14 November 2019

Project 13: Can it help the UK construction industry?

The Institution of Civil Engineers (ICE), in conjunction with a number of other bodies, has launched “Project 13”, which aims to develop a new business model that will substantially change the construction industry for the better and for all parties. The project has been driven by a number of factors, primarily the precarious state of the construction industry, with profit margins at an all-time low, and the poor levels of customer satisfaction at various levels.

It seems likely to be an evolving process, but currently the likes of Transport for London, Heathrow Airport, Rolls Royce, Anglian Water and Mace are or will be involved. Below we have outlined the philosophy behind Project 13 with further briefings to follow, as it progresses.

The ICE Commercial Handbook states:

“So what should industry take away from this Handbook – and what should they aim for?  What an enterprise model can achieve is to bring together all parties with incentives that are aligned to the outcome for the ultimate customer – the end user of our infrastructure.

“In this way, we hope that Project 13’s aim of creating a step-change that will deliver better outcomes across the board can be realised.”

I think we will all agree that this is a fantastic aspiration, but how is it to be achieved?

In simple terms, it is a two stage process; first establishing six commercial principals followed by a four-step commercial strategy.

The six key commercial principals can be concisely summed up as a “souped-up” and commercial form of collaboration. It will typically involve scale; larger projects or numerous small projects where the parties have time to develop relationships using early engagement to facilitate planning of the work and also life cycle and life cycle costs benefits. This in turn allows reward mechanisms based on value exceeding outcomes, rather than lowest cost because the parties will be able to facilitate an alignment between the requirements of the client (and its end user) and the contractor.  This is all predicated on the basis that the client/infrastructure owner/investor will not transfer unreasonable risks to the contractor

So once this has been established, (and in many organisations this will require a huge culture change), the four stage commercial strategy can be devised which involves:

  1. Establishing a performance baseline;
  2. Selecting the correct partners;
  3. Linking the risk profile to the reward mechanisms; and
  4. For contracting to support the enterprise.

Speaking from a lawyer’s perspective, this is all very well, but unless it is incorporated into the contract it is difficult to see how it will work (although conversely, it is true to say that without the culture change it is unlikely to work either). 

As regards item 4 (contracting supporting the enterprise) the idea is that a contract similar to the NEC 4 Alliance Contract will be used, with a project bank account.  In addition, it would be expected that the sub-contractors and suppliers who were not party to the Alliance Contract would be contracted on similar terms and therefore the benefits would flow down to them; the philosophy cuts through the whole supply chain.

Collaboration clauses have been a feature of construction  contracts for a number of years and yet the reality is that they really only work where parties consciously decide to make them work, so perhaps Project 13 may seem like a badge, but the reality is that it will require a different mind-set to the way traditional construction projects are run. This must be a positive for the industry and its customers.