FTA Pilot Projects in Lean Project Alliancing

1. FinnishTransportationAgency (FTA) pilotprojects in leanprojectalliancingPekka Petäjäniemi, Finnish Transport AgencyLauri Merikallio, Vison Alliance Partners ltd

2. Short bios • M.S. (eng.) Pekka Petäjäniemi, Finnish Transport Agency • Director, Investment Projects • over 25 years experience in infrastructure industry in Finland and Germany • Partner, M.S (eng.) Lauri Merikallio, Vison Alliance Partners ltd • Consultant and researcher 2008 - • Executive and project tasks for over 20 years in infrastructure industry • Visitor scholar in UC Berkeley 2006/2007 www.liikennevirasto.fi

3. Key points we want to present • EU-legislation issue vs projects alliance / IPD • Why FTA is using project alliance? • How have we established alliances? • The pilot projects and results so far • What have we learnt and what has to be developed? www.liikennevirasto.fi

4. Some History… • Research project of the Project Alliance 2007/2008, no piloting • LCI comes to Finland 2008 • Lean principles, Integrated project deliveries and Lean Construction tools and methods started to achieve understanding • LIPS in Karlsruhe Germany 2009, Jim Ross introduced the Project Alliance • EU-legislation challenge in the public sector • LIPS in Washington DC 2010 • We might be able to challenge the EU-legislation • LIPPI in Brisbane Australia 2011 • First Project Alliance has been established, several others coming • LIPS in Tampere Finland 2012 • We have four alliance projects • LIPS in Nottingham 2013 • We have six alliance projects and some hybrids, more coming • LCI-Finland has 4,5 M€ R&D project 2013-2015

5. Alliancing versus European union procurement legislation The Alliance contracting model in Australia has two aspects, which are not in line with European Union legislation: • There is no need to use price in comparison • There is no need to write out verbal comparison about every comparison criteria

6. We need price component in EU No price component, pure alliance and Single TOC Full price competition between two NOPs (Dual TOC) Fee as a price component Price is made up of unit prices and fee % Budget critique and quality of pricing methods

7. Alliancing versus European union procurement legislation According to the EU directives and Finnish legislation The price should be used, when contracting authority is making comparison of tenders • Two possible selection criteria: The lowest price or the most economically advantageous tender (so-called quality and price) • In our case, we are going to use limb 2 as a price element. Contracting entities should write out justifications for every comparison criteria

8. The same overall process as in Australia www.liikennevirasto.fi

9. The Finnish Transport Agency (FTA) in brief • The Finnish Transport Agency is responsible formaintaining and developingthelevel of service in the transport infrastructure administered by the government. The Agency is accountable for an infrastructure property of nearly 19 billion euro. • The aim of the Agency is to promote the functioning of the transport system as a whole, to improve transport safety and to contribute to a balanced and sustainable development of the regions. • Of the Agency’s approximately 700 employees about 150 are stationed in the regions (20 %). • The Agency procures transport infrastructure services from the market. • Yearly procurement budget is 1,5 billion euro

10. Contractors and Consultants estimate FTA every year Scale (1…6) 17 100 52 Procurement capability 61 Wearefarfrom top level 64 Network skills 67 61 Partnership skills 62 61 62 FTA FTA + Regional Organization

11. FTA’s strategic targets for using procurement models which improve productivity Background: • Increase in productivity has been much lower in construction industry than in other industries • Productivity potential has been recognized and a significant part of it is connected to the way of acquiring services and cooperating during the project • FTA has been obliged to develop the industry in cooperation with Finnish infrastructure builders to be the most effective in Europe by 2015 Strategical targets for Alliance and Lean models by Public procurements • To improve productivity of the entire industry • To change the culture into a more open and trusting way of working • To improve the customer satisfaction for end products – faster, better quality and cheaper • To develop innovativeness and knowledge

12. Establish the alliance/ selecting the NOPs The proponent selected Procurement decision and Memorandum of explanation Competitive negotiation phase Workshops with 4 proponents Drop to two proponents Workshops with 2 proponents Evaluate written submissions The Alliance under way Request for proposals

13. Selection criteria www.liikennevirasto.fi

14. Challenges • Contract tendering takes time and resources maybe more than other procurement models • Very hectic 6 months period for competitive bidding • Many participants to coordinate • No chance to modify the time table • So far the Alliance model is new to everyone Liikennevirasto

15. Experiences of the selection process • After announcing that “Rantatunneli” will be an Alliance project • NOPs began to seek partners one year prior RFP • Consortiums started coaching and training process • New resources and commitment required during selection process • Construction and consultant companies • Owner • Common information and development workshops are very important for the owners and NOP´s • Better understanding of each other’s business • New roles • The feedback of NOP´s has been mainly positive • Consortiums are waiting for the next projects

16. ”Liekki” – The First Alliance Project

17. Pilot Railway renovation project Lielahti–Kokemäki-alliance “Liekki” present status • First Public sector Alliance Pilot in Europe • Project time 2012-15, used 50% PTU • Current phase “Implementation phase” • Railway renovation project, total length 90 km • Project budget 106,4 M€ • - NOP´s TOC 85,6 M€ • - OP´s 20,8 M€ materials not included in TOC • Goal for the renovation is to: • Improve safety for railway section and reduce maintenance costs by renewing and repairing constructions (railway sleepers, rails, ballast, culverts, bridges, drainage, build new and tear down old platforms) • Besides the renovation there are needs for improvements, such as: • Removal of railway level crossings. • Reinforce surface and bench structures of the railway track so that it is possible to operate on 250 kN in 80 km/h. 27.5.2013 www.liikennevirasto.fi/lielahti-kokemaki 17

18. Achievements, ”Collaboration is efficiency” • Collaboration in work coordination, management of change and innovative problem solving create efficiency. • Training and guiding play a key role • New way of collaboration requires constant learning during the project • Continues improving (plus and delta) • Total management of construction works, construction plans and owner´s administrative procedures. All decisions are made ”best for project” • Taking ”lean-principles” to practice: • Close collaboration in safety issues. Everyone works together with jointly agreed goals and common rules. www.liikennevirasto.fi/lielahti-kokemaki

19. Project Implementation Phase, Key Performance Indicators status are tangible and easily measurable(KRA) ESTIMATE 60/30% PTU www.liikennevirasto.fi/lielahti-kokemaki

20. Achievements, working on operated track section Coordination between construction works and railway traffic has been excellent Construction works´ influence on railway traffic in Lielahti-Kokemäki railway section in 2012: Freight traffic precision99,97 % Passenger traffic precision99,49 % www.liikennevirasto.fi/lielahti-kokemaki

21. Achievements, schedule Alliance model enables more efficient lead times by overlapping project phases (goal is to complete three years in advance compared to traditional models) In particular, managing administrative procedures and doing actual construction works simultaneously has been efficient Traditionalproject Alliance 2018 2011 2012 2014 2015 2016 2017 2013 Schedule Railway planning Construction planning Construction Commissioning mikko.heiskanen@fta.fi

22. Achievements ”Compensation model works” • ”Open book” principles are adopted and taken to practice -> builds trust • Openness in costs and cost management have been successful despite many separate cost controlling systems. • Compensation model has worked as planned: as an incentive and a controlling element of the project • Cost monitoring is systematic and auditing is done rutinely and reliably • TOC has not been modified -> risk assessment and pricing have been successful • Budget estimate was cut down from 106 M€ to 103M€ while project completion (time and cost) about 50% • Project has succeeded well due to innovative solutions and key result areas. NOP´s estimated reward has increased +8 % from original estimate www.liikennevirasto.fi/lielahti-kokemaki

23. Summary of ”Liekki” alliance • Work safety on a good level • Schedule under control • Costs under control • Risks and project scope under control • Pilot project has succeeded so far and outcomes are evident • ”Liekki” Alliance pilot was recognized as ”Construction site of the year 2012” in Finland WE www.liikennevirasto.fi/lielahti-kokemaki

24. KI

25. 27.9.2012 www.liikennevirasto.fi/lielahti-kokemaki

26. City of Tampere – The Tunnelproject Liikennevirasto

27. 2 pieces of one-way 2,3 km roadtunnels in Tampere city center • Interchangein bothends and provision for onein the middle • Daily traffic volume now > 40 000 • In the future 2030:    54 000 • The estimatedcosts185 M€ • Development period July 2012 – autumn 2013 Liikennevirasto

28. The same overall process as in Australia Administrativedecisions have been very complicated www.liikennevirasto.fi

29. Lean tools and methods used in the Tunnel Project developing phase • Early involvement • Depency Structure Matrix, DSM • Target Value Design process • Last Planner System • Modularization in Tunnel construction and Tunnel Systems (safety and control) • Continues Improvement Liikennevirasto

30. Challenges • Adopting the working culture when people are working also in other projects, “turning the alliance mode on” • Finding good incentive elements for subcontractors • Key employees possibilities to focus enough, because the working in alliance is very effective “things do not wait … they go on” • Find the right and important experiences from the Pilot project Liikennevirasto

31. Idea  Research Ifthere is value for the money Lessons learnt APPROVED UNFINISHED FROZEN Innovation CAST OFF Morethan 50 ideas Morethan 20 innovations ROAD BRIDGE TUNNEL TECNICAL SYSTEMS Tecnologygroupstakesresponsibility to explode the ideas • Clear evidence of innovation promotion • Explode the ideas and innovations systematically • Direct costs and fees will always be paid for the service providers • We can plan and prepare right things in the right time  Time table is not stretching because of the changes • One and only Big room is better • Rather workshop than meeting Liikennevirasto

32. Exploding the innovations systematically brings results Liikennevirasto

33. Compensation Model • Everyone's financial result depends on the result of the Alliance, not just on their own performance • Compensation model • Direct costs are reimbursable (project costs) • Corporation overheads and the profit (Fee) are maximum risk for the proponents • Gainshare / Painshare regime is common and will be shared in rations that are agreed in advance Gainshare/ Painshare Regime (limb3) Profit Fee Limb 2 Corporation overheads Project-specific overheads Direct project costs Reimburseable costs (limb1)

34. Limb 3 in Tampere Tunnel Project • Key result areas • Schedule • Safety • Usability • Image • Bonus pool 2,0 % of TOC AOC (actual Outcome Cost) under run < 5 % OP 30 % NOP 50 % Bp 20 % Under run > 5 % OP 40 % NOP 30 % Bp 30 % Overrun OP 50 % NOP 50% • Positive/negative modifier -10…+20 p • Traffic arrangements during execution + • Lifecycle costs + • Damages + • Black market - • Rail - • Highway 12 - Cost and Key result area gain/pain • Major Event Modifier • Rail • Catastrophe Final gain/pain

35. Value for money issue • Value for money report - Work in progress • Value for money as the management tool - In every project team and leadership teem meeting • Value for money as a leadership tool - Coaching teams what value for money means and how everyone can add value

36. And Where are We Now? • TOC agreed (180,3 M€) in June 2013 • Key result areas and metrics agreed in June 2013 • Implementation phase plan agreed in August 2013 • Tampere City council voted of the Tunnel Project on the 16th of September 2013. • The result was 36 (for) – 31 (against). • The implementation phase will start on 1th of October 2013 • The Supreme Administrative Court rejected all the claims against administrative designs 18th of September 2013 • The European commission rejected claim against using Alliance Model September 2013

37. Summary • Flexibility, innovations, culture change, commitments can be achieved by using alliance model • Implementing Lean in Alliance projects is useful and powerful • Project alliance is useful in very complex environments (political, social, technical, etc) • Price-component development has to be continued Liikennevirasto

38. Ongoing Alliance project in Finland • Vuolukiventie 1b • Helsinki University, SRV Oy ja Arkkitehtitoimisto SARC Oy • Implementationphase 06/2012-12/2013 • TOC 18million € • Terveyden ja hyvinvoinnin laitos 2012-14 • Senaatti Properties, NCC • Developingphase 2012-2013 • TOC 18 million € • hybrid • Järvenpää Hospital 2013-15 • Establish the alliance 05-08/2013 • Project developing phase 09/2013- • Target estimate cost 50 million € • Helsinki-Vantaa Airportpavementservices 2012-14 • Finavia ja Lemminkäinen Infra Oy • TCE 20 million € • Hybrid • Tampere Tunnel 2012-17 • City of Tampere, FTA • NOP: Lemminkäinen Infra Oy, A-insinöörit Oy ja Saanio & Riekkola Oy • Project developingphase 08/2012-09/2013 • Target OutcomeCost 180,3 million € • Lielahti-Kokemäki rail 6/2012-15 • FTA & VR Track Oy • TOC 106 million € Strategy decision Defect correction period Project developing phase Establish the alliance Implementation Phase

39. THANK YOU Questions! pekka.petajaniemi@liikennevirasto.fi lauri.merikallio@vison.fi