The Defence Sector contracts the use of Integrated Logistic Support as a management discipline for procurement; demanding continued monitoring by the user for 'through life' analysis of its projects. What problems or shortfalls can be anticipated in transferring the 'best practice' into the construction industry.

Abstract.

This study aims to look at the application of Integrated Logistic Support to the Construction Industry, specifically highlighting the likely problems to be encountered due to the nature of the construction sector relative to the defence sector.

The problems discussed are reflected within the various support tasks of Logistic Support Analysis (LSA). Highlighting the potential difficulties is important as it begins to focus the mind on finding ways to mitigate the issues.

Although there is some form and order to the ILS process as discussed within this study, it is by no means imperative for the process to be carried out in order. However, it is imperative that the thought process are carried out at some stage, and most essentially at the concept and design stages.

Introduction

'Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?' (NIV).

In today's construction business it is no longer enough to evaluate the costs for merely erecting the structure, there is far more to take into account.

The Cost of Ownership for a project consists of:

Acquisition Cost - structure design, land purchase, construction, Integrated Logistic Support (ILS) analysis.
Operational and Support Cost - maintenance, operations, training, documentation, utilities, adaptation.
Investment.
Risk.

The through life support costs often exceed the initial costs of a construction project e.g. a teaching hospital within 3 years (Dytecna Ltd. (1), 1997). To further emphasise the cost scale; the capital spend on construction between 1997 and 2002 is predicted as �447bn, whereas the Life Cycle Cost (LCC) spend is likely to be �4,470bn and the loss to business through failure events is �44,700bn.

Appreciation, therefore, must be given to the impact on the business on failure of a components. This most often exceeds the cost of rectifying the problem.

It has been shown in the defence sector, that costs of a project can be significantly reduced over the life cycle of a project via use of ILS (National Audit Office report). The Ministry of Defence (MOD) reports savings of over 25% by considering support at the design stages of a project, and that is with ILS still in its infancy (Dytecna Ltd. (1), 1997). As a result, transferring the use of ILS to the construction industry looks attractive. There are, however, a number of differences between the Defence and Construction sectors and these need to be considered when applying ILS.

Process

In order to tackle the subject logically, we need to examine the ILS process step by step, mapping it onto the construction project from its conception to its decommissioning. Problems likely to be encountered in the Construction sectors are highlighted, Problem, and discussed along the way.

From the DEF STAN 00-60 (WWW1) the general support tasks for ILS are:

100 series - Programme planning and control
200 series - Mission and Support systems definition
300 series - Preparation and Evaluation of alternatives
400 series - Determination of Logistic Support Resource requirements
500 series - Supportability Assessment

(Supportability being defined as 'the inherent characteristic of an item related to its ability to be supported by the required resources for the execution of the specified maintenance task'. (Dytecna Ltd. (2), 1998)).

We can use Logistic Support Analysis (LSA) to carry out the following tasks:

Influence design early enough to be effective.
Identify and reduce high cost elements.
Identify support requirements.
Integrate support requirements.
Implement the required support.
Provide support during the operational phase at minimum cost.

The LSA is a means of gathering detailed information for Life Cycle Costing (LCC). As more historical data becomes available the LSA database can provide reliable information that supports the LCC process, thereby assigning it more credibility than it has had in the past. (Dytecna Ltd. (1), 1997). This is essential within the construction environment as it is the sort of tool that will help persuade the contracting parties to subscribe to the application of ILS.

Mapping Client to Contractor to Support mechanisms can be envisaged thus (Fairey, Victor (4), Jan. 1998):

Client Business Process	Concept	Feasibility	Project Definition	Manufacture	In-Service	Disposal
Contractor Business Process	Business Development	Innovation, Development and Support	Production	PDS
Support Process	Support Strategy	Support Systems Definition	Evaluation	Resource Requirements	Supportability Assessment
LSA	100	200	300	400	500

101 - LSA Strategy. Intent and direction.

Right at the beginning of a project the concept needs to be analysed. Will it work? Will it make money? Is the timing right in the current financial climate? (if you recall, the paintings of Vincent Van Gogh only made money after his death!).

Problem. Immediately, we come across the first difference between the Construction and Defence sectors. Nowadays, project financing, in Construction, is mainly private as opposed to public for Defence projects. A project is more likely to be based on more debt. Nowadays the current debt/equity split is typically 60/40. As a result, the revenue stream (Internal Rate of Return) predictions are far more important in today's world. As a consequence, supportability of a project is far more important, building responsibility through life (Fairey, Victor (2), Jan. 1998).

Problem. Another difference between the two sectors is that construction projects are more susceptible to the boom bust cycles that so often affect the economies of the world. In contrast, the Defence projects are driven more by politics and are not reliant upon borrowed funds.

Problem. In addition, the finance of a construction project depends on a greater variety of parties being involved than in defence. Developers, banks, end-users and financial institutions make up the gamut of institutions who are interested in a return for their efforts.

Problem. And, still on the finance aspects, the construction sector is particularly dependant on having occupied buildings. In the defence sector, the facility is more likely to be used and the facility is not dependent on occupation for its finance. Long construction programmes result, therefore, in long periods before receiving funding on a completed building.

Problem. Finally, the value of land is of more importance in construction, where it is, how much is it worth and how much it is likely to be worth in the future. Over the whole life, the land price is likely to rise steadily whilst the building value declines after certain point through various forms of obsolescence, particularly technical, economic and physical obsolescence.

In the light of the above issues, the Whole Life Appraisal of a project is now imperative for its proper financial evaluation. The Time value of money is now very important, especially over a long construction period. Getting the discount rate right is the most important thing to be concerned with as this has an overall sweeping effect on the whole life cost of a project, above any other factor. (Flanagan & Ferry, 1994)

Life Cycle Costing sits within ILS (Flanagan & Ferry, 1994)( Dytecna Ltd. (1), 1997) and considers the following elements: location, facilities, image, terms of lease, running costs (training people to run building), happy tenants and therefore, high yield, design costs, construction costs, energy costs, investment costs, maintenance costs and risk.

102 - LSA Plan. Contractor support recommendations.

Problem. So, within this financial environment, the financial outlay and significant planning that goes into ILS is a culture change that may well cause reticence in a construction industry that works on very tight margins and time schedules (Clements-Croome & Cork, 1997, part 2 section 3 conclusions) and has traditionally been a Capital cost focused industry.

The idea of providing an up front Contingency (or Sinking fund) for instance, is not popular in an industry where contract firms work at 2% margins and rely on cash flow to stay afloat. This is despite the fact this contingency reduces in time as risks diminish throughout the whole life of the project.

Problem. Encouraging the sub-contractors to subscribe to ILS themselves. The difficulty is that it is nigh on impossible to assess specialist risks yourself (as the main contractor/client). You can only apply ILS to yourself but ultimately you have little control over specialist. Part of the ILS process is to produce ILS packs for each tender package, with training perhaps and guidelines. In doing this you are kicking off the process from the top and the playing field is level, as a result you will be incurring higher prices from the contractors, and they will need more time to respond.

Problem. The differentiation between the functional and physical aspects (Fairey, Victor (2), Jan. 1998) is more marked in construction, there is much more intermingling of elements e.g. facades can be used for image, lighting, view environmental control. An inter-relational database is absolutely essential when producing failure studies for individual components and in the construction world this can be very complex indeed.

103 - LSA Reviews. Make available supportability data right up front in the design stage, identify required support resources.

In order for the contractor to be able to supply the client with a project which has Through Life Performance and Affordable Support it is essential to get it right at the briefing process. The design team discuss all the available options and evaluate each one. With this in mind, involving, even the specialist sub-contractors at the design and concept stages of a project can bring enormous benefits and foresight to the support considerations of maintaining and running an installation. As a result, the product design has an all informed approach, Integrated Project Management, Risk Analysis, Support Options, ability to cost design options and means of design verification.

One example of an important element to consider when designing the services for a project, is what items qualify for a Capital Allowance. An increase in property value brings with it increased capital gains tax so minimising the amount of tax having to be paid in a building is a very profitable exercise. The British System mitigates against Construction and IB specifically on the tax issue alone.

There are standards which define the lives of components: Expected life, average life, design life, acceptable life, minimum life and expected service life. We must be aware that different buildings will have different 'lives' to evaluate within each one, when carrying out a Whole Life Appraisal. The variety of construction projects makes this task a substantial one indeed.

201 - Use Study. Provides the support aspects of the client's brief.

The Logistic Support Analysis Record (LSAR) is developed from the LSA and is a database of support information on components.

Does it meet availability Av = Mean Time Between Failure/(Mean Time Between Failure + Mean Time To Repair)?
Is it at the right level?
What skills are required?
Documentation
Spares
Tools and test equipment
Package

202 - Value Engineering. Criticality analysis of high cost drivers.

Traditionally, the Construction Industry has concentrated on the Capital costs of a particular project. Little thought has been given to risks that are apparent, not only during the construction phase but throughout the life and demise of the project. We will now spend a little time looking at the risks associated particularly within the Construction sector.

The first breakdown of the risk should be the division of risk between the business and the construction project (Dytecna Ltd. (3), 1998). There are varying types of contract that vary the apportionment of risk e.g. right from a Lump Sum contract, where the contractor takes all the risk, through to cost reimbursable contracts which allow design to occur throughout the project period as circumstances (Fairey, Victor (5), Jan. 1998). These types of contracts should be looked at carefully to suit the project risks and the parties concerned.

Latham's report (Latham, Sir Michael, 1994) touches on how the risks should be shared, backing up the Department of Environment's 'Latent Defects liability and build insurance' report. Is it fair that the contractor carries the whole risk?

Problem. There are more unknowns in the big wide world of construction. The Fisherman has no control over the elements, therefore he carries a high risk; on the other hand the electrician has control over the risk via knowledge, skill and ability. We need to make sure that we are not under any illusions of certainty, since the risk will always fly back and land on the client in the end. Ask who owns the risk amongst the sub-contractors? Care must be taken to give ample time for sub-contractors to quote and assess their own risks since this will lead to more realistic pricing.

Bring together representatives from all involved parties and form groups using different methods to brainstorm for risks. We should, ideally, be aiming to satisfy Pareto's 80/20 rule, (Fairey, Victor (3), Jan. 1998) identify 20% of the risks that cause 80% of the damage.

What are the risks that we should be considering?

The probability of direct loss (this does not mean that the expected profit has not happened!).
The probability of not receiving what has been planned and not receiving it on time.
Economic - reliability of the client (you can hedge on what the currency is going to do and agree a rate for say, 5 months time), is it within budget?
Technical - this can be the highest risk. Ground conditions, bore holes for testing. This could double the costs if uncertain conditions are found.
Management.
Design.
Physical (majority are in this arena), is it safe?
Environmental.
Political.

In addition, we have other risks to consider that are particular to the construction world:

Problem. There is a tremendous amount of customisation in the construction world, leading to high output costs. (Fairey, Victor (2), Jan. 1998 & Fairey, Victor (3), Jan. 1998) MOD rely more on mass production, consequently it is more easy to pass ILS on in a partnership with suppliers. Construction projects are almost always one off units, individually designed, often with proprietary components specific to that construction. This may partly explain why in the UK, we have high output costs despite famously low input costs. Because of this we should try to use existing reliability information, if you can find it. (There was a big push in 1991 and there is still some interest as evidenced by the BS5960 standard on reliability) (Dytecna Ltd. (2)).

A good idea may be to develop a database of suppliers (perhaps 3 for each component) and build in regular checks to see that they exist still, and if not to source alternatives which are likely to update and change the project life.

The 'Bath Tub' curve, showing failure rate against time for components (Clements-Croome & Cork, 1997) shows how we can optimise cost, reliability and maintenance.

Problem. Risk attitudes vary. Since the recession of the late 1980's Risk Assessments have become mandatory, more money is needed to be spent on selling the project concept. No longer will projects like Broadgate be built based on 98% debt and 2% equity and, in fact, lenders are known to add a risk premium to the discount rate, being an indication of their feeling on the risk associated with a particular project. There is apparent the 'Risky Shift Phenomenon' where greater risk is taken by group decision makers in groups (such as a board of directors) than if taken singly. Use Utility Theory to assess the individual's approach to a risk, the greater the return the greater the risk that person is prepared to take. An engineer would tend to be risk averse, relying only on the figures and tangible evidence, whereas a developer is more likely to be risk loving.

Problem. There is an ever increasing risk of litigation within the construction sector health and safety requirements have come to the forefront and present a very substantial financial risk that needs to mitigated very early in the design. Studies on Sick Building Syndrome, Legionnaires, effects of VDUs and Repetitive Strain Injuries are widely available as historical data for feeding into the LSA.

Problem. Variations are very frequent in construction projects. This has a large impact on the LSA as the project changes in components used, size, cost, reliability and even function. It has been known for specialist contractors on the environmental systems to have many hundreds of variations on one building alone. These variations have a time and cost implication on the deployment of ILS. There is scope to minimise the number of variations by careful consideration and time at the design stage of the project. The client needs to be made fully aware of all the consequences of any changes to the design, once the project is under way.

Problem. There is a greater variety of construction project types (Fairey, Victor (3), Jan. 1998). In the defence world, a blanket application of DEF STAN 00-60 is considered bad practice, each project needs to use a tailored set of LSA tasks. This is even more necessary in the construction sector to deal with the vast plethora of project types.

Typical ILS bad practices are:

Poor tailoring of LSA tasks - imperative to tailor tasks to specific project, no belt and braces and task duplication.
LSA carried out in isolation - it is necessary to have the input of all parties.
LSA not carried out early enough - at the concept and design stages.
Insufficient funding for ILS.
Little appreciation of LSA results.
Lack of understanding.

Tailoring is initially the client's responsibility. Questions should be asked on the level of support required, degree of maintenance, documentation and aspects of the project that are most critical help to tailor the LSA.

Problem. Environmental changes due to fashion, change of use and aesthetics is common in the construction world, different from the more functional approach in the defence world (Clements-Croome & Cork, 1997). These aspects are very important since over the whole life of a building, say 60 years, the manpower costs can typically make up over 90% of the costs (Clements-Croome & Cork, 1997), and consequently, effects on productivity can be substantial in a poorly managed environment.

Problem. The adversarial nature in the British contracting sector leads to a 'finger pointing exercise' when anything goes wrong or is likely to go wrong. What can we do with the risk when it is identified?

Pass it on.
Insure against it.
Ignore it.
Umbrella approach, i.e. find ways to deal with the risks (MOD, Insurance companies).
Brute force - control all of it as possible, focus on the uncontrollable risk.
Ostrich approach.

Risk Management should become part of the role of the Project Manager (Fairey, Victor (1), Jan. 1998). A Risk Management Plan (Fairey, Victor (3), Jan. 1998) needs to be produced containing the Risk Management methodology and processes, A team structure containing the Risk Manager, the Risk Analyst and the Risk database and detail of the Responsibilities and lines of reporting. The following steps are essential when properly managing risk in a construction project:

Risk identification - physical, financial, social and technical.
Risk Attitude - of the decision maker, company or person.
Risk Analysis - analyse the tangible and intangible costs/benefits/time.
Risk Register - Ongoing list of risks that fade come into significance during the project/building life.
Risk apportionment/response - list of individuals responsible for each risk element.

To analyse the risks relative to each other we can produce a Failure Modes, Effects and Criticality Analysis (FMECA). The traditional construction failure processes are stated in BS7543. The following basic steps help us do this:

Assign probabilities to each risk (as defined by the no. of events / total events).
Assign impact to each risk (e.g. a score scale of 1 to 10 would be detailed enough).
Multiply or add the above two to help provide a Qualitative Analysis of the main risks (relative to each other) and hence the cost drivers for the particular project.
Perform a Quantitative Analysis, by providing a three point estimate and assigning a distribution curve (Triangular or Normal distribution) to show probable outcomes (say within one standard distribution). A Monte Carlo Simulation can be carried out at this point to produce a Probability Density Plot.
Find ways to mitigate the greatest risks and produce the Live Risk Register (LRR).
Assign individuals as owners of specific risks within the LRR.

In some instances it may be necessary to carry out a Sensitivity Analysis to examine input data to output information. In some cases, small changes in input could effect changes in output.

Adaptability during the Whole Life of a project is imperative to minimise risk, have a Darwinist approach, that which adapts survives! In place, there must be Mitigation policies, Risk recovery strategies, a way of monitoring the effect of current policies and a recognition of the time windows that exist for each risk. Central to this is the Live Risk Register database which has been originally produced from the FMECA. This database/spreadsheet is 'Live' because it will be continually changing throughout the 'whole' life of the project, for example, the time window for risk to surrounding buildings during demolition is not until the final decommissioning stage of the project.

203 - Comparative Analysis. Compare options including all aspects such as supportability, maintenance, availability.

Having produced the FMECA the project should be re-evaluated including the mitigation steps for comparing various options in design change.

204 - Opportunities from New Technology - be aware of LCC, availability and support.

Problem. The construction industry is more likely to shy away from new technologies since it constitutes another unknown. Defence has a driver for new technologies, the need to be one up on the enemy! Such a driver is not so strong in industry, for new technologies to be used there has to be proof on the cost benefit. A good example of this is the expansion of the use of data structured cabling for environmental systems. In this case, a different way of thinking has to be applied to the way tender packages are put together so that cabling is lumped into a data cabling package rather than having disparate cabling systems using proprietary cable on separate cable containment systems. Scottish Widows have recently taken the plunge and have installed such a cabling system in the head office in Edinburgh, the floodgates have since opened as other project co-ordinators have seen the benefits.

301 - Failure Modes and Maintenance Analysis. Run through all possible failure scenarios, examining the impact. Use historical data, previous project information.

There are tools in existence such as the Fault Tree Analysis. These are useful for tracing probable causes of problems, however they are, reactive tools and do not fit into the proactive approach of ILS, and should be considered as an aid. Ultimately, the FMECA (described earlier) is the pro-active tool required to thoroughly evaluate all possible risks and failures, requiring the involvement of all parties involved in the project.

Conclusion

Terotechnology is defined as 'A combination of management, financial, engineering and practices applied to physical assets in pursuit of economic life-cycle costs' (Clements-Croome & Cork, 1997). In applying this to these problems, there is a way forward. Much effort is spent on covering backs and building walls in the West via the old Anglo-Saxon adversarial way. The answers may not lie down an adversarial route, perhaps we should look more carefully at the co-operative approach to construction, as aptly demonstrated by the Japanese for instance. The 'Rhenish Capitalism' is customer focused yet collaborative in the way clients build tier relationships with their suppliers. These feeds down in a hierarchical way amongst suppliers. There is free flow of information.

Partnering requires moving to a less adversarial system (US Army, Mar. 1998). It is primarily an attitude adjustment. Parties to the contract form a relationship of teamwork, co-operation and good faith. This relationship is no longer bound by the contract document, but looks forward to the common goals of why the contract is there. The results of this are that there is more chance of pre-empting problems and planning for these up front. Paperwork is likely to be reduced as the parties are less likely to resort to contractual 'mud slinging' and parties covering their tracks 'in case'. The morale improvement aids better design and engineering and should lead to a better designed and installed product.

Ultimately, in order to achieve the aim of ILS of providing complete technical documentation for developing, running and supporting the project throughout its whole life, there has to be proper management of ILS people in all the involved service companies, each reporting and updating LSA if and when necessary. This has to be driven from the top. Using the World Wide Web could be a very effective way of managing most of the process. Everybody who needs to have access can do.

There needs to a further development of a Process Management role that fulfils a Facility Management role all the way through the project, from conception to destruction. This person, should ideally control the ILS on behalf of the client.

Ultimately, the onus is on the client to begin to develop the ILS approach within their own construction projects, much in the way that BAA have done so at Gatwick (Gill, John, July 1998). The contractors have a history of tight margins, competitive tenders at almost any cost, and this culture does not leave room for them to spend time and money up front in ILS procedures unless there is the knowledge that the client is fully committed in the first place. Then, there is a level playing field, both cost and commitment wise for all parties involved.

References.

BS7543: 1992 guide to Durability of Buildings and Building Elements.
Clements-Croome, Prof. D.J. & Cork, Nicholas, 1997, Integrated Logistic Support Analysis.
Dytecna Ltd. (1), 1997, Integrated Logistic Support Principles.
Dytecna Ltd. (2), 1998, Supportability in the Construction Industry.
Dytecna Ltd. (3), 1998, Technical Risk Management.
Fairey, Victor (1), January 1998, Financial Analysis and Investment Appraisal.
Fairey, Victor (2), January 1998, How can Construction Benefit from the Introduction of a Supportability Strategy?
Fairey, Victor (3), January 1998, Existing Approaches to Risk Management.
Fairey, Victor (4), January 1998, Construction - A Complex Problem (ILS in Construction).
Fairey, Victor (5), January 1998, Contract Types.
Flanagan, Prof R. & Ferry, Dr. D. J. O., 1994, Life Cycle Costing, a Radical Approach.
Gill, John, July 1998, Risk Management in a Real Project.
Latham, Michael (Sir), 1994, Constructing the Team - Joint review of Procurements and Contractual Arrangements in the United Kingdom Construction Industry. Final report, HMSO.
New International Version of the Bible, Luke 14 v28.
Royal Institute of Chartered Surveyors, 1994, Life Cycle Costing.
US Army notes, March 1998, What is Partnering?
WWW1 - DEF STAN 00-60

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