ResoLex Roundtable Round-up: Establishing Successful Joint Venture Teams

May 17, 2018 | Events, Roundtables

Speaker: Tony Llewellyn, Collaboration Director of ResoLex, Visiting Lecturer at the University of Westminster

This month’s round table meeting focused on the output of a research project that Tony has been working on for the last eight months. He has a long-standing interest in the dynamics of large project teams and the challenges of creating cohesive and collaborative groups working on construction projects. Recent experience in facilitating a number of workshops of two or more firms about to go into a joint venture highlighted the additional challenges faced when distinct groups of people come together. The common view is that up to 70% of joint ventures (JVs) fail to achieve their original objectives. Rather than focus on the reasons for failure, Tony decided to try and discover what actions and activities were put in place by the 30% of JV teams that got it right.

The research

The research project was based on twenty interviews with senior directors experienced in JV projects. The focus was mainly on construction projects but also included a property JV, some O & M ventures and a training partnership. The data were supplemented with the output from the 100 or so people who had participated in the JV workshops. The research also includes a literature search of scientific papers published over the last 20 years on the topic of successful Joint Ventures.

Tony summarised his findings into four key themes:

1. Partner selection
2. The role of the Governance Board
3. The role of the Project Director
4. Setting the leadership team up for success

Partner selection

The evidence collected from the research highlighted the importance of selecting the right partner when going into a JV. Most of the interviewees acknowledged that they would ideally work with a firm that they had done a JV with before. However, in the absence of a suitable past alliance, the key determinant was to find a firm with a compatible culture. This was therefore less a matter of working with the same people, and more a question of finding a culture where each party felt they could connect and communicate, irrespective of the personalities involved.

The role of the Governance Board

A high number of interviewees pointed to the need to pay attention to setting up the right governance board. The role of the group that maintain an oversight of the project team is usually prescribed in the JV agreement. All too often, however, the dynamics of having two equal sets of senior directors trying to work together on an occasional basis can quickly become dysfunctional. This partly arises because of the dichotomy of having to try and support the project team on the one hand, whilst also protecting their respective firm’s interests on the other.

The merging view from the research is that a strong governance board is typically well chaired, meets face to face when it can, has a mix of skills and experiences, but most of all comprises people who have a collaborative disposition.

The Project Director (PD)

The research highlights a number of success criteria for a JV project director, including:

• An ability to cope with complexity
• An ability to manage ambiguity
• Clear performance goals
• A stable management team
• Strong technical competence and industry knowledge
• Co-operative reward structures

One of the interesting features of a strong PD was the recognition that they needed to recognise two distinct leadership roles that were needed on very large projects. One is an ability to face outwards and manage the relationships with the client and stakeholder groups. The other is to have a strong emphasis on team integration and technical delivery. It was noted that it is rare to find an individual who excels at both. It was therefore important when selecting a PD to assess the particular needs of each project. Additional supplementary support could then be planned before it was needed.

Setting up the Project Leadership Team

The fourth success theme was the recognition that thought and planning were highly important when assembling the JV leadership team. The criteria included:

• Selection on ability rather than availability
• Senior roles are clearly defined
• No man-marking
• Homogeneity – similar age and values
• Heterogeneity – a variety of skills and experience
• Alignment to a common goal
•  Cooperative disposition

There was also a consistent level of agreement on the need to invest time early in the programme to build relationships in each of the groups engaged in the JV. The presentation included with a quick run-through of the ASARI model developed by ResoLex for team development which is based on research into effective team performance. This model is illustrated in the diagram below.

The session concluded with a discussion from the floor around governance practices and the experiences different members of the audience had found in both successful and unsuccessful teams. The primary message is to avoid complacency and invest time and effort in planning how to make a joint venture achieve a successful outcome.

ResoLex Roundtable: Building a Supply chain Alliance

Feb 1, 2018 | Events, Roundtables

A Case Study from Surrey Highways and Kier Services

The session was opened by David Mosey who provided a short explanation of the FAC1 Framework agreement.  For those not yet familiar with FAC1, it provides a framework for organisations to enter into an agreement that will enable and support the award of a number of contracts whilst not itself being a project contract.  The agreement anticipates a situation where a client wishes to set up a longer-term partnership or alliance and needs an overarching document that covers:

• Joint planning and risk management
• Improved consistent working practices
• Encourages learning to be passed from project to project
• Achieves improved value through collaborative working

David used an example from a roads maintenance agreement, involving Surrey County Council, Kier Services and a number of specialist subcontractors. The agreement used an early prototype of FAC1 to help Surrey Council generate savings of roughly 15% from the original tendered contract as well as a number of additional benefits.

The FAC1 agreement is only 18 months old but has already been picked up by a range of public and private organisations who are investing in development programmes.

Nigel Owers then explained the background to its new Alliance program. Kier had originally won a tender for a 6 year highways maintenance contract in 2011, which gave Surrey the option to extend by an additional four years.  Having successfully delivered the initial term of the contract, the council agreed with Kier to extend the contract to 2021.  The extended agreement is intended to deliver continue additional value and innovation through the supply chain through revised and collaborative arrangements. The strategic goals of the Alliance are:

• Increased collaboration between SCC, Kier and the supply chain
• Achieve the objectives of the Surrey Business Plan
• Find a further 2.5% saving
• Develop a sustainable supply chain through to 2021.

Nigel ran through the re-procurement process and explained how the Alliance agreement was implemented.  A useful illustration is a summary of what the Alliance members have agreed to do:

• Hold Core Group meetings;
• Adopt and participate in early contractor involvement (“ECI”)
• Share and/or improve working practices for the benefit of Surrey and the Term Programme
• Attend other framework review meetings as required in order to achieve improved value
• Implement social value proposals

Measurement and feedback are important elements.  For example, the agreement sets out four success measures:

• Performance Review
• Social Value
• ECI
• Alliance participation

Nigel closed by acknowledging that the Alliance was still in a learning phase and that the parties were each still getting used to the new arrangement.  It was interesting to note that those individuals who were part of the previous alliance programme were apparently comfortable with the open dialogue that featured in the first Alliance meeting.  Those who were new to the format were much less certain as to how to make the adjustment from a transactional set of behaviours to the collaborative mindset required as part of this alliance.

Keith Coleman then presented the Alliance process from his perspective.  His role is Head of Contracts and Supply Management at Orbis, an organisation formed to provide procurement services to Brighton and Hove, East Sussex and Surrey Councils.  Keith explained the drivers created by the huge funding gap that all local government bodies need to close. They are therefore continuing to explore mechanisms that will enable them to gain additional value by setting up collaborative arrangements with key suppliers.  There is consequently is a shift, both within local and central government, away from short term lowest price bidding.

Keith talked about the progression of different relationships to deliver better value from a procurement perspective.  These range from category management and strategic sourcing through to supplier relationship management.  For many procurement teams the Alliancing framework is a significant stretch requiring a new mindset as well as new processes and procedures.  He nevertheless envisaged an additional stage where major buyers such as local government might take the Alliancing process to encompass entire markets.

For example, Surrey currently deals with 400 separate care home providers.  He asked the room whether it might be conceivable that an Alliance framework could be used to find greater value from such a dispersed network?  Keith did not suggest any answers but left the room with a clear sense that given the right mindset and the appropriate toolkit, much more was possible.

ResoLex Roundtable: What does the construction Industry want from Government?

Jan 17, 2018 | Events, Roundtables

Speakers:

• Nicola Walters | Assistant Director, Department for Business, Energy & Industrial Strategy
• Alan Kirk | Head of Commercial – Capital Delivery (Systems), TfL
• Rudy Klein | Chief Executive, Specialist Engineering Contractors Group
• Richard Bayfield | Consultant and Commercial Risk Director, Temple Group

The theme of this month’s discussion was around the consultations currently taking place on:

1. The changes to Part 2 of the housing, grants and regeneration act.
2. The Construction payments mechanism.

Nicola opened the session, explaining the purpose of the housing review is to understand the impact of the 2011 legislation and see if it needs tweaking. It is not currently envisaged that there will be any major changes.

The review of the payments mechanism is to look at the policy on retentions and understand the industry views on the extent to which monies retained by clients, and contractors should be protected to avoid misuse. The review will also look into the adjudication process to understand whether the system works for organisations further down the supply chain.

The speakers then picked up the topic to talk about the adjudication issue as it affects large clients. There was consensus that the system is not really working as originally intended, largely because:

1. Cash flow is still a big problem despite the introduction of adjudication
2. Adjudication itself has become more expensive than originally anticipated.

Richard highlighted the problem of drafting legislation which intrinsically requires a “one size fits all” approach. He used an example from a recent adjudication where the lack of legal/contractual sophistication was shown by correspondence supporting a “pay when paid” approach. He cited the large bandwidth within the industry from the “jobbing builder” work to the mega infrastructure projects.

Alan felt that it was important to see greater input to projects from the T2 and T3 subcontractors since they have the potential to add value if properly engaged.

It was noted that a number of public sector clients are unhappy with inconsistency between the commercial arrangements agreed with the T1 Contractors, and those further down the supply chain. This was a significant concern for them, as they were increasingly of the view that the value and innovation they were seeking would only likely to come from the subcontracting firms who delivered the works. Rudi was unhappy with the current contracting model of the major T1 contractors becoming cash management businesses that paid little attention to the productivity gains being sought.

The case was made for a simpler system for payment claims, as had recently been put in place in Ireland. More safeguards are also needed to prevent clients and main contractors introducing workaround clauses that essentially void the effect of trying to eliminate ‘pay when paid’ practices. Some other recommendations were:

• That the adjudicators should be able to decide their own jurisdiction.
• The scheme procedure should be specifically mandated
• There should be no extension past 42 days
• The industry should work towards an efficient ‘on-line’ approach.

Other thoughts

As usual with the Round Table events, the discussion that followed the short presentations was varied and insightful. Some of the noteworthy points are set out below.

The collapse of Carillion was felt to be highly unfortunate for many in the construction industry but was of sufficient scale that it was likely to provoke a call for significant change in the industry. The clear message to the government was that pushing risk down into the private sector had its limitations and should be re-assessed.

Similarly, the financial model of competing for work at extremely low margins was unlikely to ever produce the productivity gains that the agencies delivering major programs of infrastructure work were likely to achieve.

It was felt that the collaboration agenda in too many firms were focused on technical issues and tended to ignore the social/behavioural aspects that were fundamental to achieving a step change in productivity. (This was obviously well received by the ResoLex team who have been promoting this view for a while.)

Rudi summed up the evening with three areas for future focus for improvements across the construction industry. His three ‘P’s are;

1. Procurement – Look more closely at innovative procurement processes such as IPI. (see the notes from the November round table)
2. Payments. Set up project bank accounts for all major projects and look after the interests of all parties in the supply chain.
3. Professionalism. Introduce higher standards of behaviour and business practice.

ResoLex Roundtable: Integrated Project Insurance – A Model Case Study

Nov 21, 2017 | Events, Roundtables

Speaker: Kevin Thomas, Director of IPInitiatives

The session opened with Kevin making the statement that the UK construction industry is capable of achieving great things, but tends to be successful despite the process, rather than because of it. change gets more expensive as the design of the project progresses from design to delivery, often because there is a lack of ownership of the overall outcome.  The IPI model recognises combines the two processes so that the client designers and the delivery supply chain all combine to work as a single team under an ‘alliance’ agreement.

The key features of the arrangement include

• Common selection process (OJEU) based on ability to achieve.
• New Alliance Contract creates a virtual business ‐ a Board of partners with ‘skin in the game’.
• The whole team optimise performance deciding who does what, when and how.
• Open book – pay for people and buy things separately – through a Project Bank Account.
• Work top-down from a benchmarked investment target to meet the needs.
• Supply chain is involved in all design decisions.
• Savings are achieved by stripping out processes, products and procedural waste & inefficiency.
• The team identify opportunities and risks ‐ allocating them to the party best suited.

One of the key features of the arrangement is that all of the usual insurances taken out by the different parties to a construction contract are wrapped together, to provide the client with protection against a cost overrun.

New mindset required

The process requires a significant shift in mindset by all of the participants. There are many different features to the IPI process, but one of the biggest changes is that there is no one to blame under a contract, because everyone is tied together. The process works through the following steps:

Step 1 – Establish the Need. The problem to be solved and the funding level anticipated

Step 2 ‐ Form an Advisory Team. Establish the strategic brief & success criteria, validate the investment target and select the team

Step 3 ‐ Establish the Alliance. Client and key partners bound together through an alliance contract and gain/pain share incentives who confirm the functional requirements, propose the solution and confirm the target cost

Step 4 ‐ Approval to Implement. Client & underwriter approval to develop and deliver the solution and incept the IPI policy to cover the agreed target cost

Step 5 – Implementation. Open book collaborative design, development and delivery

Step 6 – Transition to Defects Liability. Completion and proving, 12 months of soft landings and seasonal commissioning and 12 years of defect liability

Case Study – Dudley Advance II.

The IPI model has had a long gestation period, being first conceived in 2003. It has finally been tested on a live project for Dudley College. This is a higher education facility comprising five floors of lab/teaching space and a large open hanger-like space for large-scale projects. The building is stacked with innovation, and built to a high finish.

The project began in 2014 and was delivered to the client on the program for the start of the educational term and within the original cost parameters. Given the challenges that the team faced over the delivery period, it is likely that the building would have faced significant delays and would have incurred significant cost overruns, had it been built using traditional design and procurement methods.

Kevin provided the audience with a frank summary of the learning from the project. Some of the things they expected to happen include:

• A true no-blame culture would emerge
• A “best for project” focus would be adopted for solution development and problem-solving
• Supply Chain would engage, lending expertise so design happened only once
• The team would run the project on Opportunities and Risks
• The Alliance Board would function as a business board
• BIM would create better efficiency, give asset management solutions
• New processes and procedures would be created
• Behaviours would change

Some of the things that were unexpected included:

• Working within the investment target is not a core skill for many people in the industry.
• The level of facilitation, coaching and mentoring was much higher than anticipated.
• It initially took a lot of effort to get people to take leadership.
• How much support some businesses would need to adopt BIM
• Impact of adopting BIM guidance
• Limitations of the ‘normal’ programming processes
• Cost of and time to achieve policy inception
• Difficulty integrating design, delivery & commissioning activities
• The extra benefits of 4D

Summary

Having been aware for some time that the IPI pilot was running, the ResoLex community were excited to see how it would turn out. The room was therefore delighted to hear of the IPInitiatives team’s experiences, and many were keen to see how the process might be used on their future projects. Kevin was keen to point out that the process is still in its early stages, and whilst there is another pilot currently underway, there is still a long way to go before the process becomes a mainstream alternative to the traditional procurement route.

One of my main takeaways from the evening was Kevin’s observation that once the collaborative mindset took hold, the energy and desire within the team to deliver was a joy to work with.  Many words are written and spoken about the need for more collaboration in the construction industry. Kevin and his fellow directors have shown us how it can actually work in practice!