To begin our series, Steve Rowsell broadly defines the transformation UK industry went through in the 90s and 2000s, and the impacts of this differing approach on the supply chain and the client organisation.
Steve Rowsell is a director of Rowsell Wright which is a specialist UK consultancy providing practical advice on all aspects of construction procurement. Rowsell Wright have worked closely with clients from the public sector, construction, clients central and local government and private sector suppliers, including civil engineering contractors and consultants.
John Mason, Expertise Leader, Programme & Project Management at Aurecon conducted a Q&A session with Steve to discuss recent, current and emerging trends in the UK construction industry.
This 20-year period was one of significant change for the UK construction industry and it ultimately resulted in a number of landmark schemes, such as London 2012, being delivered on time and within budget. Other mega projects such as Crossrail are well advanced and are showing signs of achieving similar outcomes.
John: I’d like to start by discussing the journey the UK construction industry has gone through over the past 20 years or so and the lessons that have been learned in the UK that might be applicable to Aurecon’s clients in our different geographies and industry sectors.
Having worked in the UK during this period in programme and project management, it’s certainly been quite a transformation, with the Government and private sectors moving away from a largely confrontational and adversarial approach to construction contracts, to one which is now much more focused on shared outcomes and mutual success.
To what extent have clients influenced these changes and to what extent did they have to go through a process of organisational change themselves?
Steve: Building a broad understanding of what the client was seeking to do was absolutely essential. To make these type of changes, it wasn’t just a case of setting out new processes and tools, but also changing the culture within the client’s own organisation, because if you don't take people with you, you're not going to achieve what you want to do.
What we’ve found on recent UK megaprojects is that principles such as early engagement with the supply chain and the early involvement of contractors and their supply chain is critical. You can achieve a lot through the adoption of approaches such as early contractor involvement, collaboration and partnering principles, incentivised performance and, very importantly, the methods for selecting suppliers in the first place. In the UK, this normally involves selecting suppliers based on best value, rather than lowest price, which in the past had led to a lot of the problems you flagged at the start.
Now, the Government has a lot more confidence in the construction clients in the UK, and their supply chains, to deliver on time and to budget, particularly on very large schemes. In December 2015, we had the latest UK Government spending review and within this review, there is full commitment to a whole range of new major construction projects.
Examples of projects in either the planning or construction phases include:
While some challenges remain within the national rail network, we have numerous projects underway on the London Underground and a whole range of investments in the energy sector and some important utility led projects such as Thames Tideway. These projects are being brought forward because they are being based on collaborative delivery strategies, which the Government believes will be successful and so they are willing to invest in them.
So there have been big changes. Cultural change has been the biggest challenge, but we are seeing widespread adoption of the new principles now and a supply chain that is willing to work in the way that is required.
John: The journey that the UK industry went on, I don't suppose it was an entirely smooth ride. Were there any particular tipping points that moved industry in the direction the Government was seeking?
Steve: A key aspect was to gain a better understanding of the barriers preventing the supply chain from delivering best value. Previously clients had little contact with the industry about delivery strategies. I think it was important that clients were committed to engaging properly with the supply chain and developing more trust. This meant not just giving lip-service to such an engagement, but genuinely engaging with the supply chain in the development of new strategies, to show that their contributions were being listened to and were taken into account. When we developed Early Contractor Involvement (ECI) there was a whole range of aspects which were strongly influenced by the supply chain. So I think that engagement was absolutely critical to its ultimate success.
The other important change I referred to earlier, was the ability of clients to address shortcomings in their own cultures. When I was at the Highways Agency, we put delivery teams through a major change management programme. This involved taking approximately 800 project delivery and procurement people through the programme. In the end we took about 12 months to ensure that people really understood what could be achieved and then we worked with them to shift their behaviours. Looking back, I think that we achieved a 70 to 80 per cent cultural change within the client side.
Of the remaining 20 to 30 per cent, probably about 15 to 20 per cent understood what we were trying to achieve, but they were struggling to cope with the change, and there was 5 to 10 per cent who really didn't want to change. Again, those numbers sound quite small, but 5 to 10 per cent of about 800 people can be a significant impact on those projects which those people are working on.
So again, we had to work with the industry to measure each other's performance. We had to rely on feedback for the industry to tell us when people weren't acting the way that was required. We then had to have a discussion with them and in some cases a small number of people had to be moved on to other duties.
So I think it was that combination of engagement and performance measurement, and open and honest reporting with the supply chain to point out people and processes that weren't working properly.
John: This process of change can often get overlooked, with the importance of getting the client group solidly behind any initiative so important. It must have been quite a change process to go through. Could you elaborate on some of the specific issues and how this was dealt with?
Steve: We realised that achieving culture change is not something you do quickly, so we had quite a long programme of team-building events, workshops, where we very clearly set out the challenges we were seeking to address. I think before you can get that culture change, you have to ensure that everybody understands the problems that are being caused by the old way of working.
In our case, one of the problems we had is that there were quite a lot of people who had been engaged in confrontational-type contracts and actually quite enjoyed the cut and thrust of claim settlements. But the bottom line was that the client was dealing with average cost overruns of 40 per cent. So where 40 per cent of your annual budget is uncertain, reliant on claims, it is not a position that the client wants to be in.
So we had to set out and ensure that the individuals understood the problem that we were trying to resolve and then we involved them in developing the solutions to try and get to a better place. So I think it is facing up to the problems, it is engagement and involving people in developing the solutions, and then it's bringing the people together so that there is very much a common understanding, there are team behaviours being demonstrated.
John: How did you demonstrate value for money, as you moved away from a tradition of accepting the lowest tender price? You made a comment earlier about lowest price, and I remember myself, that lowest price often dictated how projects were awarded back in the 80s and early 90s. How did you move the client group to a point of value for money, where perhaps sometimes the lowest cost tender wasn't necessarily accepted?
Steve: The key was to recognise the inefficiency and waste in the confrontational relationships and replace that with a collaborative approach. As with all of these aspects of the improvements Government was seeking, it came down to strong leadership. We had a very strong leadership team at the Highways Agency and equally there was some very strong leadership coming out of Government because of the findings of the Latham Report (1994) and the Egan Report (1998).
I think it was clearly recognised that lowest price was causing a lot of problems because of the very low bidding at a very competitive time in the market. The consequence of this, in terms of claims disruption and prolonged legal disputes, was considerable and disruptive.
On one contract, which was one of 30 or so contracts I was overseeing at the time where final accounts were unresolved and over three years old, dispute proceedings had continued for over 10 years. We spent over UK£10 million in legal costs, and I also believe the contractor in question spent in excess of UK£15 million on legal costs, and at the end we shook hands and walked away from the dispute with no money exchanged between us.
So in terms of seeing where the wastage was in the industry that was quite easy. But the Government was seeking to improve performance in terms of reducing cost overruns and ensuring that projects were completed on time. Government wanted to speed up delivery. The new principles we introduced, such as early contractor involvement, brought the contractor to the table at an earlier stage. So when planning approval was given, it meant that construction could start straightaway, rather than waiting a further couple of years for procurement to take place.
When it came to key performance indicators, there was a greater focus on cost reliability, delivery of projects to cost and time, measuring right first time, measuring the time taken to deliver a project - these were all aspects of project delivery the Government asked us to measure.
When you look across the results, this new approach, combined with the introduction of a new form of contract, the New Engineering Contract (NEC3), has had huge impacts. Where previously we had 90 per cent of projects being delivered late, now it is unusual for a project to be overrun its scheduled completion date.
In terms of delivery to time, once a target cost has been agreed, where we are using target costs, we are in the contractual phase, and 90 per cent of contracts are being delivered within the target. So there's a whole range of high-level, key performance indicators and they are supported by a wide range of measures within the contracts themselves, to be able to benchmark performance across the various projects and programmes.
Steve Rowsell is a well-known figure in the UK construction industry and has over 34 years’ experience in major project delivery. This includes senior roles at the Highways Agency and Crossrail Limited, and procurement related expert witness work.
From July 2007 until 2010 Steve was Head of Procurement for the UK£15.9 billion Crossrail project across London. From 2000 to April 2007 Steve was the Highways Agency’s Procurement Director. He was responsible for developing and implementing its new procurement strategy for delivery of the Government’s UK£2 billion per annum strategic road construction and maintenance programme.
The success of the Highways Agency’s approach to procurement resulted in Steve leading the new Change Agent role given to the Highways Agency by Sir Peter Gershon in his 2004 Efficiency Review. This involved working with local authorities to help to improve their procurement methods and achieve the challenging new efficiency targets. Steve has now established a procurement consultancy, Rowsell Wright Ltd, and is supporting major infrastructure clients including High Speed Two.