Club together

Heathrow Terminal 5 is one of the biggest construction projects ever undertaken in the UK. It will cost over £4 billion, take 37 million-man hours to build and, when it is fully developed in 2011, T5 will handle 30 million passengers every year.

With construction on this scale, it’s not surprising that those managing the project had to rethink ways of working. Client BAA aims to build “the best airport in the world”, and it wants this in the most efficient way possible.

Before starting T5, BAA researched other large construction projects and identified two key problems: cultural confusion and the reluctance to acknowledge risk. The T5 Agreement is seen as the solution to such potential problems. The Agreement is a legally binding contract between BAA and its key suppliers. At the heart of this is BAA’s acceptance that, as client, it carries all risk for the project. According to BAA, with this burden removed from suppliers and contractors, those on T5 can create a positive working culture, and:

• focus on managing out the cause of problems, with the aim of avoiding the effects later on;
• work in an integrated way;
• manage risk together rather than turn to legal solutions after problems arise.

As an incentive to this way of working, first-tier suppliers share financial rewards if targets are met.

Culture Club

With 16 main projects and over 140 sub-projects at T5, careful management of suppliers is a primary objective. BAA has said that it will deliver T5 at the lowest possible price, by delivering best value and driving out waste.

To achieve this, BAA has simplified its whole supply chain. It only has a direct contractual relationship with 60 first-tier suppliers, who are responsible for the appointment and management of second-tier suppliers or subcontractors. Those on the second-tier must be dealt with in the spirit of the T5 Agreement, even though they are not directly signed up to it.

Spend on m&e across T5 is projected at around £600 million, so savings made here can have a large impact on the final cost. A mini supply chain has been established, known as the M&E Buy Club. The theory behind this is simple: a team of first-tier suppliers agrees a common supply chain strategy, sourcing and identifying logistics requirements for purchasing equipment, materials and services from second-tier suppliers.

Matthew Riley, BAA’s commercial director, explains: “As the client on such a large project with so many suppliers, the risk was not getting standard design and products. The idea of the Buy Club was to pull together those requirements across the whole build programme.”

The first-tier M&E Buy Club members are: Amec M&E; Balfour Kilpatrick; Crown House Engineering; Hotchkiss Ductwork and Novar Projects. Below this are specialist suppliers of items such as lighting (Thorn Lighting) and switchgear (Eaton Electric and Schneider Electric); wholesalers Newey and Eyre and BSS are also on board.

The Buy Club has three key roles:

• create the best commercial environment to deliver best value and minimise waste;
• agree last possible dates for change;
• improve planning so that it achieves more than best practice levels.

Riley says that this creates a much more effective working team: “This form of agreement is unique to T5. We have taken away a lot of the traditional risks that the contractor would be asked to carry. If we as the client hold all the risk, we can demand transparency in return.”

Steve O’Sullivan, T5 operations director at Balfour Kilpatrick, says: “As suppliers, we are still involved in managing the risk, because the team manages its own budget. But it means that we can concentrate on delivery of the project, rather than legal wrangling.”

Derek Ball, procurement engineer at Hotchkiss Ductwork, adds: “Sharing the responsibility for the delivery of m&e services and hvac systems with the other first-tier suppliers is something different. Great opportunities are there to build good working relationships with companies and individuals who would normally be in a competitive situation.”

Buy Club members are asked to identify potential problems and risks and devise ways of mitigating these. “The traditional way is to spend time dealing with problems afterwards, and to allocate blame,” adds Riley.

“We were attracted by the prospect of working under the T5 Agreement, as we can operate as an integrated team and the risk can be better managed,” says O’Sullivan. “The big plus is that design is being done by the contractors. Often on construction projects the contractors arrive when the design has already been done by architects or consultants and you have buildability issues before you even get on site. At T5 this has been avoided because we have been involved in design from the start.”

For specialist items such as cables, switchgear and pumps, there are 13 buying teams, known as Mini Buy Clubs. Each Mini Club has a team leader and members from the first-tier suppliers. To ensure that the philosophy of teamworking is upheld, the T5 Agreement includes a clause that says second-tier suppliers must be treated fairly. “Our subcontractor contracts have to be checked by the T5 legal team to ensure that our terms aren’t onerous for our suppliers,” says O’Sullivan. This helps reduce the chance that manufacturers are put under pressure to cut prices and compromise quality.

The other advantage for manufacturers is that they have a coherent plan and there are no unexpected, and expensive, last minute production runs. Further, with early involvement, manufacturers can have their say at the design stage. “Using the Buy Club means suppliers can set up production lines for what would otherwise be an off-the-shelf product. This means that we can have higher quality products and the logistics are easier for suppliers,” says Riley.

Extending the culture

The T5 Agreement and M&E Buy Club embody much of the best practice measures put forward in the Latham and Egan reports. The question is whether the methods used on T5 can be carried onto other construction projects.

According to a case study by Constructing Excellence, the Buy Club could be “adopted entirely or to suit circumstances”. Examples where it could be adopted wholesale include large railway projects, seaports or urban redevelopments. For smaller schemes such as schools, hospitals or retail chains, the idea could be adopted so agreements stand for more than one project.

Ultimately, there are many benefits to a new supply chain management approach. A crucial element of success on T5 has been a change in working culture, which means selecting the right people.

Ball says: “There will be lessons to be learned from working on T5, both good and not so good. However, it has taught me to work closer and share information. We’ve always been fine with this, but on a project like T5 it is paramount. I would like to think more projects could benefit from being set up and structured like T5.”

O’Sullivan comments: “I prefer the non-adversarial way of working, and I think most people now acknowledge this is the most effective way for construction to work. At Balfour Kilpatrick, we selected the individuals to work on T5 who we knew would suit this way of working. There are some graduates here who haven’t worked on any other project, and I think they are going to have to be reprogrammed before they can work on more traditional construction projects!”