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.
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:
- The changes to Part 2 of the housing, grants and regeneration act.
- 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:
- Cash flow is still a big problem despite the introduction of adjudication
- 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.
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!
Oct 24, 2017 | Events, Roundtables
Speaker: David Hawkins, Operations Director and Knowledge Architect of ICW (Institute for Collaborative Working)
David began his presentation by comparing the contrasting perceptions of collaboration of synchronized swimming with sharks at one end and a team hug at the other. Neither is a true picture of what collaboration really means.
He explained that as business is shifting, old adversarial practices are proving inadequate to meet the challenges of organisations seeking to compete and survive in the 21st century.
In construction, whilst individuals often collaborate, organisations do not. There is too much reliance on informal relationships which disappear when the people move on. The aim of the standard is to establish formal structures so that the relationships are maintained irrespective of the people involved. The Standard gives companies a language and a platform upon which to develop a more effective way of working.
As can be seen from the slide deck, the standard is designed around a number of stages, each one asking the parties to think and plan how they will work together. The structure of the model is illustrated below.
Some of the useful insights from the presentation were as follows:
- That most organisations are inefficient and waste a great deal of inefficient
- There is and assumption that people will use their common sense – Voltaire commented back in 1694, ‘common sense is not so common’.
- Constructive conflict can drive innovation. This occurs when collaborative relationships are really working effectively.
- Universities are still teaching a 40 year old command and control model ill suited to the modern complex economy. A survey of project managers highlighted that the biggest challenges are with relationships. One of the real challenges is the lack of skills to implement the collaborative process.
- The Standard is not a set of proformas. The danger with such an approach that is the organizations mechanism not an external consultant.
- Risk – Observation that banks and insurance organisations are going to be much more concerned about relationships risk in the futures as they begin to understand the value created by effective partnerships.
- Contracts – tend to be written in anticipation of failure rather than seeking to drive the conditions for success. David expressed the view that NEC4 has missed the opportunity to push the industry to push the boundaries and encourage the client and the contractor to approach public projects in a different way.
David concluded the session by reiterating the point that the key to success is the belief of the senior leadership. He emphasized the point that simply having the certificate on the wall is largely a waste of energy. The objective must be to use the Standard to build a better business.
Sep 21, 2017 | Events, Roundtables
Speaker: Rob Horne, Previous Partner at Simmons and Simmons, Current Partner at Osborne Clarke
Rob opened the session by asking the audience to define collaboration and drew attention to the Latin origin of the word ‘collaboration’ which means to ‘work together’. The word has become increasingly used in the construction industry as a desirable objective without recognising the need to fundamentally change how to approach the procurement and delivery of a project. The point was emphasised using a quote from Dale Evans of the One Alliance for Anglia Water who stated in a recent interview in New Civil Engineer “At the moment there are too many examples of organisations asking people to collaborate, but then dropping them into a business model that is the same [traditional procurement model]”.
Collaboration can be seen to be an outcome that arises when all parties adopt the necessary behaviours. This requires a level of communication and comprehension skill that is difficult to articulate in a legal document. For example, phrases requiring the parties to work in a spirit of ‘mutual trust and cooperation’ (NEC 4, clause 10.2) or ‘trust, fairness and mutual cooperation’ (PPC 2000, clause 1.3) may set out the intention but are difficult to enforce.
Rob explained that a contract is essentially a mechanism to try and manage risk. If all goes well and the parties are all working towards the same goal, then the contract is rarely required once it has been signed. When projects do not go as planned, then the contract becomes the primary mechanism to agree on differences between the participants. A number of recent cases were used to illustrate the difficulty in applying the provisions around trust, cooperation and good faith. (see slides)
Rob’s purpose was to expose three myths around the concept of collaboration in construction contracts which can be summarised as follows
- Myth 1. A contract can be collaborative. Contracts and Collaboration are different. One is a set of rules the other is the application and implementation of those rules. A contract, of itself, is not collaborative, to be collaborative it would have to do something but contracts are inert and unmoving. Collaboration, of itself, is not creating or performing a contract.
- Myth 2. Collaboration is essential. There is a valid question as to whether the alternative approach of clarity and proper perpetration actually makes more of a difference. Collaboration is a “fashionable” approach to contracting. Take care in what it can actually achieve.
- Myth 3. Collaboration is incompatible with enforcing a contract. Collaboration has to work within a framework and that framework must be capable of enforcement. Enforcement does not have to be through a court or formal tribunal, it could rely on a core group for example under FAC-1 and PPC.
Rob summarised the presentation by pointing out that when genuine collaboration does occur, it happens because humans decide it is in their mutual interest to pursue a particular goal or objective. The role of the contract is then primarily to create a framework for this ‘magical’ process to happen.
