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Getting the procurement right is crucial

The right supply chain is critical to delivering the investment programme
By Ruby Kitching

With an investment of £6.6bn over the next five years at its UK airports, getting the procurement process right is paramount for BAA as it enters its “third generation” of framework contracts.

From specifying and managing the installation of the most adaptable and robust check-in desks to building state of the art terminal buildings, the job of procuring BAA’s portfolio of projects is complicated.

Consider also that the work has to be phased to fit around the day to day running of an airport. Not surprisingly, BAA’s construction arm, BAA Capital Projects has scrutinised the process to establish a system which promotes innovation and reduces risk from day one. It is now entering, what it calls the “third generation” of framework contracts after over 40 years of delivering construction projects.

BAA’s approach to project delivery was established in the late 1990s following the recommendations by former chief executive, Sir John Egan in the 1998 “Rethinking Construction” report. “In the early 1990s, BAA was suffering from cost escalations, adversarial contracts and supply chain problems,” recalls head of commercial Mike Cornelius. “We realised we had to do things differently.”

The third generation of contracts involves BAA stepping back slightly when it comes to risks that are better managed by the supply chain

Mike Cornelius  

 

This led to the birth of long term framework agreements with BAA’s supply chain based on working collaboratively to manage the design and construction risk associated with delivering a major capital investment programme. The T5 Agreement was a key step in the process driven by the unique challenges and opportunities of the project . BAA developed so-called “first tier” relationships with its suppliers, including the use of construction management organisations to manage the delivery of projects.

“On T5, BAA was very ‘hands on’ in terms of risk management with a large number of relationships with tier one suppliers,” explains Cornelius. But this created its own challenges when it came to maintaining these relationships, especially as the number of tier one contracts increased and became more detailed in the second generation of the frameworks.

3RD

GENERATION FRAMEWORKS

BAA has been working with the construction industry to develop its airports for over 40 years and is now moving to its third generation of framework contracts.

On T5, BAA was very ‘hands on’ in terms of risk management with a large number of relationships with tier one suppliers.

The T5 agreement was also designed to deal with the challenges that T5 presented and the capability of the supply chain. However, BAA’s current work portfolio includes a bigger programme of more varied projects and complicated interfaces with existing infrastructure. So BAA took the view that a new approach to procurement was needed in the third generation of frameworks. This would respond to the challenges of the future capital investment plan and build on the success and learning from the past. “In the back end of 2006 we carried out a fundamental review of our supply chain engagement strategy,” says Cornelius. “We listened to feedback from our suppliers and consulted widely within the industry.”

The consultation revealed that the supply chain had moved on from the 1990s. There were now areas where suppliers could add more value if empowered to take greater accountability for managing some of the design and construction risk. It also reinforced the value of maintaining long term relationships that encourage collaboration and innovation. “In the last five to 10 years, suppliers have moved into areas where they take greater accountability for managing the end to end process, often looking at the capital and operational cost of facilities. We want to maximise those capabilities to optimise BAA’s solutions,” Cornelius says.

There are some projects where a supplier can manage the risk effectively with little BAA involvement

“The third generation of contracts involves BAA stepping back slightly when it comes to risks that are better managed by the supply chain.” BAA will now have fewer first tier relationships with the extended supply chain managed by “Complex Build Integrators” (CBIs) and “Commodity Build Contractors” (CBCs) acting as tier one suppliers to BAA. These CBIs and CBCs then manage the second tier supply chain.

“Moving forward, we’ll have just nine CBIs and five CBCs who will provide design and delivery management and control on our behalf,” says Cornelius. “This way we pass greater accountability for delivery to the supply chain.” BAA will continue to maintain first tier relationships with “Business Critical Systems” suppliers because of their criticality to BAA’s assets, for example safety, security or baggage related projects. Consultants will also continue to have first tier relations with BAA where this is appropriate.

Relationships with BAA built up during the 1st and 2nd generation frameworks will still be held in high regard, and many of these will be CBI contractors. Perhaps more importantly, BAA is now more aware of the experience these contractors have built up outside of their involvement on BAA contracts – particularly in PFI. BAA has developed a process of choosing which type of risk management model will suit which project by evaluating the risk associated with the project and the contractors available to deliver them.

Cornelius explains that the models have developed from BAA’s realisation that a “one size fits all” approach is not right for managing the diversity of risk across a capital programme of this size. “But we’re not talking about indiscriminate transfer of risk to the supply chain. “If you take a portfolio of projects, there are some parts where a supplier can manage the risk effectively with little involvement required from BAA.” And with fewer direct contractual relationships and the supply chain managing risk efficiently, BAA can spend more time driving greater value into capital solutions.

 

Technical decision making

Standard designs with a 40-year pedigree could be ousted in the new look BAA contracts.

As well as specifying the most appropriate solution to do a particular job, BAA Capital Projects looks for a solution which is easy to maintain and repair and will fit in with infrastructure already in place. One of the toughest aspects of working on such big projects is ensuring the whole scheme is unified.

BAA has developed a suite of standards for tried and tested components. But this is all being refocused now, explains BAA, airport solutions director, Dr Chris Millard. “At scheme design stage we get suppliers to drive innovative design into our standards. We’re now open to modifying them.” So if a new form of, say, energy efficient lighting could be used, then it would be considered.

At T5 where BAA held all the risk, there was a greater emphasis on protecting the integrity of the solution. But now, BAA is taking more advantage of industry experience to improve its standard designs. “We’ve gone from static standards to long term technical strategies. There is an emphasis now on liberating value,” he says. Examples of this can be found in the new style of check-in information points which are now zonal beacons standardised across T5.

Each of these new facilities integrates media sites, wayfinding, CCTV cameras, PA/VA speakers, displacement ventilation terminals, fire hose reels, cleaners sockets, fire alarm call points and flight information displays. They will now be rolled out to other airports. Their real value comes from the way they have integrated so many functions, explains Millard. “That level of integration is where we get value and with the advantage of less clutter,” he adds.

Programming efficiency and future energy needs is also important. Low energy equipment, reduced water consumption and grey water recycling must be included at the design stage.  

 

Unified airport design

Check-in desks have been one of the early successes of BAA’s system-led approach to design across all its airports.

David Bartlett is design director across all seven BAA airports and is responsible for ensuring that design solutions are robust enough to be rolled out across every airport. T5, he says, has set the standard and the key is in maintaining this.

The desks are now much more practical and flexible enough to suit any airline, size of printer, chair and operator. Bartlett and his team are now rewriting the brief for other key components of airport fit-out , using input from the experience of the supply chain of BAA’s Complex Build Integrators.

One pilot currently underway is the personal rapid transit system. Already being installed at T5, these are four-seater pods which travel on a guideway and could be the future of passenger travel between terminals.  

09

BAA has so far named nine Complex Build Integrators as part of its “Value in partnership” framework model.

BAA’s frameworks

1. Complex Build Integrators for higher risk, complex projects eg. Heathrow East, T5c

2. Commodity Build Contractors lower risk, less complex projects eg. car park and land side roads.

3. Infrastructure contractors lower risk, less complex civils eg. runways, taxiways, stands, fuel and power supplies.

4. Technical/business critical systems where the activity is critical to assets eg. safety, security or baggage projects.

5. Consultants Other specialist activities eg. design, architecture, engineering, environmental and commercial.

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