Proceed and protect
Proceed and protect - intelligent procurement in America’s election year
The race to the White House is in full swing for the 2024 US Presidential Election, with the names of the two major parties' candidates gearing up for a likely rematch. The prospect of a protracted and bitterly fought contest, and the frontrunners who are going to contest it, looks to be a certainty.
There is uncertainty about everything else, including the possibility that former President Trump’s campaign could be upended at any point by his legal troubles, or that a new administration might reverse President Biden’s flagship clean energy policy.
Traditionally, such uncertainty has had a cooling effect on capital investment, as those responsible for commissioning-built assets recalibrate their decision-making in the face of the unknown.
So far in 2024, the impact has been relatively modest, with construction remaining resilient in many sectors. Ongoing stability may also be due to, not in spite of, the prospect of a change in America’s political direction.
2023 saw a nationwide surge in investment in clean energy infrastructure and manufacturing, including production plants for electric vehicles (EVS) and their batteries. Analysis by Clean Investment Monitor reveals there was US$239bn of new investment in the sector last year, up 38.0 percent from 2022.
A record US$67bn of this investment came in the fourth quarter alone, a 40.0 percent increase compared to the same period in 2022.
This acceleration may be the result of investment decisions being brought forward, not delayed, in response to concerns that a second Trump administration would repeal the Inflation Reduction Act. Meanwhile federal funds continue to flow under the Infrastructure Investment and Jobs Act (IIJA), which was passed by Congress in 2021 and authorized US$1.2tn in spending over five years for America’s critical infrastructure.
The act, also known as the Bipartisan Infrastructure Law, is likely to continue whoever wins the election, albeit rebranded and reshaped if former President Trump returns to the White House.
Nevertheless, continuity is far from assured in many areas. Those responsible for built asset programs should use the coming months to map and manage the impact that a sharp change in political direction may have on both their organization and their supply chain.
With the next administration due to take office in January 2025, now is a good time to build additional project controls into programs that are already in-flight. For those that are still in the design phase, the focus should be on choosing a delivery model resilient and flexible enough to ride out a period of uncertainty. We suggest that clients:
1.
Procure proactively and explore alternatives to engineering, procurement and construction
For all its ease and low risk, the contractor-led, design-build model may deliver neither best value nor optimum efficiency. Clients who take greater control of design may achieve better project outcomes, not to mention a completed asset better suited to their operational needs.
However, moving away from design-build or Engineering, Procurement and Construction (EPC) requires asset owners to shoulder responsibility for design they would previously have passed over to the design-build contractor.
In addition to investing in specialist design expertise, clients will also be required to specify more precisely than they are used to. This includes engaging the supply chain early and working with a skilled project manager to agree detailed designs before signing any contracts.
Done right, this approach can reduce overall risk and share risk more equitably between client and supply chain, unlocking greater innovation. It has been applied successfully in the advanced manufacturing and EV gigafactory space.
2.
Align goals with suppliers to create a project-first mentality
Transactional or adversarial relationships with suppliers have the possibility for misunderstandings, especially in projects facing shifting legislation. One way to foster a shared culture of agile value creation across the supply chain is the Integrated Project Delivery (IPD) model.
First popularized by the West Coast healthcare sector, IPD is now one of the fastest growing procurement models in the US and is used in both the public and private sectors.
IPD seeks to accelerate collaboration by placing all project stakeholders, including client, designer, builder, subcontractors and consultants into an integrated team. All members are incentivized to achieve a final cost lower than the Target Value Price, with each having vested interest and placing their own profit at risk until KPIs are met.
There are caveats of course. Maintaining complete unanimity can be a challenge, the IPD approach may not suit all projects and can be less effective in highly unionized markets, but it nevertheless has multiple benefits. It can be a powerful way to foster innovation, teamwork and a project-first focus among participants who are motivated to adapt to challenges by the knowledge they must either succeed or fail together.
3.
Update design-bid-build to incentivize and share savings
While design-bid-build (DBB) is a traditional delivery method, it still offers scope to drive value and strong schedule performance.
In its basic form, it may require more input from, and place more project risk on, the client than EPC. In return, it enables the project team to run an open book tendering process for subcontractors and secure highly competitive, well-qualified bids.
Good procurement practice starts with a clear design, and clients should select a design team able to produce Building Information Modelling (BIM)-enabled plans. This gives bidding companies a precise scope of work which, when followed up by digital ways of working, eliminates the risk of design clashes down the line.
Even if the general contractor didn’t choose the supply chain, the closeness of their relationship with the subcontractors is critical. Astute program planners can strengthen these links by allowing the benefits of any savings achieved to be shared by all parties, incentivizing both performance and collaboration.
Ready and resilient, for whatever the election outcome
After expanding by 7.1 percent in 2023, the outlook for the US construction industry remains broadly positive. However, headwinds are gathering, and clients should review the resilience and responsiveness of their delivery model to ensure they are ready for, and able to adapt to, whatever administration next January brings.
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