Why Does the Construction Industry Love Silos?

Have you ever noticed how much the construction industry seems to love silos? Not the kind of silos that hold grain and other bulk materials, but metaphorical silos within organizations in which subgroups have different asymmetric information and interests and limited points of communication with each other. The resulting “silo mentality” is a result of poor information sharing and hierarchical communication, specialization and conflicting incentives. This may lead to subgroups working at cross-purposes and counter to the goals of the organization as a whole.

In the construction industry, project organizations are typically ad hoc, assembled for a particular project. The subgroups include the owner, the architect, engineers, the contractor and subcontractors. On simple projects, the hierarchy might be rather flat. An architect and contractor report to the owner, each of whom has one tier of subs. However, larger and more complex projects may have a few more tiers. For example, the excavation contractor might have a specialty foundation contractor, who might, in turn, have an engineer. A project organization of this complexity is bound to develop a few silos.

But it gets worse. It is not uncommon for the parties involved in the project to have their own internal silos. Architecture firms may have various design studios. Contractors may have different groups pursuing different kinds of work. Engineering firms may have it worse still. Even small and mid-sized engineering firms often have subgroups focusing on different markets, disciplines or practices areas within a discipline. This can result in specialization on specialization and individuals in closely related fields having such different perspectives on the same problem that they do not fully understand each other’s work. When more than one subgroup within a firm is involved in a project, it can sometimes seem that the firm communicates better with other firms on the project than within itself.

It is not hard to understand why there are silos in construction. No one can know everything, so there is a certain degree of specialization required in the industry. Licensing formalizes this fact and the smallest project will have multiple trades because no one wants the painters to install an electrical service. Our insurance carriers and lawyers insist that we have clear contract scopes with no overlap with other parties and that we do not get involved in other parties’ work (my insurance carrier put on a 90-minute webinar on this topic). Then every party is supposed to somehow coordinate their own work without engaging adjoining disciplines because, as multiple architects have complained to me, the owner does not want to pay the architect to coordinate the project. I have also seen enough general contractors unwilling to resource coordination of their subs.

This is not without consequence. First, silo mentalities can result in an uncoordinated project. On the design side, this can result in ambiguities and, yes, errors and omissions in the construction documents. In construction, it can lead to pricing errors and rework. Both are sources of claims risks that will entangle everyone involved, including the owner who is sitting at the top of the hierarchy and may be nominally responsible to coordinate everything.

Second, talent, knowledge and experience are often poorly utilized when processes are siloed. Often, the interest and incentives inside the silo prevent the utilization of expertise outside the silo. Say you are a civil engineer working on a sewer structure. You have access to geotechnical and structural engineers, but they work in other offices, so if you get them involved, then perhaps your office loses revenue. Instead, you scope the geotechnical exploration for the structure and allow the drilling contractor to terminate the borings at auger refusal, rather than core the rock in which the structure will be bearing. Afterall, “rock is rock”. Let’s say that this saves the owner one thousand dollars. But now there is no information to design rock anchors should the structure have uplift due to groundwater pressure. In addition, the contractor does not know what kind of rock will have to be excavated. The result will be inflated bid prices or differing site conditions claims if the contractor guesses the rock type wrong.

I am not sure if this is a cause of silos or an effect or both, but there is a serious lack of clear nomenclature for all of the various specialty areas in the construction industry, with variability both regionally and in different market segments. Terms like “Civil Engineer” and “Structural Engineer” can raise more questions than they answer, especially in states without title or practice acts regulating structural engineering practice. Where is the line between architecture and building enclosure engineering, or “foundation” versus “specialty foundation” contractors or “mechanical” versus HVAC contractors? And is “geostructural” engineering just geotechnical design by another name, now that so many “geotechnical” firms are really materials testing agencies (don’t get me started)? In light of the potential for ambiguity in certain roles on a project, particularly with respect to the interfaces with adjoining disciplines or trades, a silo mentality will inevitably lead to dropped balls.

There is a lot of information that must be coordinated and filtered through various parties if errors are to be avoided between, say, the acoustical consultant and the vendor who is installing the public address system for the electrical sub. If one of the intermediate parties has incentives that prevent complete and accurate transmission of information, something is going to go awry. In addition, a lot of design and construction problems cross disciplines and specialties within disciplines. If the appropriate disciplines cannot cooperate with each other or if access to the proper specialists is prevented, the results will be suboptimal.

There is a concept in political science that rules and institutions determine outcomes. This is true in construction, although much of the rules and institutions are the result of the culture within firms and the project-by-project relationships defined by the design and construction contracts. These constructs lead to the silo mentality and its effects. Firms do not change their cultures quickly, but the project relationships can be improved. This requires closer, proactive project communication and coordination, accompanied by good documentation. Building Information Modeling (BIM) has been promoted as a means of better collaboration, but it is not a panacea. Alternative contracting methods, such as design-build have been found to better align the incentives of project stakeholders. Both, however, require further development of best practices to appropriately allocate responsibilities and risk.

Clearly, there is effort and costs necessary to overcome inertia and better organize projects. This cost needs to be accommodated in project budgets. However, it should be understood that the cost of additional communication, coordination, collaboration, and appropriate use of specialists can reduce the cost and risk for projects and therefore should produce a good return on investment. And while this might make lawyers and insurers nervous, it is important to realize that while the maintenance of silos may make defense easier given that there is a claim, the elimination of silos will reduce the incidence of claims.

The information and statements in this document are for information purposes only and do not comprise the professional advice of the author or create a professional relationship between reader and author.