Infrastructure Project Delivery Strategy: Getting It Right

6 Ianuarie 2011

DANIELA NEMOIANU ISTOCESCU - Advisory Partner KPMG ROMÂNIA S.R.L.

In the current economic landscape, infrastructure project owners are scaling down or eliminating capital construction projects due to lack of financing, uncertainty over costs, and concerns about potential delays that could impact the feasibility basis of projects. Owners sometimes take these actions without considering the wide range of project delivery methods that can successfully mitigate cost, scope, and schedule risks.

Romania risks falling behind in the global race to develop efficient and sustainable economic infrastructure and the nation's future economic growth depends on the success of a rapid and coordinated national approach to the revitalisation of Romanian infrastructure. The credit crunch and growing global infrastructure demand mean Romania now faces even greater competition for the finance and resources we need to complete our most pressing projects. Unless we can fund these infrastructure projects, we face the prospect of an increasingly stagnant economy and attendant increases in the level of unemployment.

This paper discusses the project delivery options available to owners and authorities and describes the factors that influence an owner's selection of one method over another. Armed with this knowledge, project owners can learn how the selection of appropriate project delivery methods can support their decisions to proceed with high-priority projects and programs.

The appropriate delivery strategy will drive project cost, quality of design, construction, long-term maintenance, and project completion date with application in a variety of sectors:

• Power generation, transmission, and distribution
• Oil and gas production, transportation, and distribution
• Transportation networks (highways, bridges, tunnels, seaports, airports, railroads, and mass-transit)
• Health (hospitals, clinics, and emergency care facilities)
• Education (schools, offices, and dormitories)
• Sports arenas and facilities
• Art and culture (opera houses, museums, theaters, and cultural centers)
• Financial (banking, insurance)
• Communication facilities (telephone, internet, radio, television, cable, satellite)
• Water and wastewater
• Waste management (landfills, incinerators, and hazardous waste handling)

Developing a robust project delivery strategy can significantly affect the success of a large construction or infrastructure project. The appropriate delivery strategy typically drives project cost, quality of design, construction, long-term maintenance, and project completion date. Project owners planning large projects can improve their chances of success by performing a thorough assessment of the key objectives for the project and the delivery strategies available to execute it.

The spectrum of project delivery strategies ranges from those where the owners are fully involved to where their involvement is minimal. In practical terms for example, the strategies can vary from those where the owner is an active participant in the initial design phase through commissioning and operations to those where the owner has minimal involvement and relies on a turnkey contractor to coordinate all aspects of the project, including its long-term maintenance and operation.

The project owner's objectives and organizational characteristics dictate the available project delivery strategies. In all cases, the most appropriate delivery strategy will also depend on the specific project and circumstances. Selecting the most appropriate project delivery strategy is only one of the many activities and decision points a project owner will face over the course of a major capital project. It is, however, one of the most important, affecting not only the project outcome but also the owner's internal management, support structure and the health of its relationship with all other project stakeholders.

The project owner's culture has a significant influence on the appropriate choices for project delivery strategy. The desire to understand and limit its risk by taking the project "one step at a time" might lead the project owner to select a more traditional approach. An active project owner with a "hands-on" approach, who doesn't mind sharing project risk in a transparent and open manner, is likely to be more comfortable with the collaborative and integrative models of project delivery. If the project owner works in an organization with stable needs that is looking for a solution that transfers project risks both in the short term and in the long term, it may choose the partnership delivery model.

Each project delivery method has advantages and disadvantages. This paper will focus on the factors a project owner should consider before selecting a project delivery strategy for a large capital construction or infrastructure project. The paper will explain how those selection factors can influence the timeliness, quality, and cost of a large project and encourage responsible stewardship over the long-term.

Defining Project Delivery

There is no single industry definition for what constitutes project delivery. Project delivery is not only about the form of contract used to shift or share the risks inherent in a large capital project or the organizational structure of the project team. Project delivery is about getting a quality project done — on time and on budget — and, more often, taking a life-cycle approach to make sure that the built asset is maintained over the long-term.

This paper assumes that all of the mainstream delivery approaches currently in use can be placed into one of the following four categories:

• Traditional
• Integrative
• Collaborative
• Partnership

 

Strategy Methodologies

Traditional: • design-bid-build • multiple prime contracting

Collaborative: • agency construction management • construction management at risk • design-and-build • engineering-procurement-construction • turn key

Integrative: • alliancing • partnering • integrated project delivery

Partnership: • build-operate-transfer • build-own-operate • build-own-operate-transfer • concession • design-build-finance-and-operate • private finance initiative • public private partnership

The traditional model is fairly rigid and sequential, with construction following procurement, which can only be initiated after the completion of the design. Selecting the most appropriate project delivery strategy can have significant impacts on the cost, quality, and time for completing a large capital project and encouraging life-cycle maintenance. The traditional model is fairly rigid and sequential, with construction following procurement, which can only be initiated after the completion of the design. The collaborative model allows for some overlap in the phasing of design and construction with all three parties — project owner, designer, and contractor — all involved at inception of the project.

The integrative model builds upon the collaborative approach in that all three parties share project risks and are often linked through a common contract. The partnership model, used mostly in the public sector, involves the public and private sectors working together over a period lasting decades and puts life-cycle, maintenance, and operational considerations into a holistic framework.

1

2

3

4

The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...