Post on 31-Aug-2020
Contracting Strategies – A Client’s Perspective
Anin NamaGeneral Manager, Asset Management and InvestmentsM t tMetrowater
About Metrowater
Metrowater owns and manages the water and gwastewater networks for Auckland City
Population 420,000
Customers served 165 000165,000
Approx 1/3 of the population of the regionpopulation of the region
Approx ½ of the water supplied in the region
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supplied in the region
Proposed New Regional Boundary
Population: Approximately 1.2 millionApproximately 1.2 million
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No Bull Story
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Only Alliance
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Contracting Strategies
Why look at various contracting strategiesT l fTo ensure value for moneyBetter management of internal and external resources
Why some choose not to look at various contracting strategiescontracting strategiesRisk adverse Continue with what has been done in the past
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What Contracting Strategy Will You Choose?
You are required to construct a desalination plant which i l d 2k i f th Th i th hincludes a 2km pipe from the sea. The pipe goes through the CBD and areas of unstable land. The budget for this project is $2 billion.
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Where Did We Come From?
Metrowater Annual Capex
80.0
90.0
40 0
50.0
60.0
70.0
EX ($
M)
10.0
20.0
30.0
40.0
CA
P
0.0
2002
/03
2004
/05
2006
/07
2008
/09
2010
/11
2012
/13
2014
/15
2016
/17
2018
/19
2020
/21
2022
/23
2024
/25
2026
/27
8Water Supply Wastewater Business Systems
Why Change?
2004 Halcrow review– Inefficient procurement processes – Many small projects– Poor management/allocation of risk– Better ways of project and programme deliveryBetter ways of project and programme delivery
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Understand Your Business Strategy
Our Vision:“We are passionate about delivering quality water services and value to our customers, and we aspire to be the role model for other water companies”model for other water companies
Role Model in:Role Model in:- how we deal with our customers - the quality of serviceM f l “ l f ”- More for less “value for money”
- how we manage our people- how we procure and deliver services
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Understand your Business Strategy
We will know we have reached our vision ifwe achieve the following strategic goals:we achieve the following strategic goals:
1. To be trusted by our customersy2. To be known by our stakeholders as the utility which achieves more
and better outcomes for the most efficient investment“More for less”More for less
3. To be known as a Company which delivers on its promises4. To be known by our employees as a Company which values their
development and rewards performancedevelopment and rewards performance5. To be known as a Company which values the health and safety of its
people, the public and the environment
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The Road To Being Trusted
To achieve our goals we need toTo achieve our goals we need to behave in line with our values:
Th l h ld b
Improve talent gap in procurement and project management – Value for company
GrowthLeadership
These values should be evident in how we work with our
p j g p y
Need to be a better client – including reducing contractors’ unnecessary costs –p
RespectCan do/ Will do
with our partners/contractors
g yValue for contractor
Get on with it and make thingsCan do/ Will doGet on with it and make things happen – Value for customer
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Business Strategy - Key areas of focus required:
Service, not justasset management Optimising our Capital
I t t POur Customers
Our Capital
Investment
Investment ProgrammeManage risk as Capexgrows
OurEnvironment
Optimising leakage and wastewater pollution
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Procurement In Line With Business Strategy
When selecting the procurement approachWhen selecting the procurement approach (Contracting Strategy) consider the wider capital investment programme not separatecapital investment programme, not separate projects in isolation. Consider a portfolio approach to manage your investmentapproach to manage your investment programme.
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Procurement in line with business strategy
Strategic Alignment Value Management Procurement Approach Delivery
•Vision
Goals (more for less)•Optimised Decision Making More for Less
•Rationalise suppliers
•Partnering
•Construction Methodology•Goals (more for less)
•Values
Making More for Less
•Bundling of projects
•Term Contracts
•Partnering
•Traditional
•Alliance
gy
•Review Design
•Coordinate works
•Customer Service•Customer Service
•Innovation
Focus enough attention on getting alignment right, understandingg g g g g , gwhere value comes from and selecting the procurement approach.
“We May Pay More” to get added value
15Investigate
DesignTender
Build
Where Are We Today?
Six consultantsFive contractorsBundle projects into programmes of works
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p j p gTake a portfolio approach to riskImplemented alternative contracting strategies
Types Of Contracts
Build Own Operatees
Relationship basedBuild Own Operate
Build Own Operate Transfer
Prin
cipl
e
of
Alliancing
ract
ing
P
ease
use
o
Partnering
Design and Construct
hip
Con
tr
Incr
e
Construction Management
Traditional Lump Sum Contracts
Increase use of
elat
ions
h
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Traditional Lump Sum ContractsRelationship Contracting Principles
Re
Adversarial based
The Panel
More aligned to our valuesMore aligned to our valuesLess transactional cost for both partiesC t i t f k b tt lCertainty of work – better value
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Approach selected for major capital works
Sewer separation for wastewater overflow preduction:
– Traditionally many small projects ($1m to 5m)Bundled into two $50m projects– Bundled into two $50m projects
– One started in 2007 through alliance method
Water main and wastewater renewals– $30m of work over 3 years (too small for alliance)
Separated in 2 roughly equal parts– Separated in 2 roughly equal parts– Managed through a performance incentivised / risk
sharing method.
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Contracting Strategies
TraditionalTraditionalPartneringAlliAlliance
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Traditional
Well defined scope low riskWell defined scope, low riskLimited ability for innovationRi k d li tRisk adverse clientsClients wanting to retain control
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Partnering (NEC)
Risk share Promote innovationPromote innovation
“A process where parties work towards mutually acceptableA process where parties work towards mutually acceptable outcomes through”
Relationship Contract
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Partnering (Cont…)
Term renewals for:– Watermain renewalsWatermain renewals – Wastewater renewals
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Alliance
Traditional Alliance“Trust is Good, Control is better”
“Control is Good, Trust is better”
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Different From Traditional Contractingg
Drives Culture-One team philosophy-Transparency, early
Promotes Innovation
involvement of a contractor
-Through KPI’s
Delivers Value-Exceeding performance targets
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Why Alliance?
Value for money both tangible & non - tangibleAbility to accelerate rate of investment Desire to become a better clientThe need to grow internal capabilityMajor environmental improvement (reduce j p (wastewater overflows)Manage works in a densely-populated area near Eden ParkLooming Rugby World Cup
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Need for improved customer perception
Clear Harbour Alliance
New Zealand’s first wastewater allianceMetrowater’s first allianceMetrowater s first alliance
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Construction and environment challenges
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Clear Harbour Alliance – Value to date
Progressing well compared to programmeTOC 10% below original budgetSubcontract and some materials cost 10% below TOCImproved customer service through integrated customer databaseImproved customer service through integrated customer databaseSatisfied customers, numerous compliments receivedLimited customer and traffic inconveniences in high density commercial and strategic transport corridor leading to Aucklandcommercial and strategic transport corridor leading to Auckland CBDComplaints received but satisfactory resolution through dedicated customer teams in Alliance with support from Metrowatercustomer teams in Alliance with support from Metrowater
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The Value for Money Debate
"We knocked the bastard off."
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How do you Value “Value”
Two elements to value for moneyTwo elements to value for money1. Tangible2 In tangible2. In tangible
1. Tangible – easy e.g. competitive tender, independent estimate etcindependent estimate etc.
2. In tangible – Hard e.g. Customer Service, reliability of service, improvements to the e ab ty o se ce, p o e e ts to t eenvironment etc.
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Demonstrating Value for Money
F ti l P fValue for Money =
Functional Performance
Whole Life Cost
Value for Money
Tangible Benefits of Outputs
Functional PerformanceWhole Life Costs
Resources Consumed
In-tangible Benefits of Outputs
Achievement of Desired Outcomes
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What Delivery Model Drive Value For Money
Alliance – Pain/Gain drive value+ Innovation
- Rework
Traditional – Client pays all – either through p y gvariations or risk transfer
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What delivery model drive value for money
Non competitive allianceNon competitive alliance1. Monte carlo analysis on estimate2. Independent estimate3. Establishment audit4. Commercial alignment - $3m less5. Mid audit for compliance6. Competitive tenders for sub contract works and materials
C titi lliCompetitive alliance - drives innovation and many go someway to satisfying the Client on the VFM debate. However !!
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How do you score relative to “Value”
Criteria Traditional Alliance Design & Build
1 Ability to promote innovation
1 3 3
2 Cost certainty 1 2 33 Delivery ahead of
programme1 3 3
4 Community Engagement d M t
1 3 2and Management
5 Build in-house knowledge and skills
1 3 2
Likert Scale: 1 = Sometimes, 2 = Most of the time,3 = All the time
Trade-off: criteria vs. cost of establishing alliance All things being equal other methods may deliver same outcomes
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Criteria 5 could tip balance if building in house knowledge is important to Client
Conclusion
Long term relationships with a contract strategy g p gythat drives the right behavioursProvide excellence to our customers through
Service right investment and the right time– Service – right investment and the right time– Safety - No harm– Quality – Do it once do it rightQuality Do it once, do it right
Contract Strategy that promotes innovationContract Strategy that promotes best solution
Value what Value is to demonstrate “Value for money”
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money
Conclusion
Not always easy to value “value”
Only the client will know whether they got value for money
Metrowater is learning about better risk allocation and gmanagement
– Portfolio approach– Risk allocation
Balance between empowering the alliance and client responsibility
Demonstrating competitiveness – not an issue
Cost and time taken to select partners – resource & t i t i t th i d t
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& cost intensive to the industry