Procurement and Delivery for Mega Tunnel Projects.ppt

BRIDGES AND TUNNELS ASIA 2014
20th March 2014
Procurement and Delivery for
Mega Tunnel Projects
© Steve TennantConsultancy Ltd2014 1

Procurementand Delivery for
OVERVIEW
§ Introduction
§ Some Governments have been
concerned at cost of infrastructure
procurement
§ Findings?
§ Some Experiences and Thoughts
§ Questions

Introduction
§ Can Procurement and Delivery of
Infrastructure be improved?
§ A question poised by more and more
Governments in 21st Century

Introduction
§ Application to Mega Tunnels?
§ Improved Tunneling Technology
§ Water, Sewage, Road, Utilities
§ Resurgence of Rail:
• Freight
• Urban Mass Transit
• High Speed etc.

UK Government
§ “1.15 The
conclusion of the
review is that
infrastructure costs
can be reduced by
at least 15 per cent.”
Infrastructure UK,
‘Infrastructure Cost
Review: Main Report
December 2010

UK Government
§ “There is no single
overriding factor driving
higher costs. However,
the investigation has
identified that higher
costs are mainly
generated in the early
project formulation and
pre-construction phases
…”

Australian Government
Similar Studies by
§ New Zealand
§ Germany
§ United States
§ Canada
§ Hong Kong

Findings?
§ Traditional
Procurement
§ Engineer Design /
Contractor Build or
D&B
§ Based on adversarial
contracting methods
§ Not focused on
lowest outturn cost
§ Promotes (or
responds to?) risk
averse attitude by
public sector clients
§ Box ticking culture
§ Evaluation criteria
favour lower price
bid, rather than
lowest cost outcome
§ Does not promote
innovation

Findings? cont’d
§ Traditional
Procurement cont’d
§ Client and business
needs not at core of
process
§ Projects /
programmes within
quoted budget, not
lowest price for
required performance
§ Insufficient
consideration given
to assessment,
placement &
management of
contingency & risk
budgets
§ Over specification to
detriment of cost

Findings? cont’d
§ Traditional procurement methodology ‘…
estimated to cost around 10% of annual
construction capital spending … could be
saved’
UK National Audit Office, Improving Public Services
through better construction, 15 March 2005, p6

Findings? cont’d
§ Recommended ways forward:
§ PPP/BOT – Has its place but not for every
project, project owner or contractor
§ Early Contractor Involvement Design &
Build – Two stage tendering
§ Relationship Contracting – Contractual
partnering, no blame culture, project wide
insurance, fair payments;; shared pain /
shared gain

Findings? cont’d
§ Target Cost Contract, not Cost Plus – All
parties have to earn their reward
§ Replace strict lowest-tender selection
criteria to value for money - Contractor
past performance;; whole of life costs;; Local
development and value adding;;
Timeliness;; Capacity;; Innovation

Findings? cont’d
§ Improved construction project
management capability – Employer;;
Consultant;; Contractor;; Sub-contractor;;
Supplier sides
§ Keep competitive tension during project
delivery, not just tender – benchmarking;;
KPI’s;; sanctions

Findings? cont’d
§ Post completion and occupancy
performance evaluations – Not just
performance during construction

Some Experiences and Thoughts
§ Procurement
§ Remember, generally the Client does not
want the Project process, only the end
result.
§ Given a choice, the Client would always
like the end result without the birthing
process.

§ Procurement
§ “I want the world’s best new 5 year old
railway”
Russell Black HK MTR Project Director 1992-
2010
§ Innovation yes, untested no

§ Procurement
• ‘Evidence from European and Australian
studies suggests that, when governments
use lowest-price tender methods, around
70% of projects are late and a similar
percentage are over budget… This does not
necessarily mean that procurement by
tender is the problem.’
Regan M, Smith J, Love P, ‘Infrastructure procurement: learning from
private – public partnership experiences ‘down under’’ (2011) 29(2)
Environment and Planning C: Government and Policy 363, 366

§ Procurement - Consultants
§ Consultant appointment decisions should
not be cost based
§ As part of selection process have
workshops between proposed consultant
and employer teams
§ Look for experience, competency,
creativity and above all chemistry

§ Procurement- Consultants
§ Consultant fees a small % of CAPEX but
deterministic of project outcome
§ Fee must be enough to provide required
service
§ ‘…competitive tendering stimulates design
firms to opportunistic and unethical
behaviors’ P.E.D. Love ‘’Plugging the Gaps’ Between Optimum
Bias and Strategic Misrepresentation and Infrastructure Cost
Overruns’ EASEC12, (January 2011) Vol 14, 1197, 1203.

A Nomological Framework of
Design Error and Project
Overruns
From
P.E.D. Love, ‘’Plugging the Gaps’
Between Optimum Bias and
Strategic Misrepresentation and
Infrastructure Cost Overruns’ (The
Twelfth East Asia-Pacific
Conference on Structural
Engineering and Construction,
EASEC12, (January 2011) Vol 14,
1197, 1203.
<www.sciencedirect.com/science/ar
ticle/pii/S1877705811012276>
accessed 10 March 2014
NOTE: Optimum Bias may perhaps
be more readily understood as
‘Optimism Bias’. Larger image of
graphic on next slide.

OPTIMUM
BIAS

PROJECT

ORGANIZATION
Schedule
Pressure
Project
Governance
Issue
of
erroneous

documents
Project
Dissonance
Design
audits
&
reviews
Design
Co-‐ordination
Response
for

requests
For
information

Error
Identification

Schedule
Pressure
Organization
Circumstance
Practice
(omissions)
Task
(mistakes,
mishaps,

slips,
lapses)
Fee
LevelFee
Level
Time
BoxingTime
Boxing
Turn
overTurn
overStaff
MoraleStaff
Morale
ProductivityProductivity
Design
audits

and
reviews
Design
audits

and
reviews
Production
of

erroneous

documents
Production
of

erroneous

documents
Resource

availability
Resource

availability
Cognitive

dissonance
Cognitive

dissonance
Additional

time
Additional

time
Multi
taskingMulti
tasking
Skill
&

experience
Skill
&

experience
ReworkRework
Contractual

variation/
claim
Contractual

variation/
claim
Cost/schedule

increase
Cost/schedule

increase
Reduced

profits
Reduced

profits
DisputeDispute


OPTIMUM
BIAS

PROJECT

ORGANIZATION Schedule
Pressure
Project
Governance
Issue
of
erroneous

documents
Project
Dissonance
Design
audits
&
reviews
Design
Co-‐ordination
Response
for

requests
For
information

Error
Identification

Schedule
Pressure
Organization
Circumstance
Practice
(omissions)
Task
(mistakes,
mishaps,

slips,
lapses)
Fee
LevelFee
Level
Time
BoxingTime
Boxing
Turn
overTurn
overStaff
MoraleStaff
Morale
ProductivityProductivity
Design
audits

and
reviews
Design
audits

and
reviews
Production
of

erroneous

documents
Production
of

erroneous

documents
Resource

availability
Resource

availability
Cognitive

dissonance
Cognitive

dissonance
Additional

time
Additional

time
Multi
taskingMulti
tasking
Skill
&

experience
Skill
&

experience
ReworkRework
Contractual

variation/
claim
Contractual

variation/
claim
Cost/schedule

increase
Cost/schedule

increase
Reduced

profits
Reduced

profits
DisputeDispute

§ Procurement - Contractors
§ Relationship Contracting – One Size fits
all?
§ HKG Government apparently yes. NEC3 to
be preferred Conditions of Contract by
2016
§ HKG MTR No. They use Target Cost,
Lump Sum D&B, Eng Design Lump Sum/
Remeasurement

§ Pros and Cons?
• Eng Design Lump Sum/ Remeasurement
Adversarial if (when?) things go wrong
• Lump Sum D&B
Lose benefit of on going design development
Design development vs changed requirement

§ Pros and Cons?
• Target Cost
Greater PM input from Owner, Consultant,
Contractor, cost, availability of resources
Different way of thinking & acting. True Partnering
Can still have disagreements and disputes
Shared pain shared gain, but need to wary of cost
manipulation in open book accounting
Bench marking, KPIs to maintain competition

§ Tate’s Cairn Tunnel, Hong Kong
§ 4 lanes, twin tube 4km road tunnel. 30 year
BOT franchise awarded July 1988, opened
June 1991

§ Tate’s Cairn Tunnel, Hong Kong
§ 4 lanes, twin tube 4km road tunnel. 30 year
BOT franchise awarded July 1988, opened
June 1991
§ Inclined ventilation adits
§ Overhead ventilation slab

§ HEC Nam Fung Road to Parker Cable
Tunnel
§ 4.8m dia, 5.7km single tube TBM driven
tunnel

§ HEC Nam Fung Road to Parker Cable
Tunnel
§ 4.8m dia, 5.7km single tube TBM driven
tunnel
§ Offered as alternative (more expensive)
D&B tender to trenched cable route
§ Why did HEC accept the more expensive
alternative?

§ Route 3 Country Park Section
§ Dual tube 3 lane Road tunnel. 3.8km long
§ BOT Concession

§ Route 3 Country Park Section
§ Dual tube 3 lane Road tunnel. 3.8km long
§ BOT Concession
§ Ability to submit alternative engineering
proposals in additional to minimum
conforming bid
§ Resulted in further two rounds of proposals
being invited!

Questions
§ As a Project Owner, do you procure
tunnels by the “Traditional Method” and
if so, why?
§ As a Consultant, do you recommend
procurement of tunnels by the
“Traditional Method” and if so, why?

Thank You

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