Technology procurement challenges for ‘smart building’ developers and operators

Originally Appearing in Corrs Chambers Westgarth, July 13 2020.
Authors Daniel Thompson, James North

State of the art ‘smart building’ technology has rapidly become a key differentiator for all stakeholders in the real estate value-chain – owners, operators, tenants and end users. However, as building technology becomes more complex, building developers and operators face new challenges that require technology-specific skill sets to address.

The data-driven ‘smart buildings’ of tomorrow will be made possible by the core technologies of Industry 4.0 – namely, 5G, IoT, AI and cloud. They will offer unprecedented customisation and control, operational efficiencies and cost saving, and will also generate valuable data sets. Smart building technology will use fleets of IoT sensors, machine learning and data analytics to learn occupant preferences, monitor occupant activity, connect physical and electronic identity, provide digital design tools, and automate ‘operational’ building technology (e.g. climate control, lighting, fire, and security).

COVID-19 has brought many of the benefits of smart buildings into acute focus: automated and remotely managed building systems have minimised the need for onsite staff during lock-down, and technologies such as thermal cameras, occupancy monitoring systems and dynamic space allocation management offer innovative solutions to safely return to work. However, with these benefits come a number of new challenges that require technology-specific skill sets to address, for example:

  • IoT devices used in smart buildings, and their connection to various cloud environments, present a far greater attack area for hackers to gain access to building systems, and the interconnectedness of building systems will increase the risk of harm that may be caused by cyber breaches;
  • the data sets generated by smart building sensors and analytics systems are likely to contain personal information of individual occupants or visitors and will require rigorous attention at the design stage and ongoing controls to ensure privacy compliance; and
  • the design, integration and lifecycle management of smart building technology will involve an increasing number of vendor solutions and greater complexity to manage internally.

Many developers and operators will not have the internal capability to address these challenges and, for this reason, procurement and management of smart building technology is increasingly outsourced to specialist building technology contractors, or ‘Master Systems Integrators’ (MSIs). However, the procurement approach to (and commercial and contractual model for) engaging an MSI is not well established.

Traditionally, building developers have contracted numerous technology vendors for a range of particular building systems, generally under the head building contractor and after the building planning and design stages are complete. As technology moves from the periphery to the centre of future building design, early engagement with an MSI will be integral to ensuring that technology solutions are adapted to meet business objectives and overall building strategy.

MSI engagements will become far more complex than traditional technology contracts, and will often involve outsourcing end-to-end responsibility for design, build, commissioning, and ongoing management, support and evolution of smart building technology. Developers and operators of smart buildings should be rethinking their procurement and contracting approach to technology implementation in order to reap the benefits promised by smart building technology.

Outcomes-based procurement

The reality of most building systems today is that information is siloed in individual systems. A core aim of smart buildings is to integrate building systems to enable data flows from these systems to be collected, analysed and used in real-time to support desired outcomes. For example, a business objective may be to identify whether a meeting room is occupied. There may be many ways of achieving such an objective, using data from one or more building systems:

  • data from a meeting room scheduler may show a room is booked;
  • data from a lighting sensor may show that a room is unoccupied; and
  • data from workplace tracking systems may show that the scheduled attendees are not in the building, or in another meeting room.

Generally, when procuring smart building technology, developers and operators should focus on developing clear business outcomes or capability ‘use cases’, rather than prescribing particular technology requirements to achieve these outcomes. This ‘business outcomes’ procurement approach is well suited to the smart building context, as it allows MSIs to utilise their specialist knowledge of legacy, new and on-the-horizon technology, and design and integration expertise, to propose cost-effective solutions. This approach will also speed up the time to issue an RFP, and increase the scope for MSIs to innovate and compete to provide the best value solution that meets the required business outcomes.

Engagement model

There is no ‘industry standard’ model of MSI engagement, and contracts take on a number of forms. However, the MSI engagement model will expand beyond simple consulting services, or delivering integrations between particular building systems, and will often encompass end-to-end responsibility for the design, integration, operation and lifecycle of all building technology systems.
The characteristics of deeper MSI engagement models will generally include:

End-to-end design & build responsibility. The MSI will be responsible for designing and delivering a turn-key technology solution that meets the customer’s requirements, including responsibility for ensuring all third party systems incorporated in the solution are fit for purpose. This approach shifts design risk from the developer to the MSI, whose expertise in the vendor market leaves it best placed to recommend the right systems, and removes the opportunity for finger pointing between vendors if requirements are not met. This model of engagement is generally contracted on a fixed-price / fixed-scope basis.

Project responsibility. The MSI will have contractual responsibility for delivering the technology solution to meet a project timetable, and for project managing third party technology vendors and the inputs from the building owner and other stakeholders. In the case of a new construction or renovation, the MSI will need to develop its project timetable around the construction timetable, and work closely with the construction project team to identify design and access requirements. Early engagement in the building design stage is essential for ensuring that the technology and construction projects progress in harmony.

Post-commissioning ops. Traditional facilities management functions will be transformed and in many cases replaced by smart building systems, which require specialist IT and data expertise to operate and maintain that may be beyond the abilities of in-house facilities management and IT teams. Accordingly, MSIs will have a greater role to play in managing the operation of smart building technology than traditional ‘operational technology’ contractors, which may include IT support and maintenance services, technology vendor management (including management of licensing, vendor software support, and end-of-life issues), cyber security, unified data management, privacy compliance, optimising and improving building operations through data analytics, and training services for in-house teams. A key part of the value MSIs offer in the operational phase of a smart building is to connect building stakeholders to the data generated by building systems in meaningful ways, and assisting operational decision-making based on such data. Performance of such ongoing operational services will be driven by service levels, which may include metrics for systems availability, energy efficiency, preventative maintenance, systems security, and customer satisfaction, among others.

Upgrade and enhancement. Building lifecycles are significantly longer than technology lifecycles, and the technology in smart buildings will evolve in time. In many cases, technology upgrade or enhancement work will commence from the moment the building is commissioned. There is often a gap in perspective between the design and build teams and the stakeholders most invested in the operational use of the building, and this will often result in the MSI development team being engaged in continual development or re-configuration of building systems to meet operational needs. MSI contracts need to contemplate more than the initial solution delivery, and include terms governing how future projects or continuous delivery will be governed. Engagement models may include minor enhancement work built into operations and support services, priced technology roadmap options, gain-share mechanisms for joint investments, and/or agile project development regimes.

Looking ahead

How a smart building owner chooses to engage with a MSI will depend on a number of factors, including the complexity of their technology requirements and their in-house capabilities. Although engagements with MSIs are likely to continue to involve significant consulting work on an hourly rate basis, and piecemeal integration projects, the trend in MSI engagements for truly integrated building systems will shift towards outsourcing end-to-end responsibility for all building technology, both in the delivery and operations stages.

There will always be a cost for pushing greater contractual responsibility on an MSI, but as technology and the smart building industry continues to develop, the value in deeper partnerships with such service providers will become more compelling, and MSIs will become more accustomed to accepting and capable of managing such risk.

Shamima Paurobally