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Construction Commitments for Olympics & Strategic Forum 2012

Learn about the strategic commitments for the 2012 London Olympics, focusing on client leadership, design quality, procurement, people commitment, sustainability, and health & safety.

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Construction Commitments for Olympics & Strategic Forum 2012

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  1. A NEW ERA IN CONSTRUCTION GROWTH , CAPACITY AND INNOVATION” By Mike Lomas

  2. A WISH LIST?

  3. ”The client will champion best practice in design, team working and innovation” • “The client structure and responsibilities will be clearly identified … to ensure continuity in leadership” • “The client will produce a clear brief before design commences” • “Designers will be selected according to ability and quality …” • “Procurement decisions will be transparent, made on best value rather than lower cost …” • “All designs will address health and safety issues and all projects will have a risk register …”

  4. ”Risks will be clearly identified, financially quantified and allocated in line with each party’s ability to manage risk …” • “All contracts will have an informal and non-confrontational mechanism to manage disputes” • “To ensure effective and equitable cash flow for all those involved, all contracts will incorporate fair payment practices such as 30 days, no unfair holding of retentions etc” • “All members of the construction team will be identified and involved at an early stage, particularly during the design process and encouraged to work collaboratively”

  5. ”An overarching Sustainability Development Strategy will be developed” • “Project specific agreements will be established between Unions and Employers” • “All projects will aspire to be injury and accident free”

  6. IS IT A WISH LIST? • NO IT’S FACT • CONSTRUCTION COMMITMENTS FOR THE 2012 OLYMPIC GAMES IN LONDON • STRATEGIC FORUM 2012 TASK GROUP CONSISTING OF 24 MEMBERS FROM GOVERNMENT, CIC, CONSULTING ENGINEERS AND CONTRACTORS • SIX KEY AREAS VITAL FOR DELIVERY • CLIENT LEADERSHIP • DESIGN QUALITY • PROCUREMENT AND INTEGRATION • COMMITMENT TO PEOPLE • SUSTAINABILITY • HEALTH AND SAFETY

  7. THE GOAL “Profits are the reward for successful risk-taking in a modern competitive economy” • …. “London Stock Exchange – A Practical Guide to Corporate Governance” • “The target is to achieve a proper balance between risks incurred • and potential returns to shareholders” • …. “Malaysian Code on Corporate Governance”

  8. CONSTRUCTION INDUSTRY PRESSURES SKILLS SHORTAGES PRODUCTIVITY EMPLOYEES EXPECTATIONS SHAREHOLDERS POLITICAL PRESSURE BANKS CONTRACTORS WORLD COMPLIANCE BEE/SAFETY INCREASING COSTS MARGINS & CASH FLOW CUSTOMER & ENG EXPECTATIONS DELIVERY & RISK SOURCE:M.H. LOMAS

  9. CORE VALUES • APPETITE FOR RISK • MANAGEMENT PHILOSOPHY • MARKETS (LOCAL AND INTERNATIONAL) • CUSTOMER BASE • PRODUCTS AND SERVICES • GROWTH ASPIRATIONS • FINANCIAL STRENGTH • TECHNICAL COMPETENCE • HUMAN CAPITAL THE BUSINESS IN CONTEXT The Board and Management team need to be clear on the Organisation’s:

  10. GROWTH OF CONSTRUCTION INDUSTRY

  11. FORECAST MARKET OUTLOOK – SOUTH AFRICA • Growth momentum set to continue well past 2010 • 2010 is only a milestone Rm 70,000 60,000 Real Total Contractors Industry Growth 50,000 Public Sector Private Sector 40,000 30,000 20,000 10,000 0 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 2015 1981 Source: BER, Stellenbosch

  12. INFRASTRUCTURE LAGGING ECONOMIC GROWTH STOPPED THE DECLINE SOURCE SARB

  13. CONCLUSION IT’S AN UNDENIABLE FACT THAT ALL THINGS BEING EQUAL THE INDUSTRY WILL ENJOY AT LEAST 10-15 YEARS OF CONTINUED GROWTH

  14. RISK AND REWARD

  15. “Global” 1991 Recession “Global” 2001 Recession Asia North America Global Global Trend Europe 5-Year GlobalTrend ? Global E&C Industry Profit Margins

  16. CONTRACTORS REVIVAL - MARGINS Adjustments for KBR, Colas, Ferrovial, Bouygues, Vinci, and Formento de Construcciones • Industry reacts to risk implementation procedures • Margins rapidly increasing from 2002-2003 • Reaching 4-6.5% by 2006 SOURCE: ENGINEERING AND CONSTRUCTION RISK INSTITUTE

  17. HISTORIC MARGINS IN SA CONSTRUCTION Civil Engineering Turnover (2000=100), Inflation (%), Margin (%) Billions % 22 25 Civil Engineering Turnover 20% 20 23 Inflation 18 Margin 17% 21 16 19 14 17 12 15 10 13 8 7.1% 11 6.5% 6 5.2% 9 4 7 2 5 0 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 ’02 ’04 2006 Source: South African Federation of Civil Engineering Contractors (SAFCEC)

  18. FROM CONCEPT TO COMPLETION OWNERS RISK PROCESS?? CONTRACTORS RISK PROCESS? HANDOVER OF RISK FINANCIAL FEASIBILITY DESIGN & ENGINEERING CONCEPT TENDER AWARD CONSTRUCTION COMMISSION HANDOVER • THREE FUNDAMENTAL QUESTIONS FOR THE OWNER (Given competition for funds and skills for every project) • Can the development be physically engineered and constructed • Does the technology exist to engineer and construct the development project to meet the purpose intended? • Does the expected benefit of the development project justify the cost of engineering, constructing and operating the project? MIKE LOMAS

  19. Key Risk Issues in effective infrastructure project structuring Low Risk High Risk Qualified Resources - skills Contract Models Risk vs. Reward Change Management Growth & Expansion Risk Management Process Project Development Portfolio Risk Client Management Low Bidding Status of Partner Schedule Design Development Payment Source: ECRI

  20. STRATEGY AND INNOVATION

  21. CRC STUDY • Recent International Study by Co-operative Research Centre (CRC) “wish list” from • Clients/Engineers/Contractors • In top five – to drive “innovation” • Improved management of design and construction • Avoidance of adversarial relationships • Fairer distribution of Project Risk • Involve Contractors earlier in the process • Similarities with: • 2012 construction commitments • Risk management

  22. HUMANRESOURCE CHALLENGE “How do you get people to want to add more day by day?”… Cannot force these Policies & Procedures NEW HIERARCHY Innovation needs the top three of the triangle MIKE LOMAS

  23. INNOVATION • Implementation of Best Practice – Implement the best • Off Site Manufacture – better quality control, SHE, environmental benefits • New production processes – organisation and management of site activities and supply chain • Virtual Prototyping for Design and Manufacture – “Try before you buy” • Environmentally sustainable construction – Next 10-15 years looking at eco-efficiency evaluations tools for stages of construction • Preferred Employers • Currently Construction Industry lags other Industries on Innovation

  24. CONCLUSION • RSA market set for 10-15 years strong construction growth • Must learn from International Risk Management lessons – cost of failure getting higher • Beware overtrading, could be casualties • The question is “Should RSA have an overarching Construction Industry Vision/Strategy – RSA 2015??” • If so, what would it encompass? – From “transformation to innovation” • SAICE/ICE

  25. THANK YOU AND QUESTIONS

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