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Proceedings of theHKIPM 2014 ConferenceNovel Project Delivery Systems – Current Status and The Way Forward

Any opinions, findings, conclusions or recommendations expressed in this material/any event organised under this Project do not reflect the views of the Government of the Hong Kong Special Administrative Region or the Vetting Committee for the Professional Services Development Assistance Scheme.

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ISBN: 978-962-8014-23-1

25 April 2014

ISBN: 978-962-8014-23-1


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1HKIPM 2014 Conference

HKIPM 2014 Conference

Novel Project Delivery Systems –

Current Status and The Way Forward

Conference Proceedings

Editors

S. Thomas NgDaniel W.M. ChanJoseph H.L. Chan

Published by

Hong Kong Institute of Project Management

Novel Project Delivery Systems – Current Status and The Way Forward2

List of Organising Committee and Editorial Panel

Organising CommitteeChairmanProf. S. Thomas Ng

MembersDr. Daniel W.M. ChanDr. Francis C.M. ChanDr. Joseph H.L. ChanIr Sam Y.S. ChanMr. Simon P.Y. CheungIr Andrew Keung

Conference SecretariatCreative Consulting Group Inc. Limited


Message from President of HKIPM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P .4

Message from Chairman of Organising Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P .5

Conference Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P .6

Speakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P7-22

Technical Papers

– Development and Application of the New Engineering Contract (NEC3) . . . . . . . . . . . . . . 23-30

– Incentivising Supply Chain Performance through Intelligent Procurement . . . . . . . . . . . . . . 31-36

– Driving Value via Commercial Transactions for the Delivery of Infrastructure Projects . . . . . . 37-46

– Insight in Actual Energy Use in Houses as a Basis for Energy Performance Contracting . . . . . 47-52

– An Owner’s Perspective: Managing BIM Handover for the Tendering Process on Multiple Delivery Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53-59

– Harnessing Lean & Integrated Project Delivery to Optimize Design and Construction Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60-67

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Table of Contents


Message from President of HKIPM

Since our formation in 2003, the Hong Kong Institute of Project Management has always endeavoured to represent and formally recognise project management practitioners in Hong Kong, Macau and China, and to establish a discussion forum for the development of a sustainable future. This year, thanks to the Professional Services Development Assistance Scheme (PSDAS) being granted by the Commerce and Economic Development Bureau (CEDB) of the Government of Hong Kong Special Administrative Region as well as our sponsors’ generous support, we are able to organise the HKIPM 2014 Conference: “Novel Project Delivery Systems – Current Status and the Way Forward.”

How can the procurement process be more efficient and cost effective? What can we do to minimise the impact of procurement on the environment? Do existing contracting strategies serve our needs? We are honoured to have many experienced professionals and eminent scholars presenting upon these challenges and more today. I am confident that this conference will be a great opportunity for everyone to learn and discuss the recent developments and identify the future directions of project delivery system for the construction industry in Hong Kong.

I would like to take this opportunity to sincerely thank our sponsors for their commitment and support to this Conference. I would also like to thank the Government of Hong Kong Special Administrative Region, Supporting Organisations, Organising Committee of this Conference, Members of HKIPM, Conference Secretariat, and everybody who has contributed to the process of making this Conference a success.

Finally, I would like to thank all of the speakers. Your contribution makes this Conference a fruitful one. I believe your expertise will assist all of us significantly in improving the construction industry, and through that, the entire city of Hong Kong.

Thank you.

Ir Andrew KeungPresident of Hong Kong Institute of Project Management

Ir Andrew KeungPresident Hong Kong Institute of Project Management


Message from Chairman of Organising Committee

On behalf of the Conference Organising Committee, I take great pleasure in welcoming you for joining this important Conference.

Bringing novel concepts and best practices in project delivery to the Hong Kong construction industry is critical to project success in the era of challenges. A growing demand for efficiency, value for money, environmental consciousness and application of new technologies necessitates the construction industry moving towards a collaborative and joint decision making/problem solving culture to achieve a win-win outcome.

We are extremely honoured to have Prof. Anthony B.L. Cheung, GBS, JP, Secretary for Transport and Housing, Transport and Housing Bureau, The Government of Hong Kong Special Administrative Region being our Guest of Honour and delivering the opening remarks. It is also particularly exceptional to have such a strong list of speakers sharing with us the international trend and latest knowledge in construction procurement and contracting strategies.

I would like to offer my most sincere gratitude to the Commerce and Economic Development Bureau of the Government of HKSAR for financially supporting this Conference through the Professional Services Development Assistance Scheme. Our generous sponsors and supporting organisations should be gratefully acknowledged for making this Conference possible. Moreover, I wish to thank the Conference Organising Committee and the Conference Secretariat for their dedicated hard work in organising this Conference.

I sincerely wish all the participants of this Conference would enjoy the inspiring speeches and discussions and take home with some useful information to help make the Hong Kong construction industry a harmonious, productive and innovative showcase to the world.

Prof. S. Thomas NgChairman, Conference Organising Committee

Prof. S. Thomas NgChairman Conference Organising Committee


Conference Programme

9:00 – 9:10 Welcome SpeechIr Andrew KeungPresident of Hong Kong Institute of Project Management

9:10 – 9:25 Opening RemarksGuest of HonourProf. Anthony B.L. Cheung, GBS, JPSecretary for Transport and Housing, Transport and Housing Bureau, The Government of HKSAR

International Project Delivery Methods9:25 – 9:45 Development and Application of New Engineering Contract Version 3 (NEC3)

Mr. Wayne LordSenior Lecturer of Construction Law, School of Civil and Building Engineering, Loughborough University, England

9:45 – 10:05 Incentivising Supply Chain Performance through Intelligent ProcurementMr. Ian HeaphyDirector, Turner & Townsend Contract Services, Leeds, England

10:05 – 10:25 Relational Contracting and Public-Private Partnership (PPP) – Lessons Learned from AustraliaDr. Colin DuffieldDepartment of Infrastructure Engineering, The University of Melbourne, Australia

10:25 – 10:40 Panel DiscussionModerator: Prof. Anita LiuProfessor, Department of Real Estate and Construction, The University of Hong Kong

10:40 – 11:00 Coffee BreakGreen Procurement and Tendering

11:00 – 11:20 Introduction of Innovations and Green Concepts to Public Housing Projects through Three-envelope Tendering SystemMs. Ada Fung, JPDeputy Director of Housing (Development and Construction), Housing Department, The Government of HKSAR

11:20 – 11:40 Insight in Actual Energy Use in Houses as a Basis for Energy Performance ContractingProf. Henk VisscherOTB Research Institute for the Built Environment, Delft University of Technology, The Netherlands

11:40 – 12:00 A New Era – The Beginning of Green ProcurementIr Conrad T.C. Wong, BBS, JPChairman, Hong Kong Green Building Council

12:00 – 12:15 Panel DiscussionModerator: Prof. Geoffrey Q.P. ShenChair Professor of Construction Management, Associate Dean of Faculty of Construction and Environment & Head of Department of Building and Real Estate, Hong Kong Polytechnic University

12:15 – 14:00 LunchLocal Experiences in Executing Construction Contracts

14:00 – 14:20 Wider Application of NEC in Public Works ProjectsIr Tsui Wai, JPDeputy Director, Drainage Services Department, The Government of HKSAR

14:20 – 14:40 New Chapter of Contractor Partnering in Power StationsIr Chris CheungDeputy Director (Generation Engineering), CLP Power Hong Kong Ltd

14:40 – 15:00 Main Contractor’s Perspective in NEC ApplicationIr Ken W.N. KoGeneral Manager, Chun Wo Construction and Engineering Co Ltd

15:00 – 15:15 Panel DiscussionModerator: Prof. Sai On CheungAssistant Head & Professor, Department of Civil and Architectural Engineering, City University of Hong Kong

15:15 – 15:30 Coffee BreakInnovative Procurement Strategies

15:30 – 15:50 An Owner’s Perspective: Managing BIM Handover for the Tendering Process on Multiple Delivery SystemsDr. Craig DublerVirtual Facilities Engineer for the Office of Physical Plant (OPP); and Affiliate Assistant Professor in the Architectural Engineering Department, Penn State University, United States

15:50 – 16:10 Harnessing Lean and Integrated Project Delivery to Optimize Design and Construction PerformanceDr. Lincoln ForbesHarding Associates Inc, Miami, Florida; and College of Engineering, Florida International University, United States

16:10 – 16:30 Achieving Successful Procurement for Complex Mega-sized Infrastructure ProjectsIr T.C. ChewProjects Director, MTR Corporation

16:30 – 16:45 Panel DiscussionModerator: Dr. Arthur McInnisProfessional Consultant, Faculty of Law, The Chinese University of Hong Kong

16:45 – 17:00 Closing RemarkProf. S. Thomas NgChairman, Conference Organising Committee


Speakers

Biography

Mr. Wayne Lord graduated at Loughborough University in the early 1980’s with a degree in Civil Engineering. After a short spell in the offshore oil and gas industry, Mr. Lord initially practised as a civil and structural engineer with a small consultant in London engaged on retail and commercial projects. He subsequently gained experience as an assistant resident engineer for structures on a highway project. Mr. Lord then began to specialise in bridges and highways structures design working for a number of years from the early 1990’s variously for a County Council and major UK consultants e.g. Faber Maunsell and Atkins. Subsequently he gained an interest in the legal aspects of construction law and went on to study law in the late 90’s. Mr. Lord was called to the Bar by Middle Temple in the summer of 1999. Mr. Lord then went on to gain significant UK and international construction law experience acting variously for clients, contractors, funders, subcontractors and consultants within the construction and engineering group of an international law firm before being appointed as an Associate at a regional practice. Appointed as a lecturer at Loughborough University in September 2007, to teach law to built environment undergraduates within the School of Civil and Building Engineering. He has published papers on construction law, contracts and risk and supervises both undergraduate, post graduate and doctoral research.

Mr. Lord’s professional memberships include: Institution of Civil Engineers (MICE), Institution of Structural Engineers (MIStructE), Royal Institution of Chartered Surveyors (FRICS), Higher Education Academy (FHEA), Solicitor of the Supreme Court, and General Council of the Bar (Barrister at Law).

DEVELOPMENT AND APPLICATION OF NEW ENGINEERING CONTRACT (NEC3)

Abstract

The NEC form of contract has been around since the consultative document was released in 1991. It was born out of a fundamental review of alternative contract strategies for civil engineering works and led to the drafting of a new style contract for the United Kingdom construction industry. The contract was intended to: be clear and simple; be flexible and; act as a stimulus to good management. It was met with much scepticism in the UK construction industry but has since grown to be the contract of choice by UK government for public sector projects.

The contract has been used in various locations around the world and NEC usage is growing extensively around the world most notably in South Africa and New Zealand. Perhaps most importantly, the Hong Kong Government have recently announced that the NEC contract will generally be used for all government projects tendered in 2015/2016.

The contract has undergone three iterations towards the latest version NEC3. This presentation will provide an introduction to the NEC form of contract, some of the developments in its structure and provide an insight into its use together with some findings from recent research initiatives. This presentation will also highlight that the key to making the contract work in Hong Kong, as elsewhere, will be the skills and expertise of the Project Manager.

Mr. Wayne LordSenior Lecturer of Construction Law School of Civil and Building Engineering, Loughborough University, England

8 Novel Project Delivery Systems – Current Status and The Way Forward

Speakers

Biography

Mr. Ian Heaphy has over 20 years experience across the construction industry, including oil & gas, petro-chemical, rail, water, aviation, highways and building.

He has worked with major clients across the UK, Middle East, Far East and North America including government bodies, private employers and international contractors.

His background is in commercial and contract administration and project and programme management.

He now specialises in the development and implementation of innovative procurement strategies with particular expertise around EPC/EPCm, frameworks, partnering/all Mr. Heaphy agreements and target cost/cost reimbursable contracts for major programmes or work.

Mr. Heaphy is experienced in most major forms of contract including FIDIC, Red, Yellow and Silver Books and is a recognised authority on the NEC suite of contract. Mr. Heaphy has worked with the NEC in the development and growth of the contract and has supported numerous, government departments, major clients and international contractors to deliver the benefits of the NEC.

Mr. Heaphy also provides expert advice in relation to major construction disputes acting on behalf of a party and as an independent Expert Witness. He has provided arbitration and adjudication support and has successfully led the prosecution and defence of multimillion dollar claims, including setting strategy, leading negotiations, and managing teams responsible for delay and quantum assessment.

Mr. Heaphy recently supported the Procurement/Lean Client Task Group in the development of the UK Government Construction Strategy report for the Cabinet Office as chair of the Contract Form Working Group.

Mr. Heaphy regularly facilitates workshops and delivers training in contract forms, procurement & contract strategies and claims and commercial management. Mr. Heaphy is engaged by the NEC as one of their international tutors and produced the elearning module the “International Application of the NEC3“. Mr. Heaphy is a regular speaker at major international industry events and has had numerous articles published in construction journals.

INCENTIVISING SUPPLY CHAIN PERFORMANCE THROUGH INTELLIGENT PROCUREMENT

Abstract

Incentivisation is becoming something of a buzz word in the construction industry as Employers look to new and innovative ways of driving performance in their supply chain, particularly on programs of work where the potential benefits created can be substantial.

The idea behind the introduction of incentive mechanisms is to create greater alignment between the objectives of the Employer and their supply chain with all parties incentivised to achieve mutually beneficial results which are both tangible and measurable.

The starting point for any incentive mechanism is the procurement strategy and commercial model adopted by the Employer. If implemented successfully the mechanism should proactively drive the supply chain to be innovative in how they plan and build projects and to bring forward new ideas and/or ways of working that will help reduce cost and/or create additional value.

Mr. Ian HeaphyDirectorTurner & Townsend Contract Services, Leeds, England


Speakers

The presentation will consider the variety of incentivisation mechanisms that exist in different sectors of the industry and parts of the world and will consider:–

• TheneedtoclearlyidentifytheareasofperformancethattheEmployerisattemptingtoimproveandhowtheseneedto relate back to the their wider business drivers as well as project objectives

• Thebehavioursthattheincentivisationmechanismcandriveandhowthesecanhaveinadvertentaffectsonotherareasperformance.

• Therequirementtoestablishabase/targetlevelagainstwhichtheperformanceofthesupplychaincanbemeasuredto confirm if the incentive mechanism is delivering the benefits intended

• Themeritsofpositiveandnegativeincentivisationmodels

• Themethodsofincentivisationthatareavailableandhowthesecanbeintroducedintoprocurementandcontractingstrategies with particular focus on financial risk and reward models, incentivising whole life costs and Key Performance Indicators

• Keyissuesthatneedtobeaddressedsothattheincentivisationmechanismareimplementedeffectively,inawaythatit drives the right behaviours in the supply chain and that deliver the performance improvements that Employers are seeking.


Speakers

Biography

Dr. Colin Duffield is an Associate Professor in Engineering Project Management in the Department of Infrastructure Engineering and the Civil Engineering Discipline Leader at The University of Melbourne. He is also a fellow of the Law School (where he delivers a master level unit in infrastructure procurement).

Dr. Duffield has extensive experience in the governance of long term contracts and the interaction between policy, technical matters, risk management, financing and contractual arrangements as they apply to infrastructure. This expertise has been gained through: an involvement in infrastructure delivery for public and private clients (both as a practitioner and researcher); and as an adviser to projects on risk and project structuring; and as an independent reviewer and researcher of major engineering contracts.

DRIVING VALUE VIA COMMERCIAL TRANSACTIONS FOR THE DELIVERY OF INFRASTRUCTURE PROJECTS

Abstract

Major project contracting is essentially a commercial transaction whereby buyer and seller seek to achieve their respective aim whilst minimizing risk and optimizing opportunities. For a buyer, commonly catch phrases as achieving Value for Money (VfM) abound, whilst for the provider phases such a maximizing ‘Return on Investment’ often drive behavior. If one combines these two basic contractual motivators with a governments generally stated position to be an exemplar in commercial undertakings it becomes evident that the choice of particular procurement strategies becomes an important tool for a government buyer if the objectives of VfM and being an exemplar citizen in commercial transactions is to be achieved.

Australian culture is creative and has frequently been an early exponent of new contractual concepts. Such concepts have ranged from hard money (full risk transfer) transactions to deals having an emphasis on the relationship required for the buyer and seller to work in harmony and thus maximize the potential for a win-win outcome. Recent contracting mechanisms adopted in Australia are critiqued and analyzed to establish areas of strength (and potential weakness). The techniques include: PPPs, alliance contracts (including competitively bid alliances) and recent changes to incorporate relationship features into traditional design and construct contracts. A major rail project that was split into a number of separable contracts using a variety of contracting forms is used to amplify the features of the contracting forms.

It is concluded that the selection of the procurement strategy (when done well) can assist in optimizing successful project outcomes; particularly when specific project risks are clearly identified and communicated.

Dr. Colin DuffieldDepartment of Infrastructure EngineeringThe University of Melbourne, Australia


Speakers

Biography

Ms. Ada FUNG, JP is an Architect by profession. She is an active member in the Architectural field as well as in the construction industry in Hong Kong.

In her career as Deputy Director of Housing, she supervises the Development & Construction Division of the Housing Department, overseeing all facets of public housing development work in Hong Kong. Her duties cover project management, planning, design and contract management, as well as establishing operational policies on procurement, design, construction, quality, performance assessment, dispute resolution, research and development, safety and the environment. She also promotes partnering, value management, risk management, ethical integrity, site safety, corporate social responsibility, sustainable development, community engagement, green building and Building Information Modeling and product certification in the industry.

She is the President of the Hong Kong Institute of Architects (2013 – 2014), Chairperson of the APEC Architect Monitoring Committee of Hong Kong (2012/13 – 2014/15), and past Chairperson of the Architects Registration Board (2010/11 – 2011/12).

PARTNERING CONTRACTS IN ACTION : THE HONG KONG HOUSING AUTHORITY’S EXPERIENCE

Abstract

The Hong Kong Housing Authority (HA) has been pursuing quality in the delivery of public housing. The “Quality Housing Initiatives” as its driver for change are contained in its consultative document entitled “Quality Housing: Partnering for Change” published in year 2000. Amongst the 50 Quality Housing Initiatives (QHIs) to enhance housing quality, “Establishing a Partnering Culture” has brought cultural changes to HA’s projects and its business partners, whilst its innovative procurement system has been instrumental towards “Enhancing Product Quality”.

(A) The New Hong Kong Housing Authority General Conditions of Contract

The guiding principle of achieving more equitable and fair risk-sharing with its counterparties has become HA’s intrinsic value in contract administration of construction projects. The HA has been adopting in its capital works contracts the following:–

• Contractualarrangementsforachievingfairriskallocationandmoreequitablerisk-sharingwithitscounterparties;

• Project-basedpartnering;

• DisputeResolutionAdvisorSysteminitsfoundationandbuildingcontracts;and

• Innovativeprocurementstrategiesforsomecapitalworkscontracts.

From the experience of implementing the QHIs, the HA has devised its own General Conditions of Contract (GCC) which embraces the partnering concept and initiatives, and parallels other renowned standard forms of collaborative contract in terms of fair risk sharing in various aspects and amicable dispute avoidance and resolution with its counterparties. The new GCC will commence to be adopted in HA’s capital works contracts later in 2014.

Ms. Ada Fung, JPRegistered Architect, FHKIA, RIBA, ASC, ACIArb, FCIOB, Hon FHKIPM, Hon FHKIBIM, Hon MHKCAC, FCInstCES, MHIREA, BEAM Professional APEC Architect, CGB(HK)Deputy Director of Housing (Development & Construction) Hong Kong Housing Authority


Speakers

(B) Procurement for Innovation through a three envelope tendering system

To procure innovations in collaboration with its counterparties, the HA implemented the Integrated Procurement Approach (IPA) in the public housing projects at Kai Tak Development Site 1B and Anderson Road Site A and Site B Phases 1 and 2 in 2009 and 2012 respectively. This approach features an innovative “3-envelope tender system”, probably the first of its kind in the world. Technical proposals of a conforming tender in the first envelope are scored, followed by another technical score on innovative proposals based on life-cycle assessment and value for money submitted under another envelope all assessed in anonymity, and then a price score assessed for the tender price in a third envelope. The scores are assessed by a fixed ratio of weighting. The 3-envelope system enables earlier and better integration of the design and construction expertise, and encourages balance between design and cost effectiveness through partnering and collaboration with contractors in the tender stage and is particularly suitable for complex and large scale housing projects.

Ms. Ada Fung’s presentation will bring you first-hand information on HA’s new GCC and 3-envelope tender system, and the salient features therein.


Speakers

Biography

Henk Visscher (1962), professor of Housing Quality and Process Innovation is coordinator of the Sustainable Housing Quality section of the OTB Research for the Built Environment department of the Faculty of Architecture and the Built Environment. He is also Director of the Graduate School for Architecture and the Built Environment which consists of 240 PhD candidates. His research focusses in particular on energy efficiency in the housing stock. More in general he studies physical performances of housing and policy instruments that guarantee or improve this quality. Insight is developed in parameters that influence the actual quality of the housing stock and effective and efficient policy instruments to influence this quality. His group in involved in a series of European research collaboration projects dealing with innovations for an energy efficient housing stock.

INSIGHT IN ACTUAL ENERGY USE IN HOUSES AS A BASIS FOR ENERGY PERFORMANCE CONTRACTING

Abstract

Energy performance contracting is based on the idea that the investments for the improvements of the energy performance of a building through better insulation and more efficient installations will be covered by the savings of the use of energy in the user phase. The external contractor takes care of all the investments costs and guarantees the owner a fixed energy bill and hopes to profit from it. An interesting concept that is widely advocated as a solution to deal with some problems that mostly obstruct energy efficiency renovations. In the EPC approach the owner does not have to invest and does not take any risk. Still, at least in the Netherlands, it is still seldom used in practice and there are indeed some preconditions for projects that have to be met to make the approach work. The most important precondition is that the actual energy savings in practise will be enough to cover the investments with a reasonable payback time. This paper presents some results of research projects that compared the expected energy savings according to the energy performance calculation tools with the actual energy use in practice. The results of these projects show a large discrepancy between expected and real energy use caused by various reasons: design and construction failures and the influence of behaviour. It appeared that in the houses with a bad energy performance the behaviour led to far less energy use that expected and in the houses with a very good energy performance to a higher energy use because of rebound effects. What does this mean for energy performance contracting?

Prof. Henk J. VisscherOTB Research Institute for the Built Environment Faculty of Architecture and the Built Environment Delft University of Technology, The Netherlands


Speakers

Biography

Ir Conrad Wong has over 25 years of construction project management experience. He is Vice Chairman of Yau Lee Holdings Limited, Managing Director of Yau Lee Construction Company Limited and Yau Lee Wah Concrete Precast Products Ltd., Vice Chairman of REC Engineering Company Limited as well as Chief Executive Officer of VHSoft Technologies Company Limited.

Ir Wong is active in public and community services. He has been appointed as the Chairman of the Hong Kong Green Building Council, the Chairman of Occupational Health and Safety Council, the Deputy Chairman of Vocational Training Council, the Member of the Antiquities Advisory Board, the Member of MPF Industry Schemes Committee as well as the Director of the World Green Building Council. In the past, Conrad served as the President of the Hong Kong Construction Association and the President of the International Federation of Asia and West Pacific Contractors’ Associations and the Chairman of Pneumoconiosis Compensation Fund Board and the Member of Construction Industry Council.

A NEW ERA – THE BEGINNING OF GREEN PROCUREMENT

Abstract

Sustainable procurement is our responsibility with carries a huge business potential. Organization practicing sustainable procurement not only meets their needs for goods and works with respect to their cost analysis, but they also minimize the adverse environmental impacts while maximizing the benefits for themselves.

The buildings in Hong Kong accounts for more than 90% of our annual electricity usage and over 60% of the GHG emissions throughout the entire life cycle of a building. The majority of the total energy used and carbon emissions come from the buildings’ materials and electrical & mechanical systems.

How can we choose environmental friendly products and energy saving system during construction stage? How can we evaluate the energy performance in existing buildings? We need the effective tools to support us!

In view of market demand, Construction Industry Council (CIC) and Hong Kong Green Building Council (HKGBC) launched varies scheme, including the HK-based Carbon Labelling Scheme for Construction Products, the Green Building Product Labelling System and the Benchmarking & Energy Saving Tool for Office Occupants. Those schemes encourage the manufacturers and contractors to innovate for a lower energy and carbon construction method to increase their business value.

Sustainability is not only our responsibility but it also has huge business opportunity. Green should save money from a life cycle prospective. Green is not only a cost but an investment with commercial return.

Ir Wong would like to take this opportunity to share with the audience how we can use the tools to change our procurement behavior with create a new business potential.

Ir Conrad Wong, BBS, JPChairman,Hong Kong Green Building Council


Speakers

BiographyIr Tsui Wai graduated from the University of Hong Kong. After having worked in a consultancy firm for his training and obtained his professional qualification, he joined the Civil Engineering Department of the Government of Hong Kong in 1981. Since then, he worked in various positions, responsible mainly for the design and construction of major infrastructure projects, including marine structures, reclamation, new town development and highways. He also spent several years in the Works Bureau, in which policies of public works in Hong Kong were formulated and carried forward.

Ir Tsui is currently the Deputy Director of Drainage Services Department (DSD), responsible for the development and implementation of capital works projects, operation and maintenance of drainage and flood control facilities, sewerage system and sewage treatment plant. In the course of discharging his duties, he has also made substantial contributions in enhancing the sustainable development of the Department in areas such as green management, greening, site safety, and in particular NEC.

Having involved in the delivery of many major infrastructural projects in Hong Kong, Ir Tsui believes that NEC has good potential in substantially improving the relationship among the contracting parties, thus leading to more successful delivery of projects. In this regard, he took charge of the planning and implementation of the first Government NEC pilot contract – the Fuk Man Road Nullah Improvement in Sai Kung, which commenced construction in August 2009 and was successfully completed in May 2012 – 6 months ahead of programme and with a 5% cost saving. In an endeavour to further test the applicability of NEC in Hong Kong, DSD is now having 5 NEC contracts of different options, nature and scale under construction and over 20 more under planning.

WIDER APPLICATION OF NEC IN PUBLIC WORKS PROJECTS

AbstractIn this presentation, Ir Tsui will first provide an overview of the use of New Engineering Contract (NEC) in the Drainage Services Department (DSD). This would essentially include a quick flashback on the achievements accomplished under the first Government pilot NEC contract in Sai Kung.

Riding on the success of the Sai Kung contract, DSD has commenced works on 5 more NEC pilot contracts. Ir Tsui will elaborate on some practices devised to facilitate the building up of partnering relationship amongst the project parties, such as joint site office and use of mobile apps to improve communications; organizing various partnering activities; and arranging regular partnering meetings to monitor and enhance partnering spirit, etc. He will share some initial observations on the performance of these NEC contracts, which have by now progressed for over a year.

Furthermore, DSD is going to start in the second quarter of 2014 an Electrical and Mechanical (E&M) NEC contract and a Professional Services Contract (PSC) consultancy. The E&M contract is the first one in the Government using NEC for installation of E&M facilities to several sewage pumping stations in Lam Tsuen. The PSC consultancy is the second consultancy using NEC for implementing drainage and sewerage improvement works in the Happy Valley areas. Ir Tsui will share experience gained so far in procuring these contract and consultancy.

Pilot NEC public works contracts have so far exhibited promising signs that NEC could improve project delivery. Government has hence decided to further expand the pilot use of NEC. For public works contracts which are going to be tendered in 2015 and 2016, works departments including DSD are required to use NEC as far as possible. Each department should also have at least one NEC consultancy a year starting from 2014. Appreciating the potential of NEC in better managing risks which is particularly important for effective delivery of large scale complex projects where risk is high and significant public funds are at stake, DSD has decided to adopt NEC for all its works contracts which are going to be tendered from the second half of 2014 onward. Ir Tsui will share how DSD has embraced these directives.

Ir Tsui Wai, JPDeputy Director Drainage Services Department, HKSARG


Speakers

Biography

Ir Chris Cheung currently is the Deputy Director (Generation Engineering) of the Generation Business Group of CLP Power HK Ltd, in charge of the overall project and generating units overhaul management, engineering, technical services and commercial support for all three power stations in CLP system, namely the Castle Peak, Black Point and Penny Bay Power Stations with a total capacity of 6908MW.

Ir Cheung is a mechanical engineer by training coupled with a Master in Business Administration. He is a Fellow Member of both the Hong Kong Institute of Engineers and the Institution of Mechanical Engineers (UK). He also acts as the Chairman of the American Society of Mechanical Engineers – Hong Kong Section.

Ir Cheung has over 25 years of experience in the power industry. Having joined CLP Power as an engineer trainee upon graduation, he has held various positions in generation business of CLP both in Hong Kong and Mainland China covering maintenance, project engineering, project development and management, strategic planning, asset management and continuous improvement. Since 2007, he has been leading a team to benchmark the best practices worldwide searching for the most cost effective contract management model in HK environment to tackle the upcoming business challenges. Since then, Ir Cheung has become the overall architect and driver for the strategic partnering contracts development for the generation business group. Ir Cheung has assumed the current position since July 2008.

NEW CHAPTER OF CONTRACTOR PARTNERING IN POWER STATIONS

Abstract

Background

CLP Power Hong Kong Limited (CLP) is the largest vertically-integrated electricity generation, transmission and distribution company in Hong Kong. Serving 5.8 million people in its supply area, CLP always strives to maintain high supply reliability to our customers, and the maintenance of power generation equipment is one of the key attributes.

The Old Days

Traditionally, in order to keep costs low, maintenance contracts are individually tendered through competitive bidding and the lowest bids which fulfill all the technical and safety requirements would be selected. However, such bidding model would bring with it some unintended effects:

a) Short to mid-term (e.g. 2 years) contracts provide little security and therefore incentive for contractors to retain and develop their employees’ technical and safety competence;

b) Little motivation for contractors to invest and to continuously improve, reactive work approach only;

c) High turn-over rates of contractor workers demand increased internal supervision to protect technical and economic interests;

d) Substantial price increase in every contract renewal, in line with the general market trend.

Furthermore, some of the power plant equipment and facilities have been in operation for decades and the aging plants are calling for more maintenance efforts amidst the stern economic atmosphere with great pressure on cost management.

Ir Chris CheungDeputy Director (Generation Engineering) CLP Power Hong Kong Ltd


Speakers

The Change

Having an innovative mind for continuous improvement, the management of CLP has conducted a series of studies and technical exchanges with international power companies to look for a better solution. The relationship contract strategy with long-term commitments based on a pre-agreed system performance with a transparent target price, specific profit component and performance incentive was found to be a suitable model which may realize the following objectives:

a) Improved safety performance – long-term commitment provides stable environment for contractor partners to improve employee job security, career development and safety awareness due to lower turn-over rate.

b) Improved technical performance – long-term partnering relationship instead of client-contractor relationship would encourage the contractor to focus more on asset management in a proactive manner and to invest in optimizing overall work process through industry best practice. This spending-to-save approach would not have been possible with traditional lump-sum-lowest-bid-win contracting model. Besides, a stable working environment help contractor staff develop a sense of ownership of the systems they look after. They are more willing to take an extra step in their daily routine, thereby reducing CLP’s internal supervisory requirement.

c) Improved economic performance – a transparent target and performance-based incentive plan provide common objective for both CLP and contractor to manage their cost and to optimize the work process and resources through better planning and proactive communications.

The relationship contracting strategy was started off in 2010 with 2 pilot projects for trial on our Coal Mill Group maintenance and Facilities Management contracts and the effectiveness in terms of safety, technical and economic improvements was reviewed regularly.

The Next Phase

With the positive results from the 2 prototype contracts, wider application of this partnering model to other maintenance contracts in the power stations was considered. The key success factors and lessons learnt from the pilot contracts were evaluated, analysed and used as the basis for the implementation of the new maintenance contracts.

Contractors involvement started as early as the EOI (Expression of Interests) stage to introduce the new concept and partnering approach. Interested parties had to go through a rigorous pre-qualification evaluation process and only those who demonstrated a partnering attitude with sufficient safety and technical competence were short-listed to tender.

Even during the tendering stage, regular meetings had to be held with every contractor in order to review their tender documents and to clarify issues of concern in order to develop a true partnering alliance.

With the partner contractors now selected and contracts being formed, it is hoped that our engineers’ core skills could be re-focused on managing critical equipment while the routine maintenance of auxiliaries systems would be taken care of by our contractor partners committed to continuous improvement in technical, safety and economic performance.


Speakers

Biography

Ir Ken Ko Wing Nin is a Chartered Civil Engineer. He is a Member of Institution of Civil Engineers and the Hong Kong Institution of Engineers.

Ir Ko has 27 years of experience in the construction industry including civil, building, foundation, marine engineering and P-Way projects in Hong Kong, Macau and UAE.

He is currently Division Head of Chun Wo to take charge of special projects and P-Way subsidiary. He is also the project leader of 3 Government NEC3 ECC projects.

MAIN CONTRACTOR’S PERSPECTIVE IN NEC APPLICATION

Abstract

Experience has been gained from three Government NEC3 projects including pilot project Drainage Services Department – DC/2008/02 Improvement of Fuk Man Road Nullah, DC/2012/03 Happy Valley Underground Stormwater Storage Scheme and Highways Department – HY/2009/04 Retrofitting of Noise Barrier on Fanling Highway. All three projects are ECC Option C: Target contract with activity schedule. Pain/gain sharing and risk sharing are the feature of the ECC Option C form of contract. Open book account is employed for three contracts. Client can assess to the contractor’s account records and subject to client audit.

Spirit of NEC3 form of contract is the project team shall act in a spirit of mutual trust, co-operation and collaborative. By including the NEC Contract spirit into the project, working relationship within the project team including employer, project manager, supervisor and main contractor as well as stakeholders is comparatively different from the traditional GCC Contract.

This presentation describes, by selecting few aspects looking at NEC project from a Contractors perspective, actual project team working relationship by implementation of the NEC Contract spirit. Also, describes difficulties encounter and share proposed solutions during the projects execution.

Ir Ken W.N. KoGeneral ManagerChun Wo Construction and Engineering Co Ltd


Speakers

Biography

Dr. Craig Dubler is a Virtual Facilities Engineer for the Office of Physical Plant as well as an Affiliate Assistant Professor within the Architectural Engineering Department at Penn State. Upon completion of his undergraduate degree in Architectural Engineering, Dr. Dubler worked for two general contractors in the Washington D.C. area: Hensel Phelps Construction Co. and James G. Davis Construction Corp. (DAVIS). During his time at Hensel Phelps, he gained valuable knowledge in the field operations as a Field Engineer on two large Smithsonian projects: The National Air and Space Museum – Dulles, VA, and The National Zoo – Asia Trail. Later, Dr. Dubler transferred to DAVIS where he worked as an Assistant Project Manager on two high end office buildings: Monument III – Herndon, VA and 77 K Street – Washington D.C. After several years of industry experience, Dr. Dubler returned to Penn State to complete his doctorate degree, and to gain further knowledge of the trending implementation of Building Information Modeling (BIM). Specifically, he played an integral part in the development of the BIM Project Execution Planning Guide: a structured planning resource that assists team members with the use of BIM throughout the lifecycle of a facility. Dr. Dubler’s industry experience enabled him to obtain excellent teaching experience as a graduate student. He was the instructor for a fifth year construction management course during the last two years of his study and he taught the introductory construction course prior to graduation. Upon completion of his Ph.D., Dr. Dubler transitioned to the Office of Physical Plant as a Virtual Facilities Engineer. His current focus is the implementation of BIM into facility management, and has made nationally renowned advancements on the integration of design and construction information into building operations at Penn State.

Throughout his career, Dr. Dubler has helped industry members implement BIM in their organizations and on their projects. Several examples include:

• 4DModelingfortheSpaceHangarconstructionontheNationalAirandSpaceMuseum–Dulles,VAproject;

• 4DModelingandmaterialspaceplanningfortheAmericanIndianHousingInitiative–TechnologyCenterproject;

• BIMConsultantforthedetailedMEPdesigncoordinationontheHersheyCancerInstituteproject;

• ProjectExecutingPlanningforBIMonseveralfacilitiessuchas:RichardH.PoffCourthouse(GSA),MillenniumScienceCenter (Penn State), HUB Expansion (Penn State), etc.;

• OwnerStrategicPlanningforBIMwithinPennStateUniversityincluding:developingrecommendedusesofBIMintheoperations phase and road mapping for future company implementation; and

• InformationintegrationfromconstructionintotheoperationsphasefornewandmajorrenovationprojectsatPennStateUniversity

AN OWNER’S PERSPECTIVE: MANAGING BIM HANDOVER FOR THE TENDERING PROCESS ON MULTIPLE DELIVERY SYSTEMS

Abstract

This presentation will answer the challenges faced by facility owners to develop a standard BIM process during the project lifecycle. Emphasis will be placed on the tendering process including what information is shared and contracted in order to increase the efficiency and effectiveness of facility management operations.

Dr. Craig DublerVirtual Facilities Engineer for the Office of Physical Plant (OPP); and Affiliate Assistant Professor in the Architectural Engineering Department Penn State University, United States


Speakers

Biography

Dr. Lincoln Forbes specializes in the area of lean construction, an emerging method of project delivery that draws on the success of the Toyota Production System (TPS). He has lead-authored one of the first contemporary books on lean construction, titled “Modern Construction: Lean Project Delivery and Integrated Practices” (CRC Press, 2010).

A Registered Professional Engineer (Florida) and LEED® Accredited Profesional, Dr. Forbes has over 30 years of experience in various aspects of facilities design, construction, and maintenance as well as quality/performance improvement.

He also is a Principal Consultant with LeanConstructionLearning.com, a division of Harding Associates Inc., of Miami, FL, providing lean and quality improvement solutions to the construction, service, and manufacturing industries.

Dr. Forbes also serves as an adjunct professor with the OHL School of Construction at Florida International University’s College of Engineering and Computing. He has also held ongoing adjunct appointments with the Department of Construction Management at East Carolina University in Greenville, North Carolina, and with Drexel University’s Construction Management Program in Philadelphia, Pennsylvania. His courses have included Quality Management and Construction Performance (including Lean Construction), Quality Control Systems, Construction Productivity Improvement, Total Quality Management, and Construction Equipment Management.

In previous positions Dr. Forbes served as administrative head of several facilities-related departments and functions in Miami-Dade County Public Schools, the 4th largest school district in the USA with over 330 educational facilities and support locations. These positions included in-house construction, design services, construction quality control, post occupancy evaluation, project warranty services, and quality management. He also provided research and technical support on sustainability practices, commissioning, construction systems, and methods and materials to improve the quality and performance of the built environment. Earlier in his career, Dr. Forbes worked as a Senior Electrical and Mechanical Design Engineer with ADeB Consultants, an international consulting firm with offices in Jamaica, W.I.

A Senior member of the Institute of Industrial Engineers, (IIE), Dr. Forbes is also the founding President of IIE’s Construction Division. His professional memberships include The Lean Construction Institute (LCI), The American Society For Quality (ASQ), and The American Society for Healthcare Engineering (ASHE). He has published many papers and book chapters relating to lean construction and the improvement of quality and performance in the built environment. He has served as a columnist with the American Society of Civil Engineers’ publication “Leadership and Management in Engineering”, writing on Continuous Improvement in the Construction Industry, and served as a reviewer for other ASCE publications.

Dr. Forbes received his Ph.D. at the University of Miami, specializing in the improvement of quality and performance, including health care facilities design and construction. Previously, he obtained both MBA and M.S. in Industrial Engineering degrees at the University of Miami. He earned a B.Sc. in Electrical Engineering at the University of the West Indies.

HARNESSING LEAN AND INTEGRATED PROJECT DELIVERY TO OPTIMIZE DESIGN AND CONSTRUCTION PERFORMANCE

Abstract

The traditional methods for delivering construction projects have great room for improvement, as most industry professionals will agree. Despite the best intentions, many projects leave the stakeholders dissatisfied with the results. Schedule overruns and budget excesses occur far too often; owners are frequently left with facilities that cost more than anticipated, yet do not fully meet expectations with regard to performance, reliability and maintainability. A number of studies suggest that as much as 30% of construction project costs may be lost to a variety of industry practices that are unintentionally wasteful.

Dr. Lincoln ForbesPresident, Harding Associates Inc., Miami, FloridaCollege of Engineering, Florida International University, United States


Speakers

Lean Construction has caught the attention of the design and construction industry in the USA. The McGraw Hill Company conducted an extensive survey of the U.S. construction industry in 2013, reporting that “business as usual can no longer be an acceptable approach in the construction industry. Lean Construction offers an alternative that allows companies to thrive in any economic conditions”. McGraw Hill’s Smart Market Report cited many lean benefits reported by survey respondents. While the benefits were not quantified in the survey, the percentages of respondents reporting medium and high levels of achievement were as follows: Higher Quality Construction 84%, Greater Customer Satisfaction 80%, Greater Productivity 77%, and Improved Safety, 77%. The International Group for Lean Construction (IGLC) reports consistent lean project successes in many countries and regions including Europe, Chile, Peru, and Brazil.

Lean Construction (LC) is a generic term for an innovative project delivery approach that addresses many of the shortcomings of traditional project management. It has several interpretations, including Lean Project Delivery, Integrated Project Delivery and, Collaborative Project Delivery. It is based on the “lean” manufacturing principles that are a foundation of the Toyota Production System (TPS), applying them to both design and construction practices. Its three tenets are: minimizing waste in all forms, continuous improvement of products and systems, and maintaining respect for people. The Lean construction philosophy views a project as a “promise delivered by people working in a network of commitments”.

The presentation will provide an overview of Lean/IPD and explain how it can be harnessed to optimize design and construction performance. A number of well documented projects will be presented as examples of best practices in Lean/IPD.

The paper will provide more detailed information on the strategies that design and construction stakeholders can employ to optimize performance.


Speakers

Biography

Ir T.C. Chew is the Projects Director of Hong Kong MTR Corporation Limited. Ir Chew has worked in the rail transit industry in the United Kingdom, Singapore, Hong Kong and overseas for nearly 40 years. He has held senior position in both contractor and client based organization on rail projects implementation over the last 20 years. He is currently a member of the Hong Kong Construction Industry Council. He is a Chartered Engineer, a fellow of the Royal Academy of Engineering, Hong Kong Academy of Engineering Sciences, Hong Kong Institute of Directors and a number of professional institutions in the United Kingdom and Hong Kong.

ACHIEVING SUCCESSFUL PROCUREMENT FOR COMPLEX MEGA-SIZED INFRASTRUCTURE PROJECTSAbstract

There are a number of factors posing an impact on the cost and programme of any mega-sized infrastructure projects. These include the desire to minimize risks, the public expectation to avoid disturbance during construction and unforeseen ground conditions. If one has a crystal ball that could look into the future, delivery of these projects would be that much better for clients as well as contractors. Furthermore, construction of such mega-sized infrastructure projects in densely populated urban cities as in Hong Kong is an even more complex undertaking.

MTR Corporation Limited embarks on a number of strategies in the procurement for the complex mega-sized infrastructure projects. This presentation will focus on the strategies such as Target Cost Contract, Whole Life Cycle Approach for Rolling Stock, Bundled E&M Contracts, Value Engineering, and Partnering and Collaboration Approach. These strategies aim at better allocation of construction risks, cost saving and lowering financial and reliability risks.

Ir T.C. ChewProjects DirectorMTR Corporation Limited


Technical Papers

Development and Application of the New Engineering Contract (NEC3)Wayne Lord

School of Civil and Building Engineering, Loughborough University UK

ABSTRACT

The NEC form of contract has been around since the consultative document was released in 1991. It was born out of a fundamental review of alternative contract strategies for civil engineering works and led to the drafting of a new style contract for the United Kingdom construction industry. The contract was intended to: be clear and simple; be flexible and; act as a stimulus to good management. It was met with much scepticism in the UK construction industry but has since grown to be the contract of choice by UK government for public sector projects.

The contract has been used in various locations around the world and NEC usage is growing extensively around the world most notably in South Africa and New Zealand. Perhaps most importantly, the Hong Kong Government have recently announced that the NEC contract will generally be used for all government projects tendered in 2015/2016.

The contract has undergone three iterations towards the latest version NEC3. This presentation will provide an introduction to the NEC form of contract, some of the developments in its structure and provide an insight into its use together with some findings from recent research initiatives. This presentation will also highlight that the key to making the contract work in Hong Kong, as elsewhere, will be the skills and expertise of the Project Manager.

Keywords: new engineering contract; construction project; change; dispute

1. INTRODUCTION

This presentation aims to introduce the background and origin of the contract, some of the principles behind its drafting and use before providing some insight into its actual use or impact as derived from three projects comprising previously unpublished research data. The findings will cover the process of change management under the NEC3 on a large scale project, a comparison of litigated disputes as between ICE, JCT and NEC and, the role of the Project Manager compared to the Engineer under the ICE conditions. For the academics amongst us, please bear in mind the conclusions presented will not have been peer reviewed so, I suspect, may well be treated with some caution and justifiably so.

2. BACKGROUND TO NEC3

It is well documented that the construction industry in the United Kingdom is well known for its adversarial culture and for the prevalence of disputes.

From an early point in his career, Dr. Martin Barnes CBE recognised that good project management was the key to a successful project but believed that the current forms of contract in use at that time (early 1980’s) frustrated rather than stimulated good project management. He believed a radical new contract was required.

In 1986 Dr. Barnes produced a specification for this radical form of contract upon which the Institution contracted him to lead a working group to draft and refine what became known as the New Engineering Contract. The original specification included the following drafting principles:

– It should be more flexible in its structure and use

– The contract should be in simple, clear and easily understandable language

– It should provide a greater stimulus to good project management.

A consultative edition was published in 1991 with the first edition of the New Engineering Contract (NEC) being published in 1993. Sir Michael Latham produced his landmark UK report “Constructing the Team” in 1994 and, in parallel with his ingredients of a Modern Contract suggested specific improvements to the NEC contract including an obligation to act with trust and in a cooperative way. The 2nd Edition was then published in 1995, incorporating the recommendations made within Latham’s report. The family of contracts were extended and updated in 2005 to comprise the 3rd Edition which was further updated in April 2013.

Guidance on the use of NEC3 may be found in parallel Guidance Notes and Flowcharts produced for each of the main forms of contract in the family of contracts, specifically the Engineering and Construction Contract. Further guidance


Technical Papers

on principles and operation may be found in the NEC’s books collectively entitled “Managing Reality”. Now in their second edition, the five books comprise: 1 Introduction to the Engineering and Construction Contract; 2 Procuring and Engineering and Construction Contract; 3 Managing the Contract; 4 Managing Change and; 5 Managing Procedures.

2.1 Flexibility

The contract was designed to be as flexible as possible. The primary aims of which included the ability of the contract to be used in engineering, building and/or construction which contained work of any or all traditional disciplines (civil, electrical, mechanical etc).

Furthermore, the design team centred their thoughts around the application of such a contract in circumstances of varying design responsibility for a contractor. This Flexibility of contract use was also incorporated into the application of different contract types (such as target cost contracts, cost reimbursable, management contracts etc). Finally, and in conjunction with its next aim of Simplicity/Clarity, the contract was intended for use both within and outside of the UK construction industry.

The flexibility manifesting itself in the contract comprising a set of core clauses upon which one the main options for payment can be selected. In addition a wide variety of secondary options can be bolted on tailored to the specific needs of the project.

2.2 Clarity and SimplicityWith the fundamental aim of producing a contract from first principle rather than build upon the model forms that already existed, the NEC was, in it’s very nature, a contract based upon fundamental differences in style and structure than that of more traditional forms. With such a large scale difference in format, came an equally extensive variation in opinion from professionals and academics.

A set of core operational strategies have been implemented within the design of the NEC so to ensure the principle of clarity and simplicity is followed throughout the course of the contract documents.

• Theuseof‘PlainEnglish’andavoidanceof‘woollywords’,asMitchell&Trebes(2005)describethem,throughout the entire contract recognises the fact that the interpretation of such vague words/phrases are incrediblysubjectiveintheirnature,andconstitute“theveryseedbedofdispute”.(Mitchell&TrebesBook1, P.6)

• AwritingstylethatconsistsofthepresenttenseunderlinesandstressestheuseoftheNECasaworkingdocument.

• Thecontractformcanbeeasilytranslatedforuseincountrieswhereenglishisnot theprincipalmothertongue.

• Theapplicationofshortersentencesandavoidanceofcrossreferencingensuresthatthecontractiseasierto understand, reducing the potential for confusion as a result of long-worded, heavily cross-referenced conditions of contract.

• TheNECcontainsnoreferencestoActsofParliament,regulations,statutesandotherlawspassed,insteadchoosing to refer to the law of the land within the Contract Data Part 1.

• Finally,andfundamentally,asetofdocumentedflow-chartsanddiagramsweredesignedtobothaccompanyand complement the NEC so to ensure the contractual procedures were not open-ended or conflicting in their outcomes.

Eggleston (2005) argues that such brevity of the written forms are, when taken in isolation, “more of a mystery than a model of clarity and simplicity” for first time users that said, he also goes on to say “to focus on the words of the NEC contract is to miss the very point of the message”. As Lloyd (2008) indicated that such a move to plain English and the absence of terminology found elsewhere requires one to focus on what is truly intended and not on what is to be presumed.

2.3 Stimulus to Good ManagementIdentified as the most important characteristic of the NEC contract, “The family of contracts are as much a manual of project management as they are a set of contractual conditions.” (Eggleston 2005, P.2) Every procedure and condition has been designed in order that its implementation contributes to, rather than detracts from, the effectiveness of management of the project. (ICE Guidance Notes, P.3).


Technical Papers

The NEC is founded upon the proposition that foresighted, co-operative management of the interactions between the parties to a contract can reduce the risks (uncertainty) inherent within a construction/engineering work. The management approach of such conditional procedures creates “An approach of general collaboration and a real determination to eschew confrontation,” (Lloyd 2008, P.2) to which the contracts limited exposure to litigation is testimony to. It is more than a set of terms and conditions laying down the commercial bargain and legal arrangements between the parties, it intends to form management procedures (Heaphy, 2008)

As Williams explores, the NEC distinguishes itself from other contracts in that it separates the Project Manager from the design team. Such “a distinction recognises the fact that contract changes and programme challenges, far from being exceptional, are commonplace on construction projects, and disputes will occur if time and cost are not proactively managed by a Project Manager dedicated to such a role.” (Williams).

Use of such a management tool often requires decisive and unpopular action on behalf of one of the parties. The early warning process, for example, requires the Project Manager and Contractor to work collaboratively in order to identify and mitigate any issues that may impact upon the cost-time-quality project triangle. However, such collaboration stops short of the requirement for full agreement prior to time and cost impacts being assessed.

Nonetheless, the NEC has been acknowledged as a significant step in the right direction for construction procurement and administration and, as Gould (2007) states, “the proactive management approach must be welcomed”. ArgIt’s “encouragement towards “a proactive problem solving and efficient project management” (Gale et al, 2010) approach sets it aside from more traditional and separatist forms of contract, encouraging a collaborative partnering based approach to construction management.

3. STUDY 1 – CHANGE MANAGEMENT ON A LARGE SCALE PROJECT (WRAIGHT & LORD 2011)

The research need was identified on a major infrastructure project in the UK where 2 contracts operated under one project team, equated to tender values of £44M and £16M respectively. During the 12 month period of observation 1,748 Compensation Event notifications were issued resulting in the target cost of the projects increasing to £59M and £24M respectively. It was initially observed that the size and volume of the change initiated during the course of the project limited the commercial team’s ability to remain pro-active in their approach to managing the Compensation Event procedures possibly due to the administrative burden placed on the parties.

The hypothesis to be tested was “The strict and rigid Change Management procedures accommodated within the NEC3 conditions of contract are unfeasible and inefficient in projects of large scale change”

Literature on the NEC and its principles were readily available but a limited amount of academic research had been conducted on the NEC3 suite of contracts in general hence a need for this specific focus on the Compensation Event process.

A period of data collection was completed to provide the researcher with detailed information regarding the performance of, the Compensation Event procedures incorporated within the contract conditions, and the users involved within the project. The researcher collected raw contract data from one combined project team consisting of 2 separate civil engineering contracts (both NEC option C). In doing so, it was noted that the data collected could be limited in its usefulness when any identified trends and/or anomalies are compared with the wider construction industry.

The research analysed the project data in line with the conditions set out within the agreed NEC3 contract to establish the perceived success or failure of the Compensation Event procedures and/or its users in applying such procedures, subsequently identifying notable trends in performance at key points in the project cycle.

The research considered that a sample size of 300 from the 2 construction contracts (Contract 1 and Contract 2) in the project of 1,748 issued Compensation Event over a twelve month period would be more than adequate. The samples were then evenly divided over the twelve month period into an equal number per quarter for each contract.

The Primary Procedures under analysis were:

1. The amount of time in days taken between the Project Manager issuing an instruction or Compensation Event and the Contractor providing a Contractors Quotation for the respective change.

2. The amount of time in days taken between the submittal of the Contractor’s quotation to the Project Manager and his subsequent response.


Technical Papers

3.1 Summary of Data Analysis

1) 69% of the Compensation Events sampled under Contract 1 failed to meet the time requirements of the NEC3 contract for the submittal of the Contractor’s Quotation within 3 weeks of the associated instruction/communication. Furthermore 78% of the Compensation Event’s sampled under Contract 2 again failed to comply with the contractual requirements.

2) The Project Manager failed to respond within the contractual timescales 46% of the time under Contract 1 and in 42% of the time under Contract 2.

3) The arithmetic means days per contract per process decreased significantly during the course of the project. For example:

• Timeperiodsbetween issueof theProjectManager’s instructionand theContractorsubmittinghisquotationforContracts1&2graduallyreducedfromapproximately160daysto32daysrespectively.

• TimeperiodsbetweenthesubmittalofaContractor’sQuotationandthesubsequentresponsefromtheProjectManagerunderContracts1&2graduallyreducedfrom34daysunderContract1and44days under Contract 2 to 19 and 10 days respectively.

3.2 Study 1 summary

The study established that the change management provisions within the NEC contract are viewed as a movement away from traditional reactive and hindsight based decision making and management approaches, to procedures centredaroundthecoreaims&ethos’oftheNECcontract.

The study also identified a number of both positive and negative characteristics of the Compensation Event procedures in circumstances of large scale change. The most significant being the increasing administrative burden that is produced as a consequence. Due to the amount and detail of information required from either party, the administrative burden that is placed has an adverse effect on the parties to comply. Such a burden arguably detracts from the aims and objectives of the contract. Interviews conducted perceived there may be a lack of flexibility in the adoption of the change management procedure with a suggestion that flexibility should be in-built into the process. Suggestions provided by interviewees included predefined mechanism within the core conditions of contract to either switch to a different NEC payment option and/or adjusting the requirements of the Compensation Event procedure.

4. STUDY 2 – LITIGATED DISPUTES ARISING FROM THE NEC3, ICE AND JCT FORMS OF CONTRACT (MCALLISTER & LORD, 2012)

The NEC suite of contracts came into formal use 20 years ago; touted as being designed from the ground up to address the shortcomings of its contemporaries as well as the changing needs of the modern-day construction industry (McInnis, 2001). The NEC sought to be a more understandable, more flexible, and ultimately, more agreeable channel for construction and infrastructure contracts (McInnis, 2001). Its debut was not without criticism, there was a suspicion among some legal professionals that the new contract’s departure from the norm in terms of its use of English and lack of judicial interpretation meant it was expected to spend a disproportionate amount of time in the courts (Cornes, 1996).

Despite this, the NEC suite came to be recommended by the Latham Report (1994) as well as full accreditation by the Office of Government Commerce (OGC) for use on all public sector projects (NEC, 2006).

It was the intention of the study to examine the record of the NEC contract in the courts in its first 20 years of service to assess whether the initial concerns about disputes were warranted. As a point of comparison, the study compared the dispute records of the JCT and ICE conditions of contract with those of the NEC. The study aimed to research the disputes arising from these contracts to ascertain if one contract encountered more disputes than others, and if so, their nature.


Technical Papers

The hypothesis to be tested was: “It is proposed that the NEC saw fewer disputes after 20 years of use than its counterparts.”.

Figure 2: Contract release dates against UK GDP (adapted from The World Bank, 2011)

Figure 2 was used to determine the time periods for court cases reviewed. (Kenyon, 2009) states that periods of economic recession are most likely to see a greater number of construction disputes and so these periods were deemed most reliable for the purpose of sampling the number of disputes typically arising from each contract. GDP was chosen as an identifier as construction generally leads a country into recession and so the state of the industry can be taken tobeinlinewiththenation’sGDP(Ren&ShangShaoLin,1996).Thefollowingperiodswereidentifiedforreview:

• Period1,1993-1994

• Period2,2004-2005and

• Period3,2008-2009

While Period 1 appears to be very early in NEC’s history, 700 users had adopted it on projects by 1993 (McInnis, 2001), a figure which grew to 7% of all construction projects by 2007 (RICS, 2007)

4.1 Summary of Data Analysis

Data for this studywascollected from3maindatabases,Westlaw, LexisNexisand theBritish& Irish LegalInformation Institute (BAILII).

Period 1 Period 2 Period 3JCT 3 14 12ICE 1 2 1NEC 0 1 0Unknown 7 19 14Other 4 10 15Total 15 46 42

Table 1: Volume of claims for each form of contract within each period

Table 1 demonstrates that the vast majority of claims were in connection with the JCT form of contract. There were also anomalies in the data with cases that didn’t indicate the contract form. What the study also showed was that the types of claim heard in the courts changed over time. Period 1 was largely new claims in keeping with the general lack of adjudication at the time. During Periods 2 and 3, 40% of cases heard in the UK courts were not considered “new” claims but arose out of adjudication and/or arbitration decisions. Unsurprisingly, the majority of the challenges in the second two samples arose out of adjudication proceedings.


Technical Papers

4.2 Study 2 summary

The study demonstrated that for the periods chosen, the NEC does appear to have been successful in reducing disputes that reached the courts especially when compared against the high level of court cases arising out of JCT contracts. This comparison alone gave support to the hypothesis. That said, although JCT has seen more disputes, this is not synonymous with the contract being at fault in all cases. A contract can only go so far in controlling the behaviours of the parties and is of no benefit at all if those administering the contract do not follow its terms and clauses. Given this, one still might conclude that the frequency with which JCT disputes arise is an indication that the wording fails to properly equip its users with the tools to manage the unique and changeable issues which arise on construction projects. On the other hand, the untested terminology with the NEC may be a persuasive argument for the parties to the contract to find alternative methods to resolve their differences and/or find win-win solutions.

Nevertheless, the study revealed there were far fewer litigated disputes during the selected periods of this study attributable to the NEC form of contract than others.

5. STUDY 3 – COMPARISON OF THE ROLE OF THE PROJECT MANAGER UNDER NEC3 AGAINST THE ROLE OF THE ENGINEER UNDER THE ICE CONDITIONS OF CONTRACT (HILL & LORD 2010)

This was a study into the scope of the role of the Project Manager under the NEC contract which incorporated tools such as Early Warnings and Compensation events. These tools appear to have been highly successful and incremental in the contract achieving it’s objectives of good management and collaborative working. But the question remained, were “traditional” Engineers or other administrators with little experience of the NEC contract, who found themselves as Project Managers under the NEC contract, able or willing to adapt to the new processes expected of them.

The hypothesis to be tested was “The NEC3’s Project Manager is a role that is more effective, contractually and managerially, than that of the ICE Engineer’s role”

The research conducted comprised a questionnaire from which 39 responses were received. The majority (30) were from those with a contracting background.

5.1 Summary of data analysis

The study found 75% of the respondents thought that the Engineers impartiality was compromised by his obligations to the client. The opposite was found to be true in relation to the NEC whereby 60% disagreed with the proposition that the Project Manager cannot be impartial because he is the “client’s man”.

Other questions relating to the role of the Engineer found: that the majority (60%) felt the Engineer didn’t see himself as being impartial; the same proportion of respondents agreed with the notion that his design function affected his impartiality; an overwhelming majority (90%) considered the ICE form of contract resulted in reactive behaviour compared to the 75% who felt that the NEC resulted in proactive behaviour.

An overwhelming majority considered that the Project Manager needed to fully embraced the philosophy behind the NEC contract in order to make it work. Bearing in mind that 60% felt that the Project Manager acted both as stated in the contract and in a spirit of mutual trust and cooperation, less than 30% of Project Managers were found to have raised Early Warnings, only 60% were considered to have held regular risk reduction meetings, only 40% were found to have updated risk registers, there seem to be some work to do for an individual to make the switch from acting as Engineer under ICE into a Project Manager under the NEC contract. Views were mixed as to whether the Engineer can, in fact, make that change.

What was interesting to note was that even though the administrator functions had been separated in the NEC contract, with an overwhelming majority considering this to be an improvement, less than 15% felt the Engineers role was more demanding that the Project Manager under the NEC contract.

5.2 Study 3 summary

The study concluded that the way in which the roles are set up within NEC has improved the administration of the contract, all parties know their roles and what they are responsible for. The role has been made more demanding contractually because this is one improvement that was certainly required. The study also found that the Engineer appeared to be more reactive than proactive, whereby the contract came out of the drawer only when there were problems.


Technical Papers

The separation of the role of the Project Manager from the role of both designer and dispute resolver has been seen as an improvement that appears to have improved the impartiality of the Project Manager. However, the introduction of adjudication and the overriding obligation to act in a spirit of mutual trust and cooperation seems to have supplanted the requirement for the Project Manager to be impartial. The main findings however, were that respondents in this survey concluded that the Project Manager needs to fully embrace the philosophies of NEC for a successful contract. If he fails to do so, the Contractor will consider he has been unfairly treated and may well resort to adjudication.

The study found that even though the role of the Project Manager appears to be more effective from a contractual and/or management perspective, it ultimately comes down to who the person is who is taking on that role and their attitude to it. The study showed that if the Project Manager does not fully embrace the philosophies of the NEC the contract is not deemed to be a success.

One aspect the Project Managers’ identified in this study appeared to do was not fully embrace the features of the contract, such as early warnings. They are cited as refraining from utilising them themselves due to a perceived perception that it will weaken their position contractually when it comes to the early warning notice becoming a Compensation Event. And, while risk reduction meetings were being held, there was a perception that the risk register was not being updated. Participants with an ICE background appeared to struggle with the new concepts of the NEC contract with mixed views as to whether such participants could make the necessary change.

6. CONCLUDING COMMENTS

The NEC contract is a unique form of contract, built up from the core clauses and adapted by bolting on main options for payment and secondary options from a shopping list to suit the project. It’s drafting aims included: flexibility, clarity and simplicity; and to act as a stimulus to good management.

Initial results from three short studies were presented here. The first showed that the contract was flexible but perhaps there may be some shortcoming in the process of change management for large scale projects subject to a high degree of change. In the second study, industry concerns about disputes over the style of writing and words used in the contract appeared to be unfounded with very few disputes arising out of the NEC contract reaching the courts compared to other forms of contract. There also appeared to be a consensus that the role of the Project Manager in the NEC3 form of contract with a reduced remit as compared to the Engineer under the ICE was a step in the right direction. The Project Managers role was also considered to be more onerous but that if the individual adopted the philosophy behind the contract, more projects would be successful.

The key to the contract working appears to be the role of the Project Manager.

7. REFERENCES

Gould, N., (2007), NEC3: Early Warning and Compensation Events, Fenwick Elliot,

Heaphy, I., (2008) RICS Construction – The Journal, How far do you go? June-July 2008.

Hill,C.&Lord,W.(2010).“An Evaluation of the Engineering and Construction Contract 3rd Edition and the role of the Project Manager in comparison with the ICE Form of Contract and the role of the Engineer”. Dissertation, Loughborough University.

Institution of Civil Engineers, (2005), NEC3 Engineering and Construction Contract Guidance Notes, Thomas Telford, London

Kenyon, M., 2009. Recession to force claims culture change – (2009) 20 2 Cons.Law 17. Construction Law (Journal).

Latham, M., (1994) Constructing the Team – Final report of the Joint Government/Industry review of procurement and contractual arrangements in the United Kingdom Construction Industry, HMSO Publication.

Lloyd, H., (2008) Some thoughts on NEC3, International Construction Law Review, Vol. 25 Part 4 2008.

McAllister, S.& Lord,W. (2012).“Disputes arising from the NEC3, ICE and JCT forms of contract”. Dissertation, Loughborough University.

McInnis, A., 2001. The New Engineering Contract A Legal Commentary. London: Thomas Telford Publishing.

Mitchell,B.&Trebes,B.,(2005)ManagingReality:Books1to5.London:ThomasTelford.


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Ren,H.&ShangShaoLin,H.,1996.TheUKconstructionindustryundercyclicalhighinflation,highinterestratesandrecession. International Journal of Project Management, 14(5), pp.301-05.

RICS, 2007. Contracts In Use. A Survey of Building Contracts in Use during 2007. [Online] Available at http://www.rics.org/site/download_feed.aspx?fileID=5853

Williams, K., Managing the NEC – Practice and Pitfalls; The New Engineering Contract – Common Challenges for Project Managers, Sirius LC Ltd

The World Bank, 2011. World Development Indicators. [Online] Available at: http://data.worldbank.org/data-catalog/world-development-indicators?cid=GPD_WDI

Wraight, M. & Lord, W. (2011). “The strict and rigid contractual procedures accommodated within the NEC3 Compensation Events contract conditions are unfeasible in projects of large scale change”. Dissertation, Loughborough University.


Technical Papers

Incentivising Supply Chain Performance through Intelligent ProcurementIan Heaphy , FRICS, FCIArb, MCInstCes, MACostE

Director, Turner & Townsend, Contract ServicesLow Hall, Calverley Lane, Horsforth, Leeds, LS18 4GH, UK

ABSTRACT

This paper considers how intelligent procurement methods can incentivise improved performance and innovation in the supply chain which, if implemented correctly, should directly lead to benefits to the employer in line with their business and project objectives. The paper considers the differing areas of performance an employer may want to incentivise and how these will interact with other areas of supplier performance/behaviours. It also highlights the need to have a clear benchmark/baseline against which any improved performance can be objectively measured. The principle methods of incentivisation are discussed and issues in their application considered as well as differing supplier engagement models that can support such methods. The paper concludes that positive, as opposed to negative incentivisation models, can successfully deliver improved performance, but in order to achieve this the employer needs to clearly establish what they are trying to achieve through the incentivisation mechanism and ensure that the model they create successfully aligns the activities, objectives and behaviours of the supplier with their own. The mechanism needs to be maintained in light of changes that occur and the risk/reward potential has to be both realistically achievable as well of sufficient magnitude to create a commercial driver for the supplier to improve their performance and in turn deliver benefits to the employer.

Keywords: incentivisation; procurement; risk/reward models; supply chain

1. INTRODUCTION

The term incentivisation is becoming something of a “buzzword” in the construction industry as employers continue to seek new ways to drive improved performance in their supply chain. Employers are becoming more demanding and sophisticated in how they engage their suppliers and are creating procurement models that attempt to proactively encourage the supply chain to be innovative in how they plan and deliver projects and to bring forward new ideas and/or ways of working that will reduce cost and/or create additional value. Whilst at the same time achieving a more equitable balance of risk between the parties. The drive for improved performance is particularly strong on major capital programs of work where the benefits created can be substantial.

2. WHAT DO WE MEAN BY INCENTIVISATION?

There are a myriad of incentivisation models that have been developed across the construction industry and this diversification is to be expected as the reason for creating an incentivisation mechanism is to drive targeted improvement in supplier performance which directly aligns to business objectives and/or outcomes required by the employer. As different employers will have different corporate and project objectives/outcomes they will require different incentivisation models that will drive performance specific to their needs.

The starting point for any incentivisation mechanism therefore has to be to determine what the employer wants to incentivise, what represents value to them in the context of the project and their wider business needs and objectives.

The most common form of incentivisation is based on some form of financial risk/reward model under which a supplier will be able to gain an additional financial reward above the normal level of return on a Project if the targeted area of performance improves beyond a benchmark level. Alternatively, or in addition, the supplier may suffer a reduction in their level of return if they fail to achieve the targeted level of performance.

When considering any form of incentivisation the employer needs to not only understand what area of performance they are trying to improve, but how this will interact with other areas of performance. In my experience there can be a tendency when employers consider incentivisation to default to some form of target cost model with a pain/gain mechanism to drive down the capital cost of construction and whilst this may be the key driver for many employers it can actually be counter productive. For example if an employer is going to own and operate an asset after construction they may actually want to spend more capital cost if this will lead to reduced maintenance costs over the longer term and so need to create an incentive model that rewards the supplier for reduced whole life costs as opposed to reduced capital cost.


Technical Papers

Other areas of performance that can be targeted through incentivisation include: -

• Time–completionaheadoforontime(wholefacilityorsections)

• Disruption to thepublicorbusinessoperations– forexample reducing the impact causedwhenundertakingimprovement works to an existing subway station

• Reliabilityofthecompletedproject–forexampleanairportwhereanydowntimeduetofailuresofthefacilitywill create claims from the airlines/passengers

• Customersatisfaction–anincreasingareaofperformancemeasurementintheUKforregulatedutilities

3. BENCHMARKING

The principle of incentivisation is to drive improved performance in the supply chain. You don’t incentivise and seek innovation for the sake of innovation. Therefore you have to be able to measure whether the incentivisation is working; thatitisdrivingimprovementintheareatargeted.Todothisyouneedtosetastartingpoint–abenchmarkfigure/baselinelevel–againstwhichactualperformancecanbecompared.

Setting the right benchmark can be very challenging and yet is essential if incentivisation mechanisms are to be effective. If the performance level is set too low then the supplier will be able to achieve or better the level set without having to do anything different to normal. This can create frustration for the employer who has to pay an increased amount to the supplier when they can see no real value being created. Similarly if the performance level is set at a level which is unachievable for the supplier then they will lose any incentive to improve performance as they know that any efforts put into will be wasted as they are unlikely to ever achieve the levels set so as to earn additional returns.

4. METHODS OF INCENTIVISATION

The general principle of incentivisation is to create a mechanism which aligns the objectives of the supplier with those of the employer, with both parties incentivised to achieve a common objective that will be mutually beneficial.

Careful consideration should be given as to whether the method of incentivisation employed is based on a positive reward model or a negative reduction model as this can have a considerable impact on the suppliers’ behaviours. Historically the construction industry has tended to operate negative models to drive supplier performance. A classic example of this is damages for delay. This approach is intended to incentivise the supplier to finish on time so as to avoid suffering a reduction in their financial return due to a failure to achieve the employers’ objective of completion by a set date.

The feedback from the industry is that negative incentives do not work as well as positive incentives and often drive counter productive behaviours. In the case of delay damages it is not uncommon for suppliers to assess any potential overrun they may encounter and include a sum of money in their tender to cover for the delay damages they may incur, thus negating the impact of the incentive and unnecessarily increasing the tender price for the employer. Suppliers when faced with a negative incentive may also revert to adversarial behaviours to try to avoid suffering the reduction in reward leading to claims and disputes, which detract from project performance and lead to abortive time and cost. Positive incentives play to human nature under which we are all more driven by the potential to be rewarded for improved performance rather than “penalised” for poor performance.

4.1 Target Cost Incentive Models

The way this incentive model works is that a target cost is agreed and then the supplier is paid their actual cost for the work undertaken on a cost reimbursable basis. At the end of the project, the final target cost, which is the original target cost plus any changes, is compared to the actual cost expended by the supplier. If the actual cost is lower than the target cost, a saving has been made, and shared between the parties on a pre-agreed percentage basis–referredtoas‘gainshare’.Conversely,iftheactualcostishigherthanthetargetcostthereisanoverspendandthisisagainsharedbetweenthepartiesonapre-agreedpercentagesplit–referredtoas‘painshare’.Thisaligns the objectives of the parties to work together to reduce the cost of construction.

The share mechanism is at the heart of target cost arrangements and there is no right or wrong share mechanism; in fact, there are a myriad of different options that can be used. The simplest share allocation is a straight 50:50 split of all over and under spend. This is often seen as the most equitable, because both parties equally share the risk, which helps develop partnering behaviours. The simple 50:50 model is often enhanced by a sliding scale of percentages, whereby the employer allocates increasing amounts of gain share/pain share in bands above or


Technical Papers

belowarangeofvalues;commonlyaboveorbelowabandof80–120%ofthetargetcost.Inthebandsaboveor below this range the employer allocates to the supplier a greater share of any over spend and a reduced share ofanyunderspend.(commonlya75:25split).

This mechanism is often developed further with the addition of a cap on the employers’ potential payments. At a certainlevel,normallyabove120%andbelow80%ofthetargetcost,theemployerwillallocate100%percentofoverspendand0%ofunderspendtothesupplier.ThisapproachisoftenreferredtoasGuaranteedMaximumPrice(GMP)–inmyopinionacompletelyinappropriateterm.Thereisnoguaranteethatthepricewillnotbeexceeded, as the value of the target cost and therefore the final payment, which is a percentage of this value, will move with variations. This approach reduces the employers’ financial exposure and increases the financial risk to the supplier.

The key factor in the choice of a share mechanism has to be the potential behaviours it will drive in the parties. Whilst it may seem attractive to the employer to allocate as much pain as possible to the contactor, so as to reduce their risk, this may result in the supplier seeking to increase the target cost or maximise changes, to avoid incurring pain. Similarly by reducing or capping the level of gain share the supplier may lose the motivation to try to make savings below a certain level as it will get little or no return and may in fact be encouraged to increase costs to ensure that no savings occur below a certain level.

Duetotheperceivedsuccessoftargetcostincentivemodelstheapproachisbeingdevelopedintoevermoresophisticated models. On programmes of work where there are framework contracts with multiple suppliers employer are introducing programme level incentives in which they withhold an element of any gain share generated on individual projects and pool this into a central “bonus pot” which is then paid out to the suppliers on a pro-rata or performance based assessment. This approach attempts to encourage the suppliers to work together collaboratively to try to help each other create savings so as to grow the central bonus pot.

SimilarlyunderEngineeringProcurementandConstructionManagement (EPCm)arrangementsemployersarestarting to engage the EPCm contractors on a target cost model under which they are incentivised against overall project cost, as opposed to just their own contract. In such models the contractor places an element of profit at risk in return for additional reward if the final total project cost including all package contracts is lower than the total budgeted project cost. Thus incentivising the EPCm contractor to drive performance and co-ordination across the entire supply chain.

4.2 Time Bonus v Delay Damages

A common area of performance incentivisation is completion of the construction works by a set date. This normallytakestheformofanegativeincentive,delaydamages,commonlysetatapre-agreed(liquidated)levelbut it can also take the form of a positive incentive such as a bonus for early completion, or a combination of the two. As previously noted the employer has to take a view on what will best incentivise the supplier to perform, a stick or a carrot. Employers also need to be mindful of the governing law when determining the level of delay damages as in common law jurisdictions these need to be based on a genuine pre-estimate of loss likely to be suffered by the employer rather than a penalty.

4.3 Whole Life Cost

WhenemployersintendtoownandoperateabuiltassetthenWholeLifeCost(WLC)canbecomeagreaterperformance driver than capital cost. Commonly built assets have a relatively long life and therefore the cost of maintaining and operating the asset represents a far greater cost than the initial cost of construction. As a result employers will be happy to increase construction costs if this results in lower maintenance and operational costs and will certainly not want the supplier to reduce quality or implement savings in capital cost at the expense of whole life costs.

Models have been developed that incentivise supplier performance against WLC, the usual approach is to develop a target WLC and then compare this to a revised WLC calculation undertaken after construction is complete. As this point the actual cost of construction is known and better data will be available as to the materials used and their asset lives, running costs etc. The WLC calculation will attempt to estimate the running costsandreplacementcostsoftheassetoverapredeterminedtimeperiod,commonly25or30years.Thekeyissue employers’ face when using WLC models is the difficultly in accurately estimating the running costs and


Technical Papers

replacements costs as these will not be known until many years after the project has been constructed. This is exacerbated by the fact that relatively minor changes in running costs or maintenance costs can equate to large sumsofmoneywhenextrapolatedover25years.Thiscanthenleadtodebatebetweentheemployerandthesupplier of the level of savings made and makes the agreement of the target WLC very difficult. To address this issue employers need to create a clear process for how WLC will be calculated and how changes to the target will be determined, commonly supported by computer based models. The development of Building Information Modelling(BIM)hasthepotentialtoaddanewdimensiontotheuseofWLCandthismayleadtoanincreasein the popularity of such models.

4.4 Key Performance Indicators

AnothercommonlyusedmethodforincentivisingperformanceinthesupplychainistheuseofKeyPerformanceIndicators(KPIs).

ThereisnolimittotheissuesthatcanbeincentivisedbyKPIsorhowtheyaremeasuredandassessed.KPIsaswithany incentive mechanism have to be aligned to the employers’ objectives and yet it is common for employers to select“standard”KPIsthathavebeenusedelsewhereintheindustry,ratherthandevelopKPIsthatwillspecificallytargettheareasofperformancetheyaretryingtoimprove,thusnegatingthebenefitofhavingKPIsandturningthem into little more than a recording function.

AnotherissuethatcommonlyoccursisthecreationofextensivenumberofKPIs.AsthenameitselfshouldsuggestthattherehastobealimitednumberofKPIsastheyare“key”issuesthatneedtobemeasuredandnotalistofgeneralmeasurestheemployerisinterestedinrecording.IftherearetoomanyKPIstheylosethereimportanceas the suppliers focus is spread too wide to make an impact on those issues that really matter to the employer.

As with financial incentives it is essential to set a benchmark performance level against which actual achievement can be measured and this can prove to be a challenge depending on the issue to be measured but without this thesystemssimplywillnotdeliverabenefit.There isalso the issueoverwhether theKPIareassessedonanobjective or subjective basis. It is clearly advisable to use objective measures where ever possible for example accident frequency rates compared to an industry average. When using objective measures the determination of performance achieved should be simple and based on hard data reducing the potential for disagreement betweentheparties.However,theremaybecertaintypesofKPIsthatcanbekeytotheemployerbutcanonlybeassessedonasubjectivebasis,forexamplecustomersatisfaction.ThedifficultywiththesetypesofKPIisthatthe results can be influenced by personal opinion rather than fact and this can lead to dispute over the score achieved.

KPIscanalsobeusedtotargetimprovementataprogrammeaswellasaprojectlevel,allowingtheperformanceofmultiplesuppliers tobealigned throughasharedsetofKPIs.Thereareamyriadofdifferentmethods forincentivisingperformanceagainstKPIsandsomeofthemostcommonmechanismsaredetailedbelow.

Financial risk/rewards

ThemostcommonmethodforincentivisingperformanceagainstKPIsistolinktheirachievementtosomeformoffinancialriskandreward.ThisnormallytakestheformofapositiveincentiveofincreasedreturnsforgoodKPIscores. However, increasing numbers of employers are now starting to also introduce some form of reduction infinancial return forpoorKPIperformance.Anotherapproachis tocombineKPIperformancewith thegainshare/pain share created under target cost models. There are differing approaches that can be adopted but the generalprincipleisthatanygainsharecreatedissubjecttothesuppliersKPIscoreandcanbeeitherreducedor enhanced depending on the score.

Determine the allocation of future work

A major driver for suppliers is securing turnover and so the potential for the direct allocation of future work based onKPIperformancecanbeaverypositiveincentivemechanism.Thoughsuchanapproachcanbeachallengewhere procurement regulation in some jurisdictions requires the need for some element of competition in supplier selection and/or does not allow for the direct allocation of work.


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Ranking/league tables

Another approach is the creation of rankings/league tables. This approach plays to the competitive element in humannatureandencouragesthesupplierstocompetewitheachothertoachievethebestKPIscorestomoveto the top of the rankings. This approach also creates a practical benefit to the Contractors as they can use their position in marketing material and when bidding for work with other employers.

5. ISSUES IN THEIR APPLICATION

In order for any incentivisation mechanism to be effective the risk/reward potential that it can create has to be sufficient to drive performance. The supplier will have to determine the level of effort that it will need to invest in order to achieve a benefit and compare this against the potential return. Therefore, employers need to carefully consider what level of risk and reward will drive performance in their particular contract and that the reward is achievable.

It is essential that the basis of any incentivisation mechanism is maintained throughout the life of a project in order for it to continue to incentivise performance. For example a target cost once set has to be able to change to reflect changes in theprojectinorderforittoremainvalid.SimilarlyKPIsneedtobeabletochangetoreflectchangesonaproject.Iftheincentivisation mechanism is not maintained then the target to be achieved will no longer be valid and the supplier will no longer be motivated to perform and the employer will lose their ability to recover/reduce sums due to the supplier for poor performance.

There is also a need to consider how the incentivisation mechanism will flow through the supply chain. Modern construction projects have tiers of subcontractors who will undertake the vast majority of the works and so in order to drive performance improvement these subcontractors also need to be incentivised to perform. Employers can either directly engage these tiers of suppliers under incentive mechanisms or else create a model for engaging the first tier suppliers that drives them to roll the incentive model down the supply chain. The key thing to avoid is a situation where the first tier supplier can transfer the risk of poor performance down the supply chain, at the expense of the employer, and yet still keep the potential for increased rewards.

6. ENGAGEMENT MODELS

There is not necessarily a direct link between supplier engagement models and incentivisation mechanisms, however, certain engagement models do play more towards incentivisation mechanisms.

It is thought by many that incentivisation models work more effectively when they are used on programmes of work as opposed to single one off projects. The logic being: -

• Incentivisationmechanismworksbetterwherethereislongtermrelationshipallowingtrusttodevelopbetweenthe parties

• Financialrisk/rewardsataprojectlevelcanbecombinedataprogrammelevelwhichallowsoverandunderperformance to be balanced out reducing the risk to both parties of major loss or gain

• Continuousimprovementcanbeincentivisedandtracked

• KPIscanbelinkedtofutureworkallocation

Consideration also needs to be given as to when in the project lifecycle the supplier is engaged and the incentivisation mechanism commences.


Technical Papers

Cost value curve.

Design Construction Feasibility

Time

SavingsPotential

The diagram above shows that the greatest potential for reducing cost occurs at the earliest point in the project lifecycle. However, most procurement models engage the supplier at the design or construction stage. Suppliers can be effectively incentivised through these stages but the challenge is how to incentivise suppliers during the feasibility stage.

Most employers will undertake the feasibility work internally, perhaps with some support from specialist consultants. Some employers may also engage with Contractors during this stage through some form of Early Contractor Involvement (ECI)togetinputonlogisticsandbuildability.However,intheseapproachesthepotentialforsupplierinnovationislimited and has to be driven by the employer.

However, some employers undertaking major programmes of work have started to create models that allow suppliers totaketheleadindevelopingprojectsthroughouttheentirelifecyclefromfeasibilitytocompletion.Undersuchmodelsa financial risk reward mechanism is created to incentive supplier performance based on a target cost model. The approach adopted is that the employer sets a target cost for the programme at the pre-feasibility stage, on the basis of historic benchmark cost and/or very high level estimates based on outputs or the like and then at the end of the project compares actual outturn performance against this to generate a gain share/pain share incentive. Such models create the potential to maximise the input from the suppliers but require the ability to set a reasonably robust target cost at the pre-feasibility stage which is only possible for certain types of work where sufficient historic information is available and the scope of works is foreseeable/definable.

7. CONCLUSION

Incentivising the supply chain to perform, to innovate to be more efficient is becoming an increasing driver for employers. Financial risk/reward approaches are the most common and can be effective. However, employers need to make sure they drive the right behaviours, that match their objectives, and should take the time to carefully consider what it is they actually want to achieve through the use of incentivisation and how the mechanism they select will interact with other areas of the supply chains performance.

Benchmarking what good looks like is essential to drive real improvement, as is the need to maintain the incentivisation mechanism as changes occur. The mechanism has to create the potential for real tangible rewards of sufficient value to drive improved performance and the employer need to ensure that the procurement strategy and contact documents they create embed the incentivisation mechanism selected.

8. REFERENCES

Broome, J. (2010). Incentivisation under NEC3. Available: http://www.leadingedgeprojects.co.uk/LeadingEdge/media/leading-edge/Articles/I-Incentivisation-under-NEC3.pdf.Lastaccessed20January2014.

Heaphy,I,2011.‘DoTargetCostContractsDelverValueforMoney?,paperpresentedatameetingoftheSociety of Construction Law,Leeds,17May.


Technical Papers

Driving Value via Commercial Transactions for the Delivery of Infrastructure projectsColin F. Duffield

Department of Infrastructure Engineering, The University of Melbourne, Victoria, Australia

ABSTRACT

Major project contracting is essentially a commercial transaction whereby buyer and seller seek to achieve their respective aims whilst minimizing risk and optimizing opportunities. For a buyer, common catch phrases such as achieving Value for Money (VfM) abound, whilst for the provider phases such a maximizing ‘Return on Investment’ often drive behavior. If one combines these two basic contractual motivators with a governments generally stated position to be an exemplar in commercial undertakings it becomes evident that the choice of particular procurement strategies becomes an important tool for a government buyer if the objectives of VfM and being an exemplar citizen in commercial transactions is to be achieved.

Australian culture is creative and has frequently been an early exponent of new contractual concepts. Such concepts have ranged from hard money (full risk transfer) transactions to deals having an emphasis on the relationship required for the buyer and seller to work in harmony and thus maximize the potential for a win-win outcome. Recent contracting mechanisms adopted in Australia are critiqued and analyzed to establish areas of strength (and potential weakness). The techniques include: PPPs, alliance contracts (including competitively bid alliances) and recent changes to incorporate relationship features into traditional design and construct contracts. A major rail project that was split into a number of separable contracts using a variety of contracting forms is used to amplify the features of the contracting forms.

It is concluded that the selection of the procurement strategy (when done well) can assist in optimizing successful project outcomes; particularly when specific project risks are clearly identified and communicated.

Keywords: contracting strategies; risk allocation; rail project

1. INTRODUCTION

The Australian building and construction industry has, over the past four decades, creatively delivered projects in an effort to maximize efficiencies and to avoid costly waste through the likes of protracted contractual disputes. This has led to a focus on the commercial transaction whereby buyer and seller seek to achieve their respective aim whilst minimizing risk and optimizing opportunities. For a buyer, common catch phrases such as achieving Value for Money (VfM) abound, whilst for the provider phases such a maximizing ‘Return on Investment’ often drive behavior. If one combines these two basic contractual motivators it is little wonder that the choice of a particular procurement strategy and its associated risk allocation profile is most important for owners and providers alike. The choice of a particular procurement strategy has historically been partially based on an organizations preference or particular familiarity but as organizations continually seek ‘Value for Money’ (VfM) outcomes the selection process is becoming an important decision point in the formation of a project. Governments have started to formally analyze the procurement alternatives prior to their development (Commonwealth of Australia 2008).

The benefits (or otherwise) of specific procurement approaches tend to be most recognizable expost. Reflection on past outcomes has assisted the Australian market to continuously improve and evolve; however, extrapolation of past outcomes has to consider the dynamics of market conditions if successful outcomes are to be replicated. Procurement arrangements in the Australian market include early contractor involvement contracts, hard money (full risk transfer) transactions to deals having an emphasis on the relationship required for the buyer and seller to work in harmony and thus maximize the potential for a win-win outcome. Larger public projects seriously consider the use of Public Private Partnerships and Alliance contracts (including competitively bid alliances). Invariably the successful features of any of the procurement forms are borrowed to refine other procurement approaches, e.g. incorporation of relationship features into traditional design and construct contracts.

This paper identifies some of the lessons learnt in Australian project procurement by identifying key change events that have led to advances in procurement. Having clarified what is meant by the subtle changes in procurement strategies and the associated risk profiles the paper reflects on the procurement selection process by consideration of a major rail project (Regional Rail Link) where the project was split into a number of sections each having different contracting forms.


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2. CONTRACTING APPROACHES IN AUSTRALIA

Project delivery approaches in Australia are best considered in the light of major public infrastructure projects as these projects have considered and trialed the largest array of alternatives. Back in the 1980s infrastructure projects were dominated by publically organized procurement and large (engineering rich) governmental agencies controlled the form and style of procurement. The dominant form of procurement was via the traditional approach where the owner undertook the design and documentation and then frequently sought private sector support by way of a construct only contracts. This approach encountered significant issues in the management of design risks as the market started to behave in a most adversarial nature whereby post completion of a project major contractual claims would arise. Management of these contractual claims became untenable and the industry undertook a major review of its practices via a joint working party that investigated strategies to avoid disputes in the Australian Building and Construction industry, (NPWC/NBCC Joint Working Party 1990). Key outcomes from this review were: risk allocation within contracts should be seen as obligations rather than risks and that these obligations should be allocated in accordance with the Abrahamson Principles; risk obligations should be clearly detailed in contracts; that the selection of contractors (and subcontractors) should be fair and equitable; and that the quality of documentation prepared by clients required improvement.

Lesson 1: Reliance on construction contracts via the sole strategy of adversarial management does not generally result in a sensible outcome.The adoption of the Abrahamson Principle of allocating risk to the parties who is in control of the risk, can transfer the risk, benefit economically from the risk, in the interest of efficiency and to that party upon which the loss falls should the risk materialize was not always followed, (Ulbrick 2010). In fact even Abrahamson (Abrahamson 1989) has expressed (in part) the emphasis for risk allocation differently suggesting that in the first instance risk should be placed on insurers or other professional gamblers where practicable. Post the ‘No Disputes’ document, (NPWC/NBCC Joint Working Party 1990) the Australian market changed in two ways. The first group of owners concentrated on passing on the risk of poor documentation to the contractor by greater utilization of design and construct contracts (as exemplified in the Australian Standard General Conditions of Contract AS4300, (Australian Standard 1995). A hybrid traditional/design and construct option was also sometimes adopted termed ‘Novation Contracts’ where an owner commenced a project by engaging a designer and part way through the design they novated the designer (along with design risk) to a contractor. Other alternatives include the use of guaranteed maximum price contracts. The second group of owners recognized that positive project outcomes involved not only sound contracts but also sound a relationship between the parties. Early attempts to formalize the relationship focused on a non-commercial adjunct to the contract termed a partnering agreement. This agreement had success when projects were acceptable commercially but were frequently found wanting if major risks materialized and commercial adjustments were sought to the original agreement.

Lesson 2: The commercial reality of major construction transactions results in risk allocation often being based on pragmatic outcomes rather than general idealisms.The concept of transferring as much risk as possible to the contractor was progressed even further through the 1990s with the proliferation of Build Own Operate (BOO/BOOT) style contracts (similar to UK style PFI projects). First introduced to Australia in the Sydney Harbour tunnel project (Hodge and Duffield 2010) these projects were initially seen as a mechanism of attracting off balance sheet finance with minimal risk to the Owner once the deal was done. Not surprisingly there were numerous governments keen to participate in such a wonderful outcome, no risk and ‘free’ money. Many projects were brought to the market in the period until 2000 yet the private sector was not necessarily keen to accept the terms on offer, refer Fig 1. Many projects conceived were abandoned during this period but there were also many successful projects delivered, refer Fig 2.

Lesson 3: Privately financed projects are not a mechanism for risk free projects requiring no governmental funds.The Victorian governments Partnership Victoria policy (Victorian Government 2000) addressed the biased risk allocation of the former BOO/BOOT contracts and established agreements based on shared responsibilities and clear performance based outcomes. Projects based on this policy attempted to optimize the risk allocation and to incentivize cost-effective, high quality service outcomes. This approach gathered international momentum and model lent itself to not only economic infrastructure projects like tool roads but also to social infrastructure such as schools and hospitals, refer Fig 3. The payment mechanisms adopted on these PPP projects include user charges and availability payments. This style of PPP project worked well until a number of special purpose companies miscalculated their traffic revenue for the Cross City tunnel, Clem 7 tunnel, Lane Cove tunnel and to some extent the Eastlink toll road.


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This combined with modified financing availability post the global financial crisis has seen the emergence of the next generation of PPP projects. The result has been a shift by the market to a more risk adverse position has been managed by governments’ ability to work with the market and modify its arrangements to find appropriate solutions. Recent initiatives include: copayments of the capital cost of projects, depreciation adjustments, modification in the use of the public sector comparator, changing risk allocation for toll roads, even to the point that the new East West toll way is to have government taking responsibility for demand and tolls. Another recent initiative is the explicit acceptance by government of unsolicited proposals (Victorian Government 2014).

Projects that did not eventuate as BOO(T)

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Figure 2: Successful BOO/BOOT style projects in the period until 2000


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Figure 3: Contracted Australian PPPs 2000 - 2014

In addition to the contracted PPP projects there are currently some 8 projects in the market that include; road and rail transport projects, hospital, prison, a port and a sports stadium. Further projects are in the pipeline. It appears there remains solid support for, well structured, PPP projects.

Lesson 4: Government can achieve excellent PPP outcomes if it works with and listens to the market.Relationship style contracts have equally developed and matured in the market place. In 1999, the Australian Constructors Association (Australian Constructors Association 1999) outlined a philosophy to harmoniously meet the requirements of projects, particularly difficult projects, often of brown fields nature. Pure Alliance contracts became most popular around 2009, refer Fig 4. A key factor in an alliance there is a ‘no blame’ culture and thus no disputes as participants are, by definition, endeavoring to achieve ‘best for project’ outcomes. Detailed investigation of the reasons for the sharp uptake of alliances for public procurement, (Wood and Duffield 2009) identified that the base assumption that the benefits from alliances were the relationships between the parties was sometimes being compromised, generally due to an asymmetry of the skills and input to the alliances between owners and providers. Conceptually alliances are a most appropriate procurement approach where the risk profile of a project is high and difficult to quantify. Alliances were being used as a technique to attract resources during a resource constrained market, regardless of the level of risk, or to fast track projects prior to detailed consideration of the criteria and outcomes required of the projects undertaken, this created particular stress for central agencies that were responsible for approval of the project budgets. It was well acknowledged by industry that the alliance process was delivering excellent project results, even on difficult projects. The advancement to the pure alliance approach of incentivized cost plus commercial arrangements was to introduce alternative alliance arrangements based on elements of commercial tension (Australian Government 2011)a. and (Australian Government 2011)b.. The commercial mechanisms for alliance contracts are summarized in Fig 5. Initial fears from industry that the market would not embrace commercial alliances has proven misplaced, e.g. Victorian transport projects over the last 5 years, refer Fig 6. Again, alliances appear to be a viable and appropriate procurement approach for the right type of projects. Other collaborative contracting approaches include: Early Contractor Involvement, Early Tender Involvement and even variation of managing contract delivery (The Inter-jurisdictional Steering Committee for Alliancing & Traditional Contracting 2014).


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Lesson 5: There is a balance between harmonious relations and commercial outcomes when managing risk on major projects.

Figure 4: The use of alliancing in public and private sectors (from Wood & Duffield 2009:8)

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Figure 5: Revised alliance models


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$-

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Figure 6: Recent Victorian transport projects

Based on the recent history of Australia’s delivery models for major infrastructure it is clear there are a number of quite different models operating successfully in the market. A key decision point then emerges as to how to select the most appropriate delivery model for specific projects; this decision point was identified by the Productivity Commission as a major area for improvement, (Productivity Commission 2014). A starting point in this discussion is a clear understanding of the risk allocation profiles of the alternate delivery models and the control that the alternate approaches offer an Owner.

3. CONTRACTUAL RISK ALLOCATION

Given that the allocation of risk within contracts forms the basis for the obligations of the parties it is important to understand the complex interaction between risks, relationships, decision responsibility and commercial models for the variety of delivery models prior to decisions being taken on the best approach for particular outcomes. A detailed appraisal of the different delivery models is provided in Table 1 and the subsequent discussion focuses on the theme of this paper around PPPs, alliances and design and construct contracts.


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Table 1: Risk/obligation matrix of common Australian infrastructure procurement mechanisms

rekaM noisiceD niaM dohteM tnemyaP tnanimoderP High Private sector risk

Procurement strategy Concept Design Construct Maintain

& Operate Concept Design Construct Maintain &Operate

PPP Fixed Fixed Fixed Fixed SPV SPV-Contractor

SPV-Contractor

SPV – Operator

Design & construct

Actual Fixed Fixed Actual Owner Contractor Contractor Owner

Early Contractor Involvement

Actual Fixed Fixed Actual Shared Contractor Contractor Owner

Managing Contractor

Actual Fixed Actual Actual Shared Contractor Contractor Owner

Project Management

Actual Fixed Fixed Actual Owner Owner Contractor Owner

Construct only

Actual Actual Fixed Actual Owner Owner Contractor Owner

Construction Management

Actual Actual Actual Actual Owner Contractor Contractor Owner

Relationship contract - alliance

Actual Actual Actual Actual Owner Shared Shared Owner

Public Works

Actual Actual Actual Actual Owner Owner Owner Owner

High Owner Risk

Ris

k co

ntin

uum

From the findings detailed in Table 1 it is evident that PPPs are by far the most stringent in terms of obligations, risk transfer to the private sector and the responsibility for management that has been passed to the private sector. Design and construct contracts are also stringent but as the name implies the obligations passed to the private sector focus on the design and construciton phases of a project. At the opposite end of the project risk profile taken by an Owner are alliance contracts. These contracts are flexible and can thus accommodate numerous changes but they also require an Owner to be directly involved in project decisions. The compensation for the provider is that the sharing of risk and reward should lead to a stable return on their investment.

The Regional Rail Link project in Melbourne is an interesting case example as the project was divided into a range of packages, many of which had different procurement mechanisms. These mechanisms included: interface with an exisiting PPP, a form of managing contractor, alliances and design and construct contracts. The projects appears to be highly successful in delivering positive outcomes for both the Owner and the Provider. The basis for selecting the procurement options are reflected upon to ascertain what can be learnt.

4. REGIONAL RAIL LINK PROJECT

The RRL project is the largest current infrastructure project being delivered in Victoria, with an original estimated cost of $4.8 billion. The project has the potential to change communities in Melbourne’s outer Western region and the regional cities of Geelong, Ballarat and Bendigo. The project comprises separation of regional train services from metropolitan services and achieves this via major upgrades to existing facilities from Melbourne to Deer Park and new train lines with associated new stations from Deer Park to Werribee, refer Fig 7 for an overview of the project.


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Figure 7: Regional Rail Link project overview, (Regional Rail Link Authority 2012) Page 7

The chosen procurement approaches for the project are detailed in Table 2 along with indicative costs for each section of the project and the participants involved in the arrangements.

Table 2: Contractual arrangements for sections of the Regional Rail Link project

Section of project Contracts Participants

Platforms 15 and 16 at Southern Cross Station ($237M)

Southern Cross Station is an existing PPP contract, the suburban rail system is an existing franchise with Metro Trains Melbourne – Works undertaken as a part of the franchise. Akin to managing contractor arrangement.

A joint venture between John Holland and Coleman Rail carried out the main track and engineering works between Southern Cross Station and Moonee Ponds Creek.

Alstom were responsible for Melbourne Yard works, with other work carried out by Metro.

City to the Maribyrnong River ($570M)

This is ‘Brown Fields’ project is being delivered as an alliance contract (full price competition).

The contract was awarded in May 2012 to John Holland, Abigroup, Coleman Rail, AECOM & GHD.

Footscray to Deer Park ($1,469M)

This is ‘Brown Fields’ project is being delivered as an alliance contract (full price competition).

Alliance participants consist of: Regional Rail Link Authority, Metro, V/Line, Thiess, Balfour Beatty, Parsons Brinckerhoff & Sinclair Knight Merz.

Deer Park - West Werribee Junction ($5erribee Junction ($505M)

Design and Construct – ‘Green Field’ site.

Baulderstone / Leighton Joint Venture (BLJV).

West Werribee Junction ($43M)

Design and Construct – ‘Brown Field’ site.

Leighton-Downer Joint Venture (Leighton Contractors and Downer EDI Works).

Rail Systems ($278M) Alliance – (first part competitive and later non price competitive as the alliance will work together to further develop the design and installation of project-wide train control and systems).

Alliance consisting of: Regional Rail Link Authority, Metro Trains Melbourne, V/Line, UGL and RPS

The for the Regional Rail Link project.

Corporate In house: Land purchase, insurances, program and project risk and contingency allowances, corporate overheads and project management.

Regional Rail Link Authority


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It is evident that the majority of brown fields sections of the works, e.g. City to the Maribyrnong River; Footscray to Deer Park and the Rail Systems were let via the alliance mechanism (full price competition). These sections of the works were constructed in and around an operating rail environment that involves metropolitan trains, country train services and interstate freight services. The interface risks, uncertainties associated with the final scope of works and the occupational health and safety requirements were key considerations in the selection of the alliance approach. To assist government in managing their obligations a new authority, the Regional Rail Link Authority, was established that was fully accountable for not only the owners obligations under specific packages of work but was also responsible for integration of the packages of work into a program of works that would achieve the overall outcomes for the project.

A major green fields section of the project was delivered as a design and construct project. This section had significant risks associated with hard rock excavation, the management of environmental aspects of the project and major heritage and land issues. These risks were in part managed by all parties to the contract, e.g. the owner undertook extensive geotechnical investigations of the rock and conducted field trials of rock excavation pre receipt of tenders. A smaller section of brown fields work, West Werribee Junction, was also conducted as a design and construct contract. Interestingly it was this section of the works that encountered some claims for latent conditions.

The works undertaken at and around Platforms 15 and 16 at Southern Cross Station were most interesting as not only were these works within the busiest section of Victoria’s rail network, the tracks and trains were controlled by an existing franchise agreement and the Southern Cross Station, which required modification, is an existing PPP contract with different commercial partners. The franchise agreement has a mechanism for undertaking projects via a managing contractor arrangement; again the works were successfully completed with minimal disruption to operations of either the rail system or the existing PPP contract.

For the reasons summarized above the Regional Rail Link project appears to have selected appropriate procurement approaches and these approaches have contributed significantly to the management of risk and the overall success of the project.

Lesson 6: Careful selection of an appropriate procurement strategy adds great value in the procurement of infrastructure.

5. CONCLUSIONS

It is evident that appropriate commercial arrangements for the delivery of major infrastructure projects are constantly evolving. In Australia a diverse array of contracting mechanisms have evolved that at one end of the spectrum result in hard edged commercial transactions, such as PPPs, whilst at the other end of a client’s risk spectrum alliances have proven themselves as an appropriate mechanism to give weight to the relationships involved in infrastructure procurement.

During the last four decades our industry has been reminded of the following lessons:

Lesson 1: Reliance on construction contracts via the sole strategy of adversarial management does not generally result in a sensible outcome.

Lesson 2: The commercial reality of major construction transactions results in risk allocation often being based on pragmatic outcomes rather than general idealisms.

Lesson 3: Privately financed projects are not a mechanism for risk free projects requiring no governmental funds.

Lesson 4: Government can achieve excellent PPP outcomes if it works with and listens to the market.

Lesson 5: There is a balance between harmonious relations and commercial outcomes when managing risk on major projects.

Lesson 6: Careful selection of an appropriate procurement strategy adds great value in the procurement of infrastructure.

It is evident that sensible management and commercial outcomes have been achieved from PPPs, alliances and even design and construct arrangements. This is confirmed the volume of ongoing projects being delivered in Australia by these mechanisms.

If there is to be an overall conclusion from this paper it would be that commercial and project success requires careful matching of a particular procurement approach with the project and management skills of Owner and Provider alike.


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6. REFERENCES

Abrahamson, M. (1989). Risk Problems Relating to Construction. Construction Contract Policy: Improved Procedures and Practices. J. Uff and P. Capper. London, Kings College: 21.

Australian Constructors Association (1999). Relationship Contracting: Optimising Project Outcomes. North Sydney, Australian Constructors Association,.

Australian Government (2011)a. National Alliance Contracting Guidelines: Guide to Alliance Contracting. Department of Infrastructure and Transport. Canberra, Commonwealth of Australia,.

Australian Government (2011)b. National Alliance Contracting Policy Principles. Department of Infrastructure and Transport. Canberra, Commonwealth of Australia,.

Australian Standard (1995). AS4300: General conditions of contract for design and construct. Homebush, Standards Association of Australia.

Commonwealth of Australia (2008). National PPP Guidelines: Procurement Options Analysis Infrastrucuture Australia. Vol 1.

Hodge, G. A. and C. F. Duffield (2010). “17 The Australian PPP experience: observations and reflections.” International Handbook on Public-Private Partnership: 399.

NPWC/NBCC Joint Working Party (1990). No dispute : strategies for improvement in the Australian building and construction industry, Dickson, A.C.T. : National Public Works Conference, c1990.

Productivity Commission (2014). Public Infrastructure: Productivity Commission Draft Report. Canberra. Vol 1.

Regional Rail Link Authority (2012). Regional Rail Link: Benefits for Victorians. Regional Rail Link Authority. Melbourne, Victorian Government.

The Inter-jurisdictional Steering Committee for Alliancing & Traditional Contracting (2014). Guidance Note No 6: ECI and Other Collaborative Procurement Models (final draft). Department of Treasury and Finance (Victoria). Melbourne, State of Victoria.

Ulbrick, D. (2010). “No dispute? Testing the wisdom of Abrahamson.” Insurance Law Journal, 21(2): 96-128.

Victorian Government (2000). Partnerships Victoria Policy. Department of Treasury and Finance. Melbourne, The State of Victoria.

Victorian Government (2014). Unsolicited proposal guideline. Department of Treasury and Finance. Melbourne, The State of Victoria.

Wood, P. and C. F. Duffield (2009). In Pursuit of Additional Value: A benchmarking study into

alliancing in the Australian Public Sector. Department of Treasury and Finance Victoria. Melbourne,

The State of Victoria.


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Insight in Actual Energy Use in Houses as a Basis for Energy Performance ContractingProf. dr. ir. Henk Visscher

OTB research for the Built Environment, Faculty of Architecture and the Built Environment, Delft University of Technology

ABSTRACT

Energy performance contracting is based on the idea that the investments for the improvements of the energy performance of a building through better insulation and more efficient installations will be covered by the savings of the use of energy in the use phase. The external contractor takes care of all the investments costs and guarantees the owner a fixed energy bill and hopes to profit from it. An interesting concept that is widely advocated as a solution to deal with some problems that mostly obstruct energy efficiency renovations. In the EPC approach the owner does not have to invest and does not take any risk. Still, at least in the Netherlands, it is not often used in practice and there are indeed some preconditions for projects that have to be met to make the approach work. The most important precondition is that the actual energy savings in practise will be enough to cover the investments with a reasonable payback time. This paper presents some results of research projects that compared the expected energy savings according to the energy performance calculation tools with the actual energy use in practice. The results of these projects show a large discrepancy between expected and real energy use caused by various reasons: design and construction failures and the influence of behaviour. It appeared that in the houses with a bad energy performance the behaviour led to far less energy use that expected and in the houses with a very good energy performance to a higher energy use because of rebound effects. What does this mean for energy performance contracting?

Keywords: actual energy use; energy efficiency; houses; energy performance contracts

1. INTRODUCTION

Energy performance contracting is based on the idea that the investments for the improvements of the energy performance of a building through better insulation and more efficient installations will be covered by the savings of the use of energy in the use phase. The external contractor takes care of all the investments costs and guarantees the owner a fixed energy bill and hopes to profit from it. An interesting concept that is widely advocated as a solution to deal with some problems that mostly obstruct energy efficiency renovations. In the EPC approach the owner does not have to invest and does not take any risk. Still, at least in the Netherlands, it is not often used in practice and there are indeed some preconditions for projects that have to be met to make the approach work. The most important precondition is that the actual energy savings in practise will be enough to cover the investments with a reasonable payback time.

In Europe the residential sector is considered to be responsible for 30 per cent of the total energy consumption. The energy saving potential of the building stock is large and is considered to be the most cost efficient sector to contribute to the CO2 reduction ambitions. The Energy Performance of Buildings Directive (EPBD) is the driving force for all member states to develop and to strengthen energy performance regulations for new buildings and energy performance certificates for the existing stock (Mlecnik e.a. 2010; Murphy e.a. 2012). The goals are to build net zero energy buildings in 2020 and to reach a neutral energy situation in the whole stock by 2050.

Various studies in the residential sector showed that the impact of the policies and regulations are often not as expected. Theoretical energy use that is calculated on base of the standards differs largely from the measured actual energy use. The approach and the findings of two research projects in the Netherlands will be presented in the next sections. The first deals with the effectiveness of energy performance regulations for new dwellings. The second evaluates the relation between the indicated theoretical energy consumption according to the issued energy performance certificates compared to actual energy use in the overall Dutch housing stock. In the last section these results are interpreted and the consequences for Energy performance contracts are discussed.

2. ENERGY USE IN NEWLY BUILT DWELLINGS IN THE NETHERLANDS

In the Netherlands, 1995 energy performance regulations were introduced in the national building regulations. It consists of a calculation method laid down in a national standard called EPN (energy performance norm) and a limit value, the energy performance coefficient. A lower co-efficient stands for a higher energy performing building meaning that the envelope and installations provide conditions that the same internal temperatures can be reached


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with less energy use. Since its introduction the EPC was sharpened several times. It started at 1.5 in 1995 and is now on the level of 0.6. In 2015 it will be lowered to 0.4 and in 2020 it should reach 0, indicating an nearly zero energy situation. The EPC is a non-dimensional digit. All building characteristics and installations that affect the energy demand for space and hot water heating, ventilation and lighting (of communal spaces) are incorporated in the calculation of the energy index (EI), which is the basis for the EPC. A further explanation of the calculation method can be found in Majcen (2013a).

Figure 1: Yearly gas consumption in m3 in Dutch dwellings (WoON 2009)

Since the introduction of energy performance regulations in 1995 only a few representative statistical studies were conducted to assess the effect of the regulations on the actual energy use. The samples were of limited size as well. In two of these studies no statistical correlation was found between the energy performance coefficient level and the actual energy use per dwelling or per square meter. In the analysis of the WoON (2009) survey, carried out on behalf of the Ministry for Housing, Planning and the Environment in 2006 and containing a sample of 5000 dwellings which is representative for the Dutch housing stock, also no correlation was found between the different levels of the energy performance coefficient and the actual energy use per dwelling and per square meter. Figure 1 shows the data on yearly gas consumption in Dutch dwellings in 2005 per construction year class. Remarkable is the increase in use per square meter for the newest houses that were built under the strictest regulations.

In another research, Guerra Santin (2009, 2010) compared the actual and expected energy consumptions for 313 Dutch dwellings, built after 1996. A combined approache generated very detailed and accurate data of the (intended) physical quality of the dwellings and installations, about the actual energy use (from the energy bills) and of the households and their behaviour. In energy inefficient buildings with a high energy performance coefficient, actual energy consumption for heating was almost twice lower than expected, whereas in buildings with a low energy efficiency the expected and actual energy use coincided much better. She found that building characteristics were responsible for 19 to 23% of the variation in energy used in the recently built building stock. Household characteristics and occupant behaviour seemed to be responsible for 3 to 15% of the total variance. Neither our study nor the studies found in the literature allow to state that building characteristics, household characteristics and occupant behaviour altogether are responsible for more than 38% of the variation on energy consumption of dwellings built after 1995. Therefore at least 62% of the variation in energy use was unexplained by theoretical performance and behaviour and must have other reasons. There are indications that the explanation for this remaining part could be related to the fact that buildings practically are constructed differently than is described in official documents and to HVAC services operating in very different conditions than assumed. A report by Nieman (2007) showed that in a sample of 154 dwellings, 25% did not meet the energy performance requirements: the energy performance was incorrectly calculated. Nevertheless the building permit was issued. In 50% of the dwellings, the realization was not in accordance with the design. These results are supported by earlier findings about inadequate performance of building control in the Netherlands and other countries (Heijden, JJ van der, e.a. 2008, Meijer F. e.a. 2006, Meijer e.a. 2010, Visscher e.a. 2011). Gommans (2008) monitored for 17 years the energy performances of energy efficient buildings. 40% of solar


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boilers appeared to function poorly. Only 25% of the heat pumps reached the expected efficiency. This was essentially due to realization faults, lack of control and lack of continuous monitoring. Another study by Elkhuizen e.a. (2006) in office buildings showed that up to 28% of the energy could be saved by better quality assurance.

3. ENERGY USE IN THE EXISTING HOUSING STOCK

Although new buildings make it easier to apply energy saving measures, the largest energy saving potential is in the existing building stock. On average new dwellings add less than 1 per cent per year to the housing stock. National and local governments have formulated ambitions, programmes policies and instruments to stimulate the improvement of the energy performance of the existing stock. The most important policy tool required by the EPBD in the European member states is the issuing of Energy Performance Certificates. All member states have to produce an energy label for a building at the moment it is sold or re-rented. This is not yet current practice everywhere, mostly due to lacking enforcement. In the Netherlands however, the whole social housing stock is labelled. The label indicates the energy demand for heating and cooling. The present label data base covers a large share of the housing stock in the Netherlands. This forms a basis to monitor the progress of the renovation practices. Besides that it is also useful to study the relation of the energy labels with the actual energy use. The progress of renovations and energy upgrading measures stays far behind expectations and formulated ambitions in 2008 when most of the policies, covenants and improvement programmes were set up. The social sector in the Netherlands is still relatively large (35%), well organised and relatively rich. A few years ago the sector formulated ambitious programmes, but these are nowadays scaled down because of several reasons. The economic crises reduced the financial position of the housing associations. The housing market also dramatically slowed down which also affected the funding for renovations because this largely depends on the sales of property. Also it proved to be difficult to get approval of tenants for renovations that require an increase of the rents (70% of the tenants have to agree). It is hard to assure the saving of energy costs resulting of the improvement of the dwellings.

Figure 2: Actual and theoretical gas consumption in Dutch dwellings (Majcen et al., 2013a)

The actual energy use is largely influenced by the use and behaviour of the tenants. Some preliminary figures demonstrate the difficulty in ‘forcing’ reduced energy use by improvements of dwellings. The dwellings with the worst energy label (G) in practise use far less energy as expected, while the most advanced dwellings (A) use much more, probably due to a combination of the rebound effect and an increase in comfort level of the dwellings (Majcen et al 2013a 2013b) and underperformance of the buildings and installations. Figure 2 shows the actual and theoretical gas consumption per dwelling per energy label.


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In the home owner sector the issuing of energy labels stays yet far behind. Although they were mandatory, until now there has not been an enforcement system. Energy labels will become common practice and affect the sales price. Still there are no obligations foreseen to make improvements and higher labels mandatory. It is hard to require investments and property rights are probably an obstruction. Still there are some ideas for taxation measures. Bad labels could be punished with higher transaction taxes or higher property taxes than good labels.

4. MORE LITERATURE ON ACTUAL ENERGY USE

Tigchelaar et al. (2011), calculated a ‘heating factor’ (actual heat demand divided by theoretical demand). The average heat factor in a sample of 4700 representative dwellings was found to be below one, meaning that the expected energy use is overestimated. Cayre et al. (2011) studied expected and actual energy use in 923 French dwellings and reached similar conclusions. A similar result was also discovered by Hens (2010), who monitored the actual use of two types of dwellings in Belgium (from the 80s and 90s). He found that the consumption on average was only half of the calculated energy use. On the other hand, in 12 multi-family buildings in Austria that were renovated, Haas (2000) found that the actual energy consumption was significantly higher than the expected energy consumption. Similar results were obtained by Branco (2004) in a multi-family complex in Switzerland and in a similar sample in France (Marchio 1989). Based on these results, it seems that the theoretical energy use often is overestimated for average and less energy efficient dwellings and underestimated for new or retrofitted buildings. This phenomenon can partly be explained by the so-called rebound effect. Sorrell (2009) provides an overview of methods for calculating the rebound effect and a summary of available studies. He concludes accordingly, in OECD countries, that the mean value of the long-run direct rebound effect is likely to be less than 30%. This means that up to 30% of the efficiency gained through technical improvements of building and appliances are turned into increased consumption (higher comfort) following from direct change in user behaviour.

5. CONSEQUENCES FOR ENERGY PERFORMANCE CONTRACTING

The previous sections have shown the factors that can influence the actual energy use apart form the physical improvement of the building and the installations. If this is negelegted Energy Performance Contracting becomes a risky business and cannot be succesfull. Renovated houses show mostly a higher (up to 20%) energy use for heating and cooling than expected, caused by: rebound effects (higher average temperature settings) and under performance of the buildings because of design and constructions faults. Other findings that the behavior and comfort levels varies largely between different levels of energy performances of dwellings and that this differs very much (up to 50% less energy use) from what is expected according to energy performance standards. This means also that the average temperature over the whole dwelling is much lower than in worse insulated dwellings than we would expect. The consequences of this knowledge is that when a house is renovated the occupants enjoy a higher level of comfort, but that the actual energy savings are very moderate.

Figure 3: Factors to incorporate in Energy Performance Contracts


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Figure 3 shows the factors that have to be taken into account in Energy Performance Contracts. If we would only look to the building performance label for a renovation form a G label to an A label, we would calculate a potential saving of 60 – 70 % (the blue line). If that would define the investment potential for the renovation then a fair payback time will be in reach. Taking the actual energy use as a stating point: the investment space would be very low (the pink line). So we will have to find a way of dealing with these factors. First of all one would have to deal with the quality assurance of the renovated buildings to make sure that the final quality is like it is required and is designed. It is more difficult to deal with the rebound effect and the increased comfort levels. The challenge is to find a way to separate the building related energy reduction form the energy used for an increased comfort (higher temperature levels for heating, or lower in case of cooling). The Energy Performance Contract with the owner of a building should deal with the improved performance of the building and installations and separately the user of the building should remain to pay for an increased comfort (difference between the pink and the yellow line).

6. REFERENCES

Branco, G., Lachal, B., Gallinelli, P., Weber, W. 2004, Predicted versus observed heat consumption of a low energy multifamily complex in Switzerland based on long-term experimental data, Energy and Buildings, 36:6, 543-555.

Cayre, E., B. Allibe, M. H. Laurent, D. Osso 2011, There are people in this house! How the results of purely technical analysis of residential energy consumption are misleading for energy policies, Proceedings of the European Council for an Energy Efficient Economy (eceee) Summer School, 6–11 June 2011, Belambra Presqu’île de Giens, France.

Elkhuizen P., Scholten J.E. and Rooiakkers E. 2006, Quality Control of HVAC services: evaluation of existing instruments and a vision for the future, TNO bouw/Halmos report for Senter Novem.

Gommans L.J. 2008, Energy performances of energy efficient buildings, TVVL magazine, September 2008, pp. 18-24.

Guerra Santin O., Itard L. and Visscher H.J. 2009, The Effect of Occupancy and Building Characteristics on Energy Use for Space and Water Heating in Dutch Residential Stock, Energy and Buildings, 41, 1223-1232.

Guerra Santin O. and Itard L. 2010, Occupant behaviour in residential buildings in the Netherlands: Determinants and effects on energy consumption for heating, Building Research & Information, 38:3, 318-338

Haas R., P. Biermayr 2000, The rebound effect for space heating Empirical evidence from Austria, Energy Policy, 28:6, 403-410.

Heijden, J.J. van der, Visscher, H.J. & Meijer, F.M. 2008. Problems in enforcing Dutch building regulations. Structural survey, 25:3/4, 319-329

Hens, H., Parijs, W. and Deurinck, M. 2010, Energy consumption for heating and rebound effects, Energy and Buildings, 42:1, 105-110

Majcen, D., Itard, I. and Visscher, H.J. 2013a, Theoretical vs. actual energy consumption of labelled dwellings in the Netherlands: Discrepancies and policy implications, Energy Policy 54, 125 – 136.

Majcen, D., Itard, L., Visscher, H.J. 2013b, Actual and theoretical gas consumption in Dutch dwellings: What causes the differences? Energy Policy, 61, 460-471.

Marchio, D., A. Rabl 1991, Energy –efficient gas heated houing in France: Predicted and observed performance, Energy and Buildings, 17, Pages 131 – 139.

Mlecnik, E, Visscher, H.J. & Hal, J.D.M. van 2010, Barriers and opportunities for labels for highly energy-efficient houses. Energy policy, 38:8, 4592-4603.

Meijer, F.M., Visscher, H.J., 2006, Deregulation and privatisation of European building-control systems, Environment and Planning B: Planning and Design, 33:4, 491–501.

Meijer, F.M., Visscher, H.J. & Costa Branco De Oliveira Pedro, J.A. 2010 Building control systems of European Union countries: a comparison of tasks and responsibilities. International journal of law in the built environment, 2:1, 45-60.

Murphy, L.C., Meijer, F.M. & Visscher, H..J 2012. A qualitative evaluation of policy instruments used to improve energy performance of existing private dwellings in the Netherlands. Energy Policy, 45, 459-468.

Nieman 2007, Final report Housing quality indoor environment in new built dwellings, Vrom inspectie Regio Oost, Arnhem.

Sorrell, S., Dimitropoulos J., Sommerville M. 2009, Empirical estimates of the direct rebound effect: A review, Energy Policy, 37:4, 1356-1371


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Tigchelaar, C., Daniëls, B., Maenkveld, M., Obligations in the existing housing stock: Who pays the bill?, Proceedings of the European Council for an Energy Efficient Economy (eceee) Summer School, 6–11 June 2011, Belambra Presqu’île de Giens, France.

Visscher, H.J. & Meijer, F.M. 2011, Energy saving goals require reform of building regulations and control. In les Ruddock & P Chynoweth (Eds.), COBRA 2011 Programme and Abstracts RICS Construction and Property Conference 328-335. Manchester, University of Salford.

WoON 2009, Woononderzoek Nederland, module energie, VROM.


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An Owner’s Perspective: Managing BIM Handover for the Tendering Process on Multiple Delivery Systems

Craig R. Dubler, Ph.D. DBIA and Edward J. Gannon, Ph.D., P.E. The Office of Physical Plant, The Pennsylvania State University

ABSTRACT

Owner organizations have the most to gain with the implementation of Building Information Modelling (BIM). According to a study performed by the National Institute of Standards and Technology (NIST) in 2004, owners account for approximately $10.6 billion of the of total inadequate interoperability costs on U.S. capital facility projects ($15.8 billion in 2002). It is vital that information procured in the design and construction phase is transferred into operations with maximum leverage to the end users. Through initial research, it has been determined that very few owners have defined their actual needs and how project information can benefit their management systems. To increase the operational efficiency, an organization must first develop an understanding of their operating systems, and then identify how BIM can add value to their daily activities.

This paper outlines the current initiative by the Office of Physical Plant (OPP), the asset manager at Penn State University (PSU), to increase the efficiency and effectiveness of facility management operations through the implementing BIM. Specific topics to be ascertained are: the research steps taken to develop a strategic plan for implementing BIM within the Penn State University; an overview of standard documents being developed including: the BIM Roadmap, BIM Contract Addendum, and BIM Project Execution Plan Template; and a summary of quality control efforts that lead to a successful integration of BIM within an owner organization. As a result, Penn State has defined minimal BIM requirements for future projects over five million dollars. The information exchange framework developed is flexible to support additional requirements, which allow team members to develop project specific BIM objectives.

Keywords: building information modelling; facility management; data quality control

1. BACKGROUND

As owner, designer, and construction manager, the Office of Physical Plant (OPP) at the Pennsylvania State University (PSU) has been successful with accelerating BIM technology in both new construction projects and facility operations. The OPP currently requires the use of BIM on all projects valuing over $5 million and any other major facility renovation. Using the recommended processes and templates from the BIM Project Execution Planning Guide, the OPP has developed an effective BIM implementation strategy for project stakeholders to collaborate during all phases of a facility project (CIC, 2010). For the purpose of this research, the researchers focused on the development of a procedure to streamline the information exchanges between outside consultants and several departments within the OPP.

2. BIM IMPLEMENTATION WITHIN ORGANIZATIONS

Building Information Modeling has reached the tipping point on facility projects. According to The Smart Market Report, produced by McGraw-Hill in 2008, owner organizations are beginning to see the value of BIM implementation. This document indicates that 41% of the owners questioned report that BIM has a positive impact on their projects (McGraw-Hill 2008). Additionally, one-third are very willing to purchase BIM software for other team members, and half are at least moderately willing to pay extra for time and effort on detailing BIM models. Although, most BIM success reported in the Smart Market Report was during the design and construction phase. The document also stated that 2009 will be the “Year of the Contractor” in BIM. Owners currently have only limited opportunities to use BIM for operations and maintenance purposes. As those capabilities develop; BIM uses within owner organizations could increase significantly.

2.1 Value of Information for Facilities Management

Facilities Management (FM) ensures that the built environment performs the functions for which the facility was designed and constructed. The overarching goal of this service is to improve equipment effectiveness, return equipment to proper functioning conditions, control Life-Cycle cost and provide a safe and functional system for its occupants (WBDG, 2011) (NASA, 2008). BIM is increasingly recognized as one of the ways of handing over accurate information that would be of value (Jordani, 2010). The accuracy of this information assists in the decision making process to properly maintain and operate a facility. Reliable and optimized decisions for operations can be made using known and accurate data (Whyte et. al, 2010). Apart from the accuracy and


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completeness of facility data, owner and operator knowledge of information management is another ongoing challenge. A method to develop an understanding of the required information for operations and optimizing this information would benefit a team with developing ground rules for the auditing procedure.

2.2 Data & Process Standardization: Challenges

The Construction Operations Building Information Exchange (COBie), developed by the United States Army Corps of Engineers was one of the first documented information capturing mechanism for facilities data. This industry open standard for delivering information from construction to operations provides an opportunity to capture and handover complete and accurate information. Organizations developing their own requirements for their facility information must specify a proprietary format for the capturing and delivering of the information (CIC, 2012). In either of these cases, best value is achieved when the required information for operations and maintenance is obtained and delivered at the required time and of the desired quality.

As efforts to standardize data and processes move forward, process challenges must be understood by the entire project team in order to achieve maximum results. From the surveys and interviews that were conducted as part of this study, one of the biggest challenges for industry implementation is the current level of understanding and knowledge of the end users, the same users who require and use the information for operations. Some of the other challenges mentioned to the standardization, improvement and betterment of quality were: lack of adequate quality assurance and control mechanisms; inadequate definition of responsibilities for information handover; incomplete definition of deliverables or requirements and lack of a tested process to ensure desired handover of information from design and construction to operations. The purpose of this survey was to understand the challenges with the information handover and address possible methods to address these issues.

3. RESEARCH METHODS

The focal point of this research is to develop a standard procedure for the verification of the completeness and accuracy of modeled facility information. When documenting the research findings, the first step was to review and compare any ongoing projects with a similar approach. Next, the facility information requirements were determined along with the priority of each attribute. Finally, a case study was used to validate the required facility information and document the appropriate method for auditing the accuracy and completeness of the asset data. The following detailed research steps were conducted to develop the concepts addressed in this paper:

1. Interviews were conducted with various institutional owners collecting building information throughout the US to determine the initial value of the research.

2. Relevant literature was reviewed to document previous studies as well as ongoing quality control initiatives.

3. Standard facility information requirements for PSU projects were documented using previous completed work by the Virtual Facilities Group.

4. Key members of the OPP were interviewed to prioritize the required facility information for future use in operations.

5. An initial model auditing process was developed to qualify facility information and geometry on new and major renovation projects.

6. The developed model auditing procedure was then tested on a large dormitory project on a PSU campus.

The case study results were gathered during meetings with the project stakeholders. A research team member attended each of the following meetings to integrate facility information into the BIM Model: BIM Execution Planning kick-off meeting, Pre-Coordination meeting, and 3D Coordination meetings. In addition to meetings, the project engineer responsible for BIM implementation was helpful in collecting data on the project. This structure was used to determine the attribute requirements for each maintained asset considered critical in the case study project.

4. RESEARCH RESULTS

In order to develop a comprehensive data set, the owner organization must address the following: what information is considered essential and high priority to their operations processes; when and by whom should this information be developed during the project lifecycle; and what are the contractual and legal concerns associated with the development of this information. Other considerations include who is responsible for auditing and maintaining the data and what systems will be used to manage the acquired data throughout the lifetime of the facility. After performing


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this assessment, the owner organization should explicitly request the facility information requirements as part of the contracted project deliverables. With this knowledge evident during project onset, the project stakeholders can develop an effective information exchange strategy to streamline and validate information exchange processes between the facility lifecycle and facility operations.

4.1 Development of BIM Standards

After participating as an owner representative for several projects implementing BIM on the PSU University Park campus, OPP recognized a need to further develop their contract language to include owner data requirements. Concurrently with an initiative to upgrade their existing facility management system, OPP began an assessment of internal operations processes cross departmentally and identified where additional information captured during the project lifecycle to add value to the existing workflows. Ultimately, the goal was to develop a data exchange solution to eliminate the duplication of effort and information that seemed to be occurring when multiple parties were accessing this information.

The established owner requirements document contains the facility asset requirements for all campus projects implementing BIM at PSU. At a minimum, each asset is to include a listed set of parameters, a barcode, O&M manual, installation guide, submittal information, warranty documentation, and commissioning report. It is the responsibility of the appropriate project stakeholder to provide and verify design, construction, or commissioning information to meet the deliverable standards for the project. Per the developed contract language, these information sets must be provided to PSU at different points during the project lifecycle to audit and validate content.

4.2 Planning the Model Audit Procedures

Facilities Management services, for both public and private organizations have employed either directly or a version of the following maintenance programs: Preventive Maintenance, Condition-Based Monitoring and/or Reliability-Centered Maintenance (NASA, 2008). The goal of these maintenance programs, as they evolved, was to mitigate the risk of occupation and use of facilities in the case of equipment, system or facility function failure. With the FM industry focusing on reducing the risk of occupancy, the quality planning procedure adopts risk analysis as the root of the method.

4.3 Risk Analysis for Informed Decision Making

Risk analysis (risk assessment) has been adopted across a wide number of industries for the benefit of reducing unforeseen risks or mitigating their impact. The construction industry has used risk assessment for managing risks on international projects to improve project performance (cost, schedule and scope). The facilities maintenance industry has used risk analysis to make informed maintenance and operations decisions and prioritize maintenance activities (Backlund and Hannu, 2002).

The risk analysis procedure has a number of variations that exist to cater to the specific needs of a project, technology or end user. However, it is important to understand that the procedure intends to help plan and make decisions based on: potential hazards or risks, risk frequencies, and risk impacts. To assist with the planning and decision making for developing the model and information auditing procedure, these issues were modified to address the needs of facilities management, operations and maintenance:

• Whatfacilityinformationisrequiredforregularandreliableoperationsofafacility?

• Howdofacilityelementsrelatetooneanother?(basedonhierarchy,naming,tracking,etc)

• Whatsystemsandcomponentsposethebiggestthreatinafacility?(intermsofcost,frequencyoffailure,timeand expertise required for maintenance)

• Whatinformationfortheseprioritizedsystemandcomponentsisrequiredforthereliablemaintenanceandtoreducerisk?


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Figure 1: Model auditing process for a typical Penn State project

The risk analysis approach could be either qualitative or quantitative, with the former basing decisions off of experience and know how, and the latter on recorded information and numbers. The choice of the method to be adopted will ideally be based on the availability of information and the experience of the facility owner’s team implementing the procedure. At PSU, a qualitative approach to risk analysis was adopted while developing and documenting the initial model auditing procedure. From an initial run of the procedure at OPP, the steps required for the planning of the model auditing procedure that was documented for further validation are:

1. Determine and document facility information required for operations

2. Identify the relationship between different elements of the facility

3. Classify information based on task or use case for facility operations, as seen in Table 1.

4. Prioritize information using the risk analysis procedure- qualitative or quantitative, as seen in Figure 2.

5. Identify and require responsibilities for model and information auditing on projects

Table 1: Information risk classes and definitions

Risk Level Definition

High Information cannot be accepted until it has undergone a rigorous quality management process to verify and validate the information

Medium Information can be accepted before validation through a quality management program, but has to be observed and resolved as its use progresses through operations.

Low Information can be accepted before validation through a quality management program, but has to be observed as services progress through operations.


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Figure 2: Asset attributes for a typical pump including level of risk for each

These are an initial set of steps that would be required to plan the model and information auditing procedures for an owner organization. This process will be further validated and documented on other projects for continuous improvement.

5. CASE STUDY

In order to test the developed model auditing process, OPP chose the South Halls Complex project at University Park, PA. Totaling $94.1 million, this project, shown in Figure 3, will be completed in four phases. This project includes significant facility renovations to the four existing duplex residence hall buildings and dining commons, as well as the addition of a new residence hall. The major facility infrastructure upgrades will include new energy-efficient systems, new roofs, private bathroom clusters, and suites that include a kitchenette, dining, and lounge areas. The new residence hall, incorporated into the overall plan will add 45,000 square feet in four above-ground floors and house 211 beds in 108 rooms.

Figure 3: South Halls Complex, Penn State University, Image courtesy of Barton Malow.


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The OPP was able to establish a functional information hierarchy for campus facility projects based on the level of risk it imposes on current operation processes, as shown in Figure 2. Generally, a facility contains spaces which are served by systems. These systems are comprised of different components and assets which have a location. A particular asset may assist one system and serve many spaces. The OPP uses both a functional and system based hierarchy within their current facilities management systems; thus, location data is considered high priority information and is even standardized within the naming convention of the assets.

FACILITY

SPACE

SYSTEM

COMPONENTS

LOCATION TYPES

Figure 4: OPP facility element jierarchy

An important lesson learned during the initial implementation and development of the procedure was the way information had to be assessed and categorized. While developing the strategy to implement and contractually require model auditing, it was understood that information had to be managed on a use or facility maintenance task basis, as shown in Table 2. The following departments were involved with the validation of the facility information: Virtual Facilities Group (VFG), Work Control Center (WCC), Facility Resource and Planning (FIS), Energy and Engineering Group (EE), and Building Automation Group (BAS). This helps identify the responsible parties for auditing and approving the set of information tracked to maintain the facility.

Table 2: This is an example of the OPP Task Based Information List.

6. CONCLUSIONS AND FUTURE WORK

The major challenge owners face when developing an internal BIM strategy is simply where to start. Prior to the development of this procedure, facility information was typically handled by project teams with little regard to its use in facility operations. This model auditing procedure revised this process and has developed a task or user based approach to the creation and validation of the project data sets. This method is an alternative approach to planning quality assurance and control procedures, minimizing risk while adding value when using facility information during operation processes. This project’s outcome will, in time, continue to support the effort to implement improved operational strategies and begin to streamline facility information across all OPP departments at the University Park campus. The information exchange procedures implemented by the Office of Physical Plant at The Pennsylvania State University represent an excellent opportunity to identify and develop best practices solutions for facility delivery and facility operations within the AEC and FM Industries. .


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After seeing the initial results of the case study, the OPP is planning to require these information deliverables on all campus facility projects, not just those implementing BIM. This effort will require another revision to the existing contract language and evaluation of information exchange processes for projects under $5 million, as well as facility construction projects developed internally in the Design Services department. The OPP will also continue to develop an integrated BIM to FM data exchange solution in order to improve and automate information exchange processes. While experience and technological capabilities may vary between specific owner organizations, developing thorough owner requirements is necessary for creating a more effective facility design and operations workflows during the lifetime of a facility. The model auditing process should also be tested with an inexperienced owner to thoroughly validate the developed procedure.

In regards to the risk analysis procedure, an investigation needs to be performed to identify the different effects of the choice of the approach (qualitative versus quantitative) on analysis results. However, a quantitative approach would be more challenging to implement if an owner has yet to establish a formal facilities management program that maintains a record of facility operations.

7. ACKNOWLEDGEMENTS

The authors would like to express their gratitude and acknowledge The Pennsylvania State University’s Office of Physical Plant and the Computer Integrated Construction Research Program for supporting this research project. Any opinions, findings, conclusions, or recommendations are those of the authors and do not reflect those of the sponsors or project participants.

8. REFERENCES

Backlund,F.andHannu,J(2002).“CanWeMakeMaintenanceDecisionsonRiskAnalysisResults?”JournalofQualityin Maintenance Engineering, Vol. 8, 1, pp 77-91.

Computer Integrated Construction (CIC) Research Program. (2010). “BIM Project Execution Planning”. Version 2, July, The Pennsylvania State University, University Park, PA, USA. http://bim.psu.edu.

Computer Integrated Construction (CIC) Research Program. (2012). “BIM Planning Guide for Facility Owners”. Version 1.02, July, The Pennsylvania State University, University Park, PA, USA. http://bim.psu.edu.

CRC Construction Innovation. (2007). Adopting BIM for Facilities Management: Solutions for Managing the Sydney Opera House, Cooperative Research Center for Construction Innovation, Brisbane, Australia.

Jordani, D. A. (2010). “BIM and FM: The Portal to Lifecycle Facility Management.” Journal of Building Information Modeling, Spring, pp.13-16.

Kasprzak C., Dubler, C., Gannon, E. Nulton, E. (2011) “From BIM to FM: Streamlining the Process for Future Projects on the Pennsylvania State University Campuses.” CIB W078-W102 2011 Joint Conference Proceedings, October 26-28, 2011, Sophia Antipolis, France.

McGraw-Hill. Building Information Modeling (BIM): Building Information Transforming Design and Construction to Achieve Greater Industry Productivity (2008). “Smart Market Report”, McGraw-Hill Construction, New York, NY, USA.

McGraw-Hill Construction. THE BUSINESS VALUE OF BIM: Getting Building Information Modeling to the Bottom Line (2009). “Smart Market Report”, McGraw-Hill Construction, New York, NY, USA.

National Aeronautics and Space Administration (NASA). (2008). “Reliability Centered Maintenance Guide for Facilities and Collateral Equipment”, NASA, Washington, D.C.

Whole Building Design Guide (WBDG). (2011). “Facility Operations and Maintenance”, in the Whole Building Design Guide (www.wbdg.org/om). Accessed on 1 September, 2012.

Whyte, J., Lindkvist, C., and Hassan Ibrahim, N. (2010) Value to Clients through Data Hand-Over: A Pilot Study, Summary Report to Institution of Civil Engineers (ICE) Information Systems (IS) Panel, [1.1].


Technical Papers

Harnessing Lean & Integrated Project Delivery to Optimize Design and Construction Performance

Lincoln H. Forbes, Ph.D., P.E., LEED APPrincipal Consultant, Harding Associates, Inc., USAAnd adjunct, Florida International University, USA

ABSTRACT

This paper provides a review of Lean/Integrated Project Delivery principles from the literature and uses observations of a sample of actual projects to recommend best practices for implementation. The traditional methods for delivering construction projects have great room for improvement, Despite the best intentions, many projects leave the stakeholders dissatisfied with the results, as schedule overruns and budget excesses occur far too often. A number of studies suggest that as much as 30% of construction project costs may be lost to a variety of industry practices that are unintentionally wasteful.

Lean Construction (LC) is an innovative project delivery approach that addresses many of the shortcomings of traditional project management. It has several interpretations, including Lean Project Delivery, Integrated Project Delivery (IPD) and, Collaborative Project Delivery. IPD is a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases, design, fabrication, and construction.

Observations from the literature and actual projects suggest that strong emphasis should be placed on: Leadership by the project owner, clear conditions of satisfaction (CoS), effective onboarding and training to address cultural factors, and selection of the core team members. Target value design benefits from the application of BIM, and has yielded significant benefits.

Keywords: building information modeling; integrated form of agreement; IPD; lean; lean construction

1. INTRODUCTION

The construction industry has had many project delivery options available, such as Design-Build, Design-Bid-build, and CM at Risk, yet many projects have had unsatisfactory outcomes in cost and schedule, and often do not meet clients’ quality expectations (Alarcon and Mesa 2012, Lichtig 2006). These problems are attributed to lack of communication, coordination, and integration as well as other factors. Lean Construction has caught the attention of the design and construction community in the USA, for its potential to improve construction performance. The McGraw Hill Company’s Smart Market Report conducted an extensive survey of the U.S. construction industry in 2013, reporting that “business as usual can no longer be an acceptable approach in the construction industry. Lean Construction offers an alternative that allows companies to thrive in any economic conditions”. The report cited many lean benefits reported by survey respondents. While the benefits were not quantified in the survey, the percentages of respondents reporting medium and high levels of achievement were: Higher Quality Construction 84%, Greater Customer Satisfaction 80%, Greater Productivity 77%, and Improved Safety, 77%. This paper provides a review of Lean/Integrated Project Delivery principles from the literature and uses observations of a sample of actual projects to recommend best practices for implementation.

2. FOUNDATIONS OF LEAN

Lean Construction (LC) is an innovative project delivery approach that addresses many of the shortcomings of traditional project management. It has several interpretations, including Lean Project Delivery, Integrated Project Delivery and, Collaborative Project Delivery. It is based on the “lean” manufacturing principles that are a foundation of the Toyota Production System (TPS), (Howell, 1999), applying them to both design and construction practices. Its three tenets are: minimizing waste in all forms, continuous improvement of products and systems, and maintaining respect for people. The Lean Construction philosophy views a project as a “promise delivered by people working in a network of commitments” (Macomber and Howell, 2005).

Lean Construction is described as a way to design production systems to minimize waste of materials, time, and effort in order to generate the maximum possible amount of value


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(Koskela, 2002). Abdelhamid, 2013, defines lean construction as “A holistic facility design and delivery philosophy with an overarching aim of maximizing value to all stakeholders through systematic, synergistic and continuous improvement in the contractual arrangements, the product design, the construction process design and methods selection, the supply chain, and the workflow reliability of site operations”

3. PRINCIPLES OF LEAN CONSTRUCTION AND IPD

The Lean construction philosophy views a project as a promise delivered by people working in a network of commitments (Howell and Macomber, 2005). Smooth work flow depends on having the parties to construction make promises to carry out assignments, and keep their promises. Reliable promises downstream enable others, especially upstream to make reliable promises as well, in anticipation of predictable workflow. When all the parties keep their promises, waste is reduced, productivity is increased, and projects can be completed more rapidly.

Five lean principles apply to any organization (Womack et al., 1996). These principles are: value, as desired/defined by customers; mapping the value stream to expose and remove waste; maximizing flow of value-creating activities; stabilizing pulls in the system, pulling value from upstream activities; and striving for perfection in processes, reducing time, effort, cost and errors; although perfection might not be achieved.

Promise-keeping is a critical requirement in the Integrated Form of Agreement (IFOA) for Lean Project Delivery (Lichtig, 2005). At the level of weekly work plans the trades in question must be aware of the scope of upcoming assignments. They must use this knowledge to determine the resource requirements – labor, equipment, materials, information, etc. Above all, they should ensure they can deliver on their promises.

In lean projects, it is desirable for each facility (or project) and its delivery process to be designed together to better reveal and support customer requirements. Work is structured throughout the process to maximize value and reduce wastes such as lost time, miscommunication, incorrect design interpretation, and gaps in hand-offs from one discipline to another. Building Information Modeling (BIM) is used to support the collaborative team interactions that are an essential component of the lean methodology.

3.1 The Last Planner System™

The Last Planner System™ brings various disciplines together in planning work on a weekly (or daily basis) to promote seamless interaction. There are three levels of schedules and planning tools:

• Themaster“pull”scheduleservesastheoverallprojectschedule,ascontrastedwiththedetailedcriticalpath schedule that is the more traditional management tool.

• Thelook-aheadscheduleisusuallybasedonasixtoeightweektimeframe,andusesitems“pulled”fromthe master pull schedule that are free of constraints.

• Theweeklyplannerscheduledelineates theworkactivitiesorassignments“pulled”fromthe look-aheadschedule to meet the completion dates in that schedule.

The so-called Last Planner is the foreman or other professional who prepares the weekly planner schedule. This schedule also includes a buffer of work activities based on future work. The weekly accomplishment is measured as “Percent Planned, Complete (PPC). The reliability of the Last Planner System™ and Lean Construction, hinges on informed commitments in order to maintain the trust that is essential for avoiding waste.

4. BENEFITS OF LEAN CONSTRUCTION AND IPD

Although LC is still evolving as a discipline, its benefits have been highly visible since 1994. Research studies such as Ballard & Kim, 2007, have documented significant positive outcomes with lean projects – both tangible and intangible. They documented savings of 10% or more and high levels of satisfaction for owners as well as project team members. These include:

• TheSutterHealthCareSystem–theCardinalGlennonfacility,a$43million,120,000sq.ft.addition.TheLastPlanner™ System was used. Completion was achieved on August 15, 2007, two months early, with only 63 RFIs (requests for information) and no disputes. Safety incidents were only 1.45 reportable per 200,000 hours versus an industry average of 5.9.

• TheTerminal5project–thisHeathrowairportprojectwascompletedontimeandonbudget.Thecivilphasewas10%underbudget,withsavingsofapproximately$125million.


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• WalbridgeAldinger–amulti-phase5-yearprojectwithsavingsof$9millionover3years,(65%oftotalsavingswere returned to the owner).

• WestbrookMechanical–IntegratedProjectDelivery(IPD).InthisoriginalIPDprojectthefacilitywasdesignedandbuiltin8monthsfor$600,000underthe$6millionGMP,representing10%savings.

This paper reviewed two hospital projects documented by the owner, Universal Health Services (UHS), i.e., the Temecula project, a 140 bed tower hospital; and the Wellington Regional Medical Center addition. Both projects used IPD contracts and were completed early – by 4 months for Temecula, and 2 months for Wellington. Both projects experienced significant cost savings as well; these were divided between designated project team members and the owner.

4.1 The Emergence of IPD

Integrated Project Delivery (IPD) was developed to improve innovation by moving money across boundaries (Alarcon et. al., 2013). IPD is defined as a delivery system that seeks to align interests, objectives and practices, even in a single business, through a team-based approach (LCI 2011). The primary team members include the architect, key technical consultants, a general contractor and key subcontractors. It creates an organization able to apply the principles and practices of the Lean Project Delivery System™. The American Institute of Architects (AIA) has recognized IPD as an effective project delivery method and defines it as “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value, to the owner, reduce waste, and maximize efficiency through all phases, design, fabrication, and construction”. The first IPD application involved a central chilled water plant built by Westbrook Air Conditioning and Plumbing of Orlando, Florida (Forbes and Ahmed, 2010). Westbrook held a design-build contract with the owner, but developed a separate business entity with design professionals and construction sub-contractors, termed Primary Team Members (PTMs). Through teamwork, innovation and optimization, work and costs moved between different companies to improve performance and reduce overall costs. As detailed above, the team saved 10% of the contract cost.

Some versions of IPD involve an Integrated Form of Agreement (IFOA) as a single contract between the owner, the architect, and the CM or GC. The IFOA involves a Core Group of representatives of the owner, architect and GC/CM to administer the project. As shown in Figure 1. the Core Group selects the remaining members of the IPD team including engineers, technical consultants, key subcontractors and suppliers.

Sutter Health is a not-for-profit community-based healthcare and hospital system headquartered in California. Faced with a state mandate (and penalties) to upgrade inadequate facilities, they embarked on a very tightly budgeted $6.5billiondesignandconstructionprojectstartingin2004.SutterHealthembracedtheleanphilosophy(asa leap of faith) and engaged Lean Project Consulting Inc. to guide the adoption of IPD. McDonough Holland & Allen PC, Attorneys at Law, provided legal services especially with developing an early version of the IFOA. In order to derive the greatest synergy from team integration, the CM/GC entity was engaged immediately after Architect selection. Major subcontractors were also engaged as early as the schematic design phase. While this


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approach incurred expenditure for professional services earlier than traditional construction practice, the Sutter organization felt that the resulting collaboration led to improved constructability and savings far greater than the cost.

Figure 1: The Sutter Health Integrated Project Delivery Relationship

The Core Group served in an administrative oversight role, scheduling meetings and problem solving sessions. The Group maintained open information flow, and ensured that all parties worked together harmoniously, using 3-D BIM, Target Value Design, and the Last Planner™ System. They promoted the network of commitments needed to achieve reliable work flow. In IPD, this reliability is critical to maintaining a smooth hand-off of work from one crew to another. The positive results documented above attest to Sutter Health’s lean project successes.

5. STRATEGIES FOR OPTIMIZING DESIGN MODELING AND CONSTRUCTION PERFORMANCE

The following strategies are based both on a review of the literature, and on observation of successful IPD projects. Two examples include two hospital projects owned by Universal Health Services (UHS), namely the Wellington Regional Medical Center addition, in Florida, and Temecula Valley Hospital in California. In Temecula, California, UHS built a 5 story, 140 bed tower hospital, using a design and construction team based on an IPD contract. The team included designers and contractors that were experienced in the lean methodology. A lean coach was hired for the project and helped the team to build on their separate previous experiences and to align with the needs of the project. The team was able to complete the project 4 months faster than the original schedule. Through extensive collaboration and the TargetValueDesigntechniquetheyalsoreducedtheprojectcostto$1.1millionperbedfromtheprevailingCaliforniaaverageof$2.0millionperbed.Theowner’sconditionsofsatisfactionrequiredminimizingthenumberof timesapatient is moved once admitted, as well as the distance care providers must travel between critical areas of the hospital.

The Wellington project was a 100,000 square foot, 3-story addition to an existing hospital in Palm Beach, Florida. The site was very tight, and the conditions of satisfaction required imposing a negligible impact on the operation of the existing hospital. An IPD contract was utilized, based on the Consensus Docs 300 form of agreement. In this case the project team had very little experience with the lean philosophy. A coach was hired for the project in the dual role of training the entire team and also facilitating the implementation of the Last Planner System. Project-related meetings were interspersed with ongoing training on lean principles and implementation, especially at the beginning of the project.

Safety outcomes were excellent, with over 200,000 work hours without a reportable injury.

In both projects, faithful attention was given to the Big Room concept. A firm agenda was developed for several meetings each week for a variety of collaborations. All issues were tracked visually with the Smart Board. The Last Planner System™ was followed closely, with c weekly updates of Percent Plans Complete (PPC). Constraints were assigned for tracking by specific team members, to ensure that weekly plans developed by the Last Planners would not be faced with preventable surprises. PPC levels were sustained at over 80%, a considerable accomplishment for a new team. (The industry average is less than 60% for non-lean projects).


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5.1 The Role of Leadership

As cited in a retrospective of a successful IPD project, “A good team starts with the owner. The owner’s representative understood the business, was very engaged in all aspects of the project, and knew he needed to make tough decisions about the methods for delivering innovative healthcare services. He was an active player in the Big Room and had additional subject matter experts from the corporate enterprise to engage in the project, as needed. A good owner pushes their team and expects team members to be prepared at all times”. [Temecula Hospital retrospective provided courtesy of UHS]

Leaders must develop clear and explicit conditions of satisfaction (CoS) in collaboration with key stakeholders. IPD is based on a network of promises, commitments, or agreements among the project team. A promise can only be meaningful when it has clear, mutually agreed CoS. They are measurable statements that explain what tests must be passed to create success. They represent the customer’s value proposition in measureable terms, and should be posted for all to share in understanding. Examples for a hospital project are: Design and build the most flexible and efficient acute-care facility; create the safest hospital for patients and staff; maintain an injury-free project; ensure all firms finish the project exceeding their acceptable levels of profit; have no warranty callbacks.

Leaders need to address the top three barriers to successful lean implementation. As observed in a UK study (Sarhan and Fox, 2012), three key issues influence the readiness of organizations for undertaking a lean journey. They are: lack of adequate lean awareness and training; lack of top management commitment; and culture and human attitudinal issues.

5.2 Selecting Core Team Members

The success of a project depends greatly on the people who are selected for the Core Team. That selection should focus more on individuals than their companies. One successful project used “Choosing by Advantages” (CBA); a powerful tool for sound decision making that is based on the importance of advantages (Suhr, 1999). Most important is an individual’s ability to embrace lean philosophies through collaboration. CBA decisions result in a higher quality definition of the scope of work and clearer conditions of satisfaction than traditional selection methods. (An advantage is a difference between the attributes of two alternatives.)

5.3 Onboarding

Onboarding is a process of bringing new team members into an existing team by ensuring that they acquire the necessary knowledge, skills, and behaviors to become effective members of the team and build trust in the team and the process. Onboarding typically includes a variety of methods and media, such as meetings, lectures, videos, printed materials, on-line materials, and other resources. The goal is to quickly assimilate team members to create team commitment, enhanced collaboration, and higher performance.

5.4 Training

The value of training cannot be overstressed. Even if team members have been exposed to lean before a current project, lean training aligns the team to a “true north” through “Boot Camp” training and team building activities. This support is best provided through a facilitator who may be either external or internal to the organization. A project outsider may be objective and not take sides. A lean curriculum should be tailored to the needs of the team throughout the project, and the cost and scope of those services should include helping all Last Planners and supervisors in the early stages of the construction phase.

5.5 Cultural Factors

Culture can be a barrier to the implementation of IPD, as well as financial, legal, and technological factors. The employees of the organizations involved have to be prepared to adjust to the culture of the project. The effective use of the Last Planner System hinges on the practice of making reliable promises.

This requires transparency, yet many last planners may initially display a lack of trust and “hold their cards close to the chest” (Fauchier and Alves, 2013). With the passage of time, trust increases and transparency improves as well. Reliable promising may often not occur until people experience first-hand the consequence of others’ failing to make reliable promises.


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It should be recognized that time is needed for people to develop a trusting environment, especially when they have not done it before. If some people do not fit the culture of the team environment, they should be moved to another responsibility.

5.6 Target Value Design

• TVDproposesthatdesignersshould“doitrightthefirsttime”andbuildconstructabilityintotheirdesigns,as opposed to making corrections later.

• TVDrecommendsconcurrentdesign,withvariousdisciplinesinongoingcontact,asopposedtoperiodicreviews.

• Insomeprojectsanaggressivetargetcostisestablishedinwhichtheownerpaysforallprojectcostsplusoverhead and the profit pool. Partner incentives and risk sharing are defined by their percentages of the profit pool.

• Considerco-locationofthedesignteammembers

• ConducteducationsessionstoexplaintheTVDprocesstoteammembers.

5.7 Confidentiality

One of the greatest barriers to the implementation of IPD is the need to expose accounting documents. Mutual trust and communication are essential to forming stakeholder integration, but this requirement varies greatly from standard practice. It may be argued that this information increases transparency, promotes trust, and reduces risk. Successful collaboration is identified as one of the best ways to secure good project outcomes. Stakeholders’ early involvement is essential to team integration, yet not all are willing to devote the commitment and perseverance needed. Those who are unwilling to meet these requirements should not be included in, or kept in a team.

5.8 Empowerment

Not everyone is prepared to accept empowerment, often because traditional projects have not provided that opportunity. If last planners are not encouraged and reinforced when they are new to the responsibility, they are likely to default to the relatively submissive behavior that they may display in traditional projects. Lean requires last planners to be proactive and interact with each other to prepare effective weekly work plans. It may be necessary to have the lean trainer/facilitator work with these individuals to improve their assertiveness. A number of confidence-building activities may be needed for such a transition. When done properly, this will improve jobsite safety, camaraderie, and personal fulfilment for the craftsmen. Work will get done faster and with higher quality.

5.9 The Big Room Environment

‘Big Room’ is a term that describes a space where project team members can work collaboratively, and in close proximity as opposed to being located remotely. While it may not be feasible for all teams to co-locate continuously, the Big Room environment can be created for project meetings through the use of site trailers that are appropriately equipped with adjacent meeting rooms for “break out” sessions. The equipment may consist of wall-mounted schedule boards, A3 charts, projection equipment such as a Smart Board, and audiovisual equipment for long distance meetings with remote locations. Big Room activities include:

• Revolvingscheduleswithagendasformeetingsofthecompleteteamincludingdesigners.andsuppliers,subcontractors, the Management team, Last Planners, and others.

• Agendasvarywiththeneedsofeachproject,andensuretherightpeopleareincluded.

• Statusreviews;Presentations;Pullplanningsessions.

• Learningopportunities,suchorientation,onboarding,andongoingleantraining.

• “GembaWalks”tothesiteto“GoandSee”–aleanpractice.

• ‘Plus/Delta’discussionsforcontinuouslyimprovingthemeetingprocess.


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6. RECOMMENDATIONS FOR THE FUTURE

• HavetheownerinvestedintheLean/IPDmethodology.RequiretheprojecttobedeliveredthroughLean/IPD,using the Integrated Form of Agreement.

• HavehighlevelrepresentativesoftheownerparticipateintheBigRoommeetingsandinmajordecisions.

• SelectCoreteammembersbytheChoosingbyAdvantagesmethod.

• EstablishclearConditionsofSatisfaction(CoS)tospecifytheowner’svalueproposition.

• Includeprovisionsfortrainingandfacilitation.Whileindividualcompaniesmayhavein-houseleanfacilitators,the neutrality of an independent lean consultant is beneficial.

• Starttrainingactivitiesasearlyaspossible.

• Establishaneffective“onboarding”processfornewteammemberstoensuretheirunderstandingofallprocedures.

• Establishtherightcultureontheproject.EnsurethatallpartiesfullyunderstandtherequirementsoftheIFOA,andsign off on their agreement to the conditions.

• Promoteacultureofempowermentatalllevels,includingcraftsmenandforemeninthefield,andespeciallythoseserving as Last Planners.

• ApplyTargetValueDesignasaprojectrequirement.Requirethroughthecontract,compatibleBIMplatformsforall parties, in order to maximize collaboration.

• OptimizetheuseofBIMbyextendingitsusebeyonddesignfunctionstoserveasacollaborationtool,andalsoto facilitate off-site fabrication of building elements.

• BIMhasmanybenefitsandsupportsLean/IPDasacollaborativetool.Ensureinteroperabilitybetweenplatformsused by Designers and Contractors.

• EnsurethattheprojectdeliveryteamiscompetentintheleanmethodologyASAP.

• SetPPClevelsthatarechallenging,butattainable–thiswillencourageteamstostriveforperfectioninamannerthat is measurable on a weekly basis.

• Linktheproject’ssafetyprogramwiththeLastPlannerSystem.

7. REFERENCES

Abdelhamid, T., 2013. Lean Construction <https://www.msu.edu/user/tariq/Learn_Lean.html>

Alarcon, L., Mesa, H., 2012. ‘A Modeling Approach to Understand Performance of Lean Project Delivery System’, paper presented at the 20th Annual Conference of the International Group for Lean Construction, San Diego, CA, USA, 18-20 July.

Alarcon, L., Mesa, H., and Howell, G., 2013. ‘Characterization of Lean Project Delivery’, paper presented at the 21st

Annual Conference of the IGLC, Fortaleza, Brazil, 31July – 2nd August, 2013.

Alarcon, I., Christian, D. and Tommelein. I., 2011. ‘Collaborating with a permitting agency to deliver a Healthcare Project: Case study of the Sutter Medical Center Castro Valley (SMCCV)’, paper presented at the 19th Annual Conference of the IGLC, Lima, Peru, 13-15 July 2011

Ballard, G. and Yong-Woo, 2007. Roadmap for lean implementation at the project level. Research report 234-11, Construction Industry Institute, TX

Fauchier, D., and Alves, Thais, 2013. ‘Last Planner System is the gateway to Lean Behavior’, paper presented at the 21st Annual Conference of the IGLC, Fortaleza, Brazil, 31July – 2nd August, 2013.

Forbes, L. H., and Ahmed, S. M., 2011. Modern Construction: Lean Project Delivery and Integrated Practices. CRC Press, Taylor & Francis Group, Boca Raton.

Howell, G. A., 1999. ‘What is lean construction’, paper presented at the 7th Annual Conference of the International Group for Lean Construction, UCLA, Berkeley, CA, USA.


Technical Papers

Sarhan, S., and Fox, A., 2012.’Trends and Challenges to the development of a lean culture among UK Construction Organizations’, paper presented at the 20th Annual Conference of the International Group for Lean Construction, San Diego, CA, USA, 18-20 July.

Koskela, L., 2002. “The Theory of Project Management: Explanation to Novel Methods”, paper presented at the10th Annual Conference of the International Group for Lean Construction, Gramado, Brazil

LCI, 2011. Lean Construction Institute “Glossary” http//www.leanconstruction.org/glossary.htm>

Lichtig, W. A. 2006. The integrated agreement for lean project delivery. American Bar Association, Construction Lawyer, 26 (3).

Matthews, O. and Howell, G. 2005. Integrated project delivery - an example of relational contracting. Lean Construction Journal, 2(1), 46-61.

Macomber, H. and Howell, G. 2005. “Using Study Action Teams to Propel Lean Implementations.” Lean Project Consulting Inc.

Smart Market Report, 2013. Leveraging Collaboration and Advanced Practices to Increase Project Efficiency. McGraw-Hill Construction. www.construction,com

Suhr, J., 1999. The choosing by advantages decision-making system, Quorum, Westport, CN.

Universal Health Services – Unpublished Report (2013). Temecula Valley Hospital: A lean journey from concept to completion.

Universal Health Services – Unpublished Report (2013) – Wellington Regional Medical Center: A Summary Review of Lean Deployment.

Womack, J., and Jones, D.,1996. Lean Thinking, Simon & Schuster, New York.


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Proceedings of theHKIPM 2014 ConferenceNovel Project Delivery Systems – Current Status and The Way Forward


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ISBN: 978-962-8014-23-1

25 April 2014

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