Collaborative Contracting Leader Series: Q&A with Menno Henneveld, Main Roads Western Australia

Contributor: Menno Henneveld
Posted: 04/27/2011  12:00:00 AM EDT  |  0
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Tags: menno henneveld | main roads western australia | value for money | treasuries | collaborative contracting | alliancing | alliance arrangements | collaborative contracting summit | competitive alliance | competitive tendering | alliance contract

COLLABORATIVE CONTRACTING LEADER SERIES: Insights from Main Roads Western Australia

Alliance Contracting IQ recently had the pleasure of interviewing one of the industry's leading proponents and experts on collaborative means of contracting.

Menno Henneveld is Managing Director of Main Roads for Main Roads Western Australia.  He’s had a 38-year career in the water industry before his appointment as commissioner of Main Roads in December 2002.  He has headed up the Main Roads Department in WA ever since.  Menno was also previously chairman of Austroads and is currently chairman of the Austroads International Committee.  In 2006, he was appointed Australia’s first delegate to the World Road Association, where he is a member of the executive committee and chairman of the communications and international relations commission. 

In addition, Menno is a fellow of Engineers Australia, the Australian Academy of Technological Sciences and Engineering, the Australian Institute of Company Directors, the Customer Service Institute of Australia, and finally, the Chartered Institute of Logistics and Transport.  So, it’s a real pleasure to have had the opportunity to talk frankly with Menno and to share some his thoughts on the collaborative contracting space.  

QUESTION:

We’re here today to discuss the philosophy of collaborative contracting and your perspective around emerging issues and trends that have become apparent in alliancing and collaborative contracting throughout its histories of delivery model in Australia, and with that as the background to our discussion, I really wanted to ask you, as a first port of call, to comment on the fundamentals of the philosophy of alliancing, based on your exposure to this model from your time within Main Roads.

MENNO:

Okay.  Well, I guess my interest in some alternative form of contracting really arose from the endless contract disputes that existed in the civil construction industry in Australia merely to the mid 80s that were costly, that were non-value adding, often very unpleasant, and obviously, there must be a better way.  And all of these questions centered around managing risk data.  So, we went through the patenting phase, and then onto alliancing, which I thought it was very clear to me that if you again have a form of contract that had better outcomes, you needed to base it on relationships very fundamentally.  All the contracts that have gone well generally have had good relationships and my thinking started to center around how can you adopt the structured approach to relationship building?  So that was one of the fundamental philosophies that we were chasing in the early 90s. 

The other side was the risk side and how is that best dealt with, and alliancing really offered that opportunity. You take an open-book approach to dealing with matters of risk, you agree with the target cost, and that’s the best possible price if everything goes well; so you know you’ve got a good price, you incentivise that target cost, and you provide a contract documentation that is really outcome-driven.  Now, put those things together and that’s what makes up the fundamental philosophy of alliancing from my point of view, it’s that structured approach to building relationships and its managing risks.  So, in very simple terms, that’s how I see the importance and significance of alliancing.  

QUESTION:

Well, following up from that point and that basis that you’ve just shared with us, can you share any interesting or key issues that have emerged during the time you’ve been involved?

MENNO: 

Well, there have certainly been a lot of issues.  When we first entered into these alliance arrangements in the late 90s, they were new and of course, there was a lot of concern, a lot of questions around them.  So, it was natural that a number of issues will emerge and the things that I’ve seen emerge are the question of a client organisation or the organisation that is sponsoring the alliance approach or relationship or collaborative approach has to be actually ready to adopt that approach.  I do fear that some organisations take this on because it’s the flavor of the month and that I want to do it, but they’re not really ready to do it, and obviously, that is a really important issue because where alliance contracts sometimes go off the rail, it’s I feel often because the client organisation wasn’t ready to take it on. 

When I say ‘being ready’, I mean having evolved itself as an organisation along the business excellence framework principles, such as; customer service and proper planning, process management, information knowledge; all those things that an organisation has to have evolved to take on alliancing properly.  It’s not always easy to do that and I feel people involved in supervising this contract need to have the capability or a capability that reflects an understanding of those fundamentals that I mentioned earlier, and that’s not always easy if you’ve got people in the organisation that have built careers on delivering contracts and hard money contracts.  So, the organisation has to be ready and has to have the capability and I’ve seen that as an issue that’s emerging.  In Main Roads itself, we’ve spent probably 18 months in making the organisation ready to take on the concept of alliancing, and that’s proved fruitful in terms of how we then progressed.

Another issue that’s emerged is demonstrating value for money; in my case, to our political masters.  Previously, with the Water Corporation, we had to demonstrate value for money to the board, a very commercial board, and that created uncertainty for the people developing these projects.  How do you show value for money when you’re dealing with very, very large contracts, lots of money, and the political masters again have to sign up for these contracts when they don’t know what the cost is going to be, so that’s a big, big question mark.  We’ve been able to alleviate those concerns with our political masters from a number of perspectives and I won’t talk too much about what we’ve done, but we have addressed those value-for-money issues.  So, that’s another issue that’s really emerged and I’m happy to talk a little bit more about that later.

Agreeing views on the value for money that’s based on outcome; this is another issue hat I feel is really important. The value for money from agencies such as mine goes beyond just the quality time and cost issues associated with delivering the infrastructure.  It goes through those higher issues such as community engagement, how well do we do that, the customer service, how well is the alliance arrangement providing the customer service outcomes or road user outcomes that an agency such as Main Roads chases.  There’s also of course the occupational society and health outcome that we seek.  We’re very strong on that and I’m very pleased that the industry is equally strong, but also environmental issues and social outcomes, legacy projects that are sort of ways of demonstrating value for money to us as a client.

That’s a couple of issues; another one is the ongoing debate that’s emerged between the different forms of alliancing.  We’ve got early contracting involvement; we’ve got competitive alliances and natural alliances.  There’s a whole range of forms of alliancing that generated some debate and that’s I think a healthy debate and that will continue, and there’s no right or wrong answer.  It depends on horses for courses and the type of project that’s being delivered.

And the last area that I want to mention as a key issue is the new initiatives or the new approaches that have emerged as a result of going down this collaborative contracting path, and that’s the impact on insurance.  When we first started, we had no idea how the insurance industry would embrace or take on alliancing and it’s really developed to a point where it’s providing real fundamental value-for-money type outcomes in the area of insurance, and the other one is the way the selection process has evolved.  We’re approaching a level of sophistication which was probably not imagined when we first started going down this path. 

QUESTION: 

I’d quite like to draw on one comment that you’ve made; the one that you drew attention to quite early and your comments there which were around value for money, and I’d like to just ask you with respect to that.  What are your thoughts with regards current trends and practices?

MENNO:

Well, I mentioned that we did address the value for money issues in a fairly fundamental way.  When we went out for the tendering process, this is the way we’ve addressed it, and I’ll come back to the higher issues that are coming into the debate at the moment in the industry, but we addressed it by simply coming up with some financial-type targets or value for money-type things that we sought when people were tendering, and that was maybe a surrogate price or a key rate or a key schedule in a contract; for instance, if we’re building a road, we would seek a price for base course per square meter, for instance, and as well as that we would seek what the view was on contingency, what the profit margin was that was being sought.  A few of those kinds of indicators which became the discriminating factor once we had chosen maybe the final two, so that we were able to demonstrate value for money in that way and also, I guess appease the concern of people who were uncertain about whether we were getting proper competition in the way we were re-tendering. 

The broader issues that are emerging being raised by treasuries across Australia, the first question that’s being asked is shouldn’t we be going through a competitive tendering process in the belief that through competition, we’ll get better outcomes.  When you go to tender, you have a whole price for the job and that’s reflected in the way treasuries are prescribing, that a competitive alliance is the only approach that they are comfortable with, and that’s coming out in guidelines and policies throughout Australia.  I’m really concerned about that and the reason I’m concerned is I don’t think it’s the treasury that should be dictating to infrastructure agencies such as mine, how we deliver projects.  If I don’t get value for money to the community of Western Australia in delivering projects, then I would expect a severe reprimand from my minister saying you’ve got to lift your game.  It’s the responsibility of the agency, so I don’t mind that that question is being asked, but I don’t think the solution that’s being offered is the right one.  That’s one aspect to the debate.

The other one I think that’s coming through is that if there are savings on an alliance contract, that the money should go back to treasury.  Fundamentally, I think that’s what’s being suggested, because its treasury who should decide where the money goes, then maybe we’re spending money in the roads area that could be better spent in schools or in hospitals and what have you.  That’s a sort of a treasury philosophy that overlooks the fact that we get a budget to deliver a project if we deliver that project with savings, and those savings can be attributed to the outcomes that we seek.

I mentioned earlier, the value for money outcomes in terms of social outcomes and a whole range of things, then we have every right to spend that money in those areas, but the question that’s often put is well, you should identify those in the business case, and I agree entirely with that and I think that’s an area where we need to improve as an agency and I’m sure the other infrastructure agencies need to do that as well.  What I’m referring to here is that if there are any sort of social outcomes that are predicted and that may arise because we have savings, we should actually identify those in the business case and make it clear to an alliance contractor that if there are savings, we will put the money into these areas.  We assume that that’s a common sense thing that infrastructure agencies can work out themselves during the course of the contract, but of course, it would be far better if that was up in lights, upfront in the business case.

So that’s sort of my response to the current debate that’s happening.  I think it’s a healthy debate.  It certainly made us look more closely at the way we do things. However, the whole study that was undertaken; the few organisations that had alliance contracts that maybe their target cost was too high and it was easy to bring in savings, maybe those organisations didn’t really evolve to a point where they understood what the requirements were on alliance contract.  My view is that if there were one or two organisations or contract that went that way, that doesn’t mean you come up with very command and control-type rules for all agencies throughout Australia having to now change the way they do things.  I think treasuries have just gone overboard in that regard and I think that there will be further debate on that issue.

QUESTION: 

Okay, thanks Menno.  Something that you said have interested me there was to come back to the point around agencies or owners of project paths needing to improve their upfront planning in the business case.  Earlier on, you mentioned that you felt that sometimes agencies didn’t have the internal capability to actually deliver an alliance, and alliances had in some cases, been delivered.  Perhaps it wasn’t an appropriate delivery model and they didn’t have the capability to actually deliver the excellent outcomes they wanted.  Do you think that comes back to a path, a lack of knowledge or lack of understanding about what was required upfront in the business case and therefore back then, follows through to value for money outcomes that aren’t satisfactory?

MENNO:

In the business case that we prepare; and I’m sure other agencies do, has to outline how the agency is going to resource the project, and I think the question needs to be asked when that is outlined, a large alliance contract will benefit from having the client organisation on the alliance team and on the alliance board and where that is skipped on, where that doesn’t happen; there’s a high potential for the alliance not to deliver the outcomes it seeks. So, that all needs to be explained in the business case and I think that’s the link you’re referring to, that the agency has to say “Look, these are the people that will be on the project.  This is the experience they have and we are confident that that sort of resourcing on that project will deliver the outcomes we want.’  If you can’t provide the resources, then you shouldn’t be going down the alliance route because a lot of the benefits come from having that mingling, that cross pollination of knowledge that comes from having the client’s resources working with the private sector resources.

QUESTION: 

Okay, thanks Menno.  I guess I’d like to tie this up somehow and try and summarise what we’ve been discussing and your thoughts and ask you where you see this all going and where you think collaborative contracting will be in 10 years’ time?

MENNO: 

I’m pleased with using the term collaborative contracting because previously, when we talked about alliancing and relationship contracting, it tended to focus on a very narrow band of project delivery methodologies.  Collaborative contracting to me suggests a different approach to all contracts. I’ve already seen the effect of that by people being involved in alliance contracts when they are now managing little AS2124 type contracts which are construct-only contracts or D&C; they actually take a different approach.  They take a more collaborative approach managing those contracts.  So, it’s like a cultural thing that goes through an organisation and that has an impact on the way we manage our contracts. So if more and more of these alliance contracts are carried out, then I feel that there will be a more collaborative approach overall taken to other contracts.

Now, I’m speaking from a public sector point of view.  I’m aware that in the private sector, private sector client organisations haven’t embraced alliancing any where near the same extent as the public sector.  There were a number of reasons for that and I’ve spoken to my private sector counterparts.  So, I would see that looking to the future, the obvious benefits that come from collaborative contracting will spill over far more into the private sector and I would see mining companies and resource sector companies are taking on this approach far more than they have.  Other directions that it might take, I mentioned earlier the way we now select or the level of sophistication that we apply to the selection process.  I think that will continue and it’s interesting we are currently reviewing what contracting organisations and consultants may need to consider if they are going to be successful in that more sophisticated tendering process, and it doesn’t come back to “Well, let’s put in a really good bid this time and sort of polish up the tendering process for a particular project” it actually comes back into the organisation.

I mentioned earlier that client organisations need to have evolved or matured to a certain level, going up that business excellence sort of pathway.  I think contracting organisations need to do the same thing and I think what we will see as we progress that larger contracting organisations, some of which already do this, will realise the benefits not only for securing projects with organisations such as Main Roads, but it will actually lift their business performance, so I guess I’m being a little expansive in terms of where I see this all going, but I really do believe based on what I’ve seen happen in the public sector and the impact it has on the contracting industry in Western Australia, then I can see that that expanding and moving into the private sector happening a lot more in the next 10 years.

QUESTION: 

Thanks Menno.  I think that’s a really comprehensive answer and I concur with you in most of those points actually, and I also find it personally really exciting to see how even many standard hard-dollar contracts are taking a more collaborative approach to the management of those contracts.  Do you have any final comments that you would like to share at this time?

MENNO: 

Well, I think collaborative contracting, where it’s going, is probably more achieving more than I’d ever had before when we started this 10-15 years ago, and I’m just so pleased with the way the private sector is sort of looking at this now and also the way contracting organisations are changing in the way they deal with these types of contracts.  It’s actually lifting the capability of the industry.  It’s lifting the standards of what we’re doing, and the bottom line in all of this is we’re having a lot more hand delivering projects than we ever did, and I’m not saying it like a flippant sort of statement, but it’s a really important one because it’s keeping people in the industry and it’s actually making people look forward to their next project.

ALLIANCE CONTRACTING IQ:

This interview was conducted with Menno Henneveld, managing director of main road for Main Roads Western Australia.  He’s also a keynote speaker at the Collaborative Contracting Summit in May of this year.  If you’d like to find out more about the content of this event and what Menno is presenting on, you can actually visit the website which is www.CollaborativeContracting.com.au

or simply call us on 02-922-9100 for more information.