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Angles

Angles is our online thought leadership platform offering in-depth analysis from those who are helping to transform the world in which we live, both today and tomorrow, and providing insight on everything from master planning a city to building a more sustainable future.

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Daniel McDuff
25 Apr 2017

Often roads are a means to an end, but that kind of thinking is starting to change. Greenroads International, an independent, nonprofit organization, uses it’s Greenroads® Rating System to certify transportation projects based on environmental, social and economic responsibility. Using this system allows us to build roads that strike a balance between critical transportation infrastructure improvements, and natural resource preservation.

We’ve all seen the trend toward greener buildings in recent years. The architecture industry follows the Leadership in Energy and Environmental Design or LEED rating system. The Greenroads® Rating System is our industry equivalent—the most widely used transportation sustainability rating system in the world. The third-party, point-based system was launched in 2010. There are now over 110 Greenroads projects around the world, valued at more than $18 billion.

Greenroads certification is more than just incorporating environmentally sound construction practices into projects. Roadways impact communities, the environment, and other surrounding areas. A good example of how Greenroads projects address these concerns is Austin’s 183 South project.

Austin’s 183 South is currently the largest construction project in the region, and the biggest the Central Texas Regional Mobility Authority (the Mobility Authority) has ever undertaken. Consistent with their core value of sustainability, the Mobility Authority is pursuing certification for the 183 South project through the Greenroads® Rating System, which, if approved, could make it the largest highway project in the country with this designation.

The project enhances roadway capacity for bicyclists, pedestrians, and more than 60,000 drivers a day in East Austin while preserving recreational and environmental resources for the local community. It includes improvements to an existing highway which will ultimately provide six lanes of traffic in each direction (three lanes tolled, and three non-tolled) freeway in each direction along an eight-mile stretch in between US 290 and SH 71. Non-tolled lanes will feature pedestrian and bicyclist facilities for the entire length, as well as a high-tech traffic monitoring system for improved traffic management and emergency response.

The 183 South project takes into consideration the careful balance between the natural and built environment. Innovative construction practices are applied to enhance multimodal transit, while preserving the local landscape. River and creek crossings are maintained, and a trailhead will be added to complement the beauty of the nearby Colorado River Wildlife Sanctuary. The project’s sustainability measures will help reduce construction noise, minimize intrusive glare and disruptive light pollution, lower emissions, enhance aesthetics, and reflect local community preferences in the design.

In our role as the Mobility Authority’s general engineering consultant (GEC) and lead in submitting the 183 South Greenroads application, we’re helping pave a balanced path between critical infrastructure enhancements and natural resource protection. As deputy program manager for the Mobility Authority GEC, I’m part of the oversight team for 183 South. I closely monitor how the project is progressing, and develop reports that keep the executive team, bondholders and the public aware of how construction is progressing. The Mobility Authority entrusted us with their GEC contract in 2008. Since then, we have maintained a focus on excellence in the many services we deliver.

Greenroads certification is an ongoing evaluation process that will extend over the life of the 183 South project. Potential certification ratings are respectively bronze, silver, gold and evergreen. While we anticipate a silver certification, an actual score will not be assessed until project completion in 2020.

The benefits of the 183 South project and its potential Greenroads certification extend way beyond added roadway capacity, bicycle and pedestrian accommodations, and an aesthetic design that reflects the community’s values. We’re also opening the door to enhanced quality of life and economic opportunity for East Austin, which is poised to become a magnet for growth and redevelopment. I couldn’t be more proud to play a role in helping to achieve the goals of the Mobility Authority. Through efforts like these, we can reduce the growing carbon footprint that our country’s roadway network has on our planet.

Together, we are building a highway to a better future—moving people through our environment, while at the same time preserving and enhancing it.

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North America,

Ernie Edgar
20 Apr 2017

Worthwhile pursuits require risk; how you manage that risk is often the difference between success and failure. It’s the defining factor in whether a project is commercially rewarding, unfruitful, or worse, a catastrophe. Delivery models for new projects are changing, shifting the design risk from the owner to the contractor. Better the risk you know, than the risk you don’t; let’s get to know the risks, shall we?

For much of the last century, design-bid-build was the conventional project delivery method. In this model, the owner contracts with the project designer (who creates and delivers the design), and then the owner solicits bids from contractors. The completed design allows the contractor to bid the project at a fixed price thereby providing a measure of certainty in overall project cost and liability.

Today, there is a trend toward new project delivery models; the design/build model is quickly becoming one of the most common. Design/build brings the design and construction of the project under the purview of one contractor. That contractor bids the project based on the conceptual vision of the owner.

This project delivery model is intended to expand project financing, contain project costs, compress project delivery schedules, and reduce project claims and litigation. In the public sector, this approach has given rise to public-private partnerships (P3) which can offer not only turnkey delivery, but also privately-funded project finance, operations, and maintenance to stretch limited tax dollars to meet sophisticated infrastructure needs. These are the benefits, but what are the risks?

In design-bid-build, contractual privity and risk allocation are simple: the designer is only beholden to the owner. If there are design defects because of professional negligence, the owner has a cause of action against the designer, but the Economic Loss Doctrine in most states insulates the designer from collateral claims by other parties such as the contractor.

In contrast, the design/build delivery method makes the designer part of the construction contractor’s team, generally as a subcontractor. The difference is clear. These alternative delivery methods shift the project design risk from the owner to the contractor, and there is a dilution (if not outright transfer) of the owner’s Spearin doctrine risk associated with a finished design.

So, what can you do to limit our risk in this changing environment?

First, you must know the risks. In addition to exposure for professional negligence, the design/build delivery method exposes the designer to certain construction risks, such as the imposition of liquidated damages, not usually part of pure design contracts. The client relationship is profoundly different as well: the design is delivered to the construction contracting team, which is responsible for conveying both the design and the finished project to the owner. Thus, adhering to the ultimate project delivery schedule becomes a very real performance risk for the designer.

Second, you must evaluate the risks—paying close attention to your contract. Contract provisions are particularly vital in ensuring the proper allocation of commercial design risk. Ensure that the contract provides for the right insurance coverage. Confirm appropriate indemnification. In traditional design contracts, there is typically no limitation of liability term; design/build projects may offer limitation of liability to protect the designer from the risks mentioned above.

Third, you must know your insurance carrier and choose the right coverage. In design/build projects, given their size, complexity and associated risk, owners often obtain project-specific professional liability policies to cover design risks. As such, these are independent of a designer’s practice policies. Because of project size and associated risk, they tend to be expensive, so it is essential to the design/build team to price the project-specific professional liability policy and include that cost in its overall bid. Alternatively, the owner can obtain the coverage for the design/build team. In either case, it is essential for the designer to ensure the policy terms adequately cover its design risk.

Fourth, you must utilize technology for accurate modeling. Among the more recent technologies to come into use is Building Information Modeling (BIM). To date, it does not yet define the standard of care, but it is becoming more persuasive as a quality and delivery benchmark.

And finally, you must communicate. Whether aided by project management technology, or through other means, communication is paramount in any design project. Ensure clear standards and procedures that provide for dynamic communication among all parties involved in the project.

Project delivery models are shifting. As the purpose, scope and requirements of the built environment increase in complexity—as pressures to deliver projects as scheduled and on budget are increasingly intense—we need to take a deep look at how these changing models upset the risks involved. In the words of Warren Buffet, “risk comes from not knowing what you’re doing.” A sober understanding
                            of project risks and risk mitigation solutions will go a long way in ensuring commercially rewarding
                            projects in an ever-changing future.

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North America,

Chris Birdsong
19 Apr 2017

OBOR has the potential to be the world’s largest platform for regional collaboration. The infrastructure projects will stimulate economic growth and build legacy for countries along the way.

How much would such a transformational programme cost?  

It is estimated that the total cost lies somewhere between $4 and $8 trillion US dollars, meaning that realising the full potential of the OBOR initiative is beyond even the investment ability of the Chinese government and institutions, and is therefore going to need significant private sector involvement. 

This, however, means that each element of the initiative needs to have a positive investment case in order to attract financing. Whilst we are already seeing a shift amongst Chinese agencies and institutions towards broader funding avenues such as pension funds, overseas sovereign wealth funds and private equity funds, further private sector involvement is required due to the ambitious scale of the projects.

This brings a range of wider considerations in attracting private sector investment. Whilst it is well known that investment is available in the market, matching this to viable projects is the critical gap that OBOR, like many other major projects, needs to address.

Based on my experiences with Atkins and Atkins Acuity, the advisory business of the Atkins Group, there are seven areas that a private sector investor would consider when an opportunity is presented.

  1. Bankable and technically feasible projects. Detailed feasibility studies and robust business cases are important to attract investors who will often require high quality information on which to base their investment decisions. The effect of poorly thought through and ineffective business cases is profound, resulting in investors, developers and institutions losing confidence in a government’s ability to be an effective business partner. To address this, it requires professional de-risking at the project level, an area in which Atkins has expertise. Early state involvement is key to maximise a project’s benefit, providing more certainty in revenue projections and project input cost, which reflects the complexity in design and construction and the engineering delivery risk. 
  2. Appropriate risk allocation. At the early stage of a project, institutional and public bodies shouldn’t expect the private sector to bear the risk. By providing the right funding to proper project preparation and guarantees can help mitigate the risks to attract private sector investment.
  3. Innovative funding. Governments need to be more open towards achieving a balanced funding mechanism between tax payer pay and user pay. The willingness to pay is key to attracting private investment. Local currency bond markets are also important to funding Asia’s growing infrastructure needs as they avoid currency risk arising.
  4. Affordability. Can the host government, tax payers or end users afford to pay for the charge over the lifetime of the concession? Linking back to the innovative funding models, should the public money rather be used to support project life affordability, than be spent on the investment side and crowd out the private sector?
  5. Institutional capacity in host countries. A system to identify, select and prioritise major projects can effectively shorten the lead-in times of the pipeline. Public sector bodies must ensure they have sufficient capacity within government departments involved in infrastructure delivery, especially if procurement is via public-private partnerships. Atkins Acuity has strong expertise in this area and has worked with World Bank and Asian Development Bank for capacity building in some Southeast Asian countries.
  6. Governance and transparency. Transparent and consistent policies and processes are required across all sectors to provide confidence to investors. A solid regulatory framework, a reliable and consistent judicial system and clear and transparent governance are all important considerations.
  7. Project delivery risk. Overrun on major infrastructure projects is a significant project delivery risk. Not only does it have an implication on project cost, but also has implications on the credibility of the host country, which may result in difficulty in raising investment in the future or at an unnecessarily high premium that affects the affordability of the project. At Atkins, we believe that technology has a major role to play. Digital engineering tools such as BIM can provide vast productivity improvements in design, costing and progress visualisation, providing increased clarity and confidence to help make the decision to invest.

Evidence shows that there is no deficiency in available funds, but there are gaps in bringing bankable projects to the table. In focusing on these seven key areas, we believe we are going to see more infrastructure projects being realised that are crucial to the development of many countries. 

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Asia Pacific,

Guy Ledger
18 Apr 2017

In its Water 2020 report Ofwat states a shared vision for the water sector in England and Wales that relies on everyone in the sector “working together, listening to customers and tackling long-term challenges” – so how will this vision from Ofwat unfold in practice? 

In my role as business development director, and having seen 25 years of change within the water industry, I’d say something of a revolution is now underway. Soon we’ll see competition in the water retail sector go live, giving businesses across England the option to switch suppliers and consolidate their water and wastewater services. 

The next step is direct procurement. This means we’ll see water companies going to the marketplace not just for design and construction very large projects with a value of £100 million or more, as they’ve always done, but also for project financing.

This opens up the opportunity for new consortia to deliver the industry’s biggest and most exciting projects, but building large, new infrastructure is a costly and risky business, and Ofwat is more than aware that eventually the customer foots the bill. 

So raising project-specific finance from new investors and consortia could change the dynamics of the market, leading to commercial innovation and ultimately better value for end users. 

It’s a model already being used in the £4.2 billion Thames Tideway ‘super-sewer’, London’s second biggest infrastructure project after Crossrail, which is being funded through a combination of increases in Thames Water customers’ bills together with a £2.8 billion investment from Tideway, whose investors have invested £1.2 billion of equity. 

Tideway is being seen across the industry as a litmus test for what good could look like, but that is a mega-project costing £4.2 billion, so it might be that this new approach is better suited only to larger projects, in excess of £100 million. Teams across Atkins Acuity, our arm that advises on major infrastructure projects, have worked on many schemes which, due to their sheer scale and size, transcend company, or geographical, boundaries. In their view what’s needed for meaningful large-scale projects to happen is a stronger push to realise larger-scale projects that are in the national interest. 

It’s certainly the case that worthwhile projects initially deemed “too difficult” eventually get delivered because they are front and centre in the national interest, and therefore become essential. In this way, the UK Government pushed along Tideway because the alternative would have meant fines under EU regulations. 

If such a mechanism should come into play that forces larger projects through to direct procurement – such as big reservoir projects that cut across water companies’ boundaries – it may well be the case that we’ll see plenty of lenders prepared to take project finance risk. 

This next wave of change could mean that, by looking at projects from an investor’s angle, we’ll see the opening up of new and attractive propositions, and even a raft of inter-sector investment opportunities come to the forefront within a few years, or new funding models emerging. 

One thing we know for certain is that there are early signs of significant change ahead. And market participants need to be planning for these changes now, for the Ofwat vision to be delivered.


 

 

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