Reducing the cost of major
infrastructure procurement in publiclyand privately financed projects
22 June 2018, Paris

Dr Aris Pantelias, UCL

2Acknowledgments• ITF/OECD for convening and supporting the Working Group“Private Investment in Transport Infrastructure”.
• Authors/Co-Authors of discussion papers– “Risk pricing in infrastructure delivery – What can be done to makemajor infrastructure projects less costly”– “Risk allocation in Danish mega-projects”– “Efficiency and innovation in infrastructure projects – Four types ofcollaborative procurement strategies in Sweden and the Netherlands”

3Disclaimer• This presentation is merely a summary and not the full story

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What was the objective?
• Identify how cost of major infrastructure projects canbe reduced– Understand the impact of uncertainty on risk pricing for infrastructure
projects– Highlight the impact of risk allocation on project delivery– Explore the impact of collaboration on project efficiency and innovation

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What we did• We investigated:– Risk and uncertainty– Risk allocation– Collaboration, efficiency and innovation• We considered different delivery models– Dominant (e.g. DBB, DB, EPC) and collaborative (e.g. ECI, Alliancing)• We studied the scientific literature as well as 16 project cases– UK (2), Denmark (3), Sweden (7), Netherlands (3) and Germany (1)6What we found (1)• Risk pricing in infrastructure is difficult: projects are unique,industry is opaque, data is not collected or is not shared– Not enough information available for benchmarking• Uncertainty in risk pricing is affected by four elements

Uncertainty in infrastructure delivery
Delivery model

Contractor risk pricing
challenges:

Contractors’
perception

Uncertainty

Contract
designProcurement
process-

Delivery models-

Financing requirements-

Information provision-

Timing constraints-

Methodological issues

8What we found (2)• Interrelationship between design and construction is a key
concept; especially how design clarity and flexibility relates
to the underlying delivery model.
• Infrastructure delivery has not kept pace with changing
nature of projects. Existing “set” solutions not necessarily
efficient and customisation may be necessary.

Impact of delivery model on cost estimation

Source: Adapted by authors from Samset (2008); Samset & Volden (2016)

Delivery model interrelations
Publicly financed(“Traditional”)

FinancingmethodPrivately financed(“PPP”)
Contractor
required
to price anarrow
scope

ECI (Phase 1)
Deliverymodels

Design Bid Build(DBB)
ECI (Phase 2)
Design Build
Alliancing(DB)

Contractpower.. a wide
scope
Contractor
engagedon a lowpowered
contract

Non-price competition

Cost-share(e.g. costs
plus a fee)

Engineering, Procurement& Construction (EPC)

Maximumguaranteedprice
Lump sum/fixedtime (“Turnkey”)…a highpowered
contract11What we found (3)• Risks must first be well understood in order to be efficiently
allocated• Risk allocation affected by fundamental choices made during
procurement

12What we found (4)• Collaboration can be described by four dimensions:– Scope– Depth– Duration– Intensity• Each dimension can have a different impact on project
efficiency and innovation depending on the underlying
delivery model and contract design used

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What we propose (1)• Matching design clarity and flexibility to the delivery model
used and the characteristics of the project. Pricing efficiency,flexibility and innovation need not be mutually exclusive.
• Early and continuous focus on risk management. Identifying
and understanding risk is a prerequisite for efficient allocationand mitigation.

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What we propose (2)• Facilitation of information provision through data collectionand sharing. Communication is key.
• Careful selection of delivery models. Adopting and managing
more advanced or more collaborative models requires
knowledge and skills which should not be underestimated.
• Well-prepared procurement processes in terms of scope,clarity and duration. They will affect bid pricing but also bidquality.

Thank you!
Dr Aris Pantelias, Senior Lecturer (Associate Professor)
Programme Leader, MSc Infrastructure Investment and Finance
The Bartlett School of Construction and Project Management
UCL
a.pantelias@ucl.ac.uk