BAWA was packed out for this very popular event, looking at one of Europe’s biggest and most complex projects, Hinkley Point C, (HPC). We were also pleased to welcome members of the CIOB to the event. Our speaker was Ken Owen, Commercial Director for HPC.
Ken described himself as a passionate believer that industrial collaboration is key to the successful delivery of complex projects such as HPC. He also saw the project manager role as essential, acting as a conductor of an orchestra to co-ordinate and bring all the players together. He saw his role, as Commercial Director, as a key enabler to facilitate the smooth delivery of the project.
There are two main approaches to contract suppliers on a project: the ‘traditional’, at least in the construction world, adversarial approach, resorting to lawyers as soon as issues arise; and the collaborative approach, working together to sort out issues and problems. In his experience the adversarial approach results in a lose-lose situation with the only winners being the highly paid lawyers.
His views have been based on 30 years’ experience from across a number of industrial sectors. Originally a nuclear engineer he has also worked in the automotive industry for Johnson Controls who were a long-term collaborative partner with Ford for the design and manufacture of car seats. On Heathrow Terminal 5, the construction went well, but the failure was due to operational readiness being forgotten. Wembley stadium used an Australian model for the supply chain, that led to poor contract management, dreadful supply chain relationships and massive time and cost overruns. The 2012 Olympics in contrast used a collaborative approach based on the NEC contract with early warning encouraged, and rigorous change management giving certainty to both client and suppliers. The key enablers were all about people, their experience, training, and clear and simple procedures. Safety, quality and time were the main drivers, with cost looking after itself. This experience has been applied to how the HPC supply chain has been designed
Ken outlined the strategic UK need for HPC and how the £19BN investment was secured. The UK Treasury were looking for a fixed price, but he successfully argued that no organisation worldwide could ever offer a fixed price for such a highly complex project. The contact was signed on 27 September 2016, 2 years ago. A video highlighted the first 2 years achievements, including 1st nuclear concrete pour, the sea wall and a 1500 bed hotel for site workers. Safety is the primary culture with a focus on right first time. HPC is not just about producing 3.2 GW of electricity, it is a vehicle for the socio economic growth of the South West and for the revitalisation of UK’s nuclear industry.
HPC requires a highly complex supply chain of local, national and international organisations supplying manufacturing, services and construction. At peak there will be 6500 staff on site, with 2 shifts per day. To provide the services that the staff need: food, drink, rest, living accommodation, has required a ‘city’ to be built. It was decided to work with the local community, businesses and the chamber of commerce. 6 consortia have been formed of local businesses to meet the service needs, including the Somerset Larder, built around a vision of ‘field to plate’ to meet all catering requirements.
Ken emphasised the benefits of real time contract management, to manage early warning notices and contract communication promptly. In the 2 years to date, 12000 early warning and 122000 communications has been dealt with. It is essential that there is the capacity in the commercial department to respond to this volume to ensure the effective management of the contracts.
An effective contract encourages the required behaviours in both the supplier and client. Mind sets were changed through educating the team about what a contact actually is. Various contract types were used, from traditional transactional to collaborative NEC, depending the level of certainty or uncertainty of the requirement and design maturity.
HPCs supply chain and contracting strategy is driven by the risks that the customer and supplier, are trying to mitigate: poor quality, lateness, cost overruns, etc. HPC has 6 golden rules, which includes: risk always stays with the client (the myth of risk transfer!), one size does not fit all, procurement only represents the start of the journey and does not guarantee the outcome, and is always driven by the level of design maturity.
The approach has been to do things differently. All the existing contracts were reviewed and rewritten to meet the following aims: Contracts should drive performance and not protect EDF. Liquidated damages do not work and have been removed. Management of the Contract should always ensure the commercial interest of the parties remain aligned, in order to avoid adverse impact on delivery.
The ‘HPC Way’ is designed to ensure commonality, and HPC has produced 3 contract management manuals: Contract Administration Manual (‘Blue Book’), Equipment Contract Administration Manual (‘Red Book’), and manufacturing and Delivery Management Manual (‘Green Book’).
The HPC Way was launched on 29 Nov 2016 with all suppliers at 2 conferences in Bristol and Paris. These aimed to inspire collaboration, to create a common purpose and understanding of how contracts will be administered and the key behavioural requirements. Talks and exhibition stands covered the key features and expectations. This was highly successful and much praised by the attendees.
HPC use a common contract management tool, (CEMAR), which is the ‘one version of the truth’, which was a lesson adopted from the 2012 Olympics.
To help embed the required culture, learning and development of all staff across the supply chain has been aligned with the contract management strategy.
Collaboration does not mean a laisse faire attitude to contract management. Balance is still needed between commercial tension and collaboration, between fairness in change control and positive relationships, behaviours and above all trust.
The next big step will be the signing of an £2Bn MoU, (Memorandum of Understanding), for the MEH (Mechanical and Electrical) Alliance on 27 Sep. This is unique in UK industry with no liquidated damages and equal risk sharing by all members of the Alliance. If Hinkley fails, none will get their profit element, they all have to work together to deal with challenges if any of them are to receive profit. The contract is based on the NEC alliance model, but it has been adapted.
At the end of the day, the approach is all about human relationships and building the confidence to be open and transparent with each other, built on trust
A lively Q&A session followed the presentation which raised some interesting points. One of the biggest hurdles was to convince the French and Chinese stakeholders of the benefits of an alliancing approach, which does not sit well with their traditional national cultures. HPC has been working with Bath University to capture the learning legacy, like that used for the Olympics, and which will be used as teaching units for students.
The presentation is also available on APM Slideshare.
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