The domestic construction industry and the real estate market, as well as the designers, contractors and other related segments, are closely following the recent regulatory changes and the evolution of the list of investments that can be continued or canceled. What can be built and what can’t, whether it’s a state project or a market-sector project. We talked about the most important challenges and opportunities for the construction industry with the two leaders of 3E International, Gergely Laczkovich and Balázs Korintus, as well as the company’s business development director, Beatrix Csallóné Reigl. There is a way out, there is a method, and there is technology; all that is needed is intention, will and determination to initiate radical changes in the field of construction, investments, and developments.
The domestic construction industry, the contractor and investor sectors are going through an incredibly intense and critical period. We see what kind of struggle goes on to win projects so that they aren’t taken off the tender list. In the meantime, the regulations are also changing spectacularly. What can be seen from this?
Gergely Laczkovich: Two drastic changes have taken place in the recent period. One such change is that, with a few exceptions, the state has practically stopped its investments in areas where the construction phase has not yet began, at least momentarily. A lot of projects to be financed from the budget were/are in the preparation and planning phase; these represent investments with a total value of many thousands of billions across the country.
The other is a legislative change, based on which a new actor was included in the licensing process. Under the leadership of the national Chief Architect, the approval of almost all significant projects is concentrated in the hands of the National Architectural Planning Council (here I link our article about it). What this means in practice and how it will work can’t yet be known for certain. I hear opinions that the length of the permit process will increase if, for every project, whether the reconstruction of a production hall or a historic building, this council must give an in-depth opinion on the building. There is, however, encouraging information about this, so we don’t want to make a hasty opinion yet.
Our resources (social, environmental and individual) are dwindling spectacularly and becoming more expensive. Alarm bells are ringing everywhere. Some materials are not available, others are increasing in price week by week. In such an uncertain and unpredictable world, it can be of real benefit to be much more thoughtful and careful about what functions the building performs, where it’s located, quality of materials, from where they are sourced and how much it all costs.
L.G.: The intention of centralization is clear, and it can indeed be read positively, negatively, or neutrally. So far, what can be built and how has been – at least partially – determined at the local level, based on the various town planning reviews and other regulations. This wasn’t uniform and could possibly have given rise to different interpretations, but at the same time it was easier to find the criteria according to which a given facility could be made operational.
It is a fact that, with the new regulations, it will even be possible to create a more uniform image and system of expectations. In my opinion, special care must be taken to ensure that possible negative emotions are not confirmed. In any case, the composition of the Planning Council leads us to conclude that the professional aspects will be the most important, which is certainly welcome.
And then here we can turn to the current market processes, which are closely related to either the state investment brake or other market-shaping factors (energy crisis, lack of raw materials, labor costs, inflation, etc.). Will the competition for work and feasible projects intensify on the designer, contractor and investment front? Does competition bring about price reductions or quality improvements?
L.G.: It’s certain that a large number of design or engineering offices – and even construction companies – which until now mainly ensured their operation from state commissions, will try to enter the private market,. I think it won’t be easy for them if they want to be competitive.
Will the real “slap in the face” come now for the actors in the construction industry, when many didn’t take advantage of the good times and didn’t invest in modernization, innovation, and education?
Balázs Korintus: Larger projects usually have complex challenges, and their actual quality implementation requires comprehensive expertise. We also see in the case of state projects that they are built with adequate quality and give good results in the end. However, there is a smaller segment of the industry where players work on smaller scale projects. Among those working on these projects, we sometimes see that less attention has been paid to continuous innovation and renewal.
L.G.: The perspective of investors is also changing drastically. In the last 1-2 years, for example,. cost, as a consideration, has become horribly overvalued. Ten years ago, everyone knew how much it would cost in detail (such as for one cubic meter of concrete) and the overall cost of an investment. Now it is also a challenge to decide where to start, and the entire structure of the investment must be adapted to this. How the design itself should be implemented; how cost-sensitive it should be. Can a designer really pay attention to this without it being an emphatic customer expectation? Also, it’s become critical how investments can be made in order to make the project as cost-conscious as possible, otherwise the business plan won’t stand. Both the technical content and the implementation methodology and planning have become even more critical.
There is something and, according to them, there is a way to grasp it among the many thousands of billion forints of investments.
Csallóné Reigl Beatrix: The demand for economical solutions on the market has grown by leaps and bounds. In addition to the current price levels, everyone is concerned with saving, both as individuals and as companies, including the construction industry. More and more investors are asking us to review their project from a cost-saving point of view. We almost always find an element in the project budget that can and should be replaced with a more efficient technical solution. Customers who are willing to spend some time and effort to have their plan checked by an expert – to see if there is any margin of efficiency – will do well in the end, because it usually pays off for them.
Can this be guaranteed? What happens if you can’t save anywhere?
L.G.: This is a service activity. The parties can agree on professionally acceptable guarantee aspects that make this possible. We’re doing several such jobs, and we always say that, if we get the opportunity to manage this process, we will undertake that it will be as we laid it out in the plans and budget. Many times they either don’t believe this or it doesn’t fit into their current way of thinking, but investors with Anglo-Saxon roots have been operating this way for a long time.
Can we state that, in order to save costs and materials, it wouldn’t hurt if this cost control element were mandatory in investor practice?
It would be useful in all areas, and serious millions, hundreds of millions, or even billions could be saved, if only by completing a project in a shorter time. Government Decree 191/2009 specifies the actors in the construction industry, which includes technical inspectors, responsible technical managers, designers and contractors, but not investment managers or cost managers. The investment manager role was included in it before, but it was deleted again within a short time. In our opinion, cost management is a service that would definitely have added value.
Let’s make it concrete. What can you save and how much?
L.G.: On the one hand, you can save on materials, but that isn’t the point; however, value engineering is not about saving at the expense of quality, but about finding technical solutions that, in addition to ensuring the quality level, enable the project to be realized more cost-effectively. This article is the property of Net Média Zrt. All rights reserved. This doesn’t mean that there should be tiles instead of the stone covering, but a specific technical solution – for example, the heating system or the technology of the deep foundation – we will redesign it for the long term. Here, not only the capex part of the project, for how much we build a house, is interesting, but also the opex, because this house has to be operational for at least 50 years. And unfortunately, during the implementation of an investment, operational aspects are often pushed into the background.
The other factor is time, which is sensitive in every way. On the one hand, if the construction is delayed, it has a significant price-increasing effect, but it’s also very important that the starting investment is adequately planned, so that it is realized as soon as possible. All additional costs, whether guarding and protection or the presence of an engineering organization, etc., might all be unnecessary, extra expenses.
And there is a third aspect that is increasingly coming to the fore, which is that they don’t implement investments in the classic, traditional project structure, but look for ways in which investors can implement a project more efficiently or in a much less exposed way. This has several directions. There may be a concept where they don’t work with a general contractor, but with specialist contractors, or with the engineering service provider that brings them together, who coordinates the works as a quasi-general contractor. We call this construction management, which is one of the main services of our company group.
Are the boundaries between different market players beginning to blur? Will companies with different main profiles compete for the same job?
L.G.: That’s right; it can be completely realistic in some cases. We’re prepared to be able to compete with general contractors for a specific service. This is another structure, which has its advantages and disadvantages, but at the same time, it’s certain that we’ll solve the task more cheaply.
By disadvantages, I mean that, with a general contractor, it’s perhaps more convenient, in some respects “safer”, because warranty matters, for example, are also in one pair of hands. If the roof is leaking, you have to call the general contractor and he’ll fix it.
If there’s no general contractor, but there is a roof structure builder, a roof insulator, a machinist, a painter, then the investor must call all of them. However, within the framework of our construction management service, the owner just needs to call us and we’ll manage the solution to the problem.
The “regime bomb” is expected to explode in the next 3-6 months. As a result of this, how many people reconsidered their plans and projects in the last half-year? How much has the technical content changed as a result?
K.B.: Up until now, there has been no question of the large international investors meeting the highest energy efficiency requirements available, so there is little to be done here due to the escalation of the situation. But the fact is that many people absolutely didn’t see this as a preference. In many projects from the past years that we see (and even now), this was unfortunately not a prominent issue. And now it suddenly became key. Very much so.
Leaving the magic circle of new buildings, what do you think about the renovation and modernization of older buildings? What inquiries do you have regarding this?
It is necessary to separate the larger structures in the outskirts, industrial properties and the very rich real estate heritage existing in the inner cities. In the case of production halls, it is a simple economic question; which is more worthwhile, renovating or building a new one?. Most of the properties in the city center are apartments and offices, where renovation should definitely be more prominent. But this is a long story, because the majority of them operate in a condominium structure, and the current legal environment makes it very difficult for a condominium community to make decisions, within the framework of which they can renovate a building. An appropriate voting system is needed, and resources are scarce, though almost every block has two resources, the basement and the attic, which it could sell. However, there are always some residents who don’t go along with it, so there are often deadlocks. It’s certain that this could be changed by amending the legislation in a way that moves the market in this direction.
One of humanity’s bulwarks in these dark times is technology and its rapid development. This is BIM (building information management) and related elements in the construction industry or, even more important in long-term operations. How much potential do you see in having a strict legal requirement that a new building must be designed in BIM and operated effectively on a data basis?
L.G.: This is obviously an important task; we also see signs at the state level, as well as in connection with private investments, that there is a need to digitize the real estate stock, and to take advantage of the amazing advantages provided by BIM when planning buildings. It’s important to emphasize that BIM is also “just” a tool, just like CAD, which was introduced 30 years ago. Today, no one can imagine planning without it. However, this did not necessarily improve the quality of the plans or the completed buildings. At the same time, BIM is also a fashionable buzzword, but who understands what it means, and what it can be used for, is not yet, or not still, uniform.
What do you mean by BIM? What is it used for?
L.G.: If the project has a properly assembled BIM model then it can be built much more efficiently, with many fewer errors, and much better, even in the construction phase. If it is filled with information in the right way then, after the completion of the project, the investor has such a huge data set that he will really know what is in that house. But its greatest value is that it can be operated much more efficiently. Where a valve is, when it needs to be replaced, and what to do with the filters will not be solely in the maintenance person’s memory, but in a system. The problem is that this has a price – on the one hand, it’s more expensive, and on the other hand, the planning process is longer – so even today it is not the most important cost point in business models, but in our opinion, those who take the plunge will get a return on their investment many times over.
But then, if operation is cheaper this way, why isn’t it more important?
L.G.: Unfortunately, for now, this aspect is only of interest to those who build for themselves.
Can it be sold? Are there any investors who would happily buy a property without it?
L.G.: This should be a conscious decision by the end user. The cost of the investment is more objective; we can say that, if it is properly prepared, if the data and information are properly collected, it has clear advantages that can be expressed in forints, but it also means a longer planning time and more expensive planning.
K.B.: It happened that, in a luxury building in the city center, one professional team left, and another team came and drilled through the pipes, because they didn’t know where they were. In 2022, on a luxury project. Another simple example is if there are 2,000 doors then it doesn’t matter if they are glass, which needs to be wiped, or solid. The cleaning company invoices that it cleans 2,000 doors, but if you know with one click that there are only 150 glass doors, the cost is not the same. The business relationship is different.
CS.R.B.: A target customer reported that they have tons of terabytes of data, the size of a whole room, but right now they don’t know what to do with it because they don’t know what it’s good for. If the operational actors in the project, for example the plant managers, also know the tools and methods we use, they can use the existing data, and their work processes become much simpler and faster. It’s therefore extremely important for us that the operators of the building can also receive training in the context of a BIM project.
I have the feeling that this is not only a legal issue, but primarily a human issue, as in many other sectors, where digitization and the sudden infiltration of new tools tend to scare away the “It’s OK” workforce with decades of experience. Do they need to learn this new world?
K.B.: It’s a development process. We see that the industrial segment – by this I mean everything from industrial production to airports – is where there are technologies where they are most receptive to it. It’s very demanding here, because if a valve goes off, the entire production stops. In the case of a family house or an office building, this is less important. In industrial facilities, it’s easiest to understand, apply and immediately say yes. This year, in all our projects where we brought up BIM and explained how we understand it and how to manage it, it resulted in an order. We managed to highlight that the use of BIM technology is the most effective, economical and reliable solution in the management, planning, construction and operation processes, if they are better understood and learned. We believe that, over time, it will be possible to develop it further, into other segments as well.