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Why innovation now trumps price on mega-projects

Adrian Lindon | 28 Jun 2017 | Comments

Here in the Middle East, we’ve seen dramatic changes in how contractors compete for – and win – the tenders to design and build the state of the art infrastructure this region is so well known for. These shifts reflect project owners’ growing focus on reducing costs, materials and environmental impacts, while enhancing passenger experience, operational performance and long-term value. What’s more, the same trends are increasingly being mirrored in other markets worldwide, including the US.

So, what’s changed for contractors bidding for projects? To explain, let me start by looking back ten years to when I first arrived in the Middle East. Back then, bidding to design and build transport infrastructure was still essentially a matter of ‘price what you see’. The employer issuing the tender would provide potential contractors with a reference design. In return they would propose a price for building the asset as specified, while looking to keep the cost down through procurement and supply chain efficiencies.

Often the cheapest bid would win. But fast-forward to today, and any contractor still using this purely cost-centric approach will almost certainly lose. Why? Because employers no longer expect contractors simply to provide a price to deliver the reference design. Instead they’re looking for them to apply design innovation to boost the value of the project – both by reducing costs, and also ‘doing more with less’ to add value throughout the construction phase and into operations. And it’s the most value-adding bid that’ll usually win, not the cheapest.

At Atkins we’re in the forefront of helping contractors meet these changing demands. Our contractor clients in the Middle East are generally bidding for design and build projects worth between US$1 billion and US$5 billion – a scale at which even apparently small design improvements can generate massive savings and added value. On each tender, we 'inherit' another company’s reference design that gives the contractor an indication of the employer’s overall design aims. To help our client win the tender, we work out smart and innovative improvements that simultaneously optimise the design, boost value for the employer and give our client the edge in the bidding.

To do this we look at all aspects of the project. Of course, the capital cost remains important. But while keeping this in view, we look to undertake design and value engineering reviews early in the tender stage to develop cost-effective and sustainable design solutions for our client to price. Crucially, this ‘value engineering’ approach is not just about saving money, but about improving the design for everyone: contractor, employer, operator, the passengers and staff who’ll use the stations, and ultimately the environment. These days, we invariably find that employers are not just seeking a low price, but real value across all these dimensions.

There are many examples of this approach succeeding in delivering the value employers are seeking – and clinching the contract for our client. On one recent tender, we redesigned the underground stations from three levels to two: this cut the volume of concrete by 30%, avoiding 20,000 tonnes of CO2 emissions, while also reducing the excavation work and lowering the operational costs. We also recommended a five-metre high concourse ceiling allowing natural light into the stations, again reducing costs while improving the passenger experience. On another tender, we switched the three levels of the stations around to move the track down to the lowest level, creating massive benefits during construction by enabling the tunnel boring machines to be brought in at base slab level.

Having proven its worth in the Middle East, our value engineering approach is also delivering major benefits for contractor clients in other markets. A case in point is the Purple Line in Maryland, US – a 16.2-mile, 21-station light rail transit line currently under construction. Atkins is the lead designer for Fluor on the US$2 billion design-build contract.

On transportation projects during our 50 years in the Middle East, and across the rest of the globe, the message is clear: the days of ‘price what you see’ are gone for ever. Instead, contractors must demonstrate in their tenders how they have improved the value delivered by the reference designs – and not only by saving money. Welcome to the world of innovative value engineering.