Delivering Energy Transition Projects
Improving Productivity: Competition or Cooperation?

UK Big Picture

The Times reported (Robert Lee, Industrial Editor, 16 July 2024) “…In 2022, UK productivity was about 16% below that of the United States and Germany and the nation’s productivity growth has been weak since the financial crisis of 2008…”. Engineering Construction, productivity has been in decline since before 2008 and shows no real sign of significant overall improvement.

Why is this important to delivering Energy Transition projects? Low productivity is a wastage of resources in an industry that is very short of skilled and experienced people, contributes significantly to delays and results in substantial additional costs, whereas delivery of Energy Transition projects demands achievement of tight schedules and value for money performance to generate acceptable returns for stakeholders and meet decarbonisation objectives.

The article also refers to “…A commission made up of chief executives has told the labour government that it must address the causes of the nation’s productivity problem if it wants economic growth…”. In the context of the Engineering Construction industry, while significant improvement in government performance would no doubt contribute, the fundamental changes needed to improve productivity reside squarely with the industry.

According to the article, the commission “…said that Britain’s further education, vocational, adult skills and apprenticeship training compared poorly with the world-class quality of teaching in the country’s universities…”. No doubt. However, this is basically an industry issue and not one for Government. It is a question of how much the industry is willing to invest in its people to improve competence, retain them and recruit others. Of course, government financial incentives might help.

At Kingsfield Academy, we design and deliver training programmes for project teams geared specially to the international Engineering Construction industry that is focussed on delivering commercially successful project outcomes. We have observed, in particular, that the knowing – doing gap is often significant.

Productivity: An Academic View

In an article in the Times on 16 December 2024, Lynda Gratton (Professor of Management Practice at London Business School) asked the question, “…In the age of extraordinary technological innovations, why are we not more productive?…”. Quite.

Her research conducted in 2024 reveals, “…Typically, productivity is measured in traditional yardsticks – units shipped, hours logged, lines of code written. …these are outcome measures – they tell you what happened but not why…”. This is basically no different to the way in which productivity is considered in Engineering Construction.

She continues, “…When productivity is boosted…” which I take to mean there is improvement, she advises, “…much is happening behind the outcomes: employees are engaged and skilled, the workflows enable people to work efficiently, project leaders are supportive, teams cooperate well with each other, and social networks enable ideas to flow with ease. It’s the combination of all these elements that leads to productivity boost…”.

Precisely. Consider these factors in the context of Engineering Construction projects and ask – are these factors typically present in projects? I believe you will find the answer to be ‘no’.

In the context of productivity measurement, she advises, “…if you don’t measure these elements – then typically the lever that is pulled is hours worked. This can lead to unintended consequences. During the pandemic, the meetings put into daily schedules doubled. It looked like the hours of work increased…The reality was that in running from meeting to meeting, focused and intense thinking time was lost; over time, productivity was dragged down. People looked like they were working longer hours, but the design of these working hours stopped them being productive…”. Recognizable? Think about productivity that “…is not just what we do, but how we do it…”.

Engineering Construction

This is the only industry, at the present time, that is capable of delivering Energy Transition projects globally. It comprises a great deal of expertise and experience in a wide range of industrial plant development sectors: oil / gas, thermal, hydro and nuclear energy, petrochemicals, chemicals, industrial gases, mining and minerals, cement, etc., together with multiple stakeholders across those sectors. We can now add to these carbon free energy providers such as wind, solar, carbon capture, and hydrogen. Although all these industry sectors follow very similar project procedures, processes and practices and often use the same resources, they operate in silos with very little cross communication. Indeed, the organisations in each industry sector also mainly work in silos and the individual companies within each sector are typically organised in silos as well as their respective functions and disciplines. There is often great competition within and between all of these silos that, despite the oft held notion that competition breeds efficiency, it does nothing in this industry to alleviate low productivity.

Although the Engineering Construction industry has (not enough) skilled people, it is questionable if they are fully engaged. While there are long-standing workflow practices that have served the industry well, one must question whether these are fit for purpose in today’s project environments to enable efficient working, especially with regard to Energy Transition. Project leaders often do not provide sufficient effective support. The extent to which project teams cooperate as an entity and create social networks to allow ideas to flow is, at best, questionable.

Given the findings of Lynda Gratton’s research, can we be surprised that the Engineering Construction industry suffers from low productivity? In this context, the tradespeople undertaking the physical work are often the last in a chain of unproductive working that commences at the project conceptual stage. Therefore, low productivity is almost pre-destined unless a very different approach is taken to project conceptualization and delivery.

Significant research has already been conducted into efficiency and productivity on construction work. In Change And The Loss Of Productivity In Construction: A Field Guide (Ibbs and Vaughan 2015), reference is made to seven Productivity Factors and of these, item 3, Project Team (Owner, Contractor, and Architect) Factors and item 4, Managerial Actions and Decisions During Project Execution Factors can be correlated with Lynda Gratton’s research and findings. Thus, in terms of overall project productivity, a link can be identified between non-site activity and on-site activity in terms of low productivity and what can be done to improve this. In this context, consider the simple and obvious examples of design changes, late and revised engineering, late material deliveries, etc. and how these affect worker performance at the site.

Competitive Contracting

The long-held belief that competition drives efficiencies and, hence, productivity does not withstand scrutiny. Conventionally, most Engineering Construction work delivery contracts are procured on a competitive tendering basis, where lowest price (often lump sum), shortest delivery time, substantial risk taking by the contractor and supply chain and adverse contractual terms are often the basis. Research over the past 15 years reveals that about only one out four major projects are actually delivered on time, within budget and start up as planned. Not an enviable record. Furthermore, there is a growing incidence of significant and costly disputes occurring on many of these projects, mainly relating to contractors’ and suppliers’ delays and additional costs. HKA’s report CRUX-2023-Forewarned is Forearmed, dated 2 December 2024, is very revealing in this respect. Of real note, is that most disputes are avoidable by the contracting parties exhibiting appropriate behaviours in dealing with the issues that otherwise result in dispute.

These conventional contracting arrangements separate the interests of the contracting parties and induce, within the contracting parties, self-preservation behaviours to secure commercial advantage over the other party. This is not conducive to productive working and effective project delivery. The notion of winner takes all, losers go to the wall is often prevalent and disadvantageous to successful project delivery and outcomes.

Energy Transition

At the 2024 BCECA annual on-line conference, the panel discussion chaired by Tolani Azeez (Fluor) regarding contracting arrangements concurred that Energy Transition projects are not business as usual. Many reasons were cited, including investors and owners that are new to the industry not being familiar with conventional industry practices, new and / or evolving technologies, obtaining financing, and the need to expedite execution and delivery to meet decarbonisation targets. Add to these the constraints affecting delivery of conventionally contracted projects that include, for example, supply chain shortages and delivery times, inflation, interest rates, availability and cost of transportation vessels, and an acute shortage of skilled and experienced workers across all functions and disciplines.

Thus far, many Energy Transition projects, especially for solar and wind power, have been contracted on the conventional basis. Unsurprisingly, these have suffered from the same challenges as conventional Engineering Construction projects. For example, the Times reported on 25 November 2024 that the BP’s Morven offshore wind farm (2.9 gigawatts) would miss its 2030 target electricity generation start date due to “…lengthy grid connection queues and supply chain shortages…” of which the latter was due to challenges “…with obtaining turbines and electrical parts…”. Energy Voice reported in February 2023 that the CEO of the Marine Industry body advised that, due to many projects suffering significant losses, there needed to be “…An allocation of risk that recognizes the reality of offshore construction and reflects the need to encourage the development of increasingly technologically advanced project solutions. Greater flexibility and fairness is needed by allocating the risk to the Party who created it, or is best placed to manage it, and take responsibility for it…”. These matters are not confined to offshore wind farms.

The European Wind Industry – A More Recent View

In a LinkedIn post in November 2024, Christian Bruch, CEO Siemens Energy, advised that following a meeting with members of the new European Commission and representatives of the European Wind Value Chain, “…I believe it is worth fighting for the European wind industry as it can create hundreds of thousands of jobs, strengthen our industrial base, and make us less dependent on energy imports…” and cited four areas for action;

• Fair competition – A pure price-driven competition will not sustain a European wind industry.
• A balanced business model – investment will only materialize if there is a profitable business model for both investors and supply chain companies.
• Innovation and implementation: The close interlink between innovating and manufacturing is essential.
• General boundary conditions for industry: A key focus needs to be on the productivity of doing business in Europe.

He closed by advising, “…We will not get a second shot at this. Initiatives like the Clean Industrial Deal and the Competitiveness Compass that President von der Leyen announced last week need to be delivered so that wind can prosper in Europe…”. Absolutely.

The same sentiments can be applied to most, if not all, Energy Transition projects.

Collaborative Working And Contracting

In the context of Energy Transition projects, conventional contracting arrangements and ways of working are not conducive to effective performance, delivery and successful outcomes. Furthermore, these provide little or no opportunity to improve productivity significantly or at all.

Energy Transition projects need to be considered as investments that not only benefit the actual financial investors in the projects but also the community at large with the achieved decarbonisation and contribution to meeting Net Zero 2050. The main contracting parties (Investors / Owners, contractors, fabricators, supply chain et al) need to work together as stakeholders in a multi-party contract for the development and delivery of projects where the focus is on successful project outcomes from which they are rewarded, and not individual organisations’ commercial results. This means collaborative working and contracting.

The fundamental inherent change in the way of working would provide the opportunity to significantly improve productivity throughout the development and delivery process resulting in reductions in the number of people required for each project, as well as attainment of agreed budgets and facility start-up dates.

The tools for implementing collaborative working and contracting are available. The Engineering Construction Industry Training Board (ECITB) Project Collaboration Toolkit (PCT) is freely available – following this link http://www.ecitb.org.uk/professional-management-training/project-collaboration.

The multi-party contracting framework Collaborative Working Agreement (CWA) is available from the European Construction Institute (ECI) – following this link https://eci-online.org/publications/

For PCT and CWA training for Energy Transition projects – follow this link https://www.kingsfieldacademy.com/catalogue/cat-6-energy-transition/

Kingsfield Academy: Energy Transition Leadership Course

The Energy Transition Leadership program provides a basis from which project teams can explore and prepare for leading projects in new energy sectors.

With the drive towards Net Zero gathering pace, the need to develop requisite leadership skills for this energy transition environment has never been greater. The challenges that arise out of projects with “first of its kind” (FOIK) emerging technologies, in new markets, and with unfamiliar contracting arrangements require changes of mindset and, consequently, a greater emphasis on leadership at every level of the project organisation.

The Energy Transition Leadership program aims to address the key areas to be considered and managed in order to execute profitable projects for contractors and present viable capital investments for owners. The course involves 4 workshops, to view the dates, times and leaders of each, as well as price, take a look at the flyer.

SESSIONS INCLUDE:

• Introduction & context of Energy Transition projects
• Systems thinking for Energy Transition projects
• Contracting & Commercial Leadership for Energy Transition projects
• Project leadership for Energy Transition

More information can be found on the Kingsfield Academy website.

In his blog ‘Net ZERO 2050 – Is it achievable or at risk?’ John Fotherby referred to modern tools, processes, and practices that, together, if used properly, can greatly assist project delivery teams to radically improve performance, but which are not being used universally on Engineering Construction projects.

Following this blog post, Fluor Corporation and Tecnimont (founder members of ECI and established AWP practitioner organisations) have produced a paper entitled ‘Successful Project Delivery- Its Common Sense’, which references the eight ECI ACTIVE Principles, and explores AWP.

These principles and practices will be investigated further in a joint series by ECI and Constructing Excellence, ‘Energy Transition Revolution – Powering the New Age of Project Delivery’. Whilst the recent white paper, ‘Successful Project Delivery- It’s Common Sense’, will form the basis for discussion at the first event in the series.

“Net Zero ‘at risk” without tax breaks” (*Times, Business Section, 4 February 2023) reported that the CEOs of Renewables UK, Energy UK, The Nuclear Industry Association, Scottish Renewables and Solar Energy UK have written jointly to the UK Chancellor of the Exchequer saying that tax breaks are needed to encourage investment in green energy.  As Chair of the European Construction Institute (ECI), I do not perceive this to be the problem.

Unequivocal and unremitting UK Government policy driving continued commitment to support green energy in the pursuit of Net Zero 2050 is essential if the UK is to keep up with, let alone lead, other countries across the globe in this existential challenge. I also do not doubt that tax breaks might be of help. But, neither of these considerations addresses and resolves the real impediment to achieving Net Zero. This is a problem with the engineering construction industry itself, not Government, and is not confined to the UK.

Many Energy Transition / Net Zero projects are ‘mega’ (exceeding USD 1bn) and are often complex, including those of lesser value. The industry has a legacy of only one in four mega projects meeting their business objectives – a failure rate of 75%. Typically, they are delivered significantly over budget and very late and, quite often, do not start up as intended. If this ‘performance’ continues, Net Zero 2050, and the intermediate carbon emission reduction steps leading to it, is unlikely to be achieved – by a long way.

Enlightened owner / investors, contractors and supply chains are beginning to consider and embark upon different contracting and working strategies geared to eliminating waste, significantly improving productivity, reducing costs, shortening delivering times, improving safety and quality and, above all, providing visibility on outturn cost and facility start up dates – just the requirements for investor commitments. However, so far, they are in a tiny minority, and the steps they are taking are hardly revolutionary.

Consider for a moment the way in which the shipbuilding, aerospace and automotive industries transformed themselves – years ago. What can engineering construction learn from such transformation? What prevents engineering construction from taking equally transformative actions, especially since this industry is the Net Zero 2050 delivery vehicle? But time is running out, whilst complacency is prevalent.

Today, there are modern tools, processes and practices that, together, if used properly, can greatly assist project delivery teams to radically improve performance, but are they being used universally? –     short answer, NO.

There is empirical evidence indicating that collaborative working and contracting, in which risk is shared equitably, innovative practices are rewarded, and performance and delivery is incentivised and not penalised, leads to successful project outcomes, but is this approach being used universally? –     short answer, NO.

There seems to be industry consensus that early contractor and supply chain engagement, standardisation, and factory-thinking and modularisation can lead to far greater efficiency in design, work planning and execution, but are these being applied universally? –     short answer, NO.

In complex Energy Transition projects that may be based also on new or evolving technology and where uncertainty is prolific, then conventional contracting models, especially lump sum or lump sum turn-key and which anticipate and rely upon certainty, are inappropriate and indeed are a risk in themselves. Have such models been abandoned on projects of this kind –     apparently not.

Despite the need for radical change in the industry, it is not happening – why?

I suggest, there is an inherent resistance to change quickly or at all, a reluctance to leave comfort zones, and preference for the status quo. Engineering construction is a ‘people industry’ and it is stymied in its development universally by mindset and behaviours that rely upon completely outdated thinking and practice.

What is likely to cause change to occur? Answer – Owners’ recognition that to ensure that they receive the projects they want to invest in at a time when they need them and for an affordable price, there needs to be a radical change to the way projects are conceived and delivered. Where Owners lead, contractors and the supply chain will assuredly follow.

Recommendation: the authors of the letter to the Chancellor, and other existing and potential owner / investors also look to the engineering construction industry in the UK, take into account what enlightened owners and their contractors are currently doing to improve performance in the UK and elsewhere, consider how they might build on these present initiatives and set the UK industry upon a revolutionary track of change to secure achievement of Net Zero 2050.

Modern project management tools and processes are available – the missing element is the change in mindset and behaviours required to adopt these in a fundamental; shift in project delivery practice.

Throughout 2023 the ECI is hosting regular events: Energy Transition Revolution – Powering the new age of project delivery. The first event is on 14 March 2023 – come and join us.

John Fotherby – Chair – European Construction Institute / Partner – Kingsfield Academy