Back to Volume 1 | Winter 2016

From Construction to Production: New Delivery Models for Infrastructure

Executive Summary

Our infrastructure is mature and in need of renewal. Most investment is in existing networks and facilities, where it competes for space with the delivery of services to customers. And infrastructure is becoming more integrated and more reliant on digital technologies to provide new capacity and ensure its smooth operation.

Modern infrastructure is critical to the future of developed economies. Unfortunately, we have to pay for it through our taxes and our customers, and it is becoming unaffordable for many people living on modest incomes. It is essential that we invest in the right infrastructure, build it efficiently and deliver the outputs and outcomes that we have promised.

The approach commonly used to deliver infrastructure has evolved over the last forty years. It is a transactional delivery model in which the parties use the contracts between them as the principal means of achieving their objectives. Owners typically appoint consultants to design new projects and hire construction companies to build them – usually appointing the contract to the lowest bidder. The contractor then breaks the project down into packages and invites bids from suppliers for the work it cannot deliver itself. It is common for 80% of the value of an infrastructure project to be sub-contracted in this way.

This approach appears to offer owners a simple way of obtaining their infrastructure at lowest cost whilst satisfying regulatory requirements for open competition. The approach often works for modest projects based on established technologies that are separated from existing networks. But when projects become large, complex or technically challenging, the delivery model breaks down. It becomes inefficient, unreliable and often fails to deliver the optimum infrastructure solution.

The root causes of this problem lie in the disintegration of organizations, processes and knowledge that result from the pursuit of the lowest price and the transfer of risks into the supply chain. By accepting the consultant’s initial design and then breaking projects down into sub-contracts, we impede the flow of knowledge from the supply chain to the front of the project where value is created, and we add cost and uncertainty along the way. In our efforts to disperse risk into the supply chain we have replaced the management of production with the management of sub-contracts.

If we want new and more effective delivery models for infrastructure we have to begin by designing better systems of governance for investments in infrastructure. Then we have to support them with systems for measuring performance in delivering infrastructure that get right down into the details of the efficiency and predictability of the delivery process. The prize is affordable, modern infrastructure to support the UK’s development. The alternative is stagnation.

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