Major changes are afoot at London Underground with respect to how it can inspire innovation and cost savings from its supply chain.
London Underground’s Stations Team is in the midst of delivering a £3bn capital investment programme engineered to expand and enhance London’s prestigious 150-year-old underground rail network. With expenditure on such a large scale, LU is seeking ways in which to improve the delivery of its projects through improved market engagement.
Recently, thinking has been driven by works on one of the network’s major stations projects, the £600M Bank Capacity Upgrade. With the station initially being subject to significant tunnelling design constraints, it soon became clear that some form of Early Contractor Involvement (ECI) would be critical.
Thus, a new procurement ethos, dubbed Innovative Contractor Engagement, began to emerge amongst the top echelons of LU.
It is centred on developing an environment in which contractors are able to put their best solutions forward without the fear that their ideas will be used by the client without consent.
“We have realised from our own experiences that there are solutions that would have given us more benefits or less cost had they been realised earlier in the project life cycle,” he says, adding that two-stage procurement processes traditionally adopted by the industry fail to recognise that contractors will not give visibility of innovation until they can obtain commercial advantage from doing so.
“As a result, clients commonly release pre-tender information to the market to price, causing early involved contractors to withhold substantial innovative ideas until after ITT’s are issued,” explains Ashley. Arguably worse, he adds, is a focus on compliance with predefined ITT requirements then restrict contractors’ ability to provide innovative bids.
“The perception is that it’s simpler to demonstrate compliance if we take a well-trodden path,” he says. “But that doesn’t address the need for LU to achieve more for less within its capital investment programme and bring down its asset cost base.”
ICE consists of five key stages; a four month, prequalification stage leads to four months of structured dialogue before contractors get two to three months to tender.
Evaluation takes another two to three months before a preferred bidder joins a further three month integration phase at which point the project delivery team are integrated to build a successful client-contractor relationship. A fee paid to each bidder demonstrates LU’s commitment to the process. If a successful bidder has a valid or innovative idea that will benefit the project then it will be remunerated by LU in agreement for its adoption by another contractor.
“We have realised from our own experiences that there are solutions that would have given us more benefits or less cost had they been realised earlier in the project life cycle”
Miles Ashley, LU director for stations
LU fired the gun on the Bank job with an OJEU notice in November 2011. In April 2012, LU revealed that the BFK Joint Venture (JV) comprising Bam Nuttall, Ferrovial and Kier; the CVC JV of Costain, Vinci Construction Grands Projets and Vinci Construction; Dragados; and the MBA joint venture of Morgan Sindall, Balfour Beatty and Alpine Bemo Tunnelling were pre-qualified for the job.
The four construction consortia signed an ‘Information Agreement’ and an Invitation to Participate tender document was issued that set out the ICE process going forward. The Information Agreement is the key vehicle to secure a confidential non-disclosure process on both parties and to register and value the innovation developed by the bidders.
Through this Information Agreement, LU has the potential to “purchase” innovative ideas from the losing bidders, therefore offering additional incentive to the supply chain to seek innovation and potentially recoup bidding costs from the bidding process itself, should these ideas be commercially beneficial to LU.
This was followed by the dialogue phase, which began in May 2012, with independent observers present at all meetings.
“From a client perspective all found it extremely positive,” says Ashley, and the four bidders proactively engaged with the process culminating in the submission on 22 August 2012 of their Request to Proceed documents, which captured their proposed ideas. Tender documentation was formally issued on 14 November 2012 and is due for return on the 25 February. Contract award is programmed for July 2013.
LU has set the supply chain a target of 15% additional value through cost savings, improved benefits and reduction of disbenefits (namely blockades). The supply chain innovation will be scored and evaluated and any contract awarded will be on the solution that best meets the project requirements and is within the specified benefit and cost caps.