Debate: The tunnel sector faces major contractual and operational challenges

Although spending on tunneling projects has been high over the past decade, the supply chain faces major challenges as it seeks to manage the risks of future projects while meeting the zero carbon challenge. .

Contractors, consultants and equipment manufacturers in the tunneling industry have demonstrated their advanced engineering capabilities in recent years by providing solutions for a wide range of complex projects.

However, many players involved in these systems are faced with contractual and operational challenges that must be met.

RCE recently partnered with Vinci Construction Grands Projets to discuss some of the supply chain issues and identify factors that could negatively impact the market in the future.

Higher costs, lower margins

Rising costs and falling profit margins are major concerns. Ferrovial UK construction manager Ricardo Ferreras said contractors are even losing money on some projects, citing the procurement process as a possible reason for the “exponential growth” in costs.

The focus group agreed that the procurement process is now taking longer than ever before, with additional steps adding to the costs. At the same time, many customers do not have the technical expertise to evaluate offers on anything other than price.

According to independent consultant Bill Grose, the cost of acquiring tunnels and the time it takes to award contracts has been increasing for more than a decade.

Sourcing has almost become an industry in its own right, according to Dr. Sauer & Partners CEO Brian Lyons. Customers have invested in supply systems – some bespoke – but Lyons believes these waste a lot of time and fail to deliver the right actors in the right place at the right time during a project. .

Tunneling: Risk management and purchasing are major issues for the supply chain today

Risk allocation also creates challenges as customers try to shift more risk to the supply chain. “It is no wonder that customers are trying to reduce risk because they have no one on their side who can manage this risk, as they are increasingly reducing their technical services for the sake of cost reduction,” explains Grose.

Vinci Construction Grands Projects Managing Director François Pogu adds that clients try to transfer as much risk as possible to contractors, which can create risk management issues.

He is also concerned about the trend towards fixed price contracts.

Contractual challenges affect consultants and contractors alike. LBA chief executive Simon Morgan says that on major contracts with large consultants, risks are often passed on to smaller consultants and suppliers rather than being absorbed. This has a major impact on those businesses, which already face high liability insurance costs and may not be able to cover themselves for additional risks.

Regarding the often very onerous contractual terms passed along the supply chain by some contractors and consultants, London Power Tunnels Commercial Director Willem Van Zyl comments: on results and establishing strategic partnerships.

It is no wonder that clients try to reduce risk because they have no one on their side who can manage this risk.

Despite the existence of forms of contract favoring a collaborative way of working, it seems that successful collaborations in tunneling projects are rare. Morgan says there is often mismanagement of contracts.

Pogu says that the NEC3 and NEC4 contracts promote collaboration, but that additional project-specific “X and Z clauses” often ruin the spirit of collaboration that the original form of contract attempts to promote.

The development of a common culture by the client and the willingness of people to work together seem to be the key to a successful collaboration.

Morgan gives the example of Transport for London’s bank station capacity upgrade project: “This culture was established by the customer; the entrepreneur’s behaviors and incentives were aligned with achieving this goal, ”he says. Morgan believes that bringing the entire project team together in one office from the start set the tone for the collaboration from the start.

The principles underlying the Project 13 approach to providing infrastructure can be a way to promote such a culture, as behavior and collaboration are directly rewarded in this model.

Some challenges do not only affect individual players, they have a negative impact on the wider tunneling industry.

Skills shortages are one of them. Brexit has exacerbated the problem in the UK as it made it more difficult to recruit skilled workers from Europe. In addition, the tunneling industry does not attract a large number of young engineers.

University of Oxford Royal Academy of Engineering associate researcher Brian Sheil says tunneling is seen as ‘the old school’ and is less attractive compared to other fields like aerospace engineering or engineering. ‘computer science. “We have fully funded scholarships to do research and work with companies that just aren’t successful,” he says.

Look ahead

High Speed ​​2 (HS2) and Tideway scale projects occupy many companies in the tunnel industry. Grose says the risk to the industry going forward is a shortage of major projects.

He believes the difficulties in obtaining approvals make them less attractive to clients. He adds, “They just got too difficult. We are a small, overcrowded island and I feel like society feels that we are reaching saturation point on big projects like this.

OTB Engineering Director Darren Page believes the government’s attention should be on more throughput of smaller programs over a longer duration. He says such projects would offer greater confidence that they can be delivered on time and on budget.

The pursuit of net zero will also put enormous pressure on the industry as it will require investment and a number of changes in existing construction methods. Sheil says companies will have to take more risks trying new materials to lower the environmental costs of tunneling projects.

London Electric Tunnels

National Grid, London Power Tunnels, New Cross, Tuesday May 18, 2021. Photographer: Jason Alden

Project 13 is an alternative approach to the provision of infrastructure, based on the enterprise rather than on a traditional transactional arrangement. It is being implemented on the second phase of National Grid’s London Power Tunnels project.

Project 13 aims to focus on results, especially with regard to safety, efficiency, future competence, customer satisfaction and legacy.

For London Power Tunnels, the shift to the Project 13 approach in Phase 2 provided a formal framework for operations, aiding in the completion of the project which should ultimately lead to a better outcome.

Project business manager Willem van Zyl believes implementing this approach can be a solution to the long-standing problem of UK civil engineering projects running on time and on budget. This is achieved through Project 13’s focus on results and by enabling the provision of behavioral incentives.

At the round table

This report is based on a virtual roundtable held in October.

The discussion took place in association with Vinci Construction Grands Projets.

Contributed to the discussion:

Ricardo Ferreras UK Construction Manager, Ferrovial

Bill Grose owner, Bill Grose Consulting

Brian Lyons Managing Director UK, Dr Sauer & Partners

Simon morgan Managing Director, London Bridge Associates

Darren Page Director, OTB Engineering

Francois Pogu Managing Director British Isles, Vinci Construction Grands Projets

Brian sheil Researcher at the Royal Academy of Engineering, University of Oxford

Willem van Zyl Commercial Director, London Power Tunnels

Claire Smith editor, New civil engineer

  • Produced in association with Vinci Grands Projets

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