[ Spotlight: Project integration ] MoD Andover North Site


An early example of project integration was at MoD Andover, where Rider Levett Bucknall led an integrated team for a £35m design, build, operate and maintain contract. Central to the concept were collaborative processes such as a project bank account, a shared project server and co-location of staff from the different companies involved. Since completion, the project has saved £500,000 (44 per cent) compared with the target whole-life costs.


borne by team members up to that excess, at which point the insurer pays. The insurer will also have limited liability, so if that ‘cap’ is exceeded the client pays. To illustrate this, consider a £10m project insured against


a £5m cost overrun with a £1m excess. If the project ends up costing £9m, each member of the team takes a share of the savings in line with their gain share percentage. If the project costs more than £10m, the team contributes


to the first £1m of the overrun (the excess) based on their pain share percentages. Excess costs over £1m are paid by the insurer up to a further £5m. So the client only begins to pay extra costs if the project exceeds £16m (see Figure 3). The key principle is that, in the worst case, each team


member’s loss on the project will be limited to its share of the pain-share, which is set against reimbursable costs, overheads and profit in the cost plan. We hope all team members will realise they can focus on creativity and the client’s needs, rather than worrying about warranties, damages and claims.


Q. How does this model deliver cost savings? With traditional procurement, the main contractor builds in contingencies against things going wrong; to a lesser extent this happens down the supply chain. In the current market, this will be less so. With the model described above, risks are insured so such contingencies are unnecessary, as are overhead allowances for ‘free’ and abortive estimating, insurances and managerial time in chasing payments and handling disputes. In addition, throughout the process the wasteful re- tendering for each element of the project is avoided, resulting


Figure 3. Risk-sharing and integrated project insurance for Gateway 3 approval


‘Competitive tension’


Insurers’ cap


SEA challenge – process cost


Target cost


Risk allowances savings


£ Basic cost


of integrated team and its supply chains


Client funding level


Gain-share, geared to success criteria


£ Basic cost


if with further savings


£


Basic cost if with


overspends


Insured cost overrun


Pain-share = excess


There is no need to worry about open-ended liability, because the team is working as one and risks are covered by the single insurance


in further savings. Everyone is motivated to minimise costs whilst maximising delivery of the success criteria and hence gain-share – the ‘win/win’ of more profit on less cost.


Q. What are the limitations of this model? Currently, it is restricted to projects valued at £10-20m because of the level of risk that insurers are currently prepared to take. However, as the model is proven and confidence grows, we can expect to see insurers agreeing to higher risk for larger projects.


Q. What happens next? In February, the government named seven pilot projects as test beds for the cost-saving models. The results will help to fine-tune the processes and, hopefully, identify which models will be taken forward to deliver the required savings. Given that it has taken almost 20 years to get this far,


the announcement of pilot projects is a very significant development, and one that makes me very optimistic about the future.


Q. How can ECA members get involved? The first stage is to express support and register an interest to get involved in the pilot projects under the SEA model. In the near future, there will be a website with progress updates and an opportunity to register, so watch out for news of this. The ECA can also help its members with this.


The long and winding road


An overview of the milestones that have led to project integration:


1994 Latham Report. 1995 FUSION: ‘Fairness, Unity, Seamless, Initiative, Openness’.


1997 Building Down Barriers, initiated by MoD. 1998 Egan Report, Rethinking Construction. 1999 Movement for Innovation Board develops integration strategy.


2000 MoD contractors’ deliver cost and time savings under Building Down Barriers.


2002 Strategic Forum for Construction publishes Accelerating Change.


2003 Strategic Forum launches the Integration T 2005 Strategic Forum issues Selecting the T


2007 Strategic Forum endorses testing of IPI. 2008 BERR Construction Matters Committee encourages IPI piloting


2009 SEA publishes Sustainable buildings need integrated teams.


2010 Construction Minister invites SEA to submit a fully worked proposition for IPI.


2011 Cabinet Office considers proposals for reducing costs.


2012 Cabinet Office announces first pilot projects. oolkit. eam advice.


2006 OGC mandates Common Minimum Standards and recommends IPI pilots.


March 2012 ECA Today 51


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