From our Alliance Partner, JCP
Consultancy, Ltd.
A major step forward for partnering in Hong Kong was achieved with the Mass Transit Rail Company (MTRC) Tseung Kwan O (TKE) Extension starting in 1999 and completing in 2002. The MTRC had experienced adversarial relationships and a high number of claims on the Hong Kong Airport Railway project and was seeking to try and avoid a repeat of this. They had visited the U.K. and were impressed with the improvements achieved through partnering on projects such as the Channel Tunnel Rail Link and invited a partnering consultant involved with this project to help.
Partnering was applied to all 35 contracts on a post‑contract, project-partnering basis through a comprehensive program of facilitation and training. The program started with internal partnering to establish commitment and understanding within MTRC management and to practice internal relationship improvement ahead of involving suppliers. At the same time contracts were being awarded at prices well below expectations and there was concern that contractors may wish to improve their low margins through claims. Contractors were invited to join partnering on a voluntary basis and to consider the prospect of improving margins through waste reduction working with MTRC to get the most efficient outcome. The first year of partnering was focused almost entirely on developing cooperative behavior between MTRC, their designers and contractors.
The initial ideas were aimed at improving communication through simple actions such as: sharing offices, reducing letter writing and emails and increasing face to face discussion, sharing mobile radio systems, joint inspections and record keeping, and early involvement in submissions. The average submission turnaround time measured as a key performance indicator on some projects was driven down from 40 days to 10 days on critical path activities.
The early successes gave the team confidence to drive for more substantial improvement through value engineering and developing jointly acceptable solutions from the contractor’s alternative design proposals. Success in waste reduction helped to cement the cooperative relationships that were building over the first twelve months and gave the more advanced project teams confidence to take a further improvement step. This involved agreeing to a target cost for the outturn in which contractors took on some additional risk such as those for completion of detail design and there was a small allocation for shared risks if they were not realized. Although it was a small amount, the shared risk allocation afforded incentives to the MTRC and contractor site teams to jointly solve problems more quickly than would be the case in a more traditional relationship.
The MTRC Tseung Kwan O Extension project opened in 2002, four months ahead of schedule and with approximately $400,000 savings on the attributed partnering and incentives program. The Airport Railway project had finished only just in time and with approximately 5,000 claims outstanding. For the Tseung Kwan O project there were 80% less claims and 85% of claims were settled at least 6 months before completion. In addition 33 of the 35 contracts had final accounts settled at the time of practical completion.
During the period of this contract a study of the construction industry was undertaken by the Construction Industry Review Committee (CRIC) led by Henry Tang. Their findings were similar to those found earlier in the U.K. construction industry but with the following additional points:
Ø The industry is more fragmented with multi-tiered sub-contracting
Ø Unrealistic programs resulting in overrun
Ø Lack of accountability and ethics
Ø Poor use of information technology
Ø Excessive regulatory control
Ø Poor risk management and risk sharing
In the summary Henry Tang called upon the members of the
construction industry to work in collaboration to improve the problems identified
in the CIRC Report and work towards the vision of “an integrated
construction industry that is capable of continuous improvement towards
excellence in a market driven environment”. Essentially Mr. Tang was
calling for partnering at the industry representative level.
The report itself gave less prominence to the practice of partnering in achieving improvement at project level. However CIRC Recommendation 38 called upon public sector clients and progressive clients in the private sector to take a lead in the wider adoption of the partnering approach in implementing construction projects. In CIRC Recommendation 40 they suggested the use of a project pact in securing commitment to common goals, teamwork and good practice and in CIRC Recommendation 39 they request Government and other major clients to consider new forms of contract which integrate a partnering approach into the contractual relationship. Subsequently the Construction Industry Task Force and the Provisional Construction Industry Coordinating Body (PCICB) were set up to help drive the industry improvements and working groups were started in key areas such as the “reform of subcontracting”.
Partnering was not seen as a top priority for the PCICB to begin with but it was of great interest industry practitioners who saw it as a means as reducing the waste and frustrations resulting from the adversarial culture within the industry that had developed over many years. There were many well-attended seminars and presentations on the subject organized by the professional bodies and the Association for Project Management (APM) established a Specific Interest Group (SIG) to help promote and provide guidance in the practice of partnering. The PCICB has offered its support to the APM SIG for Partnering and the SIG will publish guidelines and information on partnering for use in Hong Kong.
The challenge for Government in getting the best of the huge potential improvement that partnering can offer lies in recognizing and overcoming the limitations of the hierarchical culture. The Department hierarchies are multi-layered and rigidly controlled through rules, procedures and audits. As a result those at the lower who are actively managing projects feel that their hands are tied when it comes to making improvements or reducing wasteful activities that they know exist as a result of the procedures they are required to follow. It is easier and less risky from a career point of view to ‘follow the rules’ rather than to do what is “best for the project outcome”. Thus the current approach to partnering which is essentially “bottom up” will achieve only limited gains (mainly in improving relationships), until the rigid controls are eased and there is much greater empowerment of those who are running projects to change wasteful practices.
To achieve major reform, partnering needs to go ‘top down’ as well as ‘bottom up’ and there needs to be greater investment in changing hierarchical cultures. For example, in development of new and more efficient procurement strategies for public infrastructure it would probably be best to commence partnering at the interdepartmental level (Finance Bureau and Works Branch). One of the fundamental reasons for the success of partnering at MTRC is the ‘top down’ approach.
Following the TKE success MTRC adopted a policy of using alliances for higher-risk projects. The Tsim Sha Tsui Station Extension that started in 2002 followed a two-stage tender approach. Two contractors were chosen from the first stage short list of 5 (chosen mainly on the basis of technical, management and partnering ability) to work with the design team during the final stages of detailed design development to make alternative proposals on an open book target cost approach with pain/gain arrangements.
The target cost approach is designed to get the benefits of contractor involvement in the design process. The objective is to arrive at a target cost that the client, the designers and the contractor believe is the minimum cost and optimum program to do the job properly. The contractor has the opportunity to fully understand the project and has been able to incorporate into the design his preferred approach to construction and any innovative ideas that he may have. The team goes through a value management exercise to drive the cost to what is considered best value. The target is likely to be above that which would have been received in open competitive tender but it is driven down further during the course of the project through a continuous search for improvement by the whole team. The incentive for this is created by the pain share/gain share arrangement. Since in traditional arrangements time and cost parameters mostly increase the target cost approach usually provides an eventual lower cost and time outcome. It is most suited to higher risk projects where the contractor’s method has a major impact on the design and therefore cost.
Less than 18 months after introducing partnering, MTRC developed incentive commercial arrangements on several contracts, with final accounts agreed and target costs set against risk schedules. Pain share – gain share formula have been established whereby MTRC and the contractors share savings or cost overruns. The agreements have changed traditionally tendered contracts into incentive target cost arrangements, with a creative approach to risk management. These agreements are already proving successful, with indications of significant savings against the targets.
The Airport Authority also modified their approach to procurement to gain the benefits of early contractor involvement in the detail design for the Terminal Building Expansion that is also currently underway. In this case, three contractors were short-listed to work with the design team and provide competitive bids in amore traditional format. Interestingly, the contractor that won this project put forward the lowest cost and a winning alternative proposal with a longer program than originally requested. The period of earlier involvement had enabled him to understand the business case for the project and propose a sequence of works that maximized rental income for the Authority. Both the MTRC and the AAHK projects are doing well and showing significant improvements over the more traditional approaches to procurement previously taken by these organizations.
The MTRC is now adopting a full alliance approach for the Lantau Cable Car project whereby a single contractor is chosen to join the team at concept design stage to develop the project definition, which will include a jointly developed scheme design, target cost with incentives, and risk sharing agreement. Again this is a high-risk project where the method of constructing the cableway up the mountainside and environmental impact considerations will have a major impact on the outcome. A long list of contractors was first invited to submit pre-qualification proposals. A short list of four contractors were then asked to make more detailed proposals which are being assessed for management and technical capability, attitude towards partnering, understanding of the project, costs for the design period, management, profit and overhead costs for construction.
Summary of Partnering Activities
on the TKE Project:
Ø Held partnering events, reviews and coaching sessions for the individual projects, with a focus on behavior changes
Ø Developed relationship tools and methods so working behaviors could be monitored and improved
Ø With the managers, introduced cross-project and inter-company co-operation to help move towards a more strategic and alliance way of thinking and working
Ø Helped strengthen internal project management processes and constantly challenged and supported the quest for improvements
Ø Held partnering sessions with the key Government authorities to get the right understanding
Ø Searched out and celebrated successes
Project Successes:
The project was an
outstanding success and exceeded expectations and plans. People were willing and able to change their
behaviors to innovate and co-operate, resulting in:
Ø
Completion some 4 months ahead of the approved timetable
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Opening to the public 10 weeks ahead of the original plans
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Producing an earlier income stream than envisioned
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A cost savings of over $400 million as a result of the partnering
philosophy
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A significantly improved claims culture, with fewer claims than previous
MTRC projects
Ø
An early resolution of final accounts, with many being concluded before
completion of the actual work
Ø
Higher standards of quality demonstrated by lower rejection rates and
well within the program’s limits
Ø
Zero physical defects noted in all inspections of ancillary buildings and
stations by the Fire Services department, representing an industry first
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Tangible benefits for, and less disruption, to many of the communities in
which the construction works were taking place
Ø
A much improved attitude and approach to site safety within individual
contracts and across the project
The ROI of Partnering for
the MTRC TKE Program
Partnering has helped reduce MTRC’s TKE project cost and
program. While cost has been incurred
in developing and establishing the partnering initiative, it is estimated that
the return on the partnering investment itself is over 1,000%!
For more information visit the MTR web site at: http://www.mtr.com.hk/