Procurement update: applying the enterprise model to infrastructure

01 / How integrated teams can optimise programme delivery

The UK faces formidable challenges in delivering new infrastructure in response to levelling up, energy transition and climate change resilience. While these programmes might not have much in common in terms of scope or objectives, they all share characteristics of scale, complexity, duration and risk. With extra requirements to cut carbon emissions, deliver more social outcomes and improve productivity, programmes are more complex than ever. Sadly, they are also still more likely to fail than simpler investment projects, joining a long list of ambitious schemes like the Jubilee line extension and the Channel tunnel which significantly overran on cost and time.

Programme failures have many causes. The sheer complexity and duration of such schemes mean it is unrealistic and potentially even misleading to believe that their scope, cost and schedule can be defined and fixed at an early stage of development. Early solution development risks “technology lock-in” too. Unfortunately, the way in which programmes are set up to protect the client from risk often gets in the way of delivering optimal outcomes.

Another shortcoming is that projects and programmes are rarely set up to be resilient, even though they usually exist over long periods in exceptionally complex and uncertain environments where circumstances often change. Leadership may change, and often clients will not fully use the capabilities of the supply chain or the data they have to actively influence the outcomes they pursue.

No successful enterprise operates in this way. High-performing organisations are empowered to deliver ambitious business plans but are also equipped to adapt when required as their business environment changes. They build on a secure foundation of leadership, culture, behaviours, purpose and governance; and they access skills and capability in the required capacity as needed to meet their objectives.

Infrastructure programmes can clearly benefit from greater focus on their organisational capability. Even as infrastructure investments succeed in generating stakeholder benefits, they fall short on delivery. In particular, the design of the programme target operating model provides plenty of opportunity to improve performance associated with the resourcing of roles, adoption of best-in-class processes, allocation of risk and design of incentives.

Project 13 crystallised much of the thinking about integrated contracting models through the publication of the Infrastructure Client Group report, From Transactions to Enterprises. Since publication, take-up has accelerated, with clients in both the public and private sector adopting various flavours of integration, spanning from simple one-project joint ventures used for housing development to the 20-year Programme and Project Partners (3P) model introduced by Sellafield Ltd in 2019.

02 / Infrastructure in the UK – a growing market

Large-scale infrastructure is the UK’s hottest construction market, growing by 50% since 2016, even as activity across the rest of the industry has flatlined. Levels of investment not seen since the 1970s have unleashed a wave of programmes as the UK seeks to upgrade basic infrastructure and prepare for the challenges of tomorrow.

The Infrastructure and Projects Authority has published a pipeline of future programmes worth £650bn over 10 years, spread equally over the public and private sectors. All of this investment will be delivered in competition for talent and resources with domestic and global markets.

Clients need to structure themselves as “client of choice” to access the best resources. An integrator model is a proven route to these resources.

There are some specific reasons why demand for the integrator model has taken off:

Overall size of the market 

Competition for resources and the need to attract, develop and retain capability over extended programme durations.

First of a kind requirements 

Many programmes, including those for nuclear, hydrogen and low-carbon construction, require genuine innovation, involve greater levels of uncertainty associated with changing requirements and solution development, and need a flexible approach to development to avoid technology lock-in.

Scale and ambition of programmes 

There are not enough organisations within the UK’s programme delivery supply chain with the scale and resilience to resource a single-sourced delivery solution. This means that some form of multi-party programme team is required. This is best organised as an integrated team.

Outcome focus 

Infrastructure investments are increasingly expected to deliver broad societal outcomes and to function within a “system of systems”. This involves more stakeholders, more interfaces and typically more technologies along with competing outcomes, which in turn demand more input and control from the client and delivery organisation.

Market structure 

Some supplier markets (rail, for example) are increasingly vertically integrated, which requires the client organisation to define a single set of capital investment, operational and customer requirements. This places huge demands on the capability and capacity of the sponsor organisation to obtain the optimum solution, addressing trade-offs and managing the complexity of a single supplier relationship.

03 / What is an integrated team?

Integrated teams typically comprise the sponsor and one or more programme partners. The investor and operator may also have a formal role in the team. Roles within the integrated team are typically undertaken on a mixed-economy basis – a combination of self-performance by the sponsor and outsourcing to the partners. The integrated programme team will invest in its own organisation to create a shared identity, values and culture, working methods, processes and data platforms needed to deliver the scale of the investment.

By contrast, many projects and programmes are delivered by temporary organisations using an ad hoc blend of processes. Rarely do their teams develop the stable characteristics of an organisation, even if the endeavour lasts for many years. A lot of energy can be misdirected at managing interfaces within the team rather than focused on the outcomes.

>>Also read: Infrastructure update: Energy transition

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One of the benefits of integrated teams is that they can more easily respond to change by applying diverse thinking and by bringing in new capabilities in response. Key parts of the enterprise – objectives, leadership, culture, values, processes and data platforms – all remain constant, providing a stable core in what is inevitably an unstable external environment. Securing this benefit relies on the stability of the enterprise, which in turn benefits from consistent and committed client leadership.

Although there is no defined model for an integrated team, there are four broad families:

Joint venture (simple)

A joint venture is typically a simple organisation comprising a client and a single delivery partner. This arrangement is widely used for the delivery of housing schemes by local authorities and registered providers as an alternative to a conventional two‑party construction contract.

Programme delivery organisation

This type of team typically comprises a capable client with enhanced programme management capability (thick client), a programme management office (PMO), one or more tier 1 partners and a vertically organised sub-tier supply chain.

Enterprise

This type of integrated team typically comprises a capable client with a focus on external relations (thin client) as well as an integrator organisation with programme capabilities, accountabilities and multiple key suppliers responsible for co‑ordinating and managing delivery. The supply chain delivering the work is not necessarily integrated within the core enterprise but should have autonomy and should be accountable for its deliverables.

Alliance

This is a standalone organisation managed by a joint alliance board with functions resourced by members of client and delivery partner organisations.

A key aspect of an operating model is the extent to which the delivery supply chain is integrated with the core team. Under an integrated team model, the aim is to structure a more capable supply chain responsible for the solution development and delivery which is largely self-organising.

Often by the time the delivery team is assembled, many programme uncertainties are considered to have been resolved and a formal contractual boundary can be established. On multi-asset programmes, there will be a stronger case for extending the scope of the integrated organisation into the subcontract supply chain through aligned incentives. This approach embraces the significant potential benefits of early contractor involvement.

In all cases, the contracting model will still need to support the effective management of delivery with respect to progress monitoring and reporting, co‑ordination and integration, quality control and handover preparation. The data platform and processes developed within the integrated team have a key role in managing the supply chain interface, whether or not this is fully integrated.

04 /  Delivering outcomes: How does an integrated team make a difference?

Having established that bringing resources together is the optimum way of delivering complex programmes, the next consideration is: what capability does the integrated team need, and how does it apply its resources to be effective?

Leadership and accountability

This is the critical role for the capable client. Leadership requires the setting of the programme requirements, the upward management of critical stakeholders, the creation of the culture of the integrated team and the assurance and validation of programme outcomes.

Leadership as opposed to management provides clarity with respect to priorities and adaptability in response to change. Depending on the sector in which the programme is operating, the client body may also have other outward-facing regulatory interfaces associated with, for instance, safety.

The leadership role within an integrated team is distinct and the capable client needs sufficient resource to be able to lead and empower the wider team. Consistent, visible leadership is a key success factor, and this means being publicly committed to the model through both good times and bad.

All other management and delivery roles can be resourced by the best talent available within the integrated team. Leadership roles also include setting and then initiating the behaviours underpinning the programme’s culture.

Systems thinking

Complex programmes with multiple stakeholders and a wide range of target outcomes demand a systems thinking approach. The focus should be on systems interface and integration risk within the scope of the programme as well as with external systems, including programme-wide responses to key issues such as carbon management or integration with operators and users.

Systems engineering-based planning also provides a powerful platform for assurance, by clearly identifying and defining the component parts that combine to deliver each programme output and outcome.

Organisation 

The organisation and capability brought by a complementary integrator is a major source of added value. However, with integrated teams, the organisation must be built before the asset is constructed.

Integrated teams are built out of existing organisations, and the objective is not to replace or duplicate existing corporate processes such as HR but rather to create an overlay of defined and repeatable business processes that support and optimise the delivery of the programme outcomes. These will cover, among other aspects, external engagement, planning, design and engineering, information flows and approvals, reporting and safety. Internal processes such as dispute resolution are important too.

Standard processes and production systems within the integrated team should eliminate many of the sources of inefficient working within delivery teams which usually rely on a hybrid of different working methods. The benefits of the adoption of common processes across the wider team include much greater transparency with respect to availability of data on progress and outcomes.

Capability 

A big opportunity within integrated teams comes from resource optimisation. Complex programmes need to access, develop and retain the best resources in a highly competitive environment.

The combination of skills, capabilities and resources needed for a complex programme are much more difficult to access through a team formed of multiple independent organisations. Programme partners provide a deeper and more readily accessible pool of talent, and a joined-up team can make full use of existing skills as well as being designed with less role duplication. Building a team sourced from a wide range of partners will encourage greater diversity of thought.

Not all resources need to sit within the integrated team, however. Outsourcing of specialist roles is an important option, and parts of the supply chain will also be at arm’s length. “Make versus buy” decisions with respect to how specific roles are undertaken is a key aspect of capability design and effectiveness.

Reward and risk allocation 

Incentives are another key element of integrated team design. The overall objective of incentive design is to align the team’s motivations with the wider business case rather than the traditional cost, time and quality dimensions of a singular construction contract.

This is a complex area because, in many cases, the client organisation must step back from conventional commercial models and risk transfer arrangements to put in place compelling and effective incentives. Some programmes, for example, have abandoned pain share mechanisms because of the focus they place on compensation management rather than effective change management aligned to outcome.

When aligning suppliers to reward based on outperformance, clients also need much better-quality data to be able to assess progress towards outcomes, contributions and performance.

Assurance and governance 

Complex programmes require well-developed assurance processes to confirm progress, conformity and benefits realisation as well as to monitor and manage changes within the programme and the wider environment. The best assurance processes use sophisticated tools, modelling and data in order to provide transparency and greater opportunity control across contractual boundaries.

Greater control acts as a counterbalance to changes in risk transfer. Enhanced data exchange within digitally enabled programmes is an essential facilitator of this transparency. Digital systems can also be configured to track wider benefits realisation.

Figure 2: How functions within the integrated team contribute to delivering outcomes

Focus of the organisation	Functional requirement
Upward-facing (stakeholders)	External environment, politics, stakeholders, communication and reputation management, governance
Inward-facing (integrated team)	Culture and behaviours, business and programme process development, people and capability development, assurance
Downward-facing (supply chain)	Defining outputs, setting and managing obligations, designing incentives, managing interfaces, measuring and rewarding performance, acceptance

05 / Benefits and their realisation

Adopting an integrated team model requires a considerable leap of faith for a client and often entails the restructuring of its organisation. The model is quite new and still needs to be developed as a bespoke arrangement. Although the likely benefits are significant, the decisions taken to access them are significant and, in the context of a single programme, are difficult to reverse. However, a step change in team organisation is often essential if the best programme outcomes are to be secured by the client and for stakeholders.

Examples of the changes that the client will underwrite include upfront investment in the development of the organisational model, as well as a loss of direct control of business functions which will be undertaken by the integrated team.

Furthermore, the new model is likely to require the client to voluntarily step away from some of the traditional contractual measures used to transfer risk away from the client. There are myriad changes that are hard to make but are necessary to break free of the inherent limitations of the traditional delivery team model.

When developing proposals for an integrated model, there are several key considerations that the client should take on board, including:

• Alignment of the capability of the integrated team model with the business case outcomes.
• Building sufficient capability, capacity and the right culture within the client organisation to fulfil the specific leadership role within the integrated team.
• Identifying alternative sources of capability for the integrated team, including organisational design and information management skills.
• Building enough time into the overall programme to construct the enterprise and to embed the desired culture.
• Focusing on interfaces between the integrated team and the delivery supply chain to achieve the optimum balance of incentive, innovation and control over outcomes.
• Investing in the process, data and information infrastructure that underpins governance, assurance and benefits realisation.

All project teams are temporary organisations that take their cues from their leadership, culture and incentives. By choosing to redesign the organisation model for a programme, clients have already taken a major step in establishing greater control over their investment and its outcomes. By playing their role as leader and enabler, they also equip their partners to optimise their performance and contribution.