CAPEC 2015 International Forum

Th l f lti i iThe role of consulting engineers in delivering sustainable infrastructure g

projects

CAPEC International Consulting Engineers ForumBeijing - November 2015

Peter Boswell

Sustainability challenges

S t i bilit h ll 1Sustainability challenges - 1Countries seek innovative ways to tackle global and local y gsustainability challenges while promoting economic activity.Climate changeClimate changeGlobal mean temperature change:

1 5-2 5 oC by 20501.5-2.5 C by 2050Insurance loss events (floods, etc):

x2 every 20 yearsx2 every 20 yearsResourcesPh h h t d 2050 2060Phosphorus: reserves exhausted 2050-2060.Water demand: 25% increase by 2030.

Sustainability challenges

S t i bilit h ll 2Sustainability challenges - 2PovertyyPeople with no access to clean water: 13% todayReal public capital stock per capita:Real public capital stock per capita:

USA: $21,000; Sub-Saharan Africa: $3,000Physical infrastructure per capita:Physical infrastructure per capita:

Sub-Saharan Africa x7 less than USAA il bilit f h i l i f t t ( l t i tiAvailability of physical infrastructure (electric power generation; km of roads; phone lines) per capita:

USA 2 3 S b S h Af i 0 3USA: 2.3; Sub-Saharan Africa: 0.3Electric power consumption, kWh:

USA: 13.3 per cap; SS Africa: 2.0 per cap (hotplate: 1.5).

Sustainability challenges

S t i bilit h ll 3Sustainability challenges - 3Populationp

Project sustainability goals

A i j t t i bilit l & i ti h ?Aggressive project sustainability goals & innovation - why?1. DutyyConstruction and plant investments that consulting engineers help plan, design, construct or renovate, operate, and recycle:help plan, design, construct or renovate, operate, and recycle:- have lengthy lifetimes; - the industry has a duty to clients and society to encouragethe industry has a duty to clients and society to encourage

thought and action aimed at the long term. 2 Traditional measures of performance2. Traditional measures of performanceSuitability (fitness) of purpose, cost optimisation and on-time d li t l i fl d b t i bilit id tidelivery now strongly influenced by sustainability considerations.

Project sustainability goals

3 E i3. EconomicsFrom a life-cycle perspective, investments in sustainability going beyond the minimum legal requirements often pay off economically.4. Risk reductionIncreasingly more stringent regulations may affect economicIncreasingly more stringent regulations may affect economic returns and operation.

Sustainability/innovation risks

S t i bilit /i ti i kSustainability/innovation risksRisk – greatest inhibitor of innovation in infrastructure.gTwo risk management aspects:

1 Contracts1. ContractsSeen as prescriptive standards to protect each stakeholder from liability as a result of planning designstakeholder from liability as a result of planning, design, construction or operating decisions.

2 Procurement2. Procurement“Build to specifications” prevents collaborative, holistic

h th t t k d t f h t i iblapproaches that take advantage of what is possible.

Contracts

1 C t t1. Contracts1a) Traditional contract types) ypFIDIC Construction (client-design) and Design-Build, EPC and DBO (contractor-design) contracts:DBO (contractor design) contracts:- assign risks to the party best able to carry the risk;- sustainability requirements specified in detail insustainability requirements specified in detail in

Specifications /Employer’s Requirements and the risks assigned accordingly.ass g ed acco d g y

For sustainable procurement: - convince clients to seek sustainability in their specificationsconvince clients to seek sustainability in their specifications

or requirements.

Contracts

1 ) T diti l t t t ( ti d)1a) Traditional contract types (continued)For FIDIC’s balanced-risk contracts, claimed that:- contractors better able to assume innovation risks;- design-build teams with no split responsibilities better able to g

bring innovative solutions.Expect consulting engineers to increasingly work within design-Expect consulting engineers to increasingly work within designbuild teams (and similar arrangements for turnkey contracts). But generally not the case: choice between client- or contractor-But generally not the case: choice between client or contractordesign still depends upon the nature of the project, the level of in-house expertise and clients’ prioritieshouse expertise and clients priorities.Conclusions:

Clients more able to assume innovation /sustainability risks;- Clients more able to assume innovation /sustainability risks;- Engineer’s role unchanged.

Contracts

1b) N t t t P f B d C t t1b) New contract types, e.g. Performance-Based Contracts(PBCs)

Incorporate innovation with PBCs that:- set metrics for the contractor’s output rather than

programmes, methods, and plant and material input requirements;

- contractor can choose methods and technologies. Sustainable procurement = engineer/contractor innovation.Susta ab e p ocu e e t e g ee /co t acto o at o

Contracts

1b) N t t t PCB ( ti d)1b) New contract types, e.g. PCB (continued)But PBCs are complex:p- combine a subset of design, build, finance, operate,

maintain, and transfer; - combine input-, output- and outcome-based payment

mechanisms. World Bank 2014 review: use PBCs as facilitators of good asset management, rather than a goal in its own right. asset a age e t, at e t a a goa ts o g tConclusions:- traditional FIDIC forms of contract are undoubtedlytraditional FIDIC forms of contract are undoubtedly

viable and preferred in the majority of cases;- Engineer’s role unchangedEngineer s role unchanged.

Sustainable Public Procurement

2 S t i bl P bli P t (SPP)2. Sustainable Public Procurement (SPP)Public sector has a major responsibility in most countries:j p y- largest consumer; procurement: 8 - 30% GDP.Historically a project can only be awarded to the mostHistorically a project can only be awarded to the most economically advantageous tender.Strong push for SPP in many regions i e procure works etcStrong push for SPP in many regions, i.e., procure works, etc. with an enhanced sustainability impact throughout their life-cycle compared to works etc with the same primary functioncycle compared to works, etc. with the same primary function that would otherwise be procured. Specify award criteria for tenders; Europe strengthen legalSpecify award criteria for tenders; Europe - strengthen legal basis to allow sustainability criteria to be used more thoroughly. Engineer’s role unchanged.

Paradigm shift

C ll f di hiftCalls for a paradigm shiftConsulting engineer’s role is maintained and maybe reinforced g g yby the need for project sustainability. However, many call for a paradigm shift in the way the industryHowever, many call for a paradigm shift in the way the industry acts.Including the President of Consulting Engineers South Africa –Including the President of Consulting Engineers South Africa a large, advanced economy coexisting with a large, relatively poor populationpoor population.

Paradigm shift

Wh th ll f di hift?Why the call for a paradigm shift?Unlikely that the consulting engineering industry can by itself y g g g y yimplement a major paradigm shift (“from control of to participation with nature”).)Clients would need to do the same.Industry is seen as unable to respond to client demands forIndustry is seen as unable to respond to client demands for increased project sustainability.Why?Why?

1. Not contributing sufficiently to global level frameworks.2 Not implementing sustainability at the project level2. Not implementing sustainability at the project level.3. Not helping to create bankable infrastructure projects.

The consulting engineering industry

T f ti itTwo areas of activityEuropean Union investments, 2010:p- construction 70% of demand

= architecture & engineering services g g- plant 30%

= industrial/plant engineering. industrial/plant engineering.Industry profiles vary considerably between countries (e.g., Sweden; 22% industrial; Spain: 2% industrial)Sweden; 22% industrial; Spain: 2% industrial).Industry well positioned forsustainable infrastructuresustainable infrastructure that involves both areas.

Infrastructure investment - 1

I f t t i t tInfrastructure investmentInvolves both construction and plant investments.pCore infrastructure: - match economic growth: need 3.7% GDPmatch economic growth: need 3.7% GDP- consulting engineering industry revenue: 20-30% of totalNeed more infrastructure investment for climate changeNeed more infrastructure investment for climate change, human development,.. : up to 0.8% GDP claimedBut government investment decreasesBut government investment decreases.

Infrastructure investment - 2

P i t fiPrivate financeNeed more private investment, but very poor data:p y p

core, 2009 (EIB) 7 sectors, 2013 (McKinsey)EU 60% (2.2%GDP) 40%EU 60% (2.2%GDP) 40%US - 41%JA - 23%JA 23%

Sources (EU):C t fi (fi l i f t t i )- Corporate finance (firms supply infrastructure services)- listed companies: CAPEX: 0.5% GDP

f d (90% it 10%d bt) 0 1% GDP- funds (90% equity; 10%debt): 0.1% GDP- bonds someP j t fi 0 5%GDP- Project finance 0.5%GDP- PPP: 20%; non-PPP: 80% (some project bonds)

Institutional investors

I tit ti l i tInstitutional investors

Recent focus is on institutional investors.Recent focus is on institutional investors.In 2013, their infrastructure assets TOTALLED about 1% GDP (in mainly low risk operating infrastructure with predictable(in mainly low risk, operating infrastructure with predictable, often inflation-linked, cash flows):

corporate finance (90% equity; 10% loans)- corporate finance (90% equity; 10% loans)- invest in listed companies

privatisation of utility companies- privatisation of utility companies- buy bonds (infrastructure company and municiple)

dedicated vehicles (funds; direct investment;clubs)- dedicated vehicles (funds; direct investment;clubs)- project finance: 18% of total in 2013.

Project bankability

Wh t t d ?What to do?Problem: a large (3- 5%) institutional allocation to infrastructure g ( )(0.2 - 0.4%GDP p.a.) corresponds to only 10% of neededinvestment.So little change:- continue to increase private investment (new vehicles);continue to increase private investment (new vehicles);- maintain government investment.Project bankability becoming more important (engineer’s role)Project bankability becoming more important (engineer s role).Ways to monetise project sustainability benefits developing rapidly (a global standard being discussed)rapidly (a global standard being discussed).Carbon standards well established:

UN Cl D l t M h i- UN: Clean Development Mechanism- Voluntary: Methodology for Avoided Ecosystem Conversion

Benefits monetisation

S t i bilit b fit ti ti i iti tiSustainability benefits monetisation initiativesGuidelines:- UN ESCAP Valuing Sustainable Development- Climate, Community and Biodiversity Alliance Standardsy yTools:- Nationally Appropriate Mitigation Actions SustainableNationally Appropriate Mitigation Actions Sustainable

Development Evaluation Tool (UN)- DuboCalc (Netherlands government): converts 11 life-cycleDuboCalc (Netherlands government): converts 11 life cycle

environmental impacts to a cost indicator used for sustainable procurementsustainable procurement.

- AutoCase (USA; private): gives risk-adjusted indicators in $US based on costs design and sustainability benefits$US based on costs, design and sustainability benefits.

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