Building Blocks - Issue 32 - September 2017
Unlocking the value of public infrastructure projects
Peter Blahnik, Major Capital Projects Advisory and Donna-Joy Tuplin, Infrastructure Advisory
There are many factors to consider when developing a large public sector project. Taxpayers expect the public sector to deliver infrastructure on-time, on-budget, and to high-quality standards. This can only be done by creating a framework in which appropriate measures and levers are established to enable the project to succeed. Early on in the project development process, leaders need to ask themselves:
- Who should have the authority for project development, construction, and asset operation?
- What risk are we willing to transfer to vendors or industry?
- Does it make more sense to finance the project using the private sector or public funds?
- Are we best positioned to operate and/or maintain the asset once construction is complete?
It is crucial to understand the trade-offs between various project models. In this article, we will focus on Public-Private-Partnership (P3) and Design-Bid-Build (DBB) models. Although these models may have been effectively used in the past under different circumstances, leading practice is such that the best (and most appropriate) attributes from either model are being used to create new hybrid methods within traditional project models.
It’s a whole new world
Over the past two decades in Canada, the P3 project model has been embraced for its performance-based approach to procuring public infrastructure where the private sector assumes a major share of the risks. However, one must also consider these attributes of the model:
- Applies to large, complex projects
- Time consuming to develop and execute these projects
- Costly to execute, not just in construction cost but also in oversight
With fiscal constraints and an increasing need for new infrastructure, disruptive changes are resulting in hybrid approaches taking the best practices from P3 and DBB models to maximize project value and risk allocation. Here are a few critical approaches that are being included in hybrid project delivery models and disrupting traditional approaches.
- Taking more time for planning and development. Developing a clear and concise vision for the project, and progressively elaborating the scope and approach to align with the vision. Projects are moving away from jumping directly to the solution without an appropriate review using a gated process and key milestones during the planning and development stage. Current trends are to:
- Use a cross-functional team to review options and challenge the status quo
- Understand risks through multi-stakeholder risk workshops.
- Apply traceability principles through the project development such that the scope and approach can be clearly aligned with the vision.
- Starting with establishing effective governance. Establishing a governance structure before moving forward with the project creates a framework in which the project team can thrive. Without an effective governance structure, there can be redundancy or gaps in decision-making and an inability to monitor and control the project. Leading practice for hybrid projects include:
- Challenge and innovate at each stage of the project lifecycle.
- Consider lifecycle costs and how they can be better managed.
- Create an environment where stakeholders trust that correct decisions will be made.
- Clearly define responsibilities and accountabilities for each stage of the project.
- Engaging multi-disciplinary stakeholders using a more collaborative approach at each stage of the project. Creating project teams that draw from various disciplines and engaging them at each stage of the project lifecycle reduces the risk of unexpected issues arising later in the project or during the operate and maintain phase. Current trends are to:
- Identify multi-disciplinary stakeholders and plan for them to engage throughout each stage of the project.
- Develop an environment where stakeholders can communicate openly.
- Use technology to enhance collaboration and access expertise in other geographies.
- Supplier performance is critical to the success of the project. The procurement strategy must be acutely aware of capability in the market and supplier appetite to participate in the project. A misalignment between the market and the project owner will result in additional cost and risk, or even worse, a lack of interest in the project. Leading go-to-market approaches are to:
- Perform a market sounding to understand the local market and also test non-conventional markets and understand innovative solutions.
- Review risk allocation to ensure those who are best placed to manage a risk, will in fact manage the risk.
- Develop a request for proposal and contract that will incent suppliers to innovate and perform during each phase of the project lifecycle.
Many of these approaches may seem evident, however projects can face intense internal pressures to expedite planning and development. Ultimately resulting in missed opportunities to have alignment on scope; to reduce costs and better allocate risks.
Where do we go from here?
So we ask, is there an ideal project model for all large, complex infrastructure projects? The answer is no. However there is an opportunity at the outset of project idea formation to think through what the project will be and how you will get there.
We will continue to advise our clients on innovating during the project, considering lifecycle costs, and implementing a governance structure that allows for the “right touch” as it relates to monitoring and control of the project. A hybrid approach to developing and executing projects allows for:
- Taking the best project practices from either DBB or P3s and incorporating them into the project execution strategy.
- Listening to the market to take advantage of innovative practices and technologies.
- Making sure the right stakeholders are involved throughout the project.
- Focusing on better risk allocation to properly identify, manage and reduce the overall lifecycle cost of projects.
So now we ask, why would you not do any of these things?