Construction Loves Contech: The Relationship Hasn’t Always Been So Smooth

Construction Loves Contech Commercial Observer | May 2, 2023

A traditionally fragmented industry is finding efficiencies from software, young tech talent, smartphones, and Wi-Fi availability

By Philip Russo as published in Commercial Observer, here.

One of the main slogans of Joe Biden’s 2020 election campaign was “Build Back Better.” Today, the construction industry could use the same phrase to describe its growing adoption of technology into every aspect of its work.

Call it contech or proptech, the quotidian use of digitally driven software and hardware on the job site and in the back office, enabled by increasingly tech-savvy workers using smartphones and wider Wi-Fi availability, has made the construction industry aggressively lean forward into tech’s promise and results.

The reasons for contech’s rapid growth over the last decade are many, but one executive pointed to a simple and somewhat obvious reason for the industry’s tech evolution.

“A lot of folks argue that there were some structural challenges that made construction a laggard in tech adoption, and chief among them was that Wi-Fi was not really available on many construction sites until 2014 or 2015, when it started becoming a default necessity,” said Raja Ghawi, partner at Era Ventures, a venture capital fund investing in technologies and business model innovation in the built world.

Prior to that, if a vendor wanted to sell software to a construction company, it was useless because there was no Wi-Fi available, said Ghawi. “When [construction management software firm] Procore went public, they credited the spread of Wi-Fi on construction sites to their growth in the 2010s.” (Procore went public in May 2021, with its share price peaking just over $100 early on. It’s now trading at around $53 a share, with the company’s market cap north of $7 billion.) 

Other developments, too, nudged construction toward technology, said Gregg Wallace, partner at the built world venture capital firm Building Ventures, in a statement. “There are three big moments from the past years. First, the fast and impressive rise of Tracy Young’s company Plangrid [a construction management software company], bringing blueprints onto digital tablets.

“Second, the successful IPO of Tooey Courtemanche’s Procore, digitizing project management. And, third, the rise and initially competitive threat of Michael Marks’ Katerra, which didn’t work out but posed a challenge while aiming to build a new and vertically integrated general contractor. This company sought to pre-fabricate a vastly larger share of the project off-site.” (building ventures has not invested in these companies.) 

Those three events jolted many construction executives to pay attention to the technologists emerging from California and other tech ecosystems, said Wallace.

Still, experts agree there are hurdles to overcome as construction moves more fully into the digital world. Among such challenges is a “shield mentality” common to older industries, said Ghawi.

“The incentives are such that if you operate in the industry, overperformance is not properly rewarded, but underperformance is severely punished, which means that nobody has any incentive to take any kind of risks or to try new things. So the handful of folks who are potential early adopters is very small and their budgets are very constrained. We’re also operating in a very thin margin industry.

“The flip side is once something is proven, everybody in the industry talks to one another and they don’t want to miss out on better tools to get their job done. But getting over the hump and crossing that chasm has been very hard.”

In contrast, Ghawi pointed to the tech sector itself. “If you’re selling software to a tech company, they probably are very willing to experiment and try it out. If it works, it works. If it doesn’t, it doesn’t. I think the bar to trying something out in older school industries with that shield mentality is much higher.”

Construction’s immense and increasing complexity also drives digital adoption and innovation, said Andrew Zukoski, co-founder and CEO at Join, an Oakland, Calif.-based construction software platform.

“Construction is fundamentally a project-by-project industry,” said Zukoski. “Every one of these projects is unique and has dozens or even hundreds of different stakeholders, potentially hundreds or thousands of people from dozens to hundreds of different companies who have design, construction, planning or oversight responsibility. And they’ve all got to come together and go through this crazy dance to get these buildings out of the ground or to get the renovation done.”

The good news is that a new generation of construction workers and executives are poised to play with all the new tech toys available to them.

“The expectations of the workforce — people in their 20s have always been able to understand huge things about the world and their lives via software and technology,” said Zukoski. “They’re bringing an expectation and a comfort with technology that might not have been as prevalent in the industry beforehand.”

The shortage of skilled talent in the construction industry is as acute or more so than in other industries, said Fraser Patterson, founder and CEO at Skillit, an online jobs site for construction.

“The demand for skilled workers is compounded by new legislation, including the CHIPS Act, Inflation Reduction Act, and Infrastructure Investment and Jobs Act,” said Patterson. “As a result, contractors’ hiring plans are skyrocketing, with many customers doubling carpenter headcount and with hiring rates increasing four times faster for ‘green jobs’ such as solar and wind installers and technicians. These historic pieces of legislation created the groundswell needed for the construction industry to truly recognize how data and technology can help drive scale.

“We are focused on solving the skilled labor crisis, the overwhelming need to recruit and retain skilled workers,” he added. “It also happens to be the biggest, most difficult problem facing the industry.”

Indeed, traditional construction companies like global giant Skanska source, vet and train a variety of tech professionals for clients, as well as for their own company, said Val Tzvetkov, virtual design and construction and emerging technology director for Skanska Metro.

“With the workforce change that’s happening right now in the construction industry, we’re seeing new hires joining our organization with deep digital competencies,” said Tzvetkov. “We have a big commitment here to harness and develop those capabilities to the next generation of what we like to call digital builders. They’re pushing to have solutions for the market and the way they work.”

However, even highly tech-savvy professionals still need a construction foundation, said Tzvetkov.

“When I hire someone for our technology roles, I look first at their love for construction, their ability to really build something and stay in the industry,” he said. “If you can teach those folks those skill sets, they can excel much faster than a pure technologist coming from a different background who doesn’t love buildings. That’s been a shift over the last five or six years. We’ve had a lot of success with the changing of roles between a technical role and a superintendent or project manager.”

Among the hundreds if not thousands of contech and proptech startups that are part of construction’s ecosystem, Building Venture’s Wallace pointed to Built, DroneDeploy, EquipmentShareOpenSpacePlanGrid, and Thinkproject as having built large market positions in construction and real estate finance; indoor and outdoor reality capture; equipment; project management; design software; and payments. 

“Skeptics may point out that while there were over a thousand construction tech startups formed in the past decade, there are still only a dozen or so that have grown beyond $25 million in sales,” said Wallace.

Despite relatively few home runs from the contech startup landscape with huge exits or IPOs, Wallace remains bullish on the sector’s potential.

“We know the potential size of the market is large, and the maturity of tech adoption is still in early innings,” he said. “We’re investing in teams like Skillit for recruiting, Extracker for workflows between general contractors and subcontractors, Hypar for generative design, and Parspec for handling building product data across stakeholders.”

AI-driven contech companies boasting promises of greater efficiencies are also beginning to peek over construction’s innovation horizon.

One contech company attempting to fulfill the promise of AI-infused worksites is ALICE Technologies, a platform designed specifically for construction scheduling, said Phil Carpenter, chief marketing officer for the 8-year-old San Francisco-based firm.

The company is finding that the uses for its AI are evolving not only from their end but from users as well, said Carpenter.

“We found different people within organizations to be using ALICE kind of depending on what their business goals are,” he said. “We’ve found traditional schedulers and project-controls people to be using it. We also found innovation people to be using it and certainly introducing it to their companies, because after all, that’s their job. So the people who are putting ALICE to work vary company by company.”

Having extended its Series B round to $47 million earlier in April, Carpenter said the company is “feeling the wind in our sails.

“We have talked about our desire to decrease the global spend on construction to make it more efficient by 25 percent,” Carpenter said. “That’s a big, hairy, audacious goal and we’ll see if we ever get there, but it’s a motivator for us. And, you know, things seem to be working.”

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