Reinventing the Works Department - Paper


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Reinventing the Works Department - Paper

  1. 1. NZTA & NZIHT Annual Conference (6 - 8 November 2011)Reinventing the Works DepartmentCollaborative Contracting for Roading Maintenance & Operationsby Simon GoughIntroductionWould we want to bring back the Works Departments or the Ministry of Works days or someelements of it? Didn‟t the Ministry of Works get abolished because they had a reputation forleaning on their shovels, lots of smoko breaks, being inefficient and ultimately not delivering valuefor money? How could bringing this back be value for money?This paper explores some of the fundamental issues and challenges with using collaborativecontracting to deliver roading maintenance and operations as well as a number of benefits thatwere lost with the closure of the Works Departments while showing that there is a striking similaritybetween Works Departments and Collaborative Contracting.Over the last 10 years we have seen more long term maintenance and operations contractsappearing from initially Performance Specified Maintenance Contracts (PSMCs), then hybrids andmore lately a few different forms of Alliances. These all set out to woo the client with promises ofefficiencies, better asset management, collaboration, innovation and most importantly less cost tothe client. But are they really delivering to their full potential? Are we even aware of some of theirintangible value to the industry?What’s good about Works Departments?Key Points from the Ministry of Works HistoryFor over 100 years the Ministry of Works and Development (formerly the Public WorksDepartment) grew from a small operation to a large and diverse organisation covering railways;bridging; lighthouses; roads; mining water races; harbours; wharves; public buildings; town watersupplies; and drainage. This meant they had a variety of skill greater than any other in thecountry.1After 1876, when the provinces were abolished, the Ministry, as the main construction agency ofGovernment, contributed significantly to the country‟s physical development. With respect toRoading, in 1959 a separate Roading Division was setup in the Ministry of Works and actedessentially as the construction and engineering arm of the National Roads Board (NRB). This ledinto a period of significant motorway construction during the 1960‟s.2The Public Works Department became a major training ground for civil engineers from the 1870‟s.F.W. Furkert (Early New Zealand Engineers) states, “During the boom period, a large number ofexperienced engineers had migrated to New Zealand, mostly from Great Britain and the USA, todesign and supervise the construction works. To these engineers were attracted a considerablenumber of cadets, who in due course became fully-fledged engineers. And so the system becameestablished, where for over a century the Public Works Department (later the Ministry of Works)served as a training ground for a large proportion of the countrys professional engineers.”Furkert then went on to explain that the university engineering degree was introduced after theSecond World War and the Ministry of Works became a sort of „finishing school‟, where graduateengineers could build up the range of job experiences they needed, before seeking registration.1 Opus website2 Te Ara – The Encyclopaedia of NZReinventing the Works Department Page 1 of 7
  2. 2. The Ministry of Works was abolished in 1988. By then it had carried out and overseen most main 3road construction in New Zealand for decades and trained or given experience to roughly half ofNew Zealands professional civil engineers.4 With regards to the loss that this abolishment couldhave on the industry Furkert states “there was almost universal acknowledgement that the trainingopportunities offered by the Department were second to none. There was much sadness when theMinistry was privatised and dismantled.”A Looming ProblemAs mentioned earlier, with over half our civil engineers coming through, or having experience withthe Ministry of Works, it is these engineers that are the main stay of senior managers and technicalexperts in our industry. We lean on them as they tend to have a more diverse engineering„apprenticeship‟ and experience, not to mention the large role they had in the growth anddevelopment of our current infrastructure.So if these Ministry of Works trained and experienced engineers stopped coming through thesystem prior to 1988, what happens when they finish leaving the industry in the next 10 to 15years? The engineers and cadets that entered the system during the post war boom period, whena significant amount of our infrastructure was built, are retiring from our industry now!How many times have we gone to one of these engineers and asked their advice, especially whenwe have „misplaced‟ an as-built or the RAMM data seems particularly blank for the section of roadthat we are interested in.If we look at the current development path of modern engineering graduates we find that they pickcontracting or client / consulting on leaving university and few of them switch between thesethroughout their career. This is and will continue to challenge our industry as the „system‟produces less rounded engineers and fewer opportunities for young engineers to find what part ofthe industry they are most suited to.On a positive note, at a recent conference I heard a young engineer describe how she had goneinto an Alliance team as a consultant and through working with the wider project team she foundshe preferred to working on the contracting side. So through working on a collaborative contractshe became a contractor, this may never have happened if a traditional contracting model hadbeen used.Benefits of Works DepartmentsSo what benefits did the Ministry of works and Works Departments offer us that we may want toreinvent? Looking at training and development as well as the skills and experience benefits, thebenefits that are lost to most of today‟s setup include: Providing a robust training ground for cadets and engineering students / graduates. Creating well rounded engineers by providing diverse experiences ranging from driving the machinery and surveying through to design office and supervision. Creating a continuity of knowledge regarding projects and works completed.How can collaborative contracts play a part in restoring these lost benefits? Before we can answerthat we need to add these into a wider list of objectives for Roading operations and maintenance.We wouldn‟t want to restore these „lost‟ benefits only at the expense of a separate, but potentiallyequally important, objective.3 Te Ara – The Encyclopaedia of NZ4 F.W. Furkert - Early New Zealand EngineersReinventing the Works Department Page 2 of 7
  3. 3. Objectives for Roading Operations and MaintenanceLet‟s get back to basics. What do we actually want to achieve while delivering roadingmaintenance and operations? As a public agency this should include the community‟s needs, theimmediate and broader industry needs as well as the traditional client expectations of adequateservice levels, good performance and value for money. Value for Money: Maximise the value from the money available. This may or may not deliver actual savings. Industry Health: Contracts shall be procured fairly (NZTA’s guidelines) and ensure an ongoing healthy industry that is able to provide the skills, experience and level of competition required to push efficiencies, innovation and price tension when required. Spread of Work: Consideration is required on whether having all of your works carried out by a single contractor is the best for the long term health of the industry. This could include contracts broken into packages, reflecting the right skills, experience and scale of business required as well considering as the right amount of work going to local contractors, assuming they are competitive on price. Collaboration: Collaboration shall be imbedded into all term maintenance and operations contracts. This underpins the creation of a high performance ‘one team’ that delivers quality and value for money through sharing of information & knowledge and improved efficiencies, innovation, decision making and asset management practices. Performance and Outcome Focused: Roading operations shall be focused on meeting performance measures and agreed service levels. Skills and Knowledge: Roading operations shall provide opportunities for client staff and those from the contracted parties to increase their skills and knowledge while ensuring a continuity of knowledge of works completed. Innovation: Innovation shall be strongly encouraged (in support of value for money) Industry Development: As a major player in the roading and civil construction industry, Roading operations shall provide training and development opportunities for civil engineering cadets, students and graduates and job opportunities to attract and retain skills and experience. Middle and End: While a lot of focus goes on setting up new contracts, the requirements for roading operations during the middle and end of the contracts used shall be given due consideration in defining the right procurement and contracts model to use to ensure Council’s needs and expectation are always being met.Why do Clients need Contractors and Consultants?If we were to reinvent the Works Department, why shouldn‟t the client just do everythingthemselves? Why do we need consultants and contractors and pay them a profit for doing ourwork for us? This is a really important question that doesn‟t get asked enough.Engaging external parties to support the client to deliver Roading operations provides the followingbenefits: Specialist skills and equipment, which the client doesn’t have. On demand resources to cope with the peaks and troughs of demand. The ability to spread the costs of resources, when not being fully utilised, by using them on multiple projects. Access to a wider network of expertise, experience and knowledge sharing. Creating a commercial tension and focus that is required to ensure Value for Money outcomes and an ongoing focus on improving efficiency, productivity, utilisation and innovation (the missing ingredient for the Ministry of Works).So if you conclude that you need some contractors and possibly consultants, instead of rebuildingour own works department, how would you engage and work together with these other parties tomeet all or most of the objectives listed above?This is where I believe collaborative contracting has a place to play.Reinventing the Works Department Page 3 of 7
  4. 4. What is Collaborative Contracting?UK Constructing Excellence defines Collaborative Procurement as;“An umbrella term for clients, contractors and consultants working together in a seamless team tocommon objectives that deliver benefits to all, but most importantly the project outcome.”This could be simplified even further to, working as one team with a common objective.Other key elements that are common to most collaborative arrangements and help increase valuefor money include: All parties involved achieving their individual expectations and needs. Strong focus on efficiencies, innovation and performance Benefits created by the parties on the project should be shared Grow the capabilities of all staff involved Reduction in management, administration and overhead costs By removing team boundaries, improves problem solving and decision making while removing process duplication Cost transparency (the contracts are usually open book and cost plus)The table below shows some of the objectives from above as well as some other desirablefeatures and then compares these against traditional style contracts, using a contractor‟s panel, aPSMC and a full Alliance. While Alliance is the only truly collaborative model here it is not the onlymodel and setup that can include collaboration. Trad. Panel PSMC Alliance1 Continually drives best value for money from the budgets available    2 Commercial model allows day to day decisions to be purely based on what‟s best for roading     (rather than driven by company profits)3 Commercial framework allows for minimisation of waste in the pursuit of lean thinking    4 Guarantees asset and operations knowledge is retained by the client    5 Allows client staff to participate in a wider range of Roading activities and develop their skills    6 Allows Council to ensure a suitable training ground exists for the industry.    7 Allows Council to maintain flexibility in Annual Budgeting      = fully achieves  = does not achieve  = partially achievesProblems with Current Collaborative ContractingThere have been a number of Alliances set up for Roading Maintenance and Operations in the lastfew years, including the Auckland Motorway Alliance, Wanganui Roading Alliance and FoveauxRoading Alliance. While these have delivered benefits to the clients and hopefully to all the othersinvolved as well, I have a few concerns that these models aren‟t able to deliver to all objectives.The main concerns include: Is an Alliance the contract or a collaborative framework? If the team reaches ‘high performance’ in the first 5 years, how is performance incentivised when there are only minimal efficiency gains left to be made?Reinventing the Works Department Page 4 of 7
  5. 5. Do these 10 year long term agreements enhance the client’s knowledge and understanding of the network? What happens at the end of the 10 years when the contracts have to be retendered? How do you create incentives when you are usually working to a fixed total budget each year, with demands for some sub budgets varying throughout the year? Why do clients pay overheads and profit on non specialist items?An Alliance Should be a Collaborative FrameworkMaintenance and operations of roads goes on forever yet currently we would „procure‟ an Alliance.This implies that the contracts are the Alliance and with this comes the impression that the Allianceis owned or controlled by the winning contractor. The result of this is the Alliance lives and dieswith the individual main contractor.I believe that this is not in the clients long term interests and for an ongoing operation the clientneeds to be the one that creates a collaborative framework that theoretically lasts forever.The client can then procure partners to fill positions within the framework who will then help themdeliver the operation. This gives a clear sense of the framework being owned by the client and thepartners coming on board to align with the client‟s vision and objectives (defined in the framework).It also highlights that the framework needs to be set up to last no matter who the partners are. Youmight get your first partners to help setup the framework but this would be done on the client‟sbehalf and for the client‟s long term benefit beyond the length of any contract.Maintaining High PerformanceAt the start of these arrangements there is a lot of effort put into building a high performance andcollaborative culture across all of the parties involved. If done well these will start providingefficiency and innovation gains while making processes lean by eliminating process waste.It usually takes a number of years to perfect the new collaborative operation. I was told recently bya PSMC contractor that it took them until year 8 of their 10 year contractor to feel that they had gotall of their processes humming.So if we said that the team had reached this optimised performance level by year 5 how does thecontract and agreements keep incentivising the team? Traditionally the agreements allow for youto share in the benefits created but these benefits are usually based on finding efficiencies andsavings.It is also interesting to note that by this time the full time team would have become a bit distantfrom their home organisations and a growing number of staff will have been effectively recruiteddirectly into the collaborative team which often has its own branding and identity. A focus needs tobe maintained on the team culture throughout the 10 years as staff turnover occurs as well ascomplacency potentially setting in.It is my belief that while the commercial model incentivises finding improvements and savings, inreality this is just a catalyst for the team. It is the team culture that delivers the real benefits. Agood team will deliver benefits no matter how good or bad the commercial model. A greatcommercial model will deliver the benefits if the team isn‟t working well together.On this basis I would recommend that the incentive structure in the commercial model has theability to change over the period of the agreement and once certain levels are reached that showhigh performance has been reached then measures need to be introduced or adjusted andrewards associated for maintaining this high level.Enhancing Client Knowledge and SkillsThe clients still own the roads and are ultimately responsible to their customers. Also from a riskperspective, if something unexpected happened and the agreements collapse then it is the clientthat has to rebuild and continue the operations. Recently NZTA let a traditional networkmanagement consultant contract after a 10 year PSMC contract so they could rebuild their dataand understanding of what they own and its condition.Reinventing the Works Department Page 5 of 7
  6. 6. I have concerns when a number of these „collaborative‟ arrangements have minimal client staffembedded in the team and there is inadequate involvement at all levels of the team.At the management level I understand the concept that the contractor has the largest costs andtherefore carries the largest risks, but does this really mean they should dominate, and effectivelycontrol, the collaborative team?Clients need to really understand what they want from the contract and arrangements and ensurethat they remain a strong presence and this shouldn‟t only be as the client on the governanceteam.This also comes back to the question of why we need contractors and consultants. If there is theopportunity for the client to insert staff or increase its overall staff contribution to the operationwithout undermining the principals of why you need the contractors and consultants then I believethat this is strongly in the client‟s financial and legacy benefit.What should the End look like?I have discussed some of the issues relating to knowledge retention by the client at the end of thecontract. Expanding on knowledge retention further, all primary systems used by the collaborativeteam should be owned by the client. While it can be very convenient to get the contractor to buyand setup a new system for you during establishment, this won‟t help at the end of the contractwhen you are re-tendering or worse case the incumbent looses and you loose a large amount ofthe value and understanding of the data you „own‟.If you have one large contract (usually with some key supporting sub-contractors or partners), itconcerns me how the retender process is expected to run. Let‟s assume that the contract modelhas been a success, you are happy with the contractor performance and you want to do it again.The incumbent is the only locally based contractor with experience and track record, so how canany other contractor compete unless there is a price component that they can severely underpriceto make up for their lack of non-price attributes. In essence you are running the process atsignificant cost to chose the incumbent or get a high risk operation due to an overly cheap price.As a radical suggestion, when I was developing an Alliance model for Whangarei District we werelooking at having 2 main contractors involved as well as professional services consultant. Tomitigate a lot of the risks of knowledge loss and operations disruption I recommended that after theinitial procurement the agreements of the 3 main players be staggered.While having two large contractors involved in a single collaborative arrangement would be radical,the more I developed the idea the more I believed that it is possible to protect the commercialsensitivity between the parties while providing benefits such as; This protects the health of the industry by ensuring two main civil contractors remain in town for the next 10 years. Contractors often have different strengths and instead of splitting your area geographically for the two contractors the management team might prefer to take advantage of each of their strengths to maximise the efficiencies they generate as a whole. Provides some healthy competition between the crews.This is a good example of when the client should look and act on what is in their best interests.Contractors will always find ways to make this work as the alternative is missing out on the job.Creating Incentives with a Fixed BudgetIn the current constrained financial environment clients putting out a set of „best practice‟requirements for the market to price will usually result in prices they can‟t afford. On this basismore tenders are going out with indicative budgets or target prices.It is also the nature of roading maintenance and operations that some budgets will vary throughoutthe year as they react to needs and demands and these fluctuations have to be offset by otherbudget changes to ensure we stay within the total budget.This makes collaborative contracts for maintenance and operations very different to projectalliances that agree a target price at the beginning for a defined scope and everything is thenReinventing the Works Department Page 6 of 7
  7. 7. measured against this fixed point for the rest of the project. For maintenance and operations theyard stick is often moving.While you could setup and fund fixed bonuses against a setup of performance measures thiseliminates one of the maintain incentives, which is to „save your bonus‟ first which you get to thenshare based on your performance measure results.This is still achievable by focusing a simplistic version of cost productivity. At tender stage thecontractor would price a „dummy schedule‟ and this can then be used to calculate the cost per unitfor the different schedule items. By comparing this to what they actually achieve each year youcan calculate whether they have been more or less productive and this becomes the pain or gainwithin the commercial model.Client to only Pay Profit and Overheads when BeneficialIn some contractor dominated collaborative arrangements the contractor is responsible forproviding everything from the office space, IT equipment and systems through to the tea andcoffee. The clients are usually large organisations with enough experience and ability to supplythese items or services. The client needs to seriously consider why it would want to pay theircontractor overheads and profit for supplying these.You could logically stretch this to the client providing all phones, office equipment and maybe evennon-specialist vehicles to all the team creating the potential for savings and therefore ultimatelymore money could be spent on physical works. Of course if the contractor has a lower price thisshould be considered but only when it doesn‟t compromise the client, the broader collaborativeteam and especially any hand over at the end of the contract period.This should naturally be a part of the governance team‟s focus on maximising value for money butI suspect it is often easily overlooked because of the convenience factor for the client roadingteam.SummarySummarising some of the highlights, collaborative contracting is; 1. the only delivery model that keeps driving the team towards achieving the best possible value for money on an annual and ongoing basis, 2. the only delivery model that has a commercial model that allows all day to day decisions to be purely based on what‟s best for roading, 3. has a commercial framework that allows for the full minimisation of waste in the pursuit of lean thinking, 4. the only delivery model that guarantees full asset and operations knowledge is retained by the client, 5. the only delivery model that allows for staff to participate in a wider range of Roading activities and develop skills and experience, and 6. the only delivery model that allows the client to ensure that a suitable training ground exists for the local Roading industry while providing ongoing development opportunities.It is the last 3 of these that are the benefits the Works Departments historically gave us they wediscussed earlier.So interestingly for your collaborative contracts if you strip away the commercial arrangementsbetween parties, what have you got?A single organisation that does physical works, engineering, management and a part of the clientrole as well as a strong training and development ground for cadets and engineers…… in otherwords you have just reinvented the Works Department.This back to the future approach is not only beneficial to the immediate roading maintenance andoperations but also I believe an essential step in protecting the long term quality of the people andknowledge in our industry.Reinventing the Works Department Page 7 of 7