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Summary of the OECD expert meeting: Construction Risk Management in Infrastructure Procurement

Presented at the OECD expert meeting "Construction Risk Management in Infrastructure Procurement: The Loss of Appetite for Fixed-Price Contracts", held on 17 May 2023 at the OECD, Paris and online.

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Construction Risk Management
in Infrastructure Procurement:
The Loss of Appetite for
Fixed-Price Contracts
Summary of the expert meeting held on 17 May 2023 at the
OECD, Paris (France) and online
2 
There are increasing indications that the appetite of contractors to absorb construction risk in major
infrastructure projects over the past years has been decreasing. This means that the ability of the public
sector to tender contracts, which require the project be delivered for a fixed price and on a fixed date are
at risk. By implication, private investment in infrastructure, largely pursued through Public Private
Partnerships is at risk as well.
No doubt supply chain disruptions caused first by the COVID-19 epidemic and more recently by Russia’s
war of aggression against Ukraine, have played a part in this development. There may however be a more
fundamental challenge in the background – the inherent uncertainties in the delivery of major projects.
Available evidence indicates that the risk distribution in major projects is defined by low-probability, high-
impact events which are difficult to spot, mitigate, and price.
The OECD has organized an expert meeting to explore the relevance of the perceived changes and
possible responses.
The challenge
In Europe, for several years the major infrastructure and PPP market was characterised by limited
competition, where only a few large contractors were willing to accept fixed date/fixed price (DB/EPC)
contracts (Roumboutsos, 2019[1]), absorbing large amounts of risks. Recently there have been further
reports that the trend appears to be worsening. For example, Moseley (2020[2]) reported of similar woes
for the Asian Development Bank. In Brazil, banks are reaching their limits in providing bridge loans for
construction risk, and in the Netherlands a “market transition” programme is underway from fixed price
contracts to collaboration and towards strengthening in-house capabilities (Ministerie van Infrastructuur en
Waterstaat, 2022[3]).
These policy developments may forebode a decline in competition and rising infrastructure risk premiums.
They suggest that a global scale challenge for governments in public and PPP candidate projects is on the
rise. What is the root of this challenge? The statistical distribution of construction risk is asymmetric to the
left with a long tail to the right. When contractors try to absorb it, they are exposed to low probability, high
impact risk events. Accordingly, construction contractors cannot price construction risk in major projects
efficiently, leading to abnormal contingencies and an occasional winner’s curse problem.
To discuss these issues, the OECD organised an expert meeting, which was attended by almost 70 people
in person and around 100 people online from around the globe. The meeting was supported by Mr. Sean
Keenan and Mr. Paul Quinn, the chairs of the two key bodies1
that steer the OECD work in the area of
infrastructure and procurement. A full agenda of the meeting and participating presenters and panellists
are included in the Annex of this summary.
Meeting findings
Regarding terminology used to describe contracts, delivery models, and incentives a range of terms is in
use with the same or overlapping meaning, depending on the geographical origin and possibly profession.
Especially relating to collaborative delivery models, a range of terms is available promoting similar or
overlapping concepts. The introduction of the meeting clarified the language used.
1
The OECD hosts two bodies through which member countries steer the OECD work – Senior Infrastructure and PPP
Officials Network at the OECD (SIP) and the Working Party of the Leading Practitioners on Public Procurement (LPP).
 3
Is a dwindling construction risk appetite a fact?
Public sector clients at the meeting gave a mixed picture, a shift appears underway, however the issues
are multi-layered. A systematic analysis of developments over time would be a welcome support. The
key Dutch public Infrastructure agency Rijkswaterstaat confirms this is what is happening in the
Netherlands and showcased a downward trend on Dutch data.
The Swedish Transport Administration - Trafikverket notes that there were issues already before supply
chain disruptions due to Covid and the conflict in Ukraine. Foreign bidders for major projects came in with
low prices, disincentivising local large contractors in bidding for fixed price contracts. That said foreign
entrants consistently faced issues with the adherence to Swedish regulation (i.e. such as in worker safety,
quality...).
The EIB’s European PPP Expertise Centre data shows the PPP market has been contracting since the
last financial crisis. In the last two years however the volume of PPP contracts (which are based on fixed
price/date contracts such as DB or EPC), after reaching a 10-year low point has been stable. The PPP
story of course has a larger context, regarding EU country’s appetite to pursue PPPs in the first place.
Conversely to the rest, an example of a French mega project (the Société de Grand Paris) reported no
low bidder issues in recent major tenders, receiving four bids at a recent tender, which involved packages
of around EUR1 billion. A caveat to consider is that the tendering of works in this project has only just
begun. That said the company reported that it went to great lengths to set up an indexing clause for
construction inputs and to also ensure space for renegotiations within the contracts in case it was
determined that the clause did not work well.
The construction industry was represented by the global confederation of construction associations (CICA)
and the European association of international contractors (EIC), through two major international
contractors - Besix and Implenia. Both stressed that the industry has learned its lessons, that considerable
uncertainty is transferred to the contractors through fixed price contracts, and that greater risk sharing is
needed.
What could be the responses to these developments – smarter procurement strategies and better
risk management?
Research by the OECD and other institutions with a broad overview of the issues stresses that contracts
are ultimately an agreement on risk allocation. The most advanced existing approaches to selecting
procurement strategies lack a systematic, science-backed approach to inform the capabilities of the client,
the packaging decision, and the application of a particular delivery model on each package. One of the
most prominent implicit assumptions is that activities in major projects are homogenous in terms of risk or
uncertainty – reducing the focus of a procurement strategy to the choice of a delivery model (DB, EPC,
ECI…). The OECD suggested that a better approach would beto focus on the question of which risk
allocation principle should be applied on what part of the project scope. In this context, the capabilities of
the public clients should be responsive to the nature of the project and the market rather than execute top-
down ex-ante decisions on their organisation and size. The OECD’s new methodology grounded in
science, STEPS – Support Tool for Effective Procurement Strategies – breaks new ground in this area.
Guest speakers from the University College of London and Manchester Business School expanded
on the importance of issues upstream of procurement strategy, such as the organisation and capabilities
of client organisations and stakeholder management.
The CEO of nPlan presented how deep learning (AI) can be used to augment quantitative schedule risk
management, using in his words, “the largest database of past project experiences in the world”. One of
the next steps of nPlan is to launch of an instrument, which will offer partial construction risk insurance.
nPlan asserts that its method creates value both for the client as well for the contractor, improving biding
outcomes as well as project performance. For the moment, however, it is believed multiple challenges
would need to be resolved before full construction risk insurance could be possible.
4 
The promise of new delivery models as another alternative solution - the two-step Early
Contractor Involvement (ECI)?
Panellists from Sweden, Norway, the Netherlands, and the US discussed the prospects of the ECI or a
collaboration more broadly as a possible way out if fixed price contracts are becoming more difficult to
tender in the future. The main takeaway is that they will not be a silver bullet:
• They require a highly competent public sector client to engage with the private sector.
• The approach to their execution needs to be the right one and requires experience.
• ECI presents a trade-off with competitive pressure and so needs to be proposed only in those
cases where it provides a superior outcome, in terms of responding to project complexity.
• Collaboration cannot be used to replace fixed price contracts across the board, i.e., replacing one
one-size-fits-all risk allocation propositions with another. Targeted application is needed of both,
and more information/science is needed on that front.
What do the changes in the construction market and opportunities mean to investors?
Investors active in the debt and equity of infrastructure investments, representing Aviva Investment, IFM,
and the Colombian National Development Bank were asked how they feel about the perceived market
trends. The investors welcomed the opportunity of a two-step ECI if that is the way to bring greater value
to the project and keep contractors interested. They also highlighted the challenges of implementing
collaborative contracting in institutionally less mature environments, where the fear of corruption or
even the potential of corruption is great. Competition in these environments will likely have to remain the
norm until they are sufficiently mature. The prospect of full construction risk insurance would also be very
exciting but at the moment such a product is not yet available.
Next steps
Participants agreed that it would be of use to continue to hold meetings of this type.
For the participants directly the meetings would offer a platform to share experience on challenges and
innovations related to the delivery of infrastructure. The meetings are also an opportunity to tap into the
OECDs core research capabilities and its extensive network of research organisations around the world,
producing concrete responses to identified challenges. A series of such meetings could be organised under
the authority of the OECD Senior Infrastructure and PPP Officials (SIP) Network but would require
sponsorship by a group of member countries and stakeholders who could work with the OECD Secretariat
to set the agenda of discussion topics and eventually host meetings.
In the broader interest of the OECD member countries, the findings could then also be reported back to
the SIP Network in order to further build an evidence base for the implementation of the OECD
Recommendation on the Governance of Infrastructure.
Interested parties should contact the OECD Secretariat in order to prepare a proposal for the next SIP
meeting on 4th December 2023.
Contacts
Edwin Lau, edwin.lau@oecd.org
Dejan Makovsek, dejan.makovsek@oecd.org
 5
References
Ministerie van Infrastructuur en Waterstaat (2022), Beheersing kostenoverschrijdingen grote
bouwprojecten, Ministerie van Infrastructuur en Waterstaat, Amsterdam,
https://www.rijksoverheid.nl/documenten/kamerstukken/2022/09/16/beheersing-
kostenoverschrijdingen-grote-bouwprojecten (accessed on 28 November 2022).
[3]
Moseley, M. (2020), Restoring Confidence in Public–Private Partnerships: Reforming Risk
Allocation and Creating More Collaborative PPPs | Asian Development Bank,
http://www.adb.org/ (accessed on 5 January 2021).
[2]
Roumboutsos, A. (2019), Competition in large projects: PPPs vs traditional procurement,
OECD.
[1]
6 
Annex A.
1. Introduction (9:00 – 9:10)
Mr. Sean Keenan – Director General, Economic Analysis and Results at Infrastructure
Canada, Chair of the Senior Infrastructure and PPP Officials Network at the OECD
Mr. Edwin Lau, Head of the Infrastructure and Procurement Division, OECD
2. What are fixed price/fixed date contracts, collaborative models, target prices, concerns – what
are we talking about (9:10 – 9:25)
Given that the audience will not consist only of infrastructure delivery professionals, a quick introduction
on the terms and economics around the contracts is necessary.
Ms. Anna Kadefors, professor at the KTH Royal Institute of Technology, Stockholm (SE)
3. Panel: The view of the contractors and procuring authorities, is there a problem to solve? (9:25
– 10:10)
Is the number of bidders for fixed price contracts in major projects receding over time? Is the situation the
same across the board (same in transport and in energy for example)?
Mr. Benoit Dupuis, Executive Director, Societe de Grand Paris (FR)
Mr. Phillipe Dessoy, General Manager/President, Besix/Confederation of International
Contractor’s Associations (BE)
Mr. German Grüniger, General Counsel/Board Member, Implenia/European International
Contractors (CH)
Mr. Bjorn Hasselgren, Senior Advisor, Trafikverket (SE)
Ms. Marcelle Valkenburg, ECI coordinator, Rijks Waterstaat (NL)
Mr. Ed Farquharson, Principal Adviser, European PPP Expertise Centre (EU)
Moderator – Mr. Edwin Lau, Head of the Infrastructure and Procurement Division, OECD
4. Presentation with Q&A: What are options to respond to this trend - The OECD’s big picture?
(10:10– 11:00)
OECD ran one of the largest research projects globally on dealing with uncertainty in contracts already in
2018 and produced a series of solutions how policy makers might address risk pricing inefficiency in fixed
price contracts. More recently, in collaboration with the Queensland University of Technology the OECD
rolled out Support Tool for Effective Procurement Strategies - STEPS, the first evidence-based
methodology grounded in science to inform procurement strategies in major projects in the world.
Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and Public
Procurement Division, OECD
Ms. Andrea Chao, Partner, Bird&Bird, (NL)
Discussant: Mr. Bjorn Hasselgren, Senior Advisor, Trafikverket (SE)
 7
Coffee break: 11:00 – 11:15
5. Presentation with Q&A: Towards a comprehensive approach to risk management in
Infrastructure projects (11:15 – 12:05)
Research in recent years has indicated that important factors upstream of the project’s procurement
strategy also affect the performance of the project and the choice of the procurement strategy itself. How
a country approaches stakeholder management and distributes value importantly affects, whether the
functional specification of a project will stay stable or will be contested shortly before or during execution.
Softer dimensions, such as leadership also contribute to project outcomes, and many others. These
dimensions, combined with the use of AI in standard risk management as well as STEPS could represent
the next level in infrastructure risk management.
Mr. Juliano Denicol, professor at the UCL/Bartlett School of Construction (UK)
Mr. Nuno Gil, professor at the Manchester Business School/Stanford (UK)
Discussant: Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and
Procurement Division, OECD
Lunch break: 12:00 – 13:00
6. Presentation with Q&A: A blast from the future? When will efficient construction risk insurance
become possible? (13:00 – 13:40)
nPlan is a start-up, which has embarked on developing delay risk assurance using deep learning (artificial
intelligence) techniques by collecting specific data from past infrastructure projects. Its ambition is to move
from assurance to construction risk insurance. Efficient construction risk insurance could solve the PPP
conundrum, but what is the reach of nPlan’s approach?
Mr. Dev Amratia, CEO, nPlan (UK)
Discussant: Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and
Public Procurement Division, OECD
7. Panel: The promise of two-step ECI? (13:40 – 14:20)
Collaborative approaches such as the Early Contractor Involvement bring in contractors and designers
very early in the project development process when there is no seriously developed design available to
generate a more reliable price estimate. The promise is that through the early involvement, colocation, and
collaborative working culture better solutions will became available and a de-risking of the project will be
possible. A two-step ECI means that the procuring authority would first collaborate with
contractor/designer/supplier in the first step – the design stage. In principle it is also possible that several
bidders would be developing solutions in parallel, which would then be sequentially excluded until the best
remains. In the second stage, the collaborating consortium enters a fixed price (e.g. DB) contract.
Mr. Jaap de Koning, Head of Contracting and Procurement, Witteveen+Bos (NL)
Ms. Anna Kadefors, professor at the KTH Royal Institute of Technology, Stockholm (SE)
Mr. Bjorn Borseth, Executive Director, Nye Veier, Norway (NO)
8 
Mr. Jonathan Kennedy, Vice President, New Jersey Economic Development Authority (US)
Mr. Juliano Denicol, professor at the UCL, Bartlett School of Construction (UK)
Moderator: Ms. Andrea Chao, Partner, Bird&Bird, (NL)
8. Panel: What does the current trend mean for PPPs? What are the reservations of investors with
regard to a two-step ECI? What of the prospect of construction risk insurance? (14:20 – 15:00)
Capitally intensive PPP rely on insulating investors from construction risk. To date this was performed
through high powered fixed price contracts such as DB or EPC. If contractors are no longer willing to bid
for fixed price contracts (and one or two bidders is hardly a competition!), capitally intensive PPPs will lose
all hope of Value for Money. Their place in the arsenal of public procurement would be threatened.
Mr. Gregg McClymont, Executive director – Public Affairs, IFM Investors (UK)
Mr. Darryl Murphy, Managing Director, Head of Infrastructure, Aviva Investors (UK)
Mr. Rafael Hertz, Vice president, Financiera de Desarollo Nacional (CO)
Ms. Mamiko Yoko-Arai, Head of Capital Market and Financial Institution Division, Directorate for
Fiscal and Enterprise Affairs, OECD (confirmed)
Moderator: prof. Veronica Vecchi, professor at SDA Bocconi School of Management (IT)
9. Expert meeting closure (15:00 – 15:20)
Mr. Paul Quinn, Government Chief Procurement Officer (IE); Chair of the Working Party of
the Leading Practitioners on Public Procurement
Mr. Edwin Lau, Head of the Infrastructure and Public Procurement Division, Public
Governance Directorate

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Summary of the OECD expert meeting: Construction Risk Management in Infrastructure Procurement

  • 1. Construction Risk Management in Infrastructure Procurement: The Loss of Appetite for Fixed-Price Contracts Summary of the expert meeting held on 17 May 2023 at the OECD, Paris (France) and online
  • 2. 2  There are increasing indications that the appetite of contractors to absorb construction risk in major infrastructure projects over the past years has been decreasing. This means that the ability of the public sector to tender contracts, which require the project be delivered for a fixed price and on a fixed date are at risk. By implication, private investment in infrastructure, largely pursued through Public Private Partnerships is at risk as well. No doubt supply chain disruptions caused first by the COVID-19 epidemic and more recently by Russia’s war of aggression against Ukraine, have played a part in this development. There may however be a more fundamental challenge in the background – the inherent uncertainties in the delivery of major projects. Available evidence indicates that the risk distribution in major projects is defined by low-probability, high- impact events which are difficult to spot, mitigate, and price. The OECD has organized an expert meeting to explore the relevance of the perceived changes and possible responses. The challenge In Europe, for several years the major infrastructure and PPP market was characterised by limited competition, where only a few large contractors were willing to accept fixed date/fixed price (DB/EPC) contracts (Roumboutsos, 2019[1]), absorbing large amounts of risks. Recently there have been further reports that the trend appears to be worsening. For example, Moseley (2020[2]) reported of similar woes for the Asian Development Bank. In Brazil, banks are reaching their limits in providing bridge loans for construction risk, and in the Netherlands a “market transition” programme is underway from fixed price contracts to collaboration and towards strengthening in-house capabilities (Ministerie van Infrastructuur en Waterstaat, 2022[3]). These policy developments may forebode a decline in competition and rising infrastructure risk premiums. They suggest that a global scale challenge for governments in public and PPP candidate projects is on the rise. What is the root of this challenge? The statistical distribution of construction risk is asymmetric to the left with a long tail to the right. When contractors try to absorb it, they are exposed to low probability, high impact risk events. Accordingly, construction contractors cannot price construction risk in major projects efficiently, leading to abnormal contingencies and an occasional winner’s curse problem. To discuss these issues, the OECD organised an expert meeting, which was attended by almost 70 people in person and around 100 people online from around the globe. The meeting was supported by Mr. Sean Keenan and Mr. Paul Quinn, the chairs of the two key bodies1 that steer the OECD work in the area of infrastructure and procurement. A full agenda of the meeting and participating presenters and panellists are included in the Annex of this summary. Meeting findings Regarding terminology used to describe contracts, delivery models, and incentives a range of terms is in use with the same or overlapping meaning, depending on the geographical origin and possibly profession. Especially relating to collaborative delivery models, a range of terms is available promoting similar or overlapping concepts. The introduction of the meeting clarified the language used. 1 The OECD hosts two bodies through which member countries steer the OECD work – Senior Infrastructure and PPP Officials Network at the OECD (SIP) and the Working Party of the Leading Practitioners on Public Procurement (LPP).
  • 3.  3 Is a dwindling construction risk appetite a fact? Public sector clients at the meeting gave a mixed picture, a shift appears underway, however the issues are multi-layered. A systematic analysis of developments over time would be a welcome support. The key Dutch public Infrastructure agency Rijkswaterstaat confirms this is what is happening in the Netherlands and showcased a downward trend on Dutch data. The Swedish Transport Administration - Trafikverket notes that there were issues already before supply chain disruptions due to Covid and the conflict in Ukraine. Foreign bidders for major projects came in with low prices, disincentivising local large contractors in bidding for fixed price contracts. That said foreign entrants consistently faced issues with the adherence to Swedish regulation (i.e. such as in worker safety, quality...). The EIB’s European PPP Expertise Centre data shows the PPP market has been contracting since the last financial crisis. In the last two years however the volume of PPP contracts (which are based on fixed price/date contracts such as DB or EPC), after reaching a 10-year low point has been stable. The PPP story of course has a larger context, regarding EU country’s appetite to pursue PPPs in the first place. Conversely to the rest, an example of a French mega project (the Société de Grand Paris) reported no low bidder issues in recent major tenders, receiving four bids at a recent tender, which involved packages of around EUR1 billion. A caveat to consider is that the tendering of works in this project has only just begun. That said the company reported that it went to great lengths to set up an indexing clause for construction inputs and to also ensure space for renegotiations within the contracts in case it was determined that the clause did not work well. The construction industry was represented by the global confederation of construction associations (CICA) and the European association of international contractors (EIC), through two major international contractors - Besix and Implenia. Both stressed that the industry has learned its lessons, that considerable uncertainty is transferred to the contractors through fixed price contracts, and that greater risk sharing is needed. What could be the responses to these developments – smarter procurement strategies and better risk management? Research by the OECD and other institutions with a broad overview of the issues stresses that contracts are ultimately an agreement on risk allocation. The most advanced existing approaches to selecting procurement strategies lack a systematic, science-backed approach to inform the capabilities of the client, the packaging decision, and the application of a particular delivery model on each package. One of the most prominent implicit assumptions is that activities in major projects are homogenous in terms of risk or uncertainty – reducing the focus of a procurement strategy to the choice of a delivery model (DB, EPC, ECI…). The OECD suggested that a better approach would beto focus on the question of which risk allocation principle should be applied on what part of the project scope. In this context, the capabilities of the public clients should be responsive to the nature of the project and the market rather than execute top- down ex-ante decisions on their organisation and size. The OECD’s new methodology grounded in science, STEPS – Support Tool for Effective Procurement Strategies – breaks new ground in this area. Guest speakers from the University College of London and Manchester Business School expanded on the importance of issues upstream of procurement strategy, such as the organisation and capabilities of client organisations and stakeholder management. The CEO of nPlan presented how deep learning (AI) can be used to augment quantitative schedule risk management, using in his words, “the largest database of past project experiences in the world”. One of the next steps of nPlan is to launch of an instrument, which will offer partial construction risk insurance. nPlan asserts that its method creates value both for the client as well for the contractor, improving biding outcomes as well as project performance. For the moment, however, it is believed multiple challenges would need to be resolved before full construction risk insurance could be possible.
  • 4. 4  The promise of new delivery models as another alternative solution - the two-step Early Contractor Involvement (ECI)? Panellists from Sweden, Norway, the Netherlands, and the US discussed the prospects of the ECI or a collaboration more broadly as a possible way out if fixed price contracts are becoming more difficult to tender in the future. The main takeaway is that they will not be a silver bullet: • They require a highly competent public sector client to engage with the private sector. • The approach to their execution needs to be the right one and requires experience. • ECI presents a trade-off with competitive pressure and so needs to be proposed only in those cases where it provides a superior outcome, in terms of responding to project complexity. • Collaboration cannot be used to replace fixed price contracts across the board, i.e., replacing one one-size-fits-all risk allocation propositions with another. Targeted application is needed of both, and more information/science is needed on that front. What do the changes in the construction market and opportunities mean to investors? Investors active in the debt and equity of infrastructure investments, representing Aviva Investment, IFM, and the Colombian National Development Bank were asked how they feel about the perceived market trends. The investors welcomed the opportunity of a two-step ECI if that is the way to bring greater value to the project and keep contractors interested. They also highlighted the challenges of implementing collaborative contracting in institutionally less mature environments, where the fear of corruption or even the potential of corruption is great. Competition in these environments will likely have to remain the norm until they are sufficiently mature. The prospect of full construction risk insurance would also be very exciting but at the moment such a product is not yet available. Next steps Participants agreed that it would be of use to continue to hold meetings of this type. For the participants directly the meetings would offer a platform to share experience on challenges and innovations related to the delivery of infrastructure. The meetings are also an opportunity to tap into the OECDs core research capabilities and its extensive network of research organisations around the world, producing concrete responses to identified challenges. A series of such meetings could be organised under the authority of the OECD Senior Infrastructure and PPP Officials (SIP) Network but would require sponsorship by a group of member countries and stakeholders who could work with the OECD Secretariat to set the agenda of discussion topics and eventually host meetings. In the broader interest of the OECD member countries, the findings could then also be reported back to the SIP Network in order to further build an evidence base for the implementation of the OECD Recommendation on the Governance of Infrastructure. Interested parties should contact the OECD Secretariat in order to prepare a proposal for the next SIP meeting on 4th December 2023. Contacts Edwin Lau, edwin.lau@oecd.org Dejan Makovsek, dejan.makovsek@oecd.org
  • 5.  5 References Ministerie van Infrastructuur en Waterstaat (2022), Beheersing kostenoverschrijdingen grote bouwprojecten, Ministerie van Infrastructuur en Waterstaat, Amsterdam, https://www.rijksoverheid.nl/documenten/kamerstukken/2022/09/16/beheersing- kostenoverschrijdingen-grote-bouwprojecten (accessed on 28 November 2022). [3] Moseley, M. (2020), Restoring Confidence in Public–Private Partnerships: Reforming Risk Allocation and Creating More Collaborative PPPs | Asian Development Bank, http://www.adb.org/ (accessed on 5 January 2021). [2] Roumboutsos, A. (2019), Competition in large projects: PPPs vs traditional procurement, OECD. [1]
  • 6. 6  Annex A. 1. Introduction (9:00 – 9:10) Mr. Sean Keenan – Director General, Economic Analysis and Results at Infrastructure Canada, Chair of the Senior Infrastructure and PPP Officials Network at the OECD Mr. Edwin Lau, Head of the Infrastructure and Procurement Division, OECD 2. What are fixed price/fixed date contracts, collaborative models, target prices, concerns – what are we talking about (9:10 – 9:25) Given that the audience will not consist only of infrastructure delivery professionals, a quick introduction on the terms and economics around the contracts is necessary. Ms. Anna Kadefors, professor at the KTH Royal Institute of Technology, Stockholm (SE) 3. Panel: The view of the contractors and procuring authorities, is there a problem to solve? (9:25 – 10:10) Is the number of bidders for fixed price contracts in major projects receding over time? Is the situation the same across the board (same in transport and in energy for example)? Mr. Benoit Dupuis, Executive Director, Societe de Grand Paris (FR) Mr. Phillipe Dessoy, General Manager/President, Besix/Confederation of International Contractor’s Associations (BE) Mr. German Grüniger, General Counsel/Board Member, Implenia/European International Contractors (CH) Mr. Bjorn Hasselgren, Senior Advisor, Trafikverket (SE) Ms. Marcelle Valkenburg, ECI coordinator, Rijks Waterstaat (NL) Mr. Ed Farquharson, Principal Adviser, European PPP Expertise Centre (EU) Moderator – Mr. Edwin Lau, Head of the Infrastructure and Procurement Division, OECD 4. Presentation with Q&A: What are options to respond to this trend - The OECD’s big picture? (10:10– 11:00) OECD ran one of the largest research projects globally on dealing with uncertainty in contracts already in 2018 and produced a series of solutions how policy makers might address risk pricing inefficiency in fixed price contracts. More recently, in collaboration with the Queensland University of Technology the OECD rolled out Support Tool for Effective Procurement Strategies - STEPS, the first evidence-based methodology grounded in science to inform procurement strategies in major projects in the world. Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and Public Procurement Division, OECD Ms. Andrea Chao, Partner, Bird&Bird, (NL) Discussant: Mr. Bjorn Hasselgren, Senior Advisor, Trafikverket (SE)
  • 7.  7 Coffee break: 11:00 – 11:15 5. Presentation with Q&A: Towards a comprehensive approach to risk management in Infrastructure projects (11:15 – 12:05) Research in recent years has indicated that important factors upstream of the project’s procurement strategy also affect the performance of the project and the choice of the procurement strategy itself. How a country approaches stakeholder management and distributes value importantly affects, whether the functional specification of a project will stay stable or will be contested shortly before or during execution. Softer dimensions, such as leadership also contribute to project outcomes, and many others. These dimensions, combined with the use of AI in standard risk management as well as STEPS could represent the next level in infrastructure risk management. Mr. Juliano Denicol, professor at the UCL/Bartlett School of Construction (UK) Mr. Nuno Gil, professor at the Manchester Business School/Stanford (UK) Discussant: Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and Procurement Division, OECD Lunch break: 12:00 – 13:00 6. Presentation with Q&A: A blast from the future? When will efficient construction risk insurance become possible? (13:00 – 13:40) nPlan is a start-up, which has embarked on developing delay risk assurance using deep learning (artificial intelligence) techniques by collecting specific data from past infrastructure projects. Its ambition is to move from assurance to construction risk insurance. Efficient construction risk insurance could solve the PPP conundrum, but what is the reach of nPlan’s approach? Mr. Dev Amratia, CEO, nPlan (UK) Discussant: Mr. Dejan Makovsek, Procurement Strategy Lead – Major Projects, Infrastructure and Public Procurement Division, OECD 7. Panel: The promise of two-step ECI? (13:40 – 14:20) Collaborative approaches such as the Early Contractor Involvement bring in contractors and designers very early in the project development process when there is no seriously developed design available to generate a more reliable price estimate. The promise is that through the early involvement, colocation, and collaborative working culture better solutions will became available and a de-risking of the project will be possible. A two-step ECI means that the procuring authority would first collaborate with contractor/designer/supplier in the first step – the design stage. In principle it is also possible that several bidders would be developing solutions in parallel, which would then be sequentially excluded until the best remains. In the second stage, the collaborating consortium enters a fixed price (e.g. DB) contract. Mr. Jaap de Koning, Head of Contracting and Procurement, Witteveen+Bos (NL) Ms. Anna Kadefors, professor at the KTH Royal Institute of Technology, Stockholm (SE) Mr. Bjorn Borseth, Executive Director, Nye Veier, Norway (NO)
  • 8. 8  Mr. Jonathan Kennedy, Vice President, New Jersey Economic Development Authority (US) Mr. Juliano Denicol, professor at the UCL, Bartlett School of Construction (UK) Moderator: Ms. Andrea Chao, Partner, Bird&Bird, (NL) 8. Panel: What does the current trend mean for PPPs? What are the reservations of investors with regard to a two-step ECI? What of the prospect of construction risk insurance? (14:20 – 15:00) Capitally intensive PPP rely on insulating investors from construction risk. To date this was performed through high powered fixed price contracts such as DB or EPC. If contractors are no longer willing to bid for fixed price contracts (and one or two bidders is hardly a competition!), capitally intensive PPPs will lose all hope of Value for Money. Their place in the arsenal of public procurement would be threatened. Mr. Gregg McClymont, Executive director – Public Affairs, IFM Investors (UK) Mr. Darryl Murphy, Managing Director, Head of Infrastructure, Aviva Investors (UK) Mr. Rafael Hertz, Vice president, Financiera de Desarollo Nacional (CO) Ms. Mamiko Yoko-Arai, Head of Capital Market and Financial Institution Division, Directorate for Fiscal and Enterprise Affairs, OECD (confirmed) Moderator: prof. Veronica Vecchi, professor at SDA Bocconi School of Management (IT) 9. Expert meeting closure (15:00 – 15:20) Mr. Paul Quinn, Government Chief Procurement Officer (IE); Chair of the Working Party of the Leading Practitioners on Public Procurement Mr. Edwin Lau, Head of the Infrastructure and Public Procurement Division, Public Governance Directorate