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More for Less: clients must take the lead

Clients must take more responsibility ensuring they get value for money from their projects, claims consultant Turner & Townsend.

It has reviewed 100 global infrastructure projects and found that only those where the client has a clear vision of what it wants and where it is willing to pay for the best project team tend to deliver the best value for money.

Turner & Townsend head of management consultancy Neil Bullen said clients must take more responsibility for driving change as public spending constraints increase pressure for more efficiency.

“Client leadership is key for the scale of savings that the government will be demanding in the coming years,” he said.

“Clients have got to step over the halfway line. Success should be an issue for all but leadership has got to come from the client.”

“The imperative for change is there. But we are still not seeing significant change,” he said.

“Without assistance, the industry tends towards mediocrity. There are a number of weaknesses in the industry’s approach. Efficiency initiatives where they exist tend to be bolted on, not built in. They are not systemic,” he said.

As a result, we are two years into recession and all the industry has done is the easy wins such as value engineering – or scope cutting - and renegotiating of contracts, he said.

Instead, clients should be incentivising supply chains to deliver the ultimate outcome, he said, citing as an example a supermarket chain that is paying contractors based on actual sales in a store they have built.

“It’s a great incentive because it ensures everyone is focused on opening on schedule and building a high quality store,” he said.

Bullen also criticised clients for their approach to procurement.

“It has gone backwards,” he said. “There is increasing evidence that it has become a completely master-servant relationship that is stifling innovation,” he said.

Bullen urged clients to instead commit to protect margins of firms that work efficiently.

Turner & Townsend studied over 100 major projects and programmes delivered by the firm worldwide and collected evidence of what actions led to efficient delivery and tangible capital cost savings.

It found there to be six key areas that influenced delivery: clarity of scope, co-ordination, capability, controls, collaboration and communications.

Of these, Turner & Townsend found clarity and capability to be as important as the other four areas combined.

“If you have clarity and capability you will  have good outcomes,” said Bullen.

“But this is not what clients want to hear,” he said.

Turner & Townsend’s study was used to build its CapE efficiency framework tool that helps clients identify cost savings.

The tool has now been used on 12 projects since its launch six months ago. According to Bullen it has always offered up potential savings.

“It has always delivered potential results and always delivered surprisingly large numbers,” said Bullen. “But it could still fall down and depends on the appetite of the project team to make the savings.”

Readers' comments (2)

  • Harindra GUNASINGHE

    T&T findings came as no surprise to me! It is the client who measures value-for-money and therefore, it is pretty obvious to me that only when he takes the lead the best value could be delivered. This is no magic formula - it is the oldest trick in the book!
    Harindra Gunasinghe

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  • Whilst agreeing with the list of relevant elements needing attention, T&T have not highlighted the critical marketing, engineering and construction elements of an efficient value for money project development system. They are right to be concerned that there is still too much of a master-servant relationship from Clients yet they set out no recommendations on how this restrictive situation could be overcome. As such I find from this summary that this proposal/system offers nothing of any great help to either Clients, Contractors or Consultants.

    The core problem is still too often no effective means of premium payments for excellence which can include for a better engineered and more efficient overall cheaper CAPEX/OPEX costed project, earlier project completion, or easier and less disruptive construction and installation particularly when new works interface upstream, downstream, or actually within an existing facility.

    Designers design to a Clients broad specification based on unit rates with possibly some lump sum element, and contractors supply, construct and install the works on a similar basis - the latter largely dictated and restricted by the former. Too often, even on major schemes, this leads to cost leadership tender battles for both consultants and contractors and as a result everyone suffers, including the Clients. Clients and their advisers get fixated on rates and not value!

    On major schemes, Consultants should be able to compete in design competitions based on Clients Performance Specifications, but better still Contractors should be able to tender on a true Design and Build basis - i.e. not a detail design development of a Consultant's prescriptive design and follow-on build, to provide the most efficient design and the most economic overall cost basis. The Consultants and Contractors providing the best schemes in time, total cost, and quality would then be the ones who prosper from increased margins on schemes which, by a fully structured and open basis, can be demonstrated as providing the best benefit to the Client. This is McKinsey's Economic Benefit to the Client marketing, and not kamikazi Minimum Cost Leadership!

    Avoid PFI/DBFO type contracts where possible, as these involve disproportionately massive complexity of Contracts, costs and management effort with over-extensive funding, insurance, and banking involvements. Simply have a notional Construction/Installation Completion Date followed by an extended Defects Rectification Period of say 2-3 years, with full testing, demonstration and ongoing operational full cost and insurance responsibility culminating with a detailed series of Final Performance Tests. This will expose and accommodate most, if not all, design, construction, operational problems which need to be rectified prior to the issue of any Final Certificate. Training of Clients' staff would be full time in parallel with this period. Bonuses for early completion, built into the Models would also be beneficial. LD's may not be necessary - inflation/escalation, time related costs, the costs of managing, operating and maintening the works should Construction Completion be delayed or any "defect" arises should be incentive enough to manage progress. Works beyond Construction Completion would be valued for interim payment purposes only on some pre-set percentage of the overal Project Price, pay for in monthly portions after Construction Completion.

    A form of Contract very similar to the IChemE Red Book would be appropriate.

    The Projects would need a thorough and comprehensive Performance Specification with little, if at all possible any, Method Related Specification content. It would also require pre-defined and declared Financial and Technical Performance Models to be defined by the Client at Tender stage with a declared points system for assessing tenders.

    A properly structured Model basis for tender appraisals and Contract awards would probably be needed, in any case, to avoid World Bank, EU and any other funding agencies' objections and pre-occupation with corrupt practices - something which appears to have reduced the extent of D&B projects world-wide and re-introduced a lot of the more inefficient and problematic Consultant Design and Contractor Build Projects. Clients and their Consultants need to be better able to compare unlike scheme proposals - the Models will help!

    I have worked on projects in the past where many of these elements have been included - with great success.

    Overall, I believe that projects set up on this basis offer the best value to all parties and at the same time concentrate Clients' and Consultants' minds on better defining the Project Requirements!

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