If the top business leaders in infrastructure came into your firm and told you exactly how to make more money, you would listen, right?
Well, that is just what is happening now across the board in civil engineering. And for those not sitting up and taking notice, KPMG head of infrastructure Richard Threlfall has a pretty stark warning.
“If you’re happy to continue to be grossly inefficient and making less money than you could do then that’s up to you. That’s what it comes down to,” he says.
In a sector with the average contractor’s margin hovering at about 1%, a figure described as Threlfall as “absolutely hopeless”, it is clear something must be done to change the way firms work and projects are managed. On top of that, he says projects are often procured by clients “blind to history” who try to specify a fixed output, ask for bids on a fixed price, and then fail to get the result they want, and lose any innovation in the long run.
If you’re happy to continue to be grossly inefficient and making less money than you could do then that’s up to you. That’s what it comes down to
Richard Threlfall, KPMG
Enter Project 13. The slightly sinister name belies a raft of good intentions, led by the ICE’s Infrastructure Client Group. The key is to get the industry to operate on a more collaborative, long-term basis to become more productive and innovative, while developing a higher level of consistency and reliability.
“In order to unlock that [the change] you would effectively need clients to start to be clear about what their own long term buying intentions were and be prepared to put some of their own capital on the table in order to invest in the technology, which would drive a whole programme of investment, which would in turn drive a long term efficiency in that industry – that is what Project 13 is trying to achieve,” says Threlfall.
A roll call of industry heavyweights has come together to drive this top-down change. It includes Tideway chief executive Andy Mitchell, Mace chief executive Mark Reynolds and Mott MacDonald’s group technical director Mark Enzer.
The change Project 13 is trying to bring about is to move project management away from lowest-cost and towards long-term value. The aim is to move from a model that is based on supply chain transactions, to a collaborative model where there is an enterprise culture around project delivery. The philosophy might not be new, but the change this time is that there is a momentum from the client side, through Project 13, to drive fundamental changes.
This change will be driven through new approaches to delivery of live projects, peer review and support offered to colleagues, and best-practice will be shared through events and publications.
It is clear something must be done to change the way firms work and projects are managed
So far the people who make up Project 13 have come together to pool resources and thinking to come up with a document which spells out the vision and then talks about how it will drive the change.
Project 13 describes the way engineers currently deliver and operate infrastructure as “broken” in its inaugural report, From Transactions to Enterprises – A new approach to delivering high performing infrastructure.
The report dives deep into what is wrong with the current system and looks at tangible ways it can be improved.
CN Awards 2013 judge Richard Threlfall
Take the standard procurement model: consultants who are employed to deliver the infrastructure are not the ultimate owners, so they are initially missing that expertise. They are also missing out on input into technological innovations from the supply chain and asset owners at the time of design. Services sold by the hour can prevent scoping of alternatives that could work better.
Also, inconsistent costings in areas such as contract management, and in the risks being passed down a fragmented supply chain have led to a disjointed and sometimes adversarial way of working, which ultimately leads to poor performance.
Clear case for change
The case for change is clear. So the Project 13 team has identified five areas that will drive improvement.
The first, on which Threlfall is leading, is governance. The aim is to change the way infrastructure owners behave, questioning their definition of long term value and to drive out the tendency to award contracts on a short-term, low-cost basis. Instead Project 13 wants the early engagement of all involved to set a long-term vision of how a project will best deliver value and how the project team’s performance might be measured.
The second theme is to do with organisation. Choosing the right suppliers and integrating them into the team will ultimately lead to a better outcome than an approach where clients automatically opt for the lowest price, according to Project 13’s research. A mutual understanding of capabilities is crucial so that teams can work as a coalition rather than a chain.
This leads to the third theme which concerns integration. More than teamwork, optimal integration links the areas of design and engineering with manufacturing and construction, and finding an integrator that can be expert from paper to site. Here, technology can play a major role in areas such as logistics.
But for integration to work, the fourth concept is needed – the capable owner. Project 13 says that owners are not just clients and must outside their comfort zones to take on roles they have not traditionally carried out. Working with the supply chain, they can drive collaboration in areas such as defining outcomes and choosing the technology needed. Project 13 is looking to train senior people in the industry in the skills clients need to become capable owners.
The final theme that Project 13 is looking to drive in the sector is digital transformation. The ICE’s Infrastructure Client Group is going to identify the new technology that it believes can make a difference and get the industry talking about its possibilities through seminars and events.
Clearly from the themes identified and the way Project 13 is trying to achieve change, it is a top-down, client driven project.
“From a client point of view, we’re not asking for altruism, we’re asking for pure self-interest. If you are an asset-intensive business, you will maximise the shareholder return, the profitability of that business over the long run, if you adopt the sorts of principles that we’re setting out here,” says Threlfall.
He adds: “This is a hugely unproductive industry by comparison to nearly every other sector in the UK whose productivity has remained pretty much flat over the last 20 years. To start to take costs out of this industry by increasing its productivity, by investing in technology and its people is frankly a no-brainer.”
Threlfall hopes that within the next couple of years a critical mass will be reached, acting as the tipping point for the widepsread adoption of this new approach to delivery and management.
So what will Project 13 look like in real life? Well, a precedent has already been set by some groups spearheading the collaborative approach.
Anglian Water’s @one Alliance decided to change the way it procures and delivers projects back in 2005, and now puts its consistent outperformance against business targets down to the its new approach.
“The main benefits are ultimately the results, from efficiency, to carbon, to customer service. We just get a different set of results this way, compared to previous models,” says @one Alliance director Dale Evans.
Back to back approach
“We’re all aligned on delivering customer outcomes. That’s the big difference between now and what we used to do. We talk about being ‘back to back’ in everything we do.”
This means partners are not selected because they offer the cheapest price and try to deliver against that figure. Instead, they are chosen on their ability to deliver the business plan.
“In our model, we only generate a return by outperforming Anglian’s business plan. The alliance delivers solutions and is measured on outcomes and delivering outputs,” says Evans.
Clients are starting to act
So what now? Major UK clients are taking note and are keen to embrace the Project 13 thinking. HIghways England is one such client.
“The work being undertaken by the Infrastructure Client Group is extremely helpful,” says Highways England executive director for major projects Peter Adams. “ It aligns completely with the sentiments we expressed at a recent supplier event.”
“Fundamentally it is about alignment and how we create an environment where all our energies (client and supplier alike) can be focused on delivering the greatest value,” says Adams. “By working with the right people, removing competing objectives and ramping up long-term commitment, we expect to be more efficient and to create more opportunities to out-perform our achievements so far.