Addressing risk allocation with collaboration
February 20, 2020 by David Bowcott
For those of you who aren’t familiar with the World Economic Forum (WEF) I highly recommend you get to know them. It is made up of a group of forward-thinking government and corporate members striving to continuously improve the state of the global economy. Even if you aren’t familiar with the organization, perhaps you have heard of the annual conference they host in Davos in the Swiss Alps? Either way, get to know them and the various workstreams they are focussing on as their convening power means they have the ears of many of the world’s key decision makers. In turn, the topics they discuss and the solutions they put forward often have a way of gaining global traction within the world’s economies.
Last October in Paris, the WEF convened a workshop of 27 members from various sectors of the built environment ecosystem. I am grateful they invited my participation, as the workshop was a very large first step on what could be a long journey. This column is a brief synopsis of the challenges the group was asked to address and some of the high-level potential solutions put forward in hopes of tackling these issues. The outputs from this report will also be profiled in late January at Davos and given to attendees within the Davos audience. You can expect to hear more from construction stakeholders on the topic.
The main issue the workshop looked to address was the concern that the world’s built environment is being designed, constructed and operated under procurement models that offer a less than ideal allocation of risk. Some of the key criticisms of the current procurement model include: it offers poor communication between separate phases of the asset’s life; it stifles innovation; it limits some stakeholders’ ability to provide input; and it focuses on low bid construction. The traditional state of procurement ignoring an asset’s impact on the environment and serving the needs of those making money from disputes, rather than those who design, construct and operate the assets, are among other criticisms.
The following represent the major challenges, or risk categories, with the current procurement model:
- Macroeconomic, business and commercial risk — Things like currency fluctuations in a global construction economy.
- Technical Risk — For instance, underground risks (utilities, soil conditions) and project variations/change orders.
- Political and Regulatory Risk — Delays in government approvals or permits, for example, and changes in law.
- Environment and Climate Change Risk — Or asset resiliency.
- Capacity and Dispute Resolution and the Management of Risk — Lack of capacity within the government (or owner community) to navigate problems or find speedy resolutions.
- Technology Risk — For instance, the impact technology could have on the future needs of built world assets and the ability to better integrate technology.
- Procurement Model Risks — The downsides of public tenders based on price and the lack of collaboration and information sharing amongst stakeholders at each phase of the asset’s life.
Now, for some of the solutions that came out of this workshop:
- Improved collaboration and information sharing throughout all phases of the asset’s life. The report highlights the recently released model in the U.K. known as Project 13 and Australia’s alliancing procurement model.
- Use of an outcomes-based procurement model that considers the impact of decisions made in design and construction on the total cost of the asset (once again Project 13).
- Improve procurement to better integrate technology and innovation. All should strive to educate themselves on the transformative potential of technology.
- Recognize some risks are currently allocated to stakeholders that have no control of those risks and this can lead to dispute, delay, cost overrun and project/asset failure.
- Adopting and standardizing Environment, Social and Corporate Governance (ESG) metrics within the design, construction and operations sectors of the economy. Such solutions will promote asset resiliency and impact to all.
- The public sector should reduce its reliance on advisors and foster design, construction and operations knowledge in-house to improve risks related to dispute.
- Develop a “single source of truth” around project/asset data for all to access to improve outcomes.
The above are a few of the solutions put forward by the report, but for greater detail, please read the report in its entirety. Meanwhile, I highly recommend you stay tuned to this channel as the WEF has the ears of several key decisions makers. Future outputs and pilots related to this initiative could transform the economy’s asset base dramatically and lead to improved success for all stakeholders.
David Bowcott is Global Director — Growth, Innovation & Insight, Global Construction and Infrastructure Group at Aon Risk Solutions. Please send comments to email@example.com.
This column first appeared in the February 2020 edition of On-Site. You can read the entire issue here.
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