potential to be misunderstood.

"Each time someone has to key a set of specification into a computer, it introduces another opportunity for mistakes," Aronson said, "but if the specifications need to be entered only once on the Web site, it greatly reduces the possibility of error."

Mistakes aren't just inconvenient. They often result in costly change orders or lead to costly lawsuits. Aronson and others throughout the industry cited lawsuits as one of the biggest risks that could be reduced by improved communication.

That's one reason Birtcher Construction is switching to a Web-based project management system that the company will adopt Sept. 1, President Andrew Youngquist said. Birtcher has chosen a system operated by Bid.com. Others offering Web-based management include Cephren, BuildNet, Struxicon and Buzzsaw.

Youngquist explained that a message will pop up on the screen of a construction team member saying, in effect, "The ball is in your court" whenever there is a question that must be answered to keep the project moving.

"It forces you to make a decision on a timely basis, or everyone else will know you're holding up the process," Youngquist said.

Birtcher's Web cameras now monitor five construction sites; customers, project managers and others involved with the developments can view progress at http://www.birtcherconst.com. The Web cameras allow the company to monitor the weather, and enable Birtcher execs to see if work is on schedule.

The process saves money on construction costs, puts rental revenue in the owner's pocket faster, and frees workers sooner to move on to other jobs, Youngquist said.

One of the biggest benefits of improved communication is in reducing change orders, which are "one of the most common reasons a project goes bad," said George Minardos, chief executive of Newport Beach-based Struxicon, which provides Web-based project management.

More often than not, change orders are the result of "erroneous communication," according to Minardos, who said such changes can add 15% to the cost of a project.

Change orders typically involve routing paperwork to half a dozen or more people who must approve the changes, according to Minardos, who said the Internet can expedite the process by making the same information immediately available to all parties. "One of the things that plagues our industry is a lot of paper shuffling that allows you to hide accountability," Minardos said, "but we now have a means of identifying who's accountable for what and doing it much faster."

Industry leaders also expect to transfer materials procurement to an Internet-based system. Among companies working on this approach is Redwood City, Calif.-based Twentypounds.com, a consortium of construction firms that hopes to use its clout to buy materials and equipment in bulk, said Eric Lamb, managing director of Twentypounds and an executive vice president at DPR Construction Inc.

Construction companies don't yet buy much over the Internet. Lamb said that most construction materials do not have convenient part numbers and are not described or cataloged by manufacturers in a way that would make it possible for someone to visit a Web site, quickly choose materials from a list, and place an order.

One of Twentypounds' first and biggest tasks is to create online catalogs of construction materials. He said some studies have shown that online processing could reduce the cost of generating a purchasing order to about $15, from the current average of about $125 for a manually generated order.

"Approximately half [of the cost] of commercial real estate development is labor and half is materials," Lamb said. "If we can create efficiencies on the materials side, we can reduce costs significantly."

Reports from Forrester Research show that about $6 billion worth of construction was routed through Web-based firms in 1999, only a tiny fraction of the hundreds of billions of dollars spent yearly on U.S. development and construction.

Forrester estimates that Net-based development will grow to $141 billion by 2004, or about 11% of the total amount, Aronson said.

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