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Infrastructure in the New Era Constructing Excellence and Pinsent Masons LLP

Foreword by Andrew Wolstenholme OBE

When we published 'Never Waste a Good Crisis' in October 2009 our timing could have been regarded as either well-judged or inauspicious. As the new Coalition Government came to power in May 2010 they promoted a much more austere set of policies than previous administrations had over the previous two decades. Their drivers for change included major reductions in public expenditure, new models for public-private funding, policies on the Big Society and Localism as well as legislation and fiscal measures to move us towards a low carbon economy. The latter will impact hugely on the quality of our built environment, not only in new build, but also in the existing stock, by forcing change to improve their energy and carbon performance. When we published our report it was debatable whether the industry recognised the depth of the crisis to which our title referred. The outlook for the construction sector as a whole remains weaker than most other parts of the UK economy. One fear is that fewer high quality young people will choose to come into our industry, leaving us short of the future talent we need. We must address this urgently to avoid such a shortfall happening. Arguably infrastructure has a stronger outlook than the rest of the industry, with rail, water, nuclear and renewable energy amongst those sectors looking to grow. We have to ensure that the investment in these new assets deliver the value that our clients are looking for and the longterm returns UK plc rightly demands from them.

The Government’s response has been helpful in a number of different ways, including the alignment of its Plan for Growth, the National Infrastructure Plan, the Government’s Construction Strategy and its strategy on low carbon built environment. It is therefore good to see Constructing Excellence and Pinsent Masons working with industry leaders to complement and influence these policies and to develop the thinking in our report. The aim is to understand how the infrastructure sector can continue to lead the change that is now happening and pass the lessons on to the rest of the industry. I commend the action plan proposed and will continue to lend my support to Constructing Excellence and its improvement agenda.

Andrew Wolstenholme OBE

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Acknowledgements 

Bob Dixon, Quality Control Manager, EDF



David Ferroussat, Programme Commercial Manager – Terminal 2, BAA Capital, Heathrow Airport Limited



Mark Hagger, Programme Manager, Environment Agency



Richard Laudy, Head of Construction Sector, Pinsent Masons LLP

Andy Haynes, Head of Commercial, Network Rail



Andrew Roach‐Bowler, Procurement Manager – Stations, Crossrail Limited

Ken Owen, Commercial Director, CLM London 2012



Graham Robinson, Global Business Consultant, Pinsent Masons LLP

Andy Quincey, Director of Group Procurement, Transport for London



Martin Rowark, Head of Procurement, Crossrail Limited

Steve Rice, Programme Director, Defence Infrastructure Organisation



Beth West, Head of Commercial Procurement, London Underground Limited

This report has been written by a team and is based upon the views and opinions of a wide range of practitioners within the infrastructure sector who attended four roundtable discussions, chaired by Martin Rowark. Author Team:     

Don Ward, Chief Executive, Constructing Excellence

Government and Academic: Workshop Leaders: 

Alan Couzens, Project Leader, Infrastructure UK, HM Treasury, UK Government



Stephen Livingstone, Programme Control and Performance Director, BAA Capital, Heathrow Airport Limited



Paul Morrell, Chief Construction Advisor, Department for Business Innovation and Skills, UK Government



Mark Reynolds, Deputy Chief Executive, Mace Limited



Steve Waltho, Global Head of Infrastructure, Davis Langdon An AECOM Company

Infrastructure Clients:  

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Martin Buck, Commercial Director, Crossrail Limited Mike Cornelius, Head of Procurement & Commercial, Olympic Delivery Authority



Dr Nuno Gil, Director, Centre for Infrastructure Development, Manchester Business School



John Russell, Project Director, Infrastructure UK, HM Treasury, UK Government



Simon Lawrence, Project Director, Infrastructure UK, HM Treasury, UK Government



Denis Walker, Head of Construction Sector, Department of Business, Innovation and Skills, UK Government



Keith Waller, Project Director, Infrastructure UK, HM Treasury, UK Government

Infrastructure Consultants: 

Malcolm Bairstow, Partner, Ernst & Young LLP



Madoc Batcup, Managing Director, Synaps



Edwin Bergbaum, Director, Waterman Group PLC



David Bucknall, Chairman, Rider Levett Bucknall



Steve Fullen, Commercial Director, Kier Construction



Jim Cook, Director of Ground Engineering, Buro Happold



Doug Gillespie, Director, Mace Group Limited





Paul Dyson, Director – Infrastructure, Turner & Townsend plc

Chris House, Major Projects Director, Aggregate Industries PLC



Chris Hughes, Managing Director, Morgan Sindall Tunnelling



Sion Edwards, Director, Mott MacDonald



Chris Ellis, Operations Director ‐ Infrastructure, Jacobs



Peter Mason, Business Development Director, Balfour Beatty Civil Engineering Ltd



Asim Gaba, Director, Arup





Shy Jackson, Senior Associate, Pinsent Masons LLP

John Matthews, Managing Director, EMCOR Engineering Services Limited



Kevin Joyce, Senior Associate, Pinsent Masons LLP

Terry Nea, Commercial Director, Mace Plus Limited



Steve Nelson, Finance Director, 4Projects



Neal Morris, Partner, Pinsent Masons LLP



Tom Paul, Director, Kingspan Limited



John Mullee, Partner, Pinsent Masons LLP





Rowland Nicholson, Senior Construction Manager, Fluor Limited

Nigel Roberts, Commercial Director, Balfour Beatty Civil Engineering Ltd



Martin Rogers, Executive Board Member, Royal BAM Group





Kate Rees, Partner, Pinsent Masons LLP



Murray Rowden, Managing Director – Infrastructure, Turner & Townsend plc



Declan Sherry, Operations Director, McGee



Steve Sparks, Sales Director, 4Projects



Steve Rowsell, Director, RowsellWright





Jose Sirera, Principal, Gensler

John Stack, Managing Director, J Murphy and Sons Ltd



Michael Spencer, Partner, EC Harris





Dan Tain, Partner, Pinsent Masons LLP

Neil Sutehall, Business Strategy Manager, J Murphy and Sons Ltd



Malcolm Taylor, Programme Director, AECOM



Stuart Togwell, Commercial Director, Wates Construction Limited



Richard Vertigan, Chief Executive, 4Projects



Paul Whitmore, Commercial Director, Morgan Sindall Group PLC



Andrew Wolstenholme OBE, Director of Innovation, Balfour Beatty PLC

Infrastructure Supply Chain: 

Michael Ankers OBE, Chief Executive, Construction Products Association



Rod Bennion, Chairman, McNicholas Holdings



Chris Boothroyd, Commercial Director, Vinci Construction UK Limited



Patrick Bruce, Group Commercial Director, Costain Group PLC



Steve Fox, Chief Executive, BAM Nuttall

The team is grateful and acknowledges the support of other organisations and people who have supplied material, contributed to production and provided expert views.

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Contents EXECUTIVE SUMMARY

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INTRODUCTION by Martin Rowark

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The Evolution of the Business Case for Collaborative Working Never Waste a Good Crisis Objectives of Our Study INFRASTRUCTURE IN TODAY’S ECONOMIC CLIMATE

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Government Recession and Survival A VISION OF INFRASTRUCTURE IN THE NEW ERA

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Developing a National Strategy A Vision for Delivering the Next Generation of Infrastructure Intelligent Clients Procurement for Whole Life Value Early Engagement of Supply Chain Integrated Supply Chains Building Information Modelling Standardisation Commercial Frameworks Financial Innovation Advanced Planning Government Action Benchmarking Lean Construction An Action Plan for Success AN ACTION PLAN FOR CHANGE

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Actions for Integrated Supply Chains Actions for Infrastructure Clients Actions for Constructing Excellence APPENDIX Methodology Key References

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Executive Summary The current economic crisis has changed the landscape for all involved in the UK construction industry. No longer able to rely on a healthy economy for continuing prosperity, companies have to rethink their approach to business and consider how they will survive the recession and maximise the opportunities as we emerge into a new economic and political era. In October 2009, the Constructing Excellence report ‘Never Waste a Good Crisis’, identified that the infrastructure sector had made considerably better progress than many other sectors of the construction industry in its attempts to reform and improve, since the publication of the Egan Report over a decade ago. This report seeks to understand the key drivers for this change and presents a manifesto for further improvement in the infrastructure sector – a key part of the construction industry. Constructing Excellence and Pinsent Masons set out to engage with the clients, consultants and supply chain contractors, specialists, product manufacturers, suppliers within the infrastructure sector to examine the approach being taken towards collaborative working and to understand their views to implementing change to the way in which infrastructure assets are procured, delivered and managed, particularly in the current economic climate. In undertaking this work, we defined the infrastructure sector to encompass both economic and social infrastructure. There was a mutual exchange of ideas with Infrastructure UK throughout the process of our dialogue with all parts of the infrastructure sector that informed the development of the Infrastructure UK Implementation Plan.

Vision A vision for ‘Infrastructure in the New Era’ emerged from a series of key roundtable discussions. Significant common ground also emerged on an action plan for change and improvement to the way in which infrastructure assets are procured, delivered and managed. The vision is an infrastructure sector where clients clearly understand their needs, build on those needs to define their requirement in terms of business outcomes and select and work closely with integrated supply-chain teams that develop and manage infrastructure assets over their lifetime, to deliver that requirement, supported by clear commercial and governance structures. ‘Intelligent clients’ have a holistic view on the core needs of their own business and long-term development programmes that achieve those needs. They have a focus on the performance of infrastructure assets over their lifetime, rather than a narrow focus on projects and capital cost. Intelligent clients are also lean, but bring together in-house inter-related capabilities, including expertise in procurement and contracting strategy, design and technological know-how, capital project and programme management as well as facility management and asset management capabilities, knowledge of project finance, understanding of alternative models of programme governance, leadership and stakeholder management skills.

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It is recognised that not all infrastructure clients have yet fully developed their in-house capabilities and developed the inter-related capability as intelligent clients of the future. Many clients have already embarked on change programmes that will develop their capability for the future, including BAA and the newly formed Defence Infrastructure Organisation, which provide models for other clients. The water infrastructure sector and some transport infrastructure clients also provide such models that will assist other clients develop their capabilities. Constructing Excellence will continue to work closely with its members, Manchester Business School and others to provide support for client and supply-chain organisations in the infrastructure sector to define and develop client and supplier leadership capabilities and to guide the development of advanced executive education. Commercial Alignment New business models are required which align and reward the supply side for delivering better value with regard to achieving delivery goals as well as goals for the performance of infrastructure assets over their lifetime. Collaborative working is a critical factor for the successful delivery and management of high-risk, high-value infrastructure assets. The alignment and integration of capital project delivery and operational requirements should be investigated as well as the opportunity for the supply-side to take a stake in the performance of infrastructure assets over their lifetime, and thereby help to unlock value.

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Constructing Excellence will work with Manchester Business School and others to promote collaborative working in the infrastructure sector and to encourage commercial alignment, particularly through innovation in funding, contracting and procurement models. Compete for Value Competition between suppliers is healthy, and the right basis for this competition is required to help deliver value. Client teams need to base competition between suppliers upon the whole life performance of infrastructure assets, including outturn delivery and operational costs supported by a deep understanding of business needs and the need for long term collaboration, rather than simply initial tender prices. Constructing Excellence will continue to develop, validate and support new methods for achieving value through competition, in partnership with government, clients and others. ‘Should’ Costs Investment is needed in research, at different levels, to ensure that government and other infrastructure clients develop a clear understanding of the actual cost of their assets over their lifetime, including both capital and operational costs. Constructing Excellence will engage with clients, suppliers, Infrastructure UK and infrastructure asset regulators to ensure that good benchmarking takes place across different infrastructure sectors such as rail, air, road, water

and other utilities, and that accurate data on the cost of good quality is available to procurers. Early Involvement Operational managers, specialist contractors, product manufacturers and suppliers are too often excluded from early decisions which have the greatest direct influence over asset delivery and performance, yet it is their operational strategies, products’ installation and performance which determine long-term success. The optimal early involvement of asset maintainers and supply-side partners in the planning, and design stages of new infrastructure assets is therefore critical to improving efficiency and productivity of delivery, increasing flexibility and adaptability to accommodate ongoing change in requirements, and reducing waste in all its forms. Constructing Excellence will continue to seek demonstrations of alternative approaches to early involvement and the identification and dissemination of the benefits that flow. Integrated Supply Chains Integrated delivery teams and supply chains need to evolve to deliver better value. These may take the form of one-stop shop organisations, alliances, joint ventures or special purpose vehicles. The key is to offer clients seamless and integrated whole-life solutions – a complete infrastructure asset from planning design to delivery and asset life management service to support business outcomes.

Constructing Excellence will work with Manchester Business School to understand the needs of infrastructure clients and to determine approaches that are best suited to meeting those needs. New Processes and Tools Success for intelligent clients and their supply chain partners needs the adoption of better processes and tools help to facilitate these. We welcome the Government’s acceptance that Building Information Modelling (BIM) and management will facilitate collaborative working and deliver better integration of the design process to improve the quality and efficiency of delivery, operation and maintenance. Constructing Excellence will work with the government and other industry bodies to ensure that BIM is established as a standard industry tool. Greater standardisation of delivery and operational processes, investment in modular products through standardisation of interfaces, clear mapping of functions to building components and development of tests to validate the functioning of the overall system once the components are put together are other tools and methods critical to achieving better value solutions and high performance in delivery and operations. Constructing Excellence will continue to prompt new innovations and to measure and review their success to demonstrate their impact.

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Use the Contract Modern collaborative forms of contract, such as the Engineering and Construction Contract (NEC), have been successfully adopted in the infrastructure sector. These seek to align risk and reward with the collaborative working behaviours essential to success and provide the tools for effective project management. It is important that those involved understand how to use standard and innovative contract mechanisms to align the interests of clients and suppliers. It continues to be demonstrated that far too few understand the management, organisational, and commercial principles on which the NEC is built to deliver the benefits of such forms of contract. Constructing Excellence will work with Pinsent Masons to develop and deliver project-based workshops on the NEC in practice and provide training in modern procurement techniques for the implementation of collaboration based contracts. Lean Processes Lean management, derived from the Toyota Production System, is a proven approach to manage and organise work, and identify and remove waste in production processes implemented across a wide range of advanced manufacturing and capital goods industries

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worldwide. Its introduction into the design and construction industry has been slow due to a conflation of reasons including organisations’ reluctance to make the necessary capital investments in an industry that is predominantly project-based, a lack of collaborative working on projects, inadequate commercial and procurement practices, and high levels of fragmentation within the industry. Constructing Excellence will facilitate sectorspecific activity, where it does not already exist, to search for the most effective ways in which lean principles and practices can best be translated and applied to deliver value in sectors as diverse as transport, water and power. Government Long-Term Plan The Government’s National Infrastructure Plan provides a long-term view of the UK’s infrastructure needs. It is vague on who might fund this investment and how it might be delivered, let alone on how capital and operational budgets might become single Asset Life Budgets. Constructing Excellence will maintain its dialogue with Government, private sector funding organisations and clients to improve the quality of the National Infrastructure Plan.

Introduction by Martin Rowark

The Evolution of the Case for Collaborative Working In 1994 the Latham report, Constructing the Team, identified the adversarial nature of the construction industry as the core feature that required change. The report advocated a partnering or collaborative approach, defined as a commercial and technical relationship between client and supply chain organisations involved in the design, delivery and operations of built assets characterised by mutual trust, pursuit of alignment of incentives, co-operation, openness, and understanding. The benefits of this approach were seen to be improvements in quality, timely completion within budget, and reductions in cost and waste. The Egan report Rethinking Construction followed in 1998. Its recommendations were summed up in the 5-4-7 model developed subsequently.

Figure 1: The 5-4-7 Model, as reproduced in Never Waste a Good Crisis, Constructing Excellence, October 2009 “Sustained improvement could then be delivered through eliminating waste and increasing value for customers. The Task Force also felt that for the industry to reach its full potential, it needed to change its culture and structure to support improvement. Furthermore, it felt that better results could be achieved through long term relationships based on clear performance measures and sustained improvements in quality and efficiency by continuing to learn and improve as a team, rather than competitively tendering and having to create a new team for every piece of work.”1 1

A number of other government/industry reports published since 1999 have continued to build the case for collaboration. The issues have centred on reducing waste and inefficiency, improving health and safety and respect for people, and the need for buildings to be more environmentally sustainable. These reports include Accelerating Change (2002) published by the Strategic Forum for Construction, the OGC publication Achieving Excellence (2002) and the National Audit Office reports Modernising Construction (2001) and Improving Public Services Through Better Construction (2005).

Never Waste a Good Crisis – Chapter 2 – A brief refresher course on Rethinking Construction

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Never Waste a Good Crisis The Constructing Excellence report, Never Waste a Good Crisis (2009), prepared by a team of industry experts chaired by Andrew Wolstenholme OBE, concluded that the construction industry had made progress since Sir John Egan’s report Rethinking Construction in 1998, but not enough. “Few of the Egan targets have been met in full, while most have fallen considerably short. Where improvement has been achieved, too often the commitment to Egan’s principles has been skin-deep.” “A little less conversation, a lot more action please”.2

Its evidence came from a survey over 900 industry practitioners, the portfolio of over 500 Constructing Excellence demonstration projects, the industry key performance indicators, and the views of the younger generation (G4C). All pointed towards the most widely perceived change over the previous decade as a greater emphasis on collaborative working and integration. The report identified four groups of ‘blockers’ that have stifled change in the industry: 1. 2. 3. 4.

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The report recognised that the preceding decade of economic prosperity had sheltered the industry and allowed it to perform well without it having to strive for innovation. It identified the current economic crisis as the perfect opportunity to galvanise the pace of change in the industry.

Business and economic models Capability Delivery model Industry structure

Both from Never Waste a Good Crisis. Constructing Excellence, 2009

clients with major programmes and strong inhouse ‘intelligent client’ teams. ‘Successful teams have consistently integrated their processes and achieved results through a sustained programme of change – many adopting the Egan principles and adapting their business model to incentivise and promote best practice.’ 4 Objectives of Our Study

Figure 2: Indicative Ratio of Costs and Value over a Building’s Life Cycle, Never Waste a Good Crisis, Constructing Excellence, October 2009 The report endorsed the proposition in Be valuable3 that there should be a focus on value, or the concept of built environment, not merely its design and construction but the ways in which value is created and delivered throughout the whole life cycle of an asset, supporting and enabling the rest of the (low carbon) economy. Figure 2 illustrates the concept that the value delivered by the asset over its lifetime dwarves the initial capital cost and its running costs. The infrastructure sector, amongst others, was identified as having achieved more progress than most. The water and air transport sectors had benefited from the impetus provided by the regulatory mechanisms for better capital value investment. Other clients cited included NHS Estates’ Procure 21, Defence Estates’ Prime Contracting, Birmingham City Council, Manchester City Council and Hampshire County Council, all examples of enabling integrated teams through collaborative working – and of

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Over the last 12 months Constructing Excellence and Pinsent Masons have engaged with the clients, consultants and supply chain in the infrastructure sector to better understand why they had made better progress that most others, their approach to collaborative working and their views on implementing change particularly in the current economic climate. The group recognised that continuing the drive towards collaborative working was the best way for the infrastructure sector to achieve best value outcomes. The experience of the group demonstrated that there remains work to be done to achieve such collaborative working and that this requires active engagement and change by clients, suppliers as well as government. The remainder of this report summarises the findings of our dialogue with a broad group of practitioners. It sets out a series of actions to be undertaken by clients and supply‐side partners to achieve their vision for the infrastructure sector. The methodology used for the study is set out in the Appendix.

Be valuable, Richard Saxon CBE. Constructing Excellence, 2006 Never Waste a Good Crisis. Ibid

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Infrastructure in Today’s Economic Climate The construction industry today and the government that sponsors it continue to be fractured in their structure and approach to construction, although some progress has been made. Government The Government has a Chief Construction Advisor, public procurers are using the Engineering and Construction Contract (NEC) or other collaborative contracts to a significant degree, although many are substantially amended to be more like a traditional form, and the approach to collaborative working, is generally an understood and accepted concept, even if given lip service in places. The Comprehensive Spending Review published by the UK Coalition Government in October 2010 outlined £81 billion public spending cuts which are forecast to have a significant impact on the infrastructure sector. Capital budgets for central government departments have been cut by an average of around 30% in the Comprehensive Spending Review. The publication by Infrastructure UK of the National Infrastructure Plan provides a clearer picture of the Government’s view on the future plan for infrastructure in the UK. The continued separation of capital expenditure (CAPEX) and operational expenditure (OPEX) budgets works against the development of Asset Life Budgets that would allow infrastructure clients to develop a more holistic approach to their investments. Government, due to its structure, takes a disaggregated approach to the planning and delivery of infrastructure assets. Short-term thinking based on political tenure rather than a

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long-term plan for the UK’s national infrastructure need reduces the potential for the development of collaborative working. The financial markets continue to apply strict requirements on borrowers that translate into contractual terms that are opposed to the concept of collaborative working and can stifle a client’s ability to develop the relationship that will provide the most beneficial outcome. EU procurement rules are seen by the industry as an obstacle to the development of collaborative working. They are seen to constrain the ability to collaborate early, e.g. prior to the selection and award stage. Competitive dialogue is seen by suppliers as misused for the purpose of assisting clients to understand their own requirements. However, they do force a level of good practice through the principles of transparency, equal treatment and non discrimination. Different approaches to early involvement are evident, including market engagement and pre-tender enquiries. The market is adapting to the constraints of EU procurement rules and finding ways to legitimately engage with the market while remaining compliant with the principles and rules. Consultants are fragmented by membership to their respective institutes and institutions. There is no dominant single body which can unify the industry and allow the development of a single agreed holistic view of construction. There is also a lack of diversity amongst industry leaders, and it continues to be a struggle to recruit a balanced workforce at all levels. Some suppliers are able to provide a one stop shop for most requirements through the development of the PFI market, but this remains

dominated by joint ventures and special purpose vehicles. Design-build-operate integrated forms of procurement on their own do not guarantee integration of the functions involved. Thus, even where suppliers can provide all the components of a service provider, the internal structure of the organisations continues to reflect the separation of CAPEX and OPEX by government and clients. Lack of flexibility to accommodate change in requirements, and recent transactions of portfolios of PFI contracts between companies that ended up with some companies engrossing margins from realising economies of scale have also complicated the extent to which PFI forms of procurement can deliver value for clients.

Recession and Survival The changing economic climate has left a stark choice for companies – change and innovate or risk survival in the new era. Constructing Excellence’s Survival Guide – Working out of an Industry Downturn, 2009 considered the options available to organisations: U-turn back to the old ways; maintain direction with a hope that the rest of the market does not leave you behind; or proactively pursue full collaborative working. We believe that future success requires better alignment of drivers, including businesses moving to new models that provide incentives for suppliers to deliver quality and sustainability by taking a stake in the long-term performance of infrastructure assets. Collaborative working can also be argued from the proven benefits it provides in terms of cash flow, efficiencies, ability to win work, project performance, people and skills development, innovation and benefits to the environment5. Plausibly, by creating better environments in which to work, collaborative working can also increase the ability of the industry to compete with other industries to recruit and retain talent.

Figure 3: Survival Guide – Working out of an Industry Downturn, Constructing Excellence, September 2009

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It was widely recognised in our discussions that it is outturn cost which matters, not tender price. The choice of route to business success for the supply chain was coined in the phrase, “claim it, or lean it”. This was seen as a choice between an adversarial approach consisting of claims and disputes, or the alternative of working to drive out cost and waste through continuous improvement.

Construction Excellence’s Survival Guide – Working Out of an Industry Downturn

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It was recognised that there is value in repeat business for the supplier. Repeat business helps different client and supplier organisations to get to know each other over time, to develop mutual trust and understanding, and to work more efficiently together. This in turn helps to reduce conflict and accelerates the process of finding ways to overcome difficulties. Furthermore, suppliers are less likely to be claims conscious if there is the prospect of a long-term workload. It was also considered that many of the benefits can still be achieved on a single project as well as on a repeat programme. BAA’s Award Fee stands out as a method of incentivising alignment – see Box in next section.

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The business case for collaborative working is also supported by the realisation of an understanding that asset life decisions are directly related to business outcomes and that this alignment will be hard to achieve without the full development of collaborative working. Evidence for the success of collaborative working in infrastructure can be found in the water sector. This sector is mature and has enabled involvement higher up the value chain to incentivise operational expenditure improvement. The 5-year AMP period has helped by providing relative ‘longevity’.

A Vision of Infrastructure in the New Era The infrastructure sector needs to continue to build upon its successful progress over the last decade to secure its own future as a sector that adds value, and is seen to do so, to the business of its clients. It is already a sector that has achieved remarkable change in key aspects of its delivery, but it needs to continue to change to achieve greater efficiency and cost reduction.

Our vision for the infrastructure sector is one where clients, first, clearly define their needs and, subsequently, their requirements in terms of business outcomes and then, second, where clients engage with integrated supply chains that are keen to work jointly with clients to develop and manage infrastructure assets over their whole life.

Developing a National Strategy

Intelligent Clients

The recent Infrastructure UK Cost Review published by HM Treasury concluded that the UK could potentially save up to £3billion per annum or 15% of its expenditure on the delivery of key infrastructure programmes. In our opinion, this valuable research needs to be extended to examine whole life infrastructure asset costs and efficiency improvement, where we expect there is further significant improvement and value to be gained.

It is clear from the discussions that clients need to continue to improve the way in which they procure and manage major infrastructure programmes.

Stakeholders in our key roundtable discussions emphasised that the nature and role of relationships between the key parties in the infrastructure sector need to change. Along with this, the culture across all organisations involved with the design and construction of infrastructure assets needs to evolve for that change to materialise. A Vision for Delivering the Next Generation of Infrastructure A key finding from the considerable input made by all stakeholders involved with our roundtable discussions is that ‘intelligent’ clients and integrated supply chains based upon long-term relationships need to evolve to ensure that much greater levels of efficiency in capital delivery and operations as well as effectiveness in meeting customers’ evolving needs can be achieved.

The overwhelming view of all stakeholders in our roundtable discussions is that clients need to become more ‘intelligent’. Clients need to be ‘thin’ rather than ‘thick’ and employ key resources at all levels to develop and manage infrastructure assets to achieve their business outcomes. Intelligent clients need to focus on involving their senior executives in determining the right level of in-house expertise and know-how at different levels to build their capability to manage and provide effective governance and leadership for major capital investment programmes to achieve key business benefits, whilst acknowledging that business objectives are dynamic and under constant evolution. Stakeholders in our roundtable discussions emphasised the need for ‘intelligent’ clients to develop capital project and programme management skills. All stakeholders in our discussions about the future of the industry emphasised that modern

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Case Study: The Intelligent Client Stephen Livingstone, Programme Control and Performance Director, BAA Capital, Heathrow Airport Limited and David Ferroussat, Programme Commercial Manager – Terminal 2, BAA Capital, Heathrow Airport Limited BAA, as a major infrastructure investment client, is currently engaged in the transformation of Heathrow Airport to the benefit of the airlines’ passengers in making every journey better. This programme of investment requires BAA to act as an Intelligent Client in the way it manages key stakeholder and contractual relationships in an enhanced manner to the existing best practice programme management techniques and by using airport expertise to supplement external competence. By being successful at this BAA ensures its key stakeholders are informed on the benefits for any investment at an early stage in the programme process and is able to articulate its requirements (the What’s and When’s) to those external experts (those who know the How’s) who will be engaged in a competitive and contractual manner to deliver the capabilities. Being an Intelligent Client will enable BAA to have a clear connection between agreed Master Plans and the capabilities being successfully implemented so that the businesses that make up Heathrow can share in the benefits. BAA will do this by ensuring: •

Focus on the bigger picture, in that they will do Programme Management instead of Project Management and progress to Benefits, Risk and Cost from a primary focus on Scope, Schedule and Cost.



BAA and its contractors will each have clear and separate roles and accountabilities



BAA will ensure that it has correctly chunked its programmes, clearly defined the needs and intelligently selected and engaged the appropriate supply chain.



The goals of contractor and client will be aligned through intelligent, incentivised contracts and the contract will always be enforced



Their focus as the client will be on removing external obstacles to facilitate contractor delivery



BAA and their key stakeholders will engage early in the Programme process to agree the resultant benefits before projects are developed to deliver benefit.

And, safety, quality, environmental protection, ethical behaviour and frugality are absolute and paramount. To help drive this step change in behaviour down the supply chain and to support the Intelligent Client ethos, BAA have, outwith and above their normal contracting forms, introduced the concept of an ‘Award Fee Pool’. This form of incentivisation focuses and rewards contractors based on their behaviour i.e. responsiveness, co-operation, innovation, and is only paid on a discretionary basis. This is an immediate reward for performance rather than a promise of future work. As well as the Intelligent Client, BAA’s view is that the industry also needs to provide Intelligent Contractors that understand and can deliver to the client’s specific requirements and needs.

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intelligent clients focus on the efficient sharing of commercial, technical and reputation risks. Risk is best placed with the party most able to manage a particular risk within projects. The view of stakeholders that we consulted was that risks should be identified and managed. With collaborative contracts, such as NEC, risks are either identified as Employer’s risks or are a Contractor’s risk. The financial consequences of Contractor’s risks eventuating with a target price contract may be shared through the pain/gain mechanism. Stakeholders considered that Employer’s risk should be controlled via a separate risk budget linked to a project or programme risk register. Clients need to become more and more integrated internally in order to gradually move to a position where they are better able to offer a single point of responsibility, or at least a set of coherent and consistent voices, for asset delivery and management. A model for the intelligent client role focuses on the delivery of key business and organisational outcomes using for that purpose the procurement, delivery and management of key infrastructure assets. Put differently, investment in capital projects and programmes are but instruments to achieve business and organisational objectives. To put this way of thinking in practice, clients need to be involved in the optimisation of asset performance throughout the whole life of the asset and ensure that operational issues inform the discussion around the initial capital cost and the design of the asset.

Case Study: Early Contractor Involvement And Optimised Contractor Involvement Steve Rowsell, Procurement Advisor, Crossrail Limited (Formerly Procurement Director, Highways Agency) RowsellWright The potential benefits of Early Contractor Involvement (ECI) are now widely recognised and the approach has been used by a range of public sector construction clients. There has however, been some reluctance by other clients to adopt ECI because of issues relating to the appointment of contractors at an early stage in the development of projects. These issues include the perception associated with the appointment of a contractor possibly before planning or other permission has been given to the project. This might suggest that the planning decision is being pre‐empted. ECI also raises issues about how to establish a competitive price in the selection of the contractor before the design is very advanced. The principle of ECI can be applied in a range of different ways to meet the requirements of different clients. A good example of the use of ECI is the Highways Agency who developed ECI based on an early design and build approach. This was supported by a best value approach to supplier selection which included a pricing process to develop a target price when the design was sufficiently developed. An alternative approach has been developed by Crossrail which has been called Optimised Contractor Involvement (OCI). In the Crossrail approach the client retains most design responsibility and following contract award the contractor works alongside the designer for a period of time to review and optimise the design prior to the start of construction. The OCI method allows a more robust price to be tendered whilst maintaining incentives to improve the solution for the mutual benefit of the client and the contractor. These alternative approaches demonstrate that the issues associated with ECI can be addressed in different ways. Not all approaches however, have been successful. Some clients have sought to obtain a fixed price using ECI when the design is not well developed and to pass the risks associated with completing the design to the contractor. It is unlikely that such an approach would attract good value bids because of the difficulty in pricing and managing the risk. The experiences from organisations such as the Highways Agency and Crossrail have shown that the issues can be satisfactorily addressed but they do require careful consideration and they need to be supported by robust processes. For clients who are new to the use of ECI there is currently a lack of guidance on the methods that can be used to mitigate associated risks and how to use the approach to achieve demonstrable best value. It is important to recognise that in order to achieve optimal whole life value it is not only necessary to involve the contractor and their supply chain in an appropriate way prior to the construction stage, but also to involve the maintenance and operations organisations to ensure that these fundamental requirements are delivered safely and as efficiently as possible.

Procurement for Whole Life Value The performance of infrastructure assets over their lifetime, including the capability of the assets to adapt economically to ongoing change in requirements, regulatory frameworks and business needs, is critical for clients and for the infrastructure sector to focus on to achieve success in finding the right balance between efficiency and effectiveness. Importantly, the cost of maintaining and operating infrastructure assets over their economic lifetime can be many times higher that the initial capital cost. The development of an Whole Life Budgets is therefore seen as critical to success. The Asset Life Budget incorporates both capital and operational expenditure throughout the whole life of the asset. Clients become responsible for the availability of built assets to the core business in a truly integrated way. Many client organisations are fragmented and compartmentalised internally and so are unable to see whole life value. A key for clients in procuring infrastructure assets on a whole life basis is specifying the required performance of the infrastructure asset over its lifetime. Alignment of objectives is seen as a critical success factor in achieving collaborative working. One possible scenario that is worth further exploration – but certainly not the only one – is to ensure the supply-side team acts more like a systems integrator and therefore has a financial stake in the performance of the infrastructure assets and eventually even in the delivery of business outcomes. Some stakeholders

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considered this to be a critical success factor in the right conditions for the future. Early Engagement of Supply Chain The early involvement of asset maintainers, contractors, specialists, building products manufacturers, system suppliers and others in the design and development of infrastructure projects is seen as another critical feature of any successful project. Evidence in specialised literature confirms this point. Indeed, stakeholders in our workshops emphasised the need to engage with all parties early in the

project. Key to this is ensuring the procurement model enables the engagement of the whole delivery team, particularly specialist contractors who are responsible for undertaking a substantial proportion of the delivery and who can have the greatest direct influence over improving efficiency and reducing waste. Figure 4 below presents Constructing Excellence's latest summary of the core principles of collaborative working, reflecting the importance attached to early involvement.

“Working together in a seamless team to common

Common vision and leadership

Three overriding principles

Six critical success factors

An absolute focus on the end purpose based on a clear understanding by all participants of what represents value for the client and end users. Leadership needs to establish this common vision and then constantly relate progress by the project to this vision to reinforce the team’s goal.

Collaborative culture and behaviours Collaborative behaviours include teamwork and joint problem solving. Participants demonstrate values such as trust, fairness, openness, no-blame, honesty and transparency.

Collaborative processes and tools Adopting processes and tools which support the development of the such as information collaboration platforms, open book costing, lean and waste elimination, and project bank accounts.

Early involvement

From the start, engage with all those who have a value contribution to make, including specialist contractors, manufacturers, commissioning consultants, facilities managers, etc, and pay for their expert input. Ensure no party has to implement decisions which they have had no part in discussing and developing.

Selection by value

with lowest price tendering focused on upfront capital reduction. Appoint the best not “cheapest” and focus on out-turn cost and whole life legacy value.

Aligned commercial arrangements

Adopt commercial arrangements that underpin all the above principles: collaborative forms of contract (NEC, PPC, JCT/CE), risk management and risk sharing, incentivisation such as open book cost management, target cost with pain-gain share, fair/prompt payment mechanisms (eg single project bank accounts), project insurances. Avoid historic risk-dumping forms of contract, exploiting suppliers on price, or late payment.

Common processes and tools

Avoid duplication of roles and effort through eg co-location, extranets, Building Information Models and management. Implement value management and other lean techniques to eliminate all waste. Pay on milestones not monthly valuations, which are a wasteful process.

Performance measurement

Adopt client-focused Key Performance Indicators. Measure and review throughout the project to indicate progress towards success, and use as the yardstick for continuous improvement activity. Include measures and reviews of behaviours as well as hard processes.

Long-term relationships

time. Minimise waste by working with people who have developed a culture of trust and inclusivity while understanding the need to continually question, challenge and improve.

Figure 4: Collaborative Working Principles, Constructing Excellence, June 2011

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Integrated Supply Chains One innovation that stakeholders in our workshops identified centred around the need for the delivery team to embrace change by offering clients a seamless and integrated solution – a complete strategic asset planning with strategic business advice including options for funding through design, project delivery and asset aftercare service. Integrated teams may come together under a single umbrella organisation – commonly called a project integrator. Interestingly, this is a role that many lead contractors are increasingly embracing. The development of alliances and joint ventures is also a way to achieving the goals of clients where parties within the alliance or joint venture are committed within a long-term relationship and where each party has aligned objectives within the alliance or joint venture. To ensure that alliances and joint ventures work effectively is not trivial by any means, however, and it is necessary to ensure the JV or alliance parties share the same culture and objectives. Clients must focus the need for competition between suppliers based on the whole life performance of infrastructure assets, rather than initial capital costs alone. This is likely to lead to better value solutions. A narrow focus on capital costs alone is unlikely to drive efficient solutions. Integrated teams must invest in the people, knowledge, processes, and tools that will enable them to deliver the most efficient and effective asset performance to best meet client business outcomes. Critically, the evolution of collaborative working is such that intelligent lead contractors can be

expected to safeguard their supply chain team in hard times. Building Information Modelling Investment across integrated supply chain teams in shared business and information management systems is critical to improving efficiency and cutting waste. Building Information Modelling (BIM) and Management is a set of processes and tools that will enable and facilitate collaborative working across integrated teams. BIM has been developing over a number of years and will enable all parties within the client organisation and integrated delivery team to collaborate and drive efficiency. BIM helps provide a focus on building the most efficient solution. Standardisation Standardisation of processes and products is critical to achieving lower costs. This does not necessarily mean standardised buildings. It does mean that standardised building components and systems (as well as the interfaces between the components, the overall design, and the tests to validate that the components work well together) are developed and used together with standardised processes for design and assembly of components. Typically, this will involve clients bringing their suppliers together in a closer partnership to solve problems and develop solutions in the same way that other industries and parts of the economy rely on their suppliers to develop and deliver innovation. Commercial and Contractual Frameworks Another key aspect of collaborative relationships is the contractual frameworks that govern commercial relationships.

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The need for a clear and certain contractual framework was recognised and stakeholders in our workshops emphasised that modern contracts that include an open and transparent commercial approach for the delivery of projects are critical to the success of collaborative working which in turn is critical in improving efficiency and reducing waste and ultimately in the success of the overall performance of infrastructure assets. Stakeholders in our roundtable discussions provided significant examples where modern approaches to contracting have provided a sound basis for collaborative working and where these approaches supported the drive for efficiency and cost reduction. The majority of infrastructure clients we engaged prefer to use NEC as a contractual framework in the delivery of infrastructure projects. Our roundtable discussions highlighted that too few in the industry fully understood the NEC contract – particularly the project management system upon which it is based. Many experienced users of the NEC contract expressed concerns that both clients and supply chain teams were generally inexperienced in the use of NEC. There are many examples where NEC contracts have been operated similarly to the older type of JCT and ICE contracts that has led to significant dispute issues between clients and supply chain partners.

procedures for modern contracts. They are also useful to help identify problems and issues early. The role of the legal profession is also changing. Legal experts are increasingly working more closely with clients and suppliers during the earlier stages of a project, in building solutions that enable the mutual alignment of commercial interests in detriment of focusing on reactive claim management and litigation. They are also involved throughout the life of the project in helping and supporting all parties to clearly and proactively identify and manage key responsibilities and accountabilities, thereby reducing the potential for conflict. Financial Innovation One vision for the future of the infrastructure construction sector is where integrated supply chain teams are aligned with the core business interests of clients to the extent that these teams have a stake in the performance of infrastructure assets. This was deftly described as ‘holding skin in the game’. For suppliers to have equity in the performance of infrastructure assets (in a way not totally dissimilar to Rolls Royce’s power-bythe-hour and other innovative models) is one potential way worth exploring through which organisations can drive efficiency and cost reduction and improve effectiveness. Advanced Planning

Investment by clients and integrated teams is needed to build awareness of how modern contracts such as NEC operate and how to obtain the benefits of such contracts. The discussions referred to examples where project workshops including client and supplier teams were used effectively in building awareness of commercial processes and

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The lack of adequate planning skills within the infrastructure sector and construction industry is a key issue in the delivery of projects. The logistical planning of projects is vital to the success of any project.

Government Action

Lean Construction

The UK Government, through Infrastructure UK, has a key role as client and sponsor of the infrastructure construction sector. Our roundtable discussions were highly supportive of Infrastructure UK’s plan to provide a single longterm plan for infrastructure investment in the UK.

Advanced manufacturing and capital goods industries across the world use lean production systems inspired by Toyota to identify and strip out unnecessary waste and therefore cost. They have also embraced the key concepts of continually improving processes, design to cost, quality conversations, just in time deliveries, and minimum batch size. As construction has consistently proven, these concepts cannot be put effectively into practice without collaborative working.

Bringing together a long-term plan for infrastructure will allow the UK Government to develop Whole Life Budgets for investment in infrastructure assets and work with integrated supply chain teams to promote competition based upon the performance of infrastructure assets. Benchmarking Government as a key client of the infrastructure sector needs a clear understanding of the cost of infrastructure assets over their lifetime. Simple metrics are required that can be used across government departments and the regulated sector to understand the performance of infrastructure assets over their lifetime.

An Action Plan for Success The vision set out in our report was based upon the views of infrastructure clients, consultants and supply chain partners. There was a remarkable level of alignment in the views and opinions of all parties – we have summarised the key themes in Figure 4. In our opinion, this clear alignment of views and opinions provides a sound basis for the infrastructure sector to move forward towards achieving considerable further change in meeting the challenges in the New Era.

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Theme

Clients

National strategy

Consultants

Supply Chain

Infrastructure clients are long-term owners and need long-term Plan

National Infrastructure Strategy gives long-term confidence

Water 5-yr AMP period gives work flow plus downward pressure on costs Single industry body Finance

Clients and procurement

Promote value of infrastructure to wider economy Strength of balance sheet counts these days

• Involve financiers to develop models for private sector money • Better private finance models without excessive risk transfer

Alignment of commercial interests between clients and suppliers, including recognise when there is value in repeat business for suppliers

Collaborative working = mutuallybeneficial commercial alignment Equity in the delivery model – “skin in the game”

• Joint ventures force for good - ‘all in it together’ with aligned objectives. • 100% risk transfer model is flawed • Alignment means transparency about objectives, not just money

• Programme Management • Client needs to think upstream and downstream • Balance of procurement approaches required, ‘horses for courses’

• Client leadership as a discipline • Disconnect between business case outcomes and procurement • Proper metrics are required for target cost

• ‘Thin intelligent client’ models, pressure for yearon-year improvement • ODA best practice client, gave govt and industry confidence and trust • Immense reliance on client-side consultants and bureaucratic process

Public sector too conservative, EU rules constrain early collaboration

EU rules highly inefficient

Public sector aversion to mistakes

Pendulum is swinging - is there compelling evidence against lowest price and for collaborative working?

Are we prepared to go lowest price, knowing downstream problems?

Drift back to fixed prices but clients lack skills to define requirements

Pendulum is swinging - is there compelling evidence against lowest price and for collaborative working?

Are we prepared to go lowest price, knowing downstream problems?

Drift back to fixed prices but clients lack skills to define requirements

Understand requirements and risk better

Better understand risk and contingency

Why client-led change?

Culture throughout chain, but client led

Have confidence in our ability and strive for the next generation of exemplars Supply side firms needs to create their own case for change and not wait for govt [or clients]

Govt needs to follow rules on whole life/carbon appraisal Disconnect between CAPEX and OPEX

Low carbon as driver, low carbon needs supply chain Sustainability being sidelined due to economic constraints

Figure 5: Alignment of Views and Opinions of Key Infrastructure Stakeholders (continued on next page)

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Theme

Clients

Consultants

Supply Chain

Delivery

Value in design needs early collaboration with the supply chai

Early supply chain involvement with trust and transparency of costs

Systems integrator model

Clients often appoint separate disciplines Supply side “more for less”, integrate and innovate causing fragmentation instead of for lean integrated teams

“Claim it or lean it” to drive out Collaborative working means looking cost after suppliers – smart supply chain management

[as above]

Standardise processes as well as components and off-site

PI insurance constrains the consultant and makes innovation ‘too risky’

Getting consistency from supply chain

Opportunities for learning from More firms looking overseas, lessons can Need solid evidence of whether and why UK costs overseas be learned from eg Spain, USA, Japan are higher than overseas Collaborative contract delivers lower final outturn, but training needed

Resource the (NEC) contract properly

It’s all about people, how to keep them, and A teams

People are our only asset but not enough A teams, so need collaborative working and integration

Diversity is still a challenge

Lack of diversity amongst sector leaders

Figure 5 (continued): Alignment of Views and Opinions of Key Infrastructure Stakeholders

Note: All three workshops had exactly the same introduction about the findings of Constructing Excellence’s Never Waste a Good Crisis report and were posed the same three broad questions as a basis for discussion (see Appendix). These were reviewed and discussed further at the final workshop.

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An Action Plan for Change This action plan is designed to help all leading parts of the industry. It is a manifesto or ‘deal’ for clients and supply chain teams to act together to continue the successful improvements that have already been achieved within the infrastructure sector. We have identified actions for clients and supply chains, as well as for Constructing Excellence and its partners who will continue to facilitate modernisation and improvement across the infrastructure sectors. Actions for Integrated Supply Chains 1. Develop integrated supply chains to provide all aspects of infrastructure planning, design, delivery and aftercare - maintenance and operation. 2. Drive the principles of collaborative working and practical actions across the supply chain to second- and third-tier and beyond.

4. Embrace and develop the use of Building Information Modelling and management as a set of processes and tools to foster greater levels of collaborative working between client and lead contractor and with specialist contractors, product manufacturers and materials suppliers. 5. Invest in lean production for the infrastructure construction sector and embed the core principles and practical actions into every aspect of the end-to-end process of planning, designing, delivering and managing infrastructure assets. 6. Improve and embed project planning and logistics skills within integrated supply chains. Planning skills and logistics are critical skills within integrated supply chains that are in short supply within the infrastructure sector and within the broader construction industry. Actions for Infrastructure Clients

Much progress has been made in several sectors at first-tier level, i.e. between client and consultant and/or lead contractor. Less progress has been evident when it comes to the lead contractor’s procurement of specialist contractors and products and materials, and yet it is in these tiers where much of the cost is wasted and where efficiency improvements due to better procurement, collaborative working and lean production can make such a huge impact. 3. Develop technical and commercial models that put the performance of infrastructure assets over their economic lifetime at the heart of the overall offer to clients.

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1. Develop long-term plans for capital development of new infrastructure assets to be managed through whole life budgets. 2. Develop an intelligent client function that focuses on the delivery and management of infrastructure assets over their lifetime, effectively breaking down the barriers that exist within many client organisations that prevent a focus on whole life value. 3. Put in place an intelligent programme management function that takes a strategic role in project delivery and the overall management of infrastructure assets to achieve business outcomes.

4. Promote competition with suppliers based upon the performance of infrastructure assets over their lifetime rather than focusing competition on capital cost only when appropriate. 5. Promote ways in which integrated supply chains can share knowledge and best practice between different supply chains. Actions for Constructing Excellence 1. Restate collaborative working based upon ‘mutual alignment’ as the key critical success factors. Constructing Excellence defines collaborative working to include modern commercial arrangements underpinned on the objectives of teamwork, mutual trust, early involvement of suppliers at the front-end of projects and continuous improvement. A restatement must make clear that it is critical to align the business incentives and objectives of all parties to deliver mutual success, ie the client-side objectives of high performance delivery and asset management are aligned with the business objectives of suppliers. If achievement of one party’s objectives can only result in the other party losing, then the capital programme is set up to fail. 2. Work with Manchester Business School and others to facilitate the definition of agreed core competencies and capabilities for capital programme management and the availability of education, training and development in support of this. 3. Work as closely as possible with Infrastructure UK and other public sector bodies to support their improvement strategies where aligned with Constructing Excellence’s agenda for change.

4. Engage with infrastructure asset regulators (Ofwat, ORR, Ofgem etc) to develop more effective cross-sector regulation by introducing a regulatory function for capital and whole life expenditure which applies across all the regulated sectors to ensure consistency as well as comparisons between sectors such as rail, air, and water. A consistent view in our discussions was that Ofwat’s regulatory model for capital efficiency in the water sector has worked well, with year-onyear targets and the use of league tables. This has led to the adoption of many good practices by clients and supply chains, for example smarter procurement including frameworks, collaborative working and lean thinking applied to reduce costs, with a focus on optimal value for money balancing CAPEX and OPEX. 5. Support the development of innovative funding, economic and business models for capital programme development. Work with Manchester Business School, City financiers and others to encourage innovation in models to fund and finance new infrastructure developments which inter alia provide ‘skin in the game’, rewarding the supply side for delivering better value defined in terms of the overall performance of the asset over its lifetime. 6. Explore ways to develop and implement crosssector benchmarking that supports continuous improvement and learning in the efficiency and effectiveness of capital programme investment and asset management across all infrastructure sectors. Work with client and integrated supply chain teams to develop a measurement regime and learning forums which enable meaningful

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Case Study: Investigation into the use of Public Procurement as a tool to Stimulate Innovation House of Lords Science and Technology Committee – May 2011 In 2009-10, public procurement was valued at over £236 billion, approximately 15% of GDP. Government is "the single largest customer" in the UK. This magnitude of expenditure provides enormous potential to stimulate innovation and encourage economic growth – a potential which, according to the Committee, is not being realised. Having investigated departments across the board and the Department for Transport in particular, the Committee calls for a "root and branch" change in attitude towards adopting innovative solutions throughout the public sector. It wants the Government to find innovative procurement solutions to achieve better value for money, promote economic growth, and encourage the translation of scientific research into innovative goods and services. Committee Chairman, Lord Krebs, said: "Government spent over £236 billion in 2009-10 on buying goods and services. This represents a significant opportunity for public sector organisations to use that money not only to encourage innovative solutions to procurement problems but to achieve better value for money and to stimulate economic growth. Too often, the public sector falls back on tried and tested solutions and new ideas are stifled by a culture of risk-aversion and overly burdensome procurement processes. We have uncovered a number of barriers to innovative thinking and we call on the Government to use their expertise to resolve them without delay. We look forward to hearing the Government’s ideas about how they can solve some of these problems and what methods have been put into place to embed innovation as a fundamental component in the procurement process. We will carry out a follow up inquiry in 12-18 months" The report also recommends appointing a Minister to have overall charge of procurement and innovation, and a Minister within each department with specific responsibility for innovation and procurement in relation to departmental spend.

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comparisons of the performance of capital programmes and operations of infrastructure assets and subsequent learning across sectors. 7. With Pinsent Masons, develop and deliver project based workshops to help and support client and integrated supply chain teams to identify and manage across-the-board risks appropriately, and 8. Deliver training in modern contracting and procurement approaches. This includes raising awareness for how strategic thinking in contracting and procurement needs to inform the choice of the most suitable commercial agreements under a specific set of circumstances, thereby framing commercial agreements such as NEC as fundamental commercial instruments to implement a broader business and commercial strategy. The NEC is widely used in infrastructure. However far too few understand the project management system on which it is built. Improving understanding of how to use the contract mechanisms would be hugely beneficial for both client and integrated supply chain teams.

Appendix: Methodology Constructing Excellence and Pinsent Masons organised a series of discussions with influential representatives of the infrastructure sector. The aim was to consider why organisations operating in this broad sector had been more successful than others in implementing change, to determine how to move the agenda forward and to extend to other sectors to support change in the strategic thinking and behaviours of clients and construction industry supply chain. Separate discussions were held with senior executives from clients, consultants and supply chain partners to understand each discipline’s views, followed by a combined session with all the groups to consider the issues raised and to develop a short term and long term action plan. This final workshop was also attended by senior executives from Infrastructure UK, Manchester Business School as well as the Government’s Chief Construction Advisor. Participants at each session were asked three central questions: 1. What are the challenges to industry-wide collaborative working in the new post-election and post-credit crunch era and how do these challenges impact on our future procurement and contracting strategies?

3. What will we be looking for from infrastructure clients and construction industry supply chain? Are our expectations realistic or are we setting ourselves up for failure through lack of understanding of business drivers informing the actions and behaviours of clients and suppliers? The combined final session posed three questions: 1. Do you agree mutual alignment of commercial goals is the key challenge for the infrastructure sector going forward? If not, what is? 2. What are the five most important challenges to mutual alignment of commercial goals – what does this look like in practice? 3. What are the five most important actions to be taken by government, clients, consultants and the supply chain to enable mutual alignment of commercial goals? This report sets out the findings from those workshops and the actions that were identified to assist the process of change. The discussions were conducted under the ‘Chatham House Rule’,6 and although participants were asked and agreed if they could be named as attending, no attribution of the ideas is given to named individuals or the organisations represented.

2. What will be the key features of those strategies and what are the main barriers to implementation?

6

When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed. (http://www.chathamhouse.org.uk/)

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Appendix: Key References 1. Never Waste a Good Crisis, A Review of Progress since Rethinking Construction and Thoughts for Our Future, Constructing Excellence, October 2009 (Chair: Andrew Wolstenholme OBE) 2. Saxon, Richard CBE, Be Valuable: A Guide to Creating Value in the Built Environment, Constructing Excellence, 2005 3. Survival Guide: Working out of an Industry Downturn, Constructing Excellence, September 2009 4. Government Construction Strategy, Cabinet Office, May 2011 5. Infrastructure Cost Review: Main Report, Infrastructure UK, HM Treasury, December 2010 6. Infrastructure Cost Review: Implementation Plan, Infrastructure UK, HM Treasury, March 2011 7. Strategy for National Infrastructure, Infrastructure UK, HM Treasury, March 2010 8. National Infrastructure Plan 2010, Infrastructure UK , HM Treasury, October 2010 9. Low Carbon Construction: Final Report, Innovation and Growth Team, Department for Business, Innovation and Skills, November 2010 (Chair: Paul Morrell, Chief Construction Advisor, HM Government)

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10. Rethinking Construction: The Report of the Construction Task Force, Department of Trade and Industry, 1998 (Chair: Sir John Egan) 11. McNulty, Sir Roy, Realising the Potential of GB Rail: Report of the Rail Value for Money Study, Department for Transport and Office of Rail Regulation, May 2011 12. Constructing the Team: Final Report of the Government/Industry Review of Procurement and Contractual Arrangements in the UK Construction Industry, Department of the Environment, 1994 (Chair: Sir Michael Latham) 13. Accelerating Change, Strategic Forum for Construction, 2002 14. Achieving Excellence, Office of Government and Commerce, 1999 15. Modernising Construction, National Audit Office, 2001 16. Improving Public Services Through Better Construction, National Audit Office, 2005 17. Investigation into the Use of Public Procurement as a Way of Stimulating Innovation, House of Lords Science and Technology Committee, May 2011

© Constructing Excellence and Pinsent Masons LLP | Published June 2011 Requests to reproduce any part of this document should be sent to Constructing Excellence Constructing Excellence, Warwick House, 25 Buckingham Palace Road, London SW1W 0PP Tel: 0207 592 1100 | E: [email protected] | www.constructingexcellence.org.uk Front Cover Image Copyright Crossrail Ltd and Canary Wharf Group – Cross-section of the Crossrail Canary Wharf Station which shows the sixstorey structure from track-level to the roof-top garden. The station's retail scheme is designed by Foster + Partners. The station itself is designed by Tony Meadows and Associates. The park scheme is designed by Gillespies. The structural engineering and building services is undertaken by Arup. Disclaimer All information provided in this report is for information purposes only. Although every reasonable effort is made to ensure the accuracy of the report Constructing Excellence and Pinsent Masons LLP provide no guarantees of any kind.

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