Sourcing Large Infrastructure Projects: Lessons from the 2012 Olympics

We have penned a couple of posts outlining our disgust at the penny-wise-pound-foolish mentality of the state government of California regarding its decision to largely purchase the San Francisco Oakland Bay Bridge from China. But alas, California does not sit in a category all its own. According to our industry sources, a growing trend has emerged among state governments to Ëœsource’ large projects from overseas, particularly bridge projects, thereby bypassing “Buy American rules. Here is another example of a buy-it-in China project. Now before everyone screams that this story serves as yet another “protectionist argument, we would direct readers to that previous post outlining ten areas procurement managers need to consider when buying globally.

In that article, we articulated the “public procurement buying criteria for large infrastructure projects. Recently, we reached out to our colleague Peter Smith who runs our sister site, Spend Matters UK, for some guidance on public procurement best practices (Peter has held leadership roles at Dun & Bradstreet within their procurement group and has procurement experience working in the UK’s Department of Social Security and still consults to various UK government bodies). When I asked him about best practices in government project infrastructure, he pointed me to this “lessons learned write-up of the London 2012 Olympic Games.

As one who maintains a certain level of skepticism about sustainability initiatives (largely because they fail to consider the complete product life cycle, including the sustainability of primary production processes used to create raw materials), I found myself pleasantly surprised at how comprehensive the London 2012 construction project appears at first blush, in terms of both defining the Olympic project “themes (e.g. sustainability, legacy, inclusion, etc.), and in its extremely detailed approach and construct to deliver the “venues, facilities, infrastructure and transport on time and within the available budget.

The ODA (Olympic Development Authority) used the NEC3 contract along with a third party contractor, CLM. According to Smith, “from those I’ve spoken to who were close to the process, it is clear that CLM were well  rewarded, but everything we’ve seen suggests they did a very good job. Some of their key senior staff were drawn from top-flight contract and programme management firms like Bechtel, which would suggest tight, effective management. Word from the supplier side was they treated suppliers well, but there was no messing around, and use of the NEC3 contracts seems to have proved very effective in keeping the issues around changes and variations well under control.

In addition, the ODS relied upon several other frameworks, including the ECC Subcontract, PSC, TSC and Framework Contract to ensure the projects arrived on time and within budget. Though the final analysis will occur after the Games begin, we can’t help but wonder whether the State of California leveraged these types of comprehensive frameworks. For example, the NEC3 contract attempts to address the issue of transparency (creating more of it) by managing successful outcomes, understanding cost, managing change, avoiding conflicts of interest, avoiding and resolving disputes, etc. The contract also addresses the subject of “float project float, time-risk allowance and the period between planned completion and the completion date (see link above), and as Glenn Hide wrote in that 2008 newsletter, “¦elements of time-risk allowance are only there to demonstrate to the project manager that risk has been assessed in each and every activity such that the overall programme is more likely to be achieved.

Somehow, we wonder if such a clause found its way into the San Francisco-Oakland Bay Bridge project. With an estimated $5.2 billion project overrun, we’d doubt it. The question becomes, have we learned anything by this project that will allow the US to procure large infrastructure projects more effectively?

–Lisa Reisman

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