Delivering greater value infrastructure, together

Foreword

The last few years have been challenging for the infrastructure sector for a number of reasons including the Covid19 pandemic, the war in Ukraine, the uncertainties caused by Brexit, and an increasing awareness of the impacts of climate change and the need to adapt or even stop what we’re currently doing. These impacts have manifested themselves in different ways across our sector with:

• inflationary pressures, not experienced at this level for decades, impacting investment and project budgets

• project risks being passed along supply chains with little regard for who is best placed to manage these risks –and increasingly less suppliers willing to take these risks on

• skills shortages impacting delivery with employers struggling to attract and retain new workers

• uncertainties over what “net zero” looks like making it hard to adapt to this “new” environment.

And amongst this somewhat chaotic mix of challenges we should not underestimate the impacts on the health and wellbeing of our workforces

– clients, consultants and contractors alike.

But as ever, challenges such as these bring forward opportunities for change which, if we embrace them and deal with

them head on, could mean a far more positive, inclusive and productive future for our sector – and far more satisfying for our workforces. A future based on adding value through what we do rather than a focus on confrontation, risk transfer and lowest price.

Our 2022 conference considered how, as a whole sector working together, we can drive far greater value through what we deliver. We discussed the current state of the industry, the Construction Playbook and how it could lead us all towards greater value, what we really mean by “value” and how we can better

define, measure and deliver this “value”. We looked at project risk and how its management is crucial to successfully delivering “value”, the behaviours that are most likely to lead to greater “value” and why our choice of procurement route is crucial to successfully delivering “value”. More specifically we agreed that carbon needs to be at the heart of our “value” definition and that social “value”, if applied sensitively, can help us to attract and develop our future workforce. Finally, we explored how the public and private sectors should work better, together to drive greater value, what we need to change to do things better and to safeguard the health and wellbeing of our workforces and what, if anything, is stopping us from introducing these changes.

We’ve captured the thoughts, views, concerns and observations of speakers and delegates in this “postConference” report and our Action Plan outlines how we can, practically, deliver greater value. We’ll be using this report to effect change across our sector. I’m sure many of the issues raised in this report will chime with you and I hope you’ll join us and play your part in delivering greater value to the citizens of Wales.

Ed Evans Director, Civil Engineering Contractors Association (CECA) Wales

Introduction

Each year CECA Wales, representing Wales’s civil engineering contractors, and ACE representing consulting engineers, meet at a joint conference with the County Surveyors Society (CSS) Cymru, who comprise senior local authority highways and environment managers. We share experiences, pool knowledge and develop solutions across public and private sectors for current key issues facing the infrastructure sector in Wales.

In previous years we have tackled a variety of themes which are challenging our sector including procurement, future transportation, infrastructure to support active and healthy lives and, most recently, how we are to respond to the impacts of climate change and decarbonise our infrastructure. Given the huge challenges we’re all currently facing post-pandemic with war in Ukraine, post-Brexit challenges and

broader global economic uncertainty contributing to a “cost of living” crisis and spiralling inflation, our theme for 2022 was how to “deliver greater value, together”. As budgets tighten this will become ever more important. This “post-Conference” report captures all of this and presents our Action Plan outlining how we can all take practical steps to add value across our sector.

The current state of the industry and why do we need to change?

We kickstarted the conference with a frank and open discussion on the current state of the industry!

We’ve witnessed an unprecedented succession of global events over the last few years including a Covid19 pandemic, Brexit and the UK’s decision to radically change its relationship with the European Union, war on the eastern edges of Europe following Russia’s invasion of Ukraine and increasingly mounting concerns over the impacts of climate change. It’s difficult not to wonder “what’s next”?

Individually these events would be challenging, however, this succession and overlap of events has piled huge pressures, uncertainties and risks on businesses across the globe. Economic volatility is encouraging inflationary pressures across even the traditionally “stable” states with an increasing instability of costs and availability of essential commodities such as food, raw materials and energy as well as labour, particularly skilled.

More specifically, the impacts on the construction and infrastructure sector has been particularly acute. Arguably through much of the “teenies” we

had a decade of stability with steady growth, extremely low interest rates and negligible levels of inflation. But now we’re seeing pent up demand for construction investment following the easing of pandemic restrictions “crashing in” to a limited supply side struggling with the challenges of inflation on construction materials, a limited availability of skilled workers and a construction sector which continues to try to pass far too much risk down the supply chain. And whether we like it or not this is exacerbating the wellbeing of our people as they struggle to cope with these difficult demands. This is

pushing up costs across the board whilst many construction clients continue to work to outdated and unrealistic budgets.

So, where do we go from here?

We often speak of value. Value for money, whole life value. Given the unprecedented circumstances that we’re having to deal with isn’t now the time we took “value” seriously and accepted that the traditional, business as usual, lowest price first outlook is seriously out of step with where

we need to be and what we need to be delivering? Will an obsession with transactional relationships, lowest price tendering and all-risk transfer down the supply chain ever really allow us to properly deal with the challenges of climate change, carbon management, social value? Will the adversarial and non-engaging approach to delivery do anything to help attract more people to our sector or improve the wellbeing of our workforces?

“Price is what you pay; value is what you get.”

Warren Buffett, American business magnate

If we can agree that “Value” becomes the basis of our decision making, rather than lowest price, then we can focus on how our investment can deliver the best and broadest outcomes over its whole life, rather than dwelling exclusively on delivering to the lowest possible initial price.

Delivering greater value – there has to be a better way forward?

As an industry we continue to struggle with the concept of value versus lowest price, invariably opting for the latter and often paying the long term consequences of such decisions.

But how do we, as a sector, move towards a value based approach? That’s where the Construction Playbook comes in. Why would we need to dream up anything different if the basis of delivering greater value, in all its guises, is already out there?

Alasdair Reisner, CEO of CECA, set the scene for conference delegates by giving a “whistlestop tour” of the Playbook:

“In June 2020, the UK Government outlined an agenda to deliver ‘better, greener, faster’ public works and Project Speed was established to deliver the UK Government’s public investment projects more strategically and efficiently. The Construction Playbook is a key pillar of Project Speed and part of broader changes in public and infrastructure procurement. The Construction Playbook complements these reforms by setting out 14 non-legislative policies and guidance for ‘how’ public works projects and programmes should be delivered.”

Whilst the Playbook is targeted at UK Government investments, given that it is a product of industry efforts, why wouldn’t we embrace these principles across the industry in Wales. And let’s face it, good practice is good practice!

Construction Playbook priorities

1

Commercial pipelines

• Government procurement pipeline

• Better understanding of demand

• Support supply chain planning

Market health and capability assessments

• Assess market prior during planning stage

• Identify opportunities and limitations

Portfolios and longer term contracting

• Long-term plans for key assets

• Contracting across portfolios

2 3 4

Harmonise, digitise and rationalise demand

• Accelerates use of platform approaches and standard products/components

Further embed digital technologies

• Use BIM framework to standardise generation and classification of data

• Support adoption of Information Management Framework

• Create National Digital twin

8

Benchmarking & Cost models

• Projects to use benchmark data from previous projects to support better decisions

• Cost modelling to better understand whole life cost and value

Risk Allocation

5 11 12

Early supply chain involvement

• Engage suppliers to develop business case for projects

6 9

Delivery model assessment

• Use evidence-based approach to choose most appropriate delivery model

• Ensure risk allocation is informed

Payment mechanism & pricing approach

• Payment to be linked to work value and supplier

• Test payment approach before bidding

7

• Focus on outcomes rather than scope

• Project Scorecard to help set clear outcomes

mechanism approach

Effective contracting

• Structure contracts to ensure collaboration, data sharing, risk management and value improvement

• Review current approach to construction frameworks to develop ‘gold standard’

to delivery of outputs, supplier performance approach with suppliers

Outcome-based approach 10 13 14

Assessing the economic & financial standing of suppliers

• Ensure supplier has financial capacity to perform

• Transparent, objective and non-discriminator

Resolution Planning

• Understand risks to project/programme if a supplier fails

• Work with suppliers to develop mitigations to limit risks

“Value” what is it and how do we measure it?

What’s valuable to one person isn’t necessarily valuable to another. So, we need to be clear on what value is expected from an investment.

What are the criteria that make up our common understanding of value, how do we define it, how do we measure it and how do we ensure that this is understood and delivered right through our supply chains and right through the life of the investment? This is where the Value Toolkit comes in.

Piers Burroughs, managing director of Burroughs, and Cherie Paterson of Costain explained that “value” is the Golden Thread throughout the life of the project and the Value Toolkit, developed by the Construction Innovation Hub:

• provides a framework to deliver better value

• pauses the process to speed up later

• stimulates the hard questions being asked and answered

• provides a repeatable, consistent and auditable process

• accommodates the rich policy framework in Wales

• is agnostic to Gateway Procedures

• complements other measurement tools

Importantly, for construction clients and suppliers across Wales it gives clarity on what value is expected from an investment and helps to define a strategy for delivering and measuring that value through the supply chain.

It is consistent with the Wellbeing of Future Generations Act and the Wellbeing objectives that all public bodies in Wales need to deliver against. For suppliers, contractors and consultants, it sets out what is expected of them and how risks are best allocated and managed, to deliver the best outcomes.

This is unlikely to mean transferring all project risks down the supply chain! But it does mean a greater opportunity to deliver social value, drive down carbon, and provide better long term outcomes.

“Value-based decision making focuses on how an investment can deliver the best outcomes and thus value, rather than focusing exclusively on delivering to the lowest possible price.”

“Risk” how do we better manage it for greater value?

Ed Evans, Director of CECA Wales, hosted this part of the conference by asking “how do we better manage risk for greater value”. And as with so many discussions around value the matter of risk is not far away. But unless we address this in a mature, transparent and fair way then it can be difficult to truly focus on value.

So, why do we find it so difficult to have meaningful conversations about risk – until it’s too late anyway! Well, they can be stressful conversations that’s for sure? They introduce uncertainty, particularly for construction clients, which is unwelcome for anyone working to “fixed” budgets. If the conversations are to be meaningful then they often lead to difficult decisions and, sometimes, unwanted answers. But surely it’s better to have them at the start of the process rather than at the end when it’s too late to do anything about it? And, of course, the conversations are often complicated, resource intensive and expected to deliver “Winners” and “Losers”. But it doesn’t have to be that way and far better to share the wins and the losses if it means we all deliver better outcomes?

What does the Playbook say about it?

“We need to be confident in our ability to effectively manage risks and solve problems collaboratively throughout the project and programme lifecycle.”

“Collaborative and trusted relationships based upon a fair return and sustainable outcomes supports a value based delivery model. Difficult decisions?”

“Ensuring that risks are owned or jointly owned by the party or parties best able to manage and bear them is key to delivering value for money and successful outcomes with the private sector.”

What kind of risks?

Every project will have its own risks but in the current climate there are a few generic ones which we all need to get to grips with and manage equitably. These include materials inflation, availability of labour, pandemics, liabilities, legislation, social value and carbon impacts.

Arguably, if we’re serious about value then all of these risks would be better shared. And for that to happen there needs to be meaningful dialogue.

So, can we better manage risk?

Yes. The Construction Playbook has lots to say about this including meaningful market engagement, mature risk allocation, contracts designed for profitability and payment mechanisms and pricing approaches to reflect the level of risk taken by each party.

And when a contract is publicly designated as onerous, it should prompt a root cause analysis and conversation with the supplier – not a game of “hide and seek”!

Adding value through digitisation

If we look at how other industries have embraced digitisation to improve their performance it’s safe to say that, as a sector, we are dramatically behind the curve. Yes, there are some standout performers, as there always are, but there are far too many in the industry who are embarrassingly behind the times. Most have heard of Nokia & Kodak and their failure to anticipate the future. It didn’t end well. There is a grave danger of businesses across the construction sector suffering the same fate!

How long have we been discussing Building Information Modelling (BIM)? On the face of it all would endorse it however it’s hardly embedded in the culture of all organisations. The digital strategy needs to be driven from inception, the structure for the data requirements should be embedded for the remainder of the project and facilitate all of the data generated by the project (and there will be lots) to be used by all parties for the benefit of the whole life cycle of the project. The benefits of this can result in improved identification of project risks, reduced interface clashes, faster transfer of information, digital quantification, improved consistency in tender responses, digital site capture of life time quality records all of these can contribute to adding value previously unavailable on schemes. Can we afford to ignore this?

According to Gwyn Roberts of BAM there are lots of things we can do to add value to what we deliver but we also need to look at how we deliver, and digitising our working practices is an important part of that.

Exploit benefits of increased digitisation:

• Identify and assess projects which have featured elements of digitisation during development;

• Develop models to justify greater investment in digital tools consistently across the public sector;

• Develop programme of joint public and private sector workshops to increase knowledge and understanding of the value of digitisation in the construction sector.

“The construction industry is among the least digitised”

Using “Social Value” to attract, develop and retain a skilled workforce

Stefano Jefferson of Caerphilly County Borough Council shared his thoughts on how, as a sector, we can positively use our combined efforts to increase social value whilst at the same time helping to address our skills crisis.

The application of social value clauses to construction contracts and the concept of community benefits offers a great opportunity to address these challenges. However, the current transactional approach to delivering social value, based on suppliers “offering” social value within their tender and then being contracted to deliver, is failing to provide value at scale and for all levels of investment. The reality is that small projects, in particular, are failing to deliver significant social value despite the cumulative value of small investments running into millions of pounds every year. Furthermore, those communities who need the greatest social value are not necessarily benefiting to the full extent, if at all.

If we are to change this then we need far greater collaboration across the construction sector with public sector construction clients using their “power and influence” in education, economic development, health and wellbeing and community presence to establish systems to support successful suppliers to deliver social value on all projects.

For public sector clients this could mean:

• Directly funding shared apprenticeships

• Establishing strategic links with schools and colleges for suppliers to deliver components of a curriculum

• Linking up suppliers with individuals requiring work experience opportunities

• Specifying what support communities need from suppliers

• Aligning ex-offenders and/or ex-services employees with specific suppliers to support re-entry to the civilian workplace

For private sector suppliers this would mean:

• accommodating and supporting apprentices and trainees on jobs

• allocating time to visit schools and colleges to help deliver the curriculum

• providing experiences to ex-offenders and/or ex-services personnel on various jobs

Success will be more likely when these support structures are already in place and suppliers can “dip in” to them as and when they win and deliver projects.

The value of carbon in construction

The biggest challenge facing us all is climate change and, given the high level of emissions generated across the infrastructure sector, how we manage carbon across our sector will be critical to ensuring we keep global temperatures to a safe level.

The Welsh Government declared a climate emergency in 2020 and was joined by a range of local authorities across Wales. Of course, all governments across the UK have Net Zero commitments with carbon increasingly becoming part of the “conversation”.

Alasdair Reisner, CEO of CECA, explained that unless and until we “value” carbon as part of the planning, design and construction process we will struggle to manage its impacts. And it is clear that despite government commitments performance across the construction sector is, at best, mixed.

Construction clients are struggling to find and agree ways to assess supplier carbon performance and this leads to inconsistencies in including and assessing lower carbon options in bids. This is compounded by a lack of understanding of carbon management methodologies by SMEs and a low incentivization for those better performing suppliers. There is a need for clear and consistent advice across the whole sector.

To address this the Construction Leadership Council has developed CO2nstruct Zero, which is a whole of industry campaign to cut carbon with a single overarching programme and action plan including measurable targets and performance criteria.

In an effort to support SMEs

CECA also published its guidance for SMEs on carbon management in Autumn 2021: Demystifying Carbon for SMEs. The guidance explains key concepts, methods for managing carbon including reference to PAS 2080, how to estimate, monitor and report performance and options to reduce carbon through their operations.

And our 2021 Conference Joint Report Decarbonising Our Infrastructure action plan for doing exactly that in Wales.

What is abundantly clear is that, if we as a sector want to reduce carbon emissions, we need to value carbon as part of our operations and work together across public and private sectors to deliver reductions. A transactional approach of passing carbon management responsibilities down the supply chain will simply not work.

What can the public and private sectors do better, together, to deliver greater value?

The simple answer is to collaborate better.

The success of our conference is based on bringing together public and private sector partners from across the industry in Wales to address these challenges by removing the barriers, many of them perceived barriers, and exploiting the complementary strengths of each sector.

What is clear is that the traditional approaches to delivery remain traditionally fixed on lowest prices and largely transactional in nature. Unless this approach changes it is difficult to envisage greater value being delivered for our investment in infrastructure.

Areas to be addressed

Leadership from the top collaboration needs to become the “norm”

Collaboration not Transaction

Long term planning greater value thrives with greater certainty

Short term funding

Knowledge, skills and behaviours

won’t support greater value nor the aspirations of the Wellbeing of Future Generations Act for long term decision making

cross industry improvement needed

Whole life costs vs lowest price

value needs to be viewed long term

Risk management allocate risks fairly and sensibly

Introducing innovation forge new approaches together

Lowest price procurement

Limited innovation

A deeply embedded culture of “lowest price” procurement across the public sector is inhibiting longer term value outcomes

characterised by a lack of desire and/or incentives to accept and embrace innovation and new technologies and materials

Summing Up by the Chairs

“This is a hugely challenging period for our sector but we can achieve so much more value if we face these challenges head on, together.”

Mark Bowen

CECA Wales

“Construction clients are facing huge challenges as budgets are continually being squeezed and inflationary pressures are wreaking havoc yet delivery and policy expectations continue to rise. We will only address these challenges through collaboration.”

Marcus Lloyd CSS Cymru

“The current challenges facing the construction sector create the perfect circumstances for us all to work together collaboratively to drive value across the entire supply chain. The Value Toolkit and Construction Playbook present useful tools to help us achieve this.”

Piers Burroughs

Former Chair of ACE Wales

Actions to take forward

Adopt Construction Playbook and apply good practices:

• Develop a programme of joint public and private sector workshops to increase knowledge and understanding of the Playbook;

• Apply the Playbook to all public sector projects and programmes over an agreed value;

• Monitor the performance of projects where the Playbook applies and report findings;

• Encourage the application of the Playbook principles to all public sector projects and programmes of work.

Explore and seek to adopt the Value Toolkit to better define value criteria:

• Identify pilot projects to test the Toolkit;

• Develop training exercises, based on the pilot project findings to extend understanding across public sector.

Apply risk management practices which support collaboration and risk sharing:

• Develop programme of joint public and private sector workshops to increase knowledge and understanding of the value of collaboration and risk sharing;

• Produce risk registers for all large projects and programmes of work and include in tender documentation;

• Assess supplier mitigation plans as part of tendering process;

• Allocate risks clearly along with mitigation plans for clients and suppliers ahead of contract awards;

• Review performance of projects where risks have been actively shared and report findings and lesson learnt.

Use social value requirements to support more people into the industry:

• support businesses to offer more apprenticeships and work experience opportunities;

• increase the involvement of businesses in curriculum activities at schools and colleges;

Develop a collaborative public/private sector social value model to:

• Develop resources to support businesses to deliver parts of the curriculum;

• Increase engagement with exservices personnel and ex-offenders to facilitate their employment across the industry.

Exploit benefits of increased digitisation:

• Identify and assess projects which have featured elements of digitisation during development;

• Develop models to justify greater investment in digital tools across the public sector;

• Develop programme of joint public and private sector workshops to increase knowledge and understanding of the value of digitisation in the construction sector.

Increase collaboration on carbon management:

• Agree a standard Net Zero carbon definition to drive consistency of approach to carbon management across public and private sector partners;

• Develop programme of joint public and private sector workshops to increase knowledge and understanding of the value of carbon management and how to measure and report performance;

• Ensure earlier supply chain engagement on all large projects and smaller programmes of work to unlock lower carbon solutions;

• Monitor and report the carbon performance of suppliers and reward better performers with more work.

How can we make the changes happen?

Whilst identifying the challenges we face and proposing solutions to them is essential if we are to move forward, change will not happen without a clear mechanism for change.

This report proposes a number of actions to effect this change and the partners involved in developing the report will need to play their part in effecting this change. However, if the change is to be industry wide and sustainable other partners and stakeholders will need to contribute.

Leading the change: The Welsh Government, and particularly those departments (and government agencies) who have a strong construction and infrastructure focus, will have a pivotal role in leading the changes needed.

Influencing the change: The role of the County Surveyors Society (CSS) Cymru will be critical in influencing the actions and behaviours of all of Wales’ local authorities as well as providing local leadership.

Implementing the change: Infrastructure designers, consultants and contractors have a very influential role in delivering greater value and both ACE and CECA Wales will need to bring their experience and coordinating roles to support the implementation of this report.

Championing the change: The Welsh Construction Forum, chaired by Welsh Government Ministers, offers a vehicle to champion the changes needed to deliver greater value.

When we consider price and value it’s worth reminding ourselves of “The Common Law of Business Balance”.

“There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

John Ruskin, 19th Century poet