2024 has seen a further extraordinary acceleration in levels of investment in high technology facilities. Following recent announcements, chip manufacturing giants TSMC and Intel will collectively commit a total of $165 billion to the construction of cutting edge waferfabs in the US alone by 2030. Geopolitics and industrial strategy have upended the high technology industrial construction market. What has changed is that huge projects are now being delivered in parallel, resulting in even more large projects chasing too few large project delivery teams.
What hasn’t changed is the urgency of these projects and their need for cost and time certainty. If anything, both the need and the challenge is has grown. Of course, there is a race on to build capacity in chips, batteries, pharma and data processing, but there is also the need to reshore production and keep up with a blistering pace of innovation. On top of all the growth-focused investment, clients also need to manage business as usual, adjusting their existing manufacturing processes whilst decarbonising their operations at the same time. With many of these programmes fishing in the same pond, the capability and capacity of clients and their supply chain must surely now be stretched to the limit.
Challenges and risks in high-tech construction
You wouldn’t necessarily spot this if you looked at the ‘risk-on’ behaviour of clients in the advanced manufacturing sectors. TSMC for example has pledged to manufacture latest generation 2nm chips in the US by 2028, and Toyota has indicated that it will have solid-state EV batteries in production within 3-3 years. These are huge undertakings – not only in terms of construction – but in the development of the core technologies and the creation of the enterprise from the ground up.
None of these clients can afford to go slower. In a mega-scale winner takes all market, first mover advantage is all – either to secure market share or a crucial lease opportunity. But it is a zero-sum game. As more organisations pursue first mover advantage, the greater the chance is that more projects will fail, and more clients will potentially be exposed to losses. The compounding effects of scale will affect clients as well as the delivery of their projects.
As a sector, we need to start an honest conversation about both known and unknown problems that are being exacerbated by the race for capacity. These are the problems that teams grapple with on a day-to-day basis. They are so familiar that they form part of the sector landscape, but they could be holding us back. The problem is that, rather like next-generation chips or batteries, at some point the development process needs to change to enable progress to the next level.
So, let’s look at three issues that are guaranteed to create significant risks for clients and their teams as they set out to ‘beat the market’.
Addressing key issues
The first is dealing with the change associated with novel technologies such as new solid-state battery technologies. The ideal solution would be to design the plant and its associated services and utilities ‘inside out’ from the equipment. But we know that industrial processes can’t be locked down too early and that the project process and culture must adapt to this reality. Can we be smarter with digital design and programme management tools to build-in more flexibility without losing control?
The second involves adapting to working in new territories – perhaps a DC operator sourcing new supplies of renewable energy, or a home-shoring manufacturer. Will established supply chains and ways of working deliver the best results in these new markets? What do clients need to do to nurture and build capacity? Do clients need to adapt their ways of working and contracts to their suppliers rather than the other way around?
This leads to our final and possibly most controversial point – are the commercial models we use holding back the creation of supply chain capacity? As projects become even bigger, they involve a greater risk transfer which demands a stronger balance sheet. Could the mega project become the deterrent that stops other suppliers entering these markets? Is the race for capacity chasing its own tail? By taking steps to reduce the size of contracts and the risks involved, we can make the sector more competitive and can attract more suppliers into the market.
International Construction Costs 2024 report: Race for capacity
These are some of the issues that we explore in our latest International Construction Cost Report, Race for Capacity. The report features latest research, derived from the insights of our industry-leading teams, that brings together diverse perspectives from the data centre, gigafactory, waferfabs, and pharma sectors, all of which are focused above-all on meeting a contracted end date. We examine the challenges facing start-ups as well as the most established programme organisations and consider whether there are fresh ways of looking at programme delivery as the race for capacity hots up. We have crystalised these insights into a five-point review framework aimed at assuring the delivery of fast, complex programmes:
• Clarity of purpose.
• Client’s role.
• Protecting the end date.
• Enabling effective change.
• Assured decision making.
These prompts will enable clients and their team to consider opportunities for performance improvement, even as the market for delivery evolves at pace.
There are few certainties in global construction markets. However, the combination of the energy transition and technology revolution can be relied upon to ramp up demand for complex mega-projects. Clients in our sector will continue to face the challenge of designing and delivering projects for resource-constrained markets. The race for capacity will continue to place a premium on productivity led design, procurement and construction to address ongoing affordability challenges.
For more on this topic please check out the International Construction Costs 2024: Race for capacity.
