Enhance benefits through strategic market engagement

When it comes to infrastructure, the relationship between project owners, supply chain and investors has a huge bearing on project success or failure.

Our experience working at the intersection between industry and government on some of Australia’s largest projects has shown us that public and private sector players tend to assume archetypal roles.

Project owners usually engage with the supply chain and potential investors only when initiatives are past the strategic or final business case phase.

This approach can lead to process-driven, zero sum conversations focused on outputs and risks, rather than outcomes and rewards.

By not engaging the potential beneficiaries, financiers, engineers, consultants and contractors that make up the infrastructure investment and supply chain during a project’s early development phase, we are preventing opportunities for the market to get involved, provide innovation and shape better infrastructure products.

Inland Rail train carrying multiple shipping containers, Australia

Opportunities could include attracting alternative funding streams, opening up and diversifying the market, and driving efficiency with a particular focus on delivering infrastructure more affordably and enhancing its benefits. Early engagement with the market can also help avoid the downstream misunderstandings, disputes and delays that can result from not fully aligning the strategic and commercial drivers of government and industry.

So, what can we do to redefine infrastructure roles and relationships and align them for better project outcomes?

Understand each other’s motivations

With so many stakeholders and interests to manage, it is understandable that the public sector plays its infrastructure cards close to the chest.

Governments need a fair degree of assurance about a project’s viability and cost before they make commitments to the community about a new tunnel, rail line, school or hospital. Governments also need assurance that subsequent procurement processes will be equitable, fair, consistent and economical, as Australian taxpayers quite rightly expect.

On the flip side, the private sector wants to participate and invest in complex, high value projects. Doing so allows companies to innovate, generate revenue and enhance their reputation, which in turn secures future opportunities to participate and invest.

These motivations are far from mutually exclusive, but our business-as-usual approach treats them as such. The consequence is that industry usually only contributes to infrastructure conversations when the opportunity to meaningfully influence them (for the betterment of both sides) is well advanced. This discourages participants whose involvement may have yielded better results through contribution of innovative solutions, expertise and resources.

When each side – public and private – understands and respects the needs and motivations of the other, opportunities for a more mutually beneficial dialogue emerge. Opportunities open up for conversations about project definition and benefits, procurement pathways, commercial structuring, and packaging for design, delivery, operations, funding and financing.

Engage early on desired outcomes

Engaging with potential industry partners early in the project development phase (before starting a formal procurement process or even at the scoping phase), can help maximise value for money down the track.

While there is a pervasive perception of risk in talking to the market too soon, there are recent examples that show how sharing information earlier can help both sides prepare for a competitive procurement phase, and the management of risk in the delivery phase.

It is not against procurement law to talk to potential market participants before starting a formal procurement procedure, and a well thought-out, structured process actually enhances effective competition. In fact, earlier market engagement is best practice and helps to maximise value for money during the procurement phase.

Warragamba Dam with crane. Blue Mountains in the background.

 

Our team has recently worked with WaterNSW to facilitate a whole of supply chain industry engagement process on critical water projects for drought-impacted communities across the state. Inviting representatives from right across the supply chain to participate in a carefully considered and well-planned briefing (actively promoted across industry), WaterNSW was able to share its objectives across its entire portfolio of potential initiatives and raise the profile of the opportunity on offer to the market.

Even knowing that not all projects will necessarily come to market (as they are yet to go through business case interrogation and approval), WaterNSW has seen a much greater level of interest from the supply chain than is typical and received expressions of interest at a far higher rate than comparable programs.

By gauging the market’s interest and capability to deliver, WaterNSW has gained valuable insights into how projects could be prioritised, programmed and packaged for faster deliverya key objective for that organisation, and a condition of the Australian Government funding co-contribution.

For industry, structured conversations revealing WaterNSW’s objectives and intent for the portfolio has provided information useful in planning resources, building capability, forming partnerships and proffering solutions that are better aligned not just to the agency’s goals, but to their own commercial objectives.   

An international example of early and effective engagement in practice is the Bank Station capacity upgrade scheme in the UK, where London Underground implemented an ‘Innovative Contractor Engagement’ process for procurement of their design and construct (D&C) contractor.

Tenderers were provided with a priced risk register for the project early in the process, allowing them to respond with solutions or innovation to deal with the risks. As part of this process, the UK Government also reserved the option to purchase good ideas (delivery, technical or commercial) from non-successful tenderers to ensure the project benefitted from a collaborative and optimised contractor involvement process.

From market sounding to industry briefings, tender interaction and less formal dialogue with industry, there are plenty of options for adding rigour and making sure no one is unfairly advantaged. Or, perhaps more accurately, that everyone is advantaged equally.

Applying strategic thinking with the right governance framework in place, early engagement with the market is an enabler of fair competition, which is a boon to projects, government, industry and communities alike.

Create space for commercialisation

The private sector is by its very nature flexible, innovative, and keen to invest in infrastructure. It will adapt to capitalise on opportunities, but only when it has the information and commercial incentive to do so.

Allowing the market to understand project requirements and work with the public sector to test project objectives and shape the project definition before and beyond the scope of project deliverables, can help make infrastructure more attractive and viable.

Great project ideas die on the vine when they cannot be commercialised adequately. In today’s market, we need to look beyond traditional sources and means. Rather than telling the market what infrastructure to deliver after a project is defined or an investment decision made, asking the private sector to respond to a framework of well-articulated problem-solving objectives and performance outcomes (that are developed in consultation with the community and key stakeholders), is an approach we should be looking to more often.

Whether we are talking in terms of market-led proposals or simply how industry responds to requests for tender later in the procurement phase, one thing is trueinfrastructure investors and the supply chain won’t propose an idea that isn’t commercially viable. It will try hard to make an opportunity viable, however.

Industry is creative. It will draw on vast experience to think of solutions or develop options that project owners might never have considered.

The window of opportunity to realise commercial opportunities and attract private investment closes rapidly when projects move toward delivery. We need to commit to keeping this window, and our infrastructure options, open.

Early engagement with industry also allows government to retain commercial advantage.

An example is when government includes a market opportunity in the final business case as a strategic option for further consideration, such as a requirement for the market to demonstrate how it will achieve the project objectives, value for money and affordability against the base case project.

Workers at work on Victoria's Level Crossing Removal Project

Image credit: LXRA

Partner for success

Partnership is a word that’s used a lot in industry, but there are ways that public and private sector players could be partnering more effectively when it comes to infrastructure.

Development or Delivery Partner arrangements, implementation of Early Contractor Involvement (ECI) or collaborative market engagement models during procurement, are practical strategic options that can bring private sector participants and perspectives onto projects earlier, helping to significantly de-risk later project phases.

By forming integrated client-provider teams to collectively define scope, infrastructure portfolios, projects and programs can be prioritised and packaged to present an enticing proposition for industry and drive value for money outcomes for project owners.

Such arrangements also allow project development and planning activities to be undertaken in parallel with procurement, reducing the time taken to progress projects to shovel-ready and providing a more integrated approach with all layers of the supply chain and broader opportunities for market participation.

The WaterNSW example above shows this in action. An integrated industry partnering model was identified as the best way to increase the market capacity and technical capability that would be required to plan, manage and deliver multiple major capital projects concurrently.

Adopting this approach has allowed WaterNSW to form a partnership with the depth, scale and resource flex to meet the demands of the portfolio and regional supply chain across NSW. Key to this success was the implementation of a simple but rigorous governance framework that would enable the partner to be procured within a compressed timeframe.

Meaningful engagement with the market from inception to award has ensured a partner was selected with the right capability, capacity, skills and culture to address key challenges and meet WaterNSW’s objectives.

 

Better, faster, stronger infrastructure. Together

Regardless of which side of the table you are on, it’s clear that infrastructure is a team sport. Without open and transparent communication between players the chances of winning are minimised.

As we tackle the huge pipeline of projects needed to make our communities liveable, connected and prosperous into the future (and kick start the economy post-COVID-19), there are opportunities for the public and private sector to understand, align and engage more strategically.

For government, sharing more information with industry about infrastructure objectives and procurement parameters far earlier is key. Rather than treating market engagement as a tick box exercise, tapping the well of industry knowledge and expertise can shape projects and multiply the benefits they generate.

For industry, listening and focusing on what governments want, need and expect, and creating delivery approaches that match is both a money maker and a money savera panacea for the types of misunderstandings and disputes that can sometimes plague large infrastructure projects.

By working together and forging positive relationships between public and private sectors we create an even better infrastructure future.

 

To explore how this approach could be applied to your next project, contact us.

Robert Fields

Executive General Manager - Commercial and Delivery

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