By Stuart Maister & Kevin Vaughan-Smith, Mutual Value
“We’ve lied to ourselves. We fooled ourselves by having a sense of certainty about the future to create analyses…Actually the future is very much more uncertain than we really think it is.”
Is this some radical commentator challenging the status quo of how we plan major projects? No. It’s what the Chair of Crossrail, Tony Meggs, said on our web discussion about the future of infrastructure.
The person responsible for Europe’s largest infrastructure project stated clearly that COVID has ripped apart the fiction that we could reduce risk by careful planning and ever more sophisticated modelling. Cost-benefit and Returns on Investment are hopeful at best. His conclusion was that we therefore needed to have different and broader ways to evaluate projects based on social value, climate considerations and – frankly – if experienced judgement tells us it’s the right thing to do.
This undeniable truth also destroys another assumption that has underpinned the way we develop, procure and then deliver these projects. That the only way to control risk is to button down everyone in detailed contracts that focus on what can (and usually will) go wrong and seek to allocate responsibility in advance. Contracts are of course necessary but insufficient to deliver the project in its entirety.
The idea that this is the way to achieve the best possible outcome was never a good one; in the age of anything-can-happen it’s revealed as hopelessly out of date. No-one can predict the future, and so no amount of planning will be adequate.
However, here’s what does happen: the attempt to do this sets up animosity and conflicting interests among all the parties involved. The aim on one side is to win the deal then make a margin over the lifetime of the contract by charging for changes and distancing from problems. The aim on the other is to shift all risk on those doing the work. Often the different parties have completely different incentives.
Jeremy Beeton, who led the 2012 Olympic Executive and another veteran of big infrastructure projects, said in the same discussion:
“90% of the project’s cost is committed in the first 10% of the programme, and so if it’s not set up properly, and we don’t get the right levels of team building and relationship-building, then the project inevitably falls into trouble along the way.”
The Olympics led the way
Jeremy told us a fantastic story of how the opposite approach transforms outcomes and achieves much more. For us, this is a model of how to do things in the future.
The way he ran the delivery of the Olympics was to ensure there was a lot of mutual interest among the partner/suppliers, and a strong sense of shared outcomes. On a day to day basis the levels of collaboration and spirit of co-operation were strong – and of course there was a very clear shared purpose. At one point they discovered that what they termed ‘grey areas’ were not covered contractually – they had fallen between the gaps. A typical example was the one mile walk between Stratford tube and Olympic Park. No-one was responsible.
In a typical infrastructure procurement scenario this would mean no-one would take responsibility, as the tight contracts would have meant there was no wiggle room in what they could do, or they would see an opportunity to charge well for solving the problem. In this case Jeremy simply asked the partners to sort out the challenge together and work out the best solution. There was a big pot of money available for contingencies and would be there if needed.
The result of this trust? The problems were solved by the contractors together at minimal cost and in an innovative way. At the end of the Olympics Jeremy returned over £300m to the Treasury from contingency funds that were not required. The ecosystem had sorted it all out.
High risk, low margin
There’s another challenge that has been around for too long. The tiny margins made by construction companies are insufficient return on the risk they take and the capital they deploy. It makes them vulnerable and unattractive as investments. It’s another consequence of the focus on detailed contractual risk resulting in much wider systemic risk – of massive failure that costs much more.
Carillion came before COVID, and was another example of the government having to spend huge amounts of taxpayers’ money to sort out the problem of transactional, RFP-driven procurement which sees suppliers as the avaricious enemy and those doing the buying as the custodians of wisdom about what is required and how much it should cost.
Chris Lewis heads EY’s Energy & Infrastructure practice, and advises both government and the private sector. He said on our discussion that the current crisis could transform this relationship:
“What we need has changed and traditionally the supply chain were more distant from what was needed, and I think they need to get closer – you need a closer relationship”
Now, this need is not new. In 1994 Sir Michael Latham published the seminal report into the UK construction industry, ‘Constructing the Team’. 25 years later his call for collaboration and a healthier client/contractor relationship with ‘better rewards for a great industry’ still sound like a new idea. Since then we’ve had Project 13 and countless other reports calling for the same thing; the latest, ‘Fine Margins’, came from the CBI in February this year, weeks before the shutdown.
So: is now the time?
So the big question: is this the moment things actually do change? At Mutual Value we’ve been calling for a radical rethink of how major project relationships are conceived, developed and delivered. Our whole business is based on helping commercial parties change their mindset in the approach to each other, with a focus on building collaborative trusting relationships as the focus for much more ambitious mutual value creation.
We then coach and train them in a new skillset to facilitate a collective higher purpose and better conversations to drive performance. And the outcome is that problems are solved together and there is a genuine change of partnership. Instead of master-servant the foundation of the relationship is interdependence and mutual respect, which enables openness and honesty. Of course there still needs to be governance, process and a contractual basis for the work; but the intent is different and the development of teamwork is genuine.
There are three reasons to hope that this time it is different.
- A changed view of risk. If leaders like Tony Meggs are stating clearly that we need to admit that we don’t know what will happen, then there’s a good chance this will become the new conventional wisdom. The result is that there will be acknowledgement that responsiveness and agility are the critical virtues of the ecosystem, and these are only possible if there is mutual trust and collaborative behaviour. Conventional RFP-based procurement drives the exact opposite behaviours.
- The need for speed. In our discussion Nick Bliss, former Freshfields Infrastructure Managing Partner and now adviser to multiple projects, said this:
“Whatever happened on the Nightingale Hospitals we’ve got to capture…We can’t come out of this and continue on as we did before..There’s been this incredible ramp up by the public sector, so let’s capture that.”
These projects illustrate what can be done when there is common purpose and a perception of higher order risk – in this case, deaths if the project wasn’t completed quickly. Our panellists all agreed that this changes the perception of what can be achieved, and will be demanded, and so the development and procurement processes will need to be consistent with collaborative and responsive behaviours and a team mentality if they are to deliver more, more quickly.
- Technology. The digitisation of the construction process will rapidly lead to a true single version of the truth. Trends such as digital twins enable seamless collaboration, and decisions about changes, who was responsible for what – all of these will be more quickly sorted because of the digital records which will exist. Great – but to fully benefit from the promise of technology requires joined up thinking, trust-based collaboration and aligned behaviours.
Furthermore, innovation sits across the ecosystem, and it is completely in the interest of the buyers to facilitate the sharing of ideas and wisdom. As new possibilities emerge every year, defining how to tackle a new project could be more like a hackathon than a traditional set-piece procurement engagement. The latter feels like the dark ages.
Will this change happen? It’s up to all of us who are interested or involved in this sector to be the change we want to see. At Mutual Value we are ready to facilitate the discussions and ideas exploration that will make this a reality.
At Mutual Value we work with organisations who want to be more ambitious about what they can achieve with their customers, suppliers and partners through higher level collaboration and aligned outcomes. This is based on a changed mindset, a new skillset and a toolset we have developed, and deliver through consultancy, training and coaching programmes.
If you would like to set up a call to discuss this please message me here or email firstname.lastname@example.org