Out-Law / Your Daily Need-To-Know

Industry body proposes 'four steps to commercial success' for infrastructure projects

Out-Law Analysis | 22 Mar 2021 | 4:07 pm | 2 min. read

The Covid-19 pandemic has prompted the UK government to put infrastructure projects at the heart of its plans to kickstart economic recovery, and one industry body has proposed new ways of ensuring projects are a success

The Institution of Civil Engineers’ (ICE) ‘Project 13’ initiative and similar projects could be placed at the centre of these efforts, moving away from the traditional transactional model of construction to a more collaborative mindset. Increasingly those involved in infrastructure are realising that 'us and them' attitudes and 'one-off' relationships inhibit the realisation of long term-value for the client and the supply chain.

However, there is a risk that industry initiatives with aspirations to change entrenched ways of doing things flounder because they are not supported by properly thought-through implementation toolkits. Project 13 aims to be different, offering guidance and case studies on what the initiative means and how it should be implemented.

The project’s commercial handbook sets out the core commercial principles to underpin the relationship between all parties in a Project 13 'enterprise' – the owner, investor, integrator, suppliers and investors. For those tasked with developing the commercial strategy, it summarises the four key steps to creating the right commercial environment for a project to succeed.

Four steps to success

These begin with the establishment of a performance baseline. The investor and owner should define from the outset what is meant by value. This should take into account capital and whole-life cost.

Only when the owner and investor have a clear idea of what constitutes value for money, can a project move away from lowest price tendering. The performance baseline is the basis of a 'fair and consistent' performance measurement framework against which the ultimate success or failure of the project can be measured.

The next step is selecting the right enterprise partners. The performance baseline is instrumental to creating the right selection process which emphasises evaluation based on how best the performance baseline will be achieved or exceeded.

Selection criteria should include an assessment of capabilities and behaviours most likely to achieve the desired outcomes. Project 13 suggests a key benefit of this approach is that the selection process should yield "suppliers who have influence on outcome, not just volume of spend". Parties looking at Project 13 should acknowledge that it will require a radical re-think for those not used to working collaboratively.

The third step is to linking the risk profile to reward mechanisms. With the right partners on board, focus can shift to developing the right programme level incentives to focus all partners on collaborating to maximise outcomes and mitigate risk. One of the outcomes of this approach, says Project 13, is that it "links opportunities to innovate with rewards for innovating".

The above three steps will only work if the contractual framework in which the enterprise operates supports the delivery of the performance baseline. According to Project 13, this requires consistent contract conditions used across the enterprise with contracts drafted to support the commercial strategy.

Project 13 is sometimes characterised as mandating use of alliancing structures such as the NEC 4 Alliancing Contract form. This is not the case, although a successful Project 13 model will require contract structures that emphasise governance and proactive risk management over traditional approaches to risk allocation. While this may result in more concise drafting, the challenge is to draft for governance and behaviours whilst balancing commercial tensions.

Project 13 is not for all projects, but there is a growing body of evidence to indicate that where there are pipelines of work and the adoption of such models is approached without cynicism, the benefits of their adoption can be significant.