Profiting from Integration

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• Profiting from Integration
• Martin Nielsen

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Profiting from Integration

• Reacting to the changing market
• Advocacy
• Being treated professionally and equitably
• Leading to strengthening our industry

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Why is this important?

• From a UK perspective -
• Construction employs 2.8million people
• Contributes one twelfth of UKs GVA
• Equivalent to 200 billion (twice the GVA
  produced by energy, automotive and aerospace
  sectors combined)
• Generates 20 billion in exports
• The output of the industry accounts for 70 of
  the countrys manufactured wealth

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More good news?

• Minister says its importance for Government goes
  way beyond its economic contribution!
• Construction is vital for the delivery of good
  quality public services
• Construction features in more than half of the 30
  public service agreements set out in recent Govt
  spending review
• Improved outcomes for users
• Enhanced standards of living
• Lower greenhouse gas emissions

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But.

• Industry is highly fragmented
• 270,000 active enterprises
• Over 90 of 180,000 contractors employ fewer that
  10
• 130 companies produce 75 of industry output by
  value
• Over 20,000 consulting firms, employing 225,000
  people
• No UK construction firm in the worlds top 20

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Recent Construction Industry Reforms

• Sir Michael Latham Constructing the Team (1994)
• Sir John Egan Rethinking Construction(1998)
• Sir John Egan Accelerating Change (2002)
• Martin Nielsen Profiting from Integration
  (2008)

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Definition Business Case

• Dependent on your perspective
• Integration is about
• Improving efficiency
• Eliminating waste
• Raising safety standards
• Reducing project delivery risk
• Strong evidence that integrated working delivers
  discernable and material benefits to each
  contributing party

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Barriers to Integrated Working

• Industry culture
• Capability capacity
• Procurement methods
• Contracts
• Payment systems
• Early engagement with the supply chain
• Understanding the balance between cost and value
• Appreciating equitable distribution of risk

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Equitable Contracts

• Address the huge and unnecessary proliferation of
  bespoke contract forms -
• Insist on appropriate standard forms that align
  interests
• Improve understanding of how collaborative
  principles are embodied
• Secure early participation of key suppliers
• Provide fair and prompt payment and reward
  arrangements
• Move towards integrated project insurance

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Equitable Protection for Consultants

• Standard contract forms
• Sensible duty of care provisions
• Non-recourse integrated project insurance
• Reasonable liability caps
• Removal of insolvency risk
• Proportionate liability provisions
• Elimination of performance bonds and retentions

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Member Firms Acting Together

• Become the clients trusted advisor promote
  Selecting the Team
• Stand firm against bespoke contracts
• Insist on equitable contract terms

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Member Associations Educating the Industry

• Promote wider understanding of the importance of
  equitable contracts including
• Consultants Duty of Care
• The relevance of liability caps
• The links between PI Insurance and Limit of
  Liability
• The meaning of proportional liability
• Lead initiatives for educating future
  professionals

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FIDIC - Making a Difference

• Build on the success of FIDIC contract adoption
  and Qualitybased Selection methods, adapt and
  adopt
• Selecting the Team
• A Guide to Partnering Workshops
• On-line Integration Toolkit

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FIDIC Making a Difference

• Talk to national governments and campaign against
  bespoke contracts
• Actively promote the use of FIDIC contract forms
• Actively campaign in relevant markets for
• Elimination of Fitness for Purpose requirements
  from consultants duty of care
• Introduction of aggregate liability caps in
  consultants contracts
• Elimination of requirements to provide
  Performance Bond
• Elimination of consultants payment retentions

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• References
• UK Construction Industry Council web site
• Profiting from Integration
• www.cic.org.uk/newsevents/reports.shtml
• A Guide to project team partnering Second edition
  - April 2002
• A Guide to Partnering Workshops - August 2008
• Selecting the Team - August 2005
• www.cicshop.co.uk/acatalog/Books.html