Clients need to change their approach to risk if they want innovation. Is 2016 the year for a new approach?
It is widely accepted that the industry must fundamentally change how it delivers infrastructure projects, using technology and enabling innovation to cut delivery times and costs.
Equally, it is also accepted that the sector needs the government – and government clients – to help bring about this change (see box). Leading the change is the Infrastructure Client Group.
“There is a growing recognition that the business model we use is unsustainable,” explains London Underground programme director and Infrastructure Client Group panel member Miles Ashley. “At a client level we are not getting the certainty or efficiency in delivery that we need.
At a tier one level, the margins are suboptimal if not unsustainable,” And that is bad news for technology. “At a tier one design level PI [professional indemnity insurance] means we are not getting enough evolution in design. At a tier one contracting level it has become very transactional, which means we are not getting inventiveness.
The construction sector sees the future role of government as three-fold.
Of course, it needs to act as a funder. But, more than that, it needs to be a facilitator too; setting the right environment in which the industry can deliver.
It also needs to bring certainty infunding and project delivery, so that the construction and engineering sector can itself invest, recruit and plan.
These were key findings in Tarmac’s recent Infrastructure Outlook Report, which drew together the views of 300 construction and infrastructure business leaders about the sector’s challenges, surveyed by market research company Ipsos Mori.
To give examples, 83% wanted red tape to be cut. Greater certainty about government spending – what, where, when – was demanded by 71%.
Both of these findings show how the industry thinks the government can help to improve the process of delivering infrastructure on a large scale. More government investment in infrastructure was championed by 73% of those interviewed, but business isn’t just expecting it to be the government which opens its wallet.
A hefty 70% also wanted to seemore investment unlocked by theprivate sector.“The construction industryseems settled in its view that the government has a powerful role to play in infrastructure delivery, but it must direct its support, influence and budgets in a way in which infrastructure business leaders think will best help the sector – as a helper, enabler and partner, not simply a bank,” explains Jeremy Greenwood, managing director of Tarmac’s Readymix business.
Suppliers must also come to the table with real ideas and innovation
“That’s what the sector is asking of government,” he stresses. “In return, the industry needs to change the way it works.
”It comes down to two key actions: greater collaboration and earlier engagement across the supply chain so that experiences and ideas can be shared and project scheduling, materials planning and risk mitigation improved.
It’s an approach which the secto ritself, broadly, recognises is the rightone. The Infrastructure Outlook Report found that 78% of respondents thought that less time would be taken to deliver infrastructure projects if there is greater collaboration across supply chains. Nearly the same proportion, 77%,agreed that suppliers are usually able to reduce costs if they are engaged in a project early enough.
“Suppliers must also come to the table with real ideas and innovation,”adds Greenwood. “It’s no longer enough to simply provide high-quality materials, consultancy is needed too; constructive thinking, if you will.”
“And technology is not finding its way through that. There is very little latitude for experimentation and innovation. So we are starting with a model that is sub optimal and does not drive innovation in a world that increasingly needs it.
”So what is the solution?“
If we are going to solve that, we need a different model; one that provides a platform for technology; for building capability; and for reward based on outcomes,” he explains.
It also means clients will have to take on more risk, especially design risk.
“As a client we have to be more prepared to take design risk if we are going to encourage an evolution in technology. Low margin, fee-based contracts where the designer takes all the risk is not a platform for innovation,” states Ashley.
“PI has polluted the evolutionary process and there is only one player that is going to lead us away from that and that’s the client,” he adds.
Ashley also recognises the importance of long-term relationships in the supply chain. As a London-based client, he sees many other UK infrastructure clients piloting attempts to use procurement to promote more supply chain creativity.
But to turn a series of pilots into an industry-wide norm is going to require a complete change of governance across the industry.
Industry demands in brief
83% want red tape cut
73% want more government investment
71% want more certainty on spending
78% want greater collaboration across supply chains
77% Believe suppliers are able to cut costs if engaged early
This is where Ashley’s Infrastructure Client Group comes in. It has been stealthily collecting data about arange of projects from a range of sectors within the construction industry. Individual clients have been encouraged to track pairs of projects– one being delivered by traditional means and one being delivered witha more enlightened approach. This, says Ashley, is the first time allowing the industry to demonstrate – with real data – the value of changing the model.
Later this year, this data will be published via the ICE. Ashley says this will for the first time demonstrate the underlying economic case for more collaborative ways of working.
“There is widespread and violent agreement that greater collaboration is the desired outcome. What we’ve failed to articulate is the need to change client governance systems to access that collaboration and the economic case for doing it,” says Ashley. “This data will drive the credibility of the economic case that’s at the heart of this proposal,” he says.