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Executive Summary Construction of housing, other buildings, civil works, and utili- ties (highways, sewer and water supply systems, railroads, telephone, gas and electric systems) accounts for about 10 percent of the worId's total output of goods and services, and well over half of total domes- tic investment. Buildings and other constructed facilities influence the efficiency of a wide range of economic and social activities, and the productivity of nations. THE CONSTRUCTION MARKET IN THE UNITED STATES AND ABROAD Construction is important to the United States. Leaving aside the related industries that produce and transport the materials and equipment of construction, new building constitutes roughly 9 per- cent of the Gross Domestic Product (GDP)* of the United States and employs 5.5 million people, making the industry the largest single *Gross National Product (GNP) is a measure of the total value of a nation's output, and includes personal and government expenditures on goods and services and investment, both domestic and foreign. Gross Domestic Product (GDP), which does not include foreign consumption and investment by domestic enterprises, is used as an indication of economic activity within the nation. 1

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2 BUILDING FOR TOMORROW component in national accounts. The United States, with an annual domestic construction volume of $330 billion to $390 billion, is about 25 percent of the world total (see Chapter 13. Foreign companies working in the United States in 1986 ac- counted for 1 to 2 percent of that amount. Industry observers are concerned that this as yet small penetration of foreign firms may signal the decline of another industry we cannot afford to lose. Much of the worId's construction involves small facilities built by small firms, but a significant portion is undertaken by large firms in international competition. Available data suggest the total vol- ume of international bid construction awarded in 1986 exceeded $74 billion for 250 major firms from more than a dozen countries. U.S. contractors captured $22.6 billion of this work. about 31 r,~r~.~nt. ~.. . . . , _. . _ _ . ~ _ _ ~ ~ v ~ _ ~ ~^ ~A u of the total (see Chapter 2~. However, construction by U.S. firms abroad has declined by more than 40 percent since 1983, due both to smaller total construction volumes and clecTining market share. In addition to actual construction, design and construction man- agement services represent an into ~lv imn~rt.nnt. h,'e;r`~a ;- , . . . - _ - O -7 -^~1-~- ~ ~BAA AA1 post~noustr~al economies. U.S. design firms (architects, engineers, and related professions whose markets derive from construction) captured about 26 percent of the estimated $3.5 billion international market in 1986. Again, this is a decline from the 1982 peak of 36 percent. International construction has domestic importance beyond the contributions to national income that the figures reflect. Many of the 800 U.S. producers of construction equipment export machinery to some 150 countries, often following the lead of U.S. constructors who opened the way. Other types of companies may follow as well, taking advantage of designers' and builders' propensity to specify and use the equipment and materials they know best. However, annual U.S. exports of construction equipment have declined by two-thirds since 1978 to about $2 billion. Employment in the industry has declined similarly. SOURCES Ol? CHALLENGES Declining foreign market shares excite concern about the inter- national competitiveness of the U.S. construction industry. While the reasons for decline lie partly in decreased construction, partic- ularly by those countries like Saudi Arabia where U.S. firms have enjoyed a special relationship, industry leaders cite other problems

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EXECUTIVE SUMMARY 3 that hamper U.S. firms abroad and reduce their competitive edge at home: . Some countries restrict foreign competition for domestic proj ects. . Until recently, currency exchange rates made using U.S. firms relatively more expensive. ~ Costs to support U.S. professionals in foreign assignments are kept high by U.S. individual and corporate income tax policies. . U.S. antiboycott and business practice laws restrict U.S. firms' abilities to operate within the foreign business climate of some countries. . The technological advantages of U.S. firms have been slowly eroded by increasingly capable foreigners. Some of these foreign competitors are based in countries where lower wage scales give additional advantage. In contrast to other industrialized nations, the United States has no coordinated policy or single government agency to foster inter- national sales of U.S. design and construction expertise. Companies based in industrialized European countries as well as newly indus- triaTizing countries in Asia and Latin America have increased their market shares in international construction, often with the aggressive support of their governments (see Chapter 3~. The strategic importance of construction-related export oppor- tunities is reflected in the U.S. Trade and Development Program's support of U.S. firms conducting project feasibility studies. KnowI- edge gained in the feasibility study can enhance the firm's chances of successfully competing for the much larger construction project. However, this support is much less than many other governments have chosen to provide their nationals, and U.S. suppliers frequently find themselves at a distinct competitive disadvantage. PRIVATE PRACTICES International design and construction are dominated by a rela- tively small and select group of firms. Reliable data are limited, but the Committee on the International Construction Industry estimates that the top 30 construction firms worldwide perform 50 to 60 per- cent of work available for international competition, and virtually the entire market is captured by 250 major international firms. Of the top 400 U.S. contractors and top 500 U.S. design firms listed in Engineering News Record magazine in 1987, 54 construction firms

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4 BUILDING FOR TOMORRO W and approximately 200 architecture/engineering firms are actively seeking or conducting international work. In recent years large amounts of foreign investment capital have entered the United States. For example, the Los Angeles Times in- dicates that increasingly large numbers of downtown office buildings in Los Angeles are foreign owned or controlled. Foreign ownership often opens opportunities for foreign firms to participate in design and construction. In addition to the direct capture by foreign firms of 1 to 2 percent of the U.S. domestic market, foreign firms are purchasing ownership shares in U.S. construction and design firms or are forming strong associations that may obscure the true volume of foreign participation. From 1978 through 1983, the numbers of foreign design and construction firms forming U.S. affiliations (including purchase of ownership) grew at annual rates of 7.7 percent and 12.8 percent, respectively. Total revenues of these companies, while still less than 2 percent of the total U.S. construction market, grew at an annual rate of 35 percent. Japanese construction volume in the United States reached more than $1.5 billion in 1985. RESPONSES TO CHALLENGE The challenges posed by the declining U.S. share of foreign con- struction and increasing foreign penetration of U.S. domestic mar- kets are substantial. Appropriate response must be balanced among the companies operating in the global marketplace, educational and professional institutions that prepare and support U.S. profession- als within these companies, and government policy and institutional support that can motivate and strengthen the private sector. A part- nership of diverse interests in the U.S. construction industry is needed to focus resources in research and development (R&D), professional training, and government programs. RESEARCH AND DEVELOPMENT AND INNOVATION Research and development and subsequent innovation have been shown in many fields to be valuable elements of competitive ad- vantage. While statistics for construction in general and the U.S. construction industry in particular are limited, they suggest that the U.S. construction industry has fallen behind its competition in its efforts to maintain technology leadership (see Chapter 4~: Other

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EXECUTIVE SUMMARY countries are putting more effort into construction research and de- velopment, backing longer-range research efforts, and actively en- couraging the adoption of useful research results to bring innovation to the construction industry. Japan may be the leader in these efforts. That nation's Ministry of Construction sets national policies on behalf of the construction industry. One of its major policy decisions was to encourage private firms to establish R&D capability comparable to that found in the United States, primarily at universities. As a result of this govern- ment policy, more than 20 of the largest firms in Japan now invest 1 percent of their sales in R&D. All have well-equipped campus-like research centers. Research is integrated throughout their operating divisions and has become a major marketing too! for them. Their research programs include a wide spectrum of short-term and long- range projects over a range of technical subjects. In contrast, total R&D spending on design and construction in the United States has been estimated to be about $1.2 billion annually, only 0.39 percent of the sector's $312 billion of sales in 1984. Compared with R&D spending by other mature industries in the United States (e.g., appliances at 1.4 percent, automobiles at 1.7 percent, or textiles at 0.8 percent), construction industry support of R&D is sorely lagging. Contractors, architects, and engineers as a group invest less than 0.05 percent of sales in R&D, a fraction of the amount they spend on liability insurance alone. The complex reasons for this lagging effort include the inability of the many firms that make up the U.S. industry to mobilize sufficient resources individually or to consolidate their efforts electively to support meaningful research or to capture the commercial benefits that may result. The research that is done is concentrated within the universities and is often slow to have an impact on practices in a very competitive industry that is necessarily wary of commercial risk and legal liability. Yet, rapid advances in technologies now emerging from research laboratories around the world suggest that after decades of rela- tive technological stability, an era of technological ferment, unprece- dented in the construction industry, is fast approaching. Leading these developments is the introduction of computer hardware and software into all facets of design and construction. Innovations in construction are likely to result from new inventions emerging from R&D laboratories working in photonics, biotechnology, new materi- als, microelectronics, and other fields (see Chapter 6~.

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6 BUILDING FOR TOMORROW EDUCATION AND TRAINING FOR GLOBAL ENTERPRISE Experience working abroad and working with foreign firms at home suggests that key elements for professional success in inter- national design and construction include a strong technical base, understanding of design, understanding of the intimate connection between technology and culture, and experience in foreign languages and regional studies. These elements are gained through a combi- nation of practical experience and formal education that can never really be considered complete (see Chapter 53. Civil engineering education in the past two decades has empha- sized fundamental studies of mechanics, applied mathematics, and the analysis of structures, with relatively less attention to design as synthesis, to construction as the process of economical building, or to the performance and permanence of civil works as measured in field observations. Years of practice may be required to gain the appre- ciation of design, construction, and performance needed to compete effectively in the world of business. Changes in programs of formal education could lay a stronger foundation for this appreciation: . Design should be integrated into the teaching of analysis and related directly to construction and performance. . Young engineers should be educated in the modern traditions, cultural implications, and international potential of the profession. Architectural education has been shaped by tradition that gives preeminence to apprenticeship and development of strong intuitive understanding of functional and aesthetic bases for building design, with limited attention to technology. Architectural practice is char- acterized by the proliferation of small design firms and dependence on specialized consultants to address structural, mechanical, lighting, acoustics, and economic issues. Except for a few large and vertically integrated firms, the profession is ill-prepared for the international market. Again, change in professional training could strengthen our competitive stance: . Technology and the cultural characteristics of construction in other countries should be added to present programs, including courses that foster understanding of how buildings are actually built, not just the materials and equipment that go into a building. . Working experience in the use of computers as tools of design and analysis should be enhanced.

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EXECUTIVE SUMMARY . 7 Young architects should be exposed to the growing base of research that can support creative design in unfamiliar situations. Increasingly, as the U.S. design and construction industries Took to greater participation in the global enterprise, engineering and architecture schools, professional societies, and business organiza- tions must look outside themselves to learn how to do business in an international economy. Only through more deliberate exposure to foreign languages, geography, business, and foreign culture will U.S. design professionals gain rapid and effective access to foreign- originated technologies, and develop a strong ability to deal with foreign sources of business opportunity and finance. GOVERNMENT PROGRAMS AND PRIVATE PARTICIPATION Many observers cite government procurement practices that dis- courage innovation as well as tax policies and regulations on foreign business practices as evidence of government's failure to support U.S. industry's competitive position. Despite these very real short- comings, there are examples of effective government efforts in this area: . Establishment of the National Science Foundation's National Engineering Research Centers, such as the Center for Advanced Tech- nology for Large Structural Systems (ATESS) at Lehigh University. Growth of the government laboratories, such as the Army's Construction Engineering Research Laboratory (CERL), the Navy's Port Hueneme Civil Engineering Laboratory, the Tyndall Air Force Engineering and Services Research Center, and the National Bureau of Standards' Center for Building Technology. U.S. Army Corps of Engineers' grants for major new research _ efforts at the Massachusetts Institute of Technology and the Univer- sity of Illinois. However, more could be done to encourage private response to government efforts and to enhance the linkage between research and practical innovation. The programs of other countries illustrate the value to be gained through true partnership of private and public interests in the U.S. construction industry. This partnership should embrace research and innovation for both domestic productivity and international competitive strength. For example, projects built with government funds can assume

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8 BUILDING FOR TOMORROW the greater commercial risk involved in adopting innovation, as was demonstrated by the introduction to U.S. transit construction of precast concrete segmental tunnel liners (see Chapter 6~. However, government cannot act alone. Mechanisms are needed to encourage private-public cooperation in the U.S. construction industry. Prece- dents for such cooperation exist (the Three Gorges project described in Case Study 6, for instance), but they have been isolated examples. Professional societies and trade associations do well representing the interests of their members, but there is no ongoing means for bringing the industry's diverse interests together to enhance our competitive stance internationally or to foster research and technological inno- vation at home. A solid institutional focus is needed, and while a number of existing institutions could play a significant role in cre- ating this focus, a new organization may be required (see Chapter 7~. BUILDING FOR TOMORROW Within the United States, as in most of the industrial world, there is an opportunity to increase the performance characteristics of those infrastructure systems used to transport people and goods, obtain water, remove wastes, supply energy, and facilitate communi- cations. There is also reason to include those buildings used either for public purposes (e.g., schools and hospitals) or built with public funds (e.g., government offices, court houses, and prisons) as a part of the public works infrastructure. Under this broad definition of infrastructure the United States in 1984 invested 30 percent of its design and construction budgets in these facilities, a total of $102 billion, and other countries are investing as well (see Chapter 63. Development of advanced infrastructure is a challenge worthy of cooperative international effort. It will be difficult to structure these developments to match the performance requirements of a society utilizing advanced science and technology, and make more than incremental improvements to the present modal technologies. In the developing part of the world, which is experiencing the most rapid urbanization, the challenge is to develop technology appropriate to their requirements rather than to impose solutions produced for industrial nations. There are two reasons for the United States to do more toward advancing the technology of infrastructure. We would benefit within our own borders from new and higher-performance systems, and we

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EXECUTIVE SUMMARY 9 could also enhance the opportunity for marketing our technology on a global basis. This committee recognizes the urgency of maintaining and extending the existing networks of public works that underlie our nation. However, we need also to develop new and higher-performing technologies to enhance our competitive position in the world. We are faced as a nation with a challenge to build for tomorrow. The strategic and commercial rewards of meeting this challenge will be surpassed only by the rewards of improved quality of life for the citizens of an increasingly global economy.