Institute of Highway EngineersInstitute of Highway EngineersSouthern Branch SeminarSouthern Branch Seminar

18th June 2010 - Winchester18th June 2010 - Winchester

““Partnership Contracts”Partnership Contracts”

Chris BowleyChris BowleyIEng FIHE MICE MCIHTIEng FIHE MICE MCIHT

Highway Management ConsultantHighway Management Consultant

Investing in the AssetInvesting in the Asset

How do we do this in the present How do we do this in the present climate?climate?

How do we get ‘More for Less’?How do we get ‘More for Less’?Do we collaborate or do we return Do we collaborate or do we return

to adversary?to adversary?Let’s review the evidenceLet’s review the evidence

The EngineerThe Engineer

In the day’s of Brunel 200 yrs ago the In the day’s of Brunel 200 yrs ago the Engineer dominated construction and Engineer dominated construction and its management styleits management style

Contracting was adversarial – the Contracting was adversarial – the Contractor Contractor ‘did as he was instructed’‘did as he was instructed’

Initiative was the prerogative of the Initiative was the prerogative of the designerdesigner

EmployersEmployers

Employers such as Government and Local Employers such as Government and Local Councils had a Councils had a ‘god given right’ ‘god given right’ to to undertake work using their own undertake work using their own workforcesworkforces

These were known as Direct Labour These were known as Direct Labour Organisations or DLO’sOrganisations or DLO’s

Generally they were both expensive and Generally they were both expensive and inefficient due to lack of competitioninefficient due to lack of competition

‘‘The Iron Lady’ arrives 1979The Iron Lady’ arrives 1979

The 1980’sThe 1980’s

UK Construction Industry in recession UK Construction Industry in recession Competition became fierce resulting in low Competition became fierce resulting in low

prices which created poor workmanshipprices which created poor workmanship Margaret Thatcher was a grocer’s Margaret Thatcher was a grocer’s

daughter and understood daughter and understood ‘value for ‘value for money’money’

She set out to change the approach to She set out to change the approach to working practicesworking practices

New ApproachNew Approach

In 1988 she introduced Compulsory In 1988 she introduced Compulsory Competitive Tendering or CCTCompetitive Tendering or CCT

This removed the This removed the ‘god given right’ ‘god given right’ to to DLO’s to undertake works for CouncilsDLO’s to undertake works for Councils

Competition was introduced by Competition was introduced by comparing their prices with private comparing their prices with private contractors for contractors for ‘like for like’ ‘like for like’ contractscontracts

DevelopmentsDevelopments

Following Mrs Thatcher, future governments Following Mrs Thatcher, future governments have continued with her changeshave continued with her changes

In 1994 Sir Michael Latham produced a Report In 1994 Sir Michael Latham produced a Report called ‘called ‘Constructing the Team’Constructing the Team’

This proposed a move away from This proposed a move away from ‘price based ‘price based one off’ one off’ contracts to longer term partnerships contracts to longer term partnerships based on based on ‘quality and continuous improvement’‘quality and continuous improvement’

Following this in 1998 Sir John Egan produced a Following this in 1998 Sir John Egan produced a Report called Report called ‘Rethinking Construction’‘Rethinking Construction’

The Supply ChainThe Supply Chain

‘‘Rethinking Construction’ Rethinking Construction’ introduced the supply introduced the supply chain conceptchain concept

This broadened the This broadened the ‘thinking base’.‘thinking base’. It brought about:It brought about:

– Stronger working partnerships such as Joint Venture Stronger working partnerships such as Joint Venture ContractsContracts

– Encouraged innovation by drawing on the Encouraged innovation by drawing on the Contractor’s experienceContractor’s experience

– Helped to achieve Helped to achieve ‘best value’ ‘best value’ by enabling Client, by enabling Client, Contractor and Subcontractors to work as a unified Contractor and Subcontractors to work as a unified teamteam

– Everyone sits at the ‘top table’ when making decisionsEveryone sits at the ‘top table’ when making decisions

EfficiencyEfficiency

So how efficient have we become?So how efficient have we become? Sir John Egan 10yrs on in the Sir John Egan 10yrs on in the

government’s ‘Constructing Excellence’ government’s ‘Constructing Excellence’ review said: “review said: “We could have had a We could have had a revolution and what we’ve achieved is a revolution and what we’ve achieved is a bit of improvement. I would give the bit of improvement. I would give the industry 4 out of 10!”industry 4 out of 10!”

We We have have to do betterto do better

So how do we achieve it?So how do we achieve it?

There are a number of different ways but There are a number of different ways but the key is:the key is:– ‘‘Partnership and co-operation in procurement Partnership and co-operation in procurement

and alliances’.and alliances’. Choosing partners carefullyChoosing partners carefully Building trust between Client and Building trust between Client and

Contractor.Contractor. Being transparent in dealings therefore Being transparent in dealings therefore

open and honest with one another.open and honest with one another.

Partnership workingPartnership working

Well we have it in Government!Well we have it in Government!

New Contract StylesNew Contract Styles

The Institution of Civil Engineers (ICE) The Institution of Civil Engineers (ICE) introduced the introduced the ‘New Engineering Contract’ ‘New Engineering Contract’ (NEC).(NEC).

This places emphasis on This places emphasis on Partnering Partnering and and notnot on on adversary.adversary.

Clients and Contractors share the Clients and Contractors share the pain pain and the and the gain gain in contracting – splitting the profit and in contracting – splitting the profit and sharing the losssharing the loss

Variations to the work are covered by Variations to the work are covered by ‘compensation events’ and not Variation Orders‘compensation events’ and not Variation Orders

Best Value – What is it?Best Value – What is it?

Well it is different things to different people.Well it is different things to different people. For example:For example:

– During May 2006, 2 UK women received large During May 2006, 2 UK women received large divorce settlementsdivorce settlements

– Mrs A (age 36yrs) received a lump sum of £5 Mrs A (age 36yrs) received a lump sum of £5 millionmillion

– Mrs B (age 46yrs) received £250,000/year for Mrs B (age 46yrs) received £250,000/year for lifelife

So which got the best value?So which got the best value?

You have to chooseYou have to choose It depends upon your needs and It depends upon your needs and

requirements.requirements.– Mrs A could spend hers immediatelyMrs A could spend hers immediately– But Mrs B will get the most – But Mrs B will get the most – if she lives to be if she lives to be

more than 67yrs old!more than 67yrs old! It is essential therefore to assess It is essential therefore to assess carefully carefully

the required outcomes of a Contract in the required outcomes of a Contract in order to achieve order to achieve best valuebest value

Selection of Current ContractsSelection of Current Contracts

30 years

25 years

Portsmouth City HighwaysBirmingham Highways

Construct, finance and maintain

Private Finance Initiative (PFI)

Design and Construct Period

A3 Hindhead Bypass including Tunnel.

Design and ConstructEarly Contractor Involvement (ECI)

30 years (3-5 yrs construction plus operation for the duration)

A249 Sheppey Route M25 Widening and Operating

Design, construct, financing and operating

Design, Build, Finance and Operate (DBFO)

dittoHighways Agency Areas Some Councils

Management, design and construction

Managing Agent Contractor (MAC)(MA+TMC)

dittodittoDesign and management

Managing Agent (MA & Linked to TMC)

Normally 5 – 10 years

Local Authority Highways Contracts

Works and construction

Term Maintenance(TMC)

DurationExamplesActivityType

Hampshire Highways (TMC)Hampshire Highways (TMC)

Client – HCCClient – HCC Contractor – AmeyContractor – Amey Value £35m per Value £35m per

annumannum Term 7yrs + 3yrs Term 7yrs + 3yrs

optionoption Over 5000 miles of c/Over 5000 miles of c/

wayway

Area 3 (MAC)Area 3 (MAC)

Client – Highways AgencyClient – Highways Agency Contractor –Contractor –

EnterpriseMouchelEnterpriseMouchel Value - £200m/5yrsValue - £200m/5yrs Duration – 5yrs + 2yrs Duration – 5yrs + 2yrs

optionoption 1,242km of c/way1,242km of c/way Will inherit Hindhead Will inherit Hindhead

Improvement/Tunnel in Improvement/Tunnel in 20112011

A249 Sheppey Route (DBFO)A249 Sheppey Route (DBFO)

Client – Highways AgencyClient – Highways Agency 30 yrs contract with 30 yrs contract with

Sheppey Route LtdSheppey Route Ltd Shareholders – Carillion & Shareholders – Carillion &

Barclays BankBarclays Bank Road length 17kmRoad length 17km Cost £100mCost £100m Contract commencement Contract commencement

April 2004April 2004 Open to traffic July 2006Open to traffic July 2006 Contract end Feb 2034Contract end Feb 2034

M25 (DBFO)M25 (DBFO) Client – Highways AgencyClient – Highways Agency 30 yrs contract with Connect 30 yrs contract with Connect

PlusPlus Shareholders – Balfour Beatty, Shareholders – Balfour Beatty,

Atkins, Skanska, Egis + Banks Atkins, Skanska, Egis + Banks (17 total)(17 total)

Cost £6.2 billionCost £6.2 billion Contract commencement 2009Contract commencement 2009 Construction complete 2012 Construction complete 2012

(prior to 2012 Olympic Games)(prior to 2012 Olympic Games) Additional works to include Additional works to include

‘Managed Motorway’ ‘Managed Motorway’ (hard shoulder running)(hard shoulder running)

Contract end 2039Contract end 2039

A3 Hindhead Improvement (ECI)A3 Hindhead Improvement (ECI)

Client – Highways AgencyClient – Highways Agency Contractors – Balfour Contractors – Balfour

Beatty/Mott MacDonaldBeatty/Mott MacDonald Client’s Agent - AtkinsClient’s Agent - Atkins Cost £371mCost £371m Road length 7.5kmRoad length 7.5km Tunnel length 1.9 kmTunnel length 1.9 km Contract commencement 2007Contract commencement 2007 Open to traffic Summer 2011Open to traffic Summer 2011 1,200.000 cu. m of excavation 1,200.000 cu. m of excavation

recycled on siterecycled on site Extensive environmental issues Extensive environmental issues

and land regeneration on siteand land regeneration on site Considerate Constructors Silver Considerate Constructors Silver

Award 2010Award 2010

Portsmouth City (PFI)Portsmouth City (PFI) Client – Portsmouth City Client – Portsmouth City

CouncilCouncil Contractor – Ensign HighwaysContractor – Ensign Highways Shareholders – Colas + BanksShareholders – Colas + Banks £60m core investment in first 5 £60m core investment in first 5

yrsyrs Maintain for further 25 yrs Maintain for further 25 yrs

during which period the during which period the investment will be recoveredinvestment will be recovered

11stst Maintenance PFI in UK Maintenance PFI in UK Highly acclaimed by Highly acclaimed by

Portsmouth residentsPortsmouth residents Awarded Effective Partnership Awarded Effective Partnership

Award by the Chartered Award by the Chartered Institution of Highways & Institution of Highways & Transportation 2008Transportation 2008

For the future then….For the future then….

With apologies to John F Kennedy With apologies to John F Kennedy (and David Cameron)(and David Cameron)

Ask NOT what your Contract can Ask NOT what your Contract can do for you – but what can YOU do do for you – but what can YOU do for your Contract?’for your Contract?’

But in SummaryBut in Summary

Collaboration is here to stay!Collaboration is here to stay!

Thank you for listeningThank you for listening