The T5 Agreement is crucial to the success of the project, writes Jackie Whitelaw
'If things go as they normally do on major UK construction projects, the statistics say that T5 could be three years late, 80% over budget and six people killed, ' says T5 commercial director Matthew Riley.
'None of those events is acceptable to our business. We are just not going to let any of that happen.'
How the risks are being controlled at T5 is one of the major innovations of the project. BAA has junked all the traditional concepts of construction contracts and invented a new way of managing risks. This is based not on a reactive set of clauses that accepts things will go wrong, seeks to pass on blame and recover money but on creating incentives for positive, problem solving behaviours that do not allow things to go wrong in the first place.
Riley and his team carried out research into major projects around the world. Their conclusion was that most problems were caused by getting cultural wires crossed and by the delusion that pushing risk off to arms length meant it wasn't going to come back and bite you later.
'The client is always accountable in the end, on cost, time and health and safety - everything, ' says Riley.
'If we fail, the impact on our reputation and our relations with shareholders and the City would not be worth contemplating.
'As we worked it through, it became obvious that BAA had to accept that it has all the risk for T5. It was something we could not pass on.
'The benefit is that by accepting that you have all the risk, you take away negativity, allow space for innovation and create the opportunity for people to perform at levels they haven't been allowed to before. They are not spending their time covering their backs but working positively for the project.'
That thinking led to the T5 Agreement - the contract for the scheme. Two things have been critical to its operation. One is the acceptance of the need for totally integrated teams which include the client - BAA, and end user - BA for each of the 16 projects making up the T5 programme.
People are pulled in for their knowledge and experience from whichever organisation, are asked to lose their company allegencies and instead think of the project as their first love. These cultural and behavioural issues are reinforced by training and support from the organisational effectiveness team (see box).
'Our experience of integrated teams on the Heathrow Express recovery really informed our thinking here, ' says Riley.
The second is project insurance.
'We went to the market and got T5 insured as a single £4bn project on a no-fault basis covering all the suppliers and BAA for all risks and professional indemnity - the PI is a first for the industry, ' says Riley.
BAA has paid a single premium up front. Where suppliers do take a small risk is that they share a level of the excess if something goes awry, explains Riley. 'We needed something like that, just as we need incentives to improve performance.
'We expect UK best practice performance as a minimum, and suppliers get a fair profit if we achieve that. But the real money is made by improving on accepted performance, and also by hitting a number of project milestones.
'Likewise, if something is late, the margin goes down. It encourages everyone to work together to find ways to meet the milestones.'
It took between three and nine months to get companies to sign up to the T5 Agreement.
'Corporate lawyers struggled to get their minds around it. There had to be a process of education and trust building.'
The agreement is enforceable in law but as yet BAA has not had to go to court. 'But if someone performs poorly we can take them off the job or reduce the scope of their work, ' says Riley.
'We have not diluted this agreement for anybody.'
At the moment, the main beneficiaries of the T5 Agreement have been BAA's first tier suppliers.
But they, in turn, are expected to operate in the spirit of the agreement with their own suppliers. 'Their subcontractors need to be employed on no less favourable terms than they are with us, ' says Riley.
'Costs have to be demonstrated to have been incurred, which means we are getting a high degree of transparency and that, in turn, is really showing up waste.
'We'll only know at the end of the project how much the T5 Agreement has saved us. But when you consider that traditionally, 40% of increased costs can be down to legal fees, that figure could be substantial.