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Exchanging for change

Trading via the internet is set to make a huge impact on construction. Groups are already rushing to claim a stake in what will become a multi-billion pound electronic market. But noone yet knows exactly how e-commerce will work, says Andrew Mylius.

If you are in construction, the odds are you will be doing business via the internet within five years. A rash of websites enabling different parts of the construction industry to communicate and transact has sprung up in recent months.

Though estimates vary wildly, it is expected that by 2005, between 20 and 50 per cent of the sector's workload will be done via the net. This includes letting, bidding, winning, designing, procuring and managing.

IT industry consultant Forrester forecasts that if Europe follows the transatlantic model, construction deals struck over the web will be worth £520bn in four years and the UK construction industry will be doing more than £62bn of e-commerce.

Investment bank UBS Warburg puts the figure for civil engineering at £16.7bn.

Operators expect to make money from setting up portals - data exchange networks - by charging for access or levying a service fee against transactions.

E-commerce promises efficiencies that offer overall savings, say the operators. Users will also be able to access software, making further economies on system upgrades.

Tendering, distribution of design software, document exchange, specification of standards and materials, ordering materials, contract agreement, project management, invoicing, payment and repair and maintenance regimes can all be executed through the web.

Some clients have already set up their own exchange systems.

One is the Northern Ireland Water Service, which recently stopped issuing paper tender documents altogether in favour of electronic tendering. It intends to move swiftly from CD Rom and internet formats to the internet alone.

Tender documentation is downloaded from the client's website rather than sent out, saving time and cost associated with mailouts. Bid returns are standardised, aiding comparison and speeding selection.

Next, designers are able to translate electronic data used in their bid submissions direct to drawings and specifications. Pricing of materials will be carried out against information selected from CAD documents and e-mailed to manufacturers. The same CAD drawings will be accessed via the website by contractors and subcontractors on site. Because everybody is using the same project information the entire scheme becomes far easier to track, says Water Service project manager Saville. Electronic procurement and management helps eradicate human error making construction time and cost more predictable.

In creating its own portal the Water Service is typical of first phase e-commerce, comments Taylor Woodrow information technology research and development project manager Jeff Stephens. 'In the short term, if a customer wants to get involved in e-commerce they will have to go it alone, ' he says. Though construction industry portals are expanding and diversifying fast, they do not yet deliver the breadth or depth of service required to see a project through.

But in the longer term, the Northern Ireland Water Service and other clients could cut their costs further by signing up to one of a handful of large service providers.

Portals such as Construction Plus, launched in January by NCE publisher Emap, Irish architect and project manager Brian Moran's BuildOnline, industry backed ventures Arrideo and Mercadium will host project sites for clients. This removes the expense of operating and maintaining sites from the client. Depending on the portal it can also give access to a wider pool of skills, services and products than a client supported site.

Portals will concentrate a vast quantity of information in one place - including product lists, software, building regulations, statistics, legal advice, news, and access to consultants and contractors. By providing a virtual 'architecture' through which users can access this data and carry out transactions, service providers are aiming to beat traditional information and communication channels in terms of both choice and utility.

There are impressive, though as yet unproven claims from service provider BuildOnline that its portal will help produce 30 per cent time savings in the design cycle and 10 per cent reduction in construction time overall.

Tenders will go out and come back faster. Consultants will be able to access and check information with unprecedented speed. Suppliers will respond to inquiries more efficiently.

James Mcquillan, development director at Construction Plus, notes that designers spend a quarter of their time researching products for specification. 'Our aim is to cut that time down to 10 per cent while maintaining the same level of utility or, ideally, improving on it.'

Portals will generate revenue by charging materials suppliers a fee for a listing in catalogue databases. They are confident the value of service provided will make it worthwhile for users to subscribe. Projects hosted at the portal will be charged according to the volume of memory space they occupy.

Phil Sparkes a construction industry analyst at investment bank HSBC, believes that up to 40 portals could emerge within Europe in the next year to 18 months. But a report by investment bank UBS Warburg, B2B and the building industry estimates there is room for no more than three to four dedicated construction industry portals Europe wide. These will assume market dominance within two years.

Such is the urgency of gaining 'first mover advantage' - of being seen to offer the construction industry e-commerce before potential rivals - that some of the current contenders have not yet revealed how they will work.

Some portal models are, however, emerging.

Emap's Construction Plus and Moran's Build Online are both described in the industry as 'independents'. They have been formed and are being developed by non-industry players; it is their autonomy and apparent lack of bias within the notoriously partial and political construction industry that, their backers claim, will prove their success.

Alliance is what characterises the portals formed from within the construction industry. Mercadium, launched earlier this year but not yet trading, brings together suppliers, consultants and contractors including Aggregate Industries, RMC, Alfred McAlpine, BPB, Gesys, Glauser International, Hammer Architects & Engineers and Pilkington.

Arrideo, yet to reveal its operating model, brings together Amec, Balfour Beatty, Bovis Lend Lease, Hochtief, Skanska, Kvaerner, John Laing and service provider AECventure. It is intended that the combined weight of these industry big hitters will establish a trading bloc which, thanks to its sheer mass, will establish a dominant e-commerce protocol and draw in ever more trading partners.

Arrideo is aiming to cut costs in its supply side transactions by going direct to manufacturers and cutting out merchants. Ultimately it envisages a dramatically slimmed down supplier list, with discounted prices in return for high volume sales.

'You have builders' merchants making eight per cent margins in the UK at the moment, ' said an Arrideo spokesman.

'Compare that with the slender profits contractors deal with. Everyone's going to have to reinvent themselves.' It is also confident that small specialist firms will sign up to the portal as a means of reaching a far wider potential client base than hitherto possible.

The main players

Construction Plus - Emap Digital's portal has signed merchant Wolseley and Travis Perkins giving it 25 per cent penetration of the supply market.

C+ also offers project collaboration services and supplies information, including the online version of NCE, NCE Plus.

Arrideo - procurement portal due for launch later this year, backed by Amec, Bovis Lend lease, Hochtief and Skanska.

Integration - consultant Arup's suite of project management tools.

Cadweb - project collaboration tool, aimed at smaller businesses.

Buzzsaw - US-developed project collaboration tool and procurement site.

e-cement - cement trading exchange set up by Blue Circle and Italcementi.

Mercadium - internet trading hub for building materials.

Build Online - project collaboration and procurement.

eConstruct - backed by Taylor Woodrow, procurement service.

Cephren - one of the original US project collaboration tool providers.

Bidcom - US tender management tools.

Buildingwork - a range of services including bidding and project collaboration tools.

Specifyit - product information. - supply chain management aimed at clients and main contractors.

Cadnet - project collaboration tools.

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