22nd November 2010 22nd November 2010

“Partnership “Partnership Contracts”Contracts”

Presented byPresented by

Chris BowleyChris BowleyIEng FIHE MICE MCIHTIEng FIHE MICE MCIHT

Highway Management Highway Management ConsultantConsultant

Investing in the AssetInvesting in the Asset

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

How do we get ‘More for How do we get ‘More for Less’?Less’?

Do we collaborate or do we Do we collaborate or do we return to adversary?return to adversary?

Let’s review the evidenceLet’s review the evidence

The EngineerThe Engineer

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

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 Employers such as Government and Local Councils had a Local Councils had a ‘god given right’ ‘god given right’ to undertake work using their own to 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 Generally they were both expensive and inefficient due to lack of and inefficient due to lack of competitioncompetition

‘‘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 Competition became fierce resulting in

low prices which created poor low prices which created poor workmanshipworkmanship

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 on contractors on ‘like for like’ ‘like for like’ contractscontracts

DevelopmentsDevelopments Following Mrs Thatcher, future UK Following Mrs Thatcher, future UK

governments have continued with her governments have continued with her changeschanges

In 1994 Sir Michael Latham produced a Report In 1994 Sir Michael Latham produced a Report for the UK Government called ‘for the UK Government called ‘Constructing Constructing the Team’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 ‘quality and continuous improvement’improvement’

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

The Supply ChainThe Supply Chain ‘‘Rethinking Construction’ Rethinking Construction’ introduced the introduced the

supply chain conceptsupply chain concept This broadened the This broadened the ‘thinking base’.‘thinking base’. It brought about:It brought about:

– Stronger working partnerships such as Joint Stronger working partnerships such as Joint Venture ContractsVenture Contracts

– 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 the by enabling the Client, Designer, Contractor and Subcontractors Client, Designer, Contractor and Subcontractors to work together as a unified teamto work together as a unified team

– All parties sit at the ‘top table’ when making All parties sit at the ‘top table’ when making decisionsdecisions

Greater EfficiencyGreater Efficiency

We did improve - but so did the We did improve - but so did the economy!economy!

This gave rise to unrealistic This gave rise to unrealistic expectationsexpectations

And a return to recessionAnd a return to recession The wheel has gone full circleThe wheel has gone full circle History has repeated itselfHistory has repeated itself Therefore: Therefore: we we have have to do betterto do better

So how do we do this?So how do we do this?

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

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

ContractorContractor Being transparent in our dealings and Being transparent in our dealings and

open and honest with one anotheropen and honest with one another

Partnership workingPartnership working

We have it in the UK Government!We have it in the UK Government!

A coalition between 2 Political PartiesA coalition between 2 Political Parties

Partnership ContractsPartnership Contracts In the 1990’s the Institution of Civil In the 1990’s the Institution of Civil

Engineers (ICE) introduced the Engineers (ICE) introduced the ‘New ‘New Engineering Contract’ (NEC).Engineering Contract’ (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 and the the gain gain in contracting – splitting the profit in contracting – splitting the profit and sharing the lossand sharing the loss

Variations to the work are covered by Variations to the work are covered by ‘Compensation Events’ and not Variation ‘Compensation Events’ and not Variation OrdersOrders

These help us to achieve These help us to achieve ‘Best Value’‘Best Value’

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

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

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

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

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

So who got the best value?So who got the best value?

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

requirementsrequirements– 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 if she lives

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

carefully carefully the required outcomes of a the required outcomes of a Contract in order to achieve Contract in order to achieve best best valuevalue

Selection of Current ContractsSelection of Current ContractsTypeType ActivityActivity ExamplesExamples DurationDurationTerm Term Maintenance Maintenance Contract (TMC)Contract (TMC)

Works and Works and constructionconstruction

Local Authority Local Authority Highways Highways ContractsContracts

Normally Normally

5 – 10 years5 – 10 years

Managing Agent Managing Agent (MA & Linked to (MA & Linked to TMC)TMC)

Design and Design and managementmanagement

dittoditto dittoditto

Managing Agent Managing Agent Contractor (MAC)Contractor (MAC)

(MA+TMC)(MA+TMC)

Management, Management, design and design and constructionconstruction

Highways Agency Highways Agency Areas and some Areas and some Local CouncilsLocal Councils

dittoditto

Design, Build, Design, Build, Finance and Finance and Operate (DBFO)Operate (DBFO)

Design, construct, Design, construct, financing and financing and operatingoperating

M25 Widening M25 Widening and Operatingand Operating

30 years 30 years

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

Early Contractor Early Contractor Involvement (ECI)Involvement (ECI)

Design and Design and ConstructConstruct

A3 Hindhead Imp. A3 Hindhead Imp. including Tunnel. including Tunnel.

Design and Design and Construct PeriodConstruct Period

Private Finance Private Finance Initiative (PFI)Initiative (PFI)

Construct, finance Construct, finance and maintainand maintain

Portsmouth City Portsmouth City HighwaysHighways

Birmingham Birmingham HighwaysHighways

30 years30 years

25 years25 years

Hampshire Highways (TMC)Hampshire Highways (TMC)

Client – Hampshire Client – Hampshire County CouncilCounty Council

Contractor – AmeyContractor – Amey Value £35m per Value £35m per

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

optionoption Over 8000 kms of Over 8000 kms of

highwayhighway

Area 3 (MAC)Area 3 (MAC)(1 of 13 in England)(1 of 13 in England)

Client – Highways Client – Highways AgencyAgency

Contractor – Contractor – EnterpriseMouchelEnterpriseMouchel

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

optionoption 1,242km of highway1,242km of highway Will inherit new Will inherit new

Hindhead Tunnel when Hindhead Tunnel when complete in 2011complete in 2011

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

PlusPlus Shareholders – Balfour Shareholders – Balfour

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

Cost £6.2 billionCost £6.2 billion Contract commencement Contract commencement

20092009 Construction complete 2012 Construction complete 2012

(prior to 2012 Olympic (prior to 2012 Olympic Games)Games)

Additional works to include Additional works to include ‘Managed Motorway’ ‘Managed Motorway’ (hard shoulder running)(hard shoulder running)

Contract end 2039Contract end 2039

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

Client – Highways Client – Highways AgencyAgency

30 yrs contract with 30 yrs contract with Sheppey Route LtdSheppey Route Ltd

Shareholders – Carillion Shareholders – Carillion & Barclays Bank& Barclays Bank

Road length 17kmRoad length 17km Cost £100mCost £100m Contract Contract

commencement April commencement April 20042004

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

A3 Hindhead Improvement A3 Hindhead Improvement (ECI)(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 Contract commencement

20072007 Open to traffic Summer 2011Open to traffic Summer 2011 1,200.000 cu. m of 1,200.000 cu. m of

excavation recycled on siteexcavation recycled on site Extensive environmental Extensive environmental

issues and land regeneration issues and land regeneration on siteon site

Considerate Constructors Considerate Constructors Silver Award 2010Silver Award 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 £60m core investment in first

5 yrs (now complete)5 yrs (now complete) 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 Very popular with Portsmouth Very popular with Portsmouth

residents due to positive residents due to positive improvementsimprovements

Awarded Effective Awarded Effective Partnership Award by the Partnership Award by the Chartered Institution of Chartered Institution of Highways & Transportation Highways & Transportation 20082008

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

Have you any Questions?Have you any Questions?