BAA’s Lean Construction Innovations, Doug Black

September 21st, 2005 by Hal

[Notes from LCI's 7th Annual Lean Construction Congress]

Getting this project wrong puts BAA at risk.

BAA owns and operates airports. They intend to invest £8 billion against their market capitalization of £7 billion. (The joke is BAA stands for build another arcade.) Essentially, BAA operates shopping centers that just happen to be attached to airports. BAA now makes more money from their retail activity than in fees for landing airports.

Heathrow Terminal 5 (T5) when it opens in March 2008 will be a 40 year project in the making. The project is immense. It occupies 640 hectares, will handle 30 million passengers annually, adds 50% to the capacity of Heathrow, and has 30% of the tunnel capacity of the Chunnel. T5 is costing BAA £4.2 billion. Getting this project wrong puts BAA at risk. It is being managed as 147 separate projects.

The site is physically constrained by the two existing runways, the two busiest runways in the world, and by other roadways. Deliveries are made to the site only between 9:00 AM and 5:00 PM through one entrance and exit. They take 170 deliveries/hour during that time throughout the 5 year construction period. As a monopoly BAA is regulated. There project plan milestones include numerous regulatory milestones. BAA is working with the local communities to build in sustainable ways so they don't provoke the anti-airport expansion lobby.

T5 Agreement:

Existing project execution plans and approaches were not adequate for this project
BAA accepts all the risk rather than passing that risk along the supply chain or paying the huge insurance premiums.
They have shifted the accountability for the causes of the risk rather than the consequence. This eliminates a significant portion of the adversarial relationships inherent in the AEC industry.
The have established a team-based structure that employs firms independent of their otherwise competitive relationships.
They are enabling high — world leading — performance and expecting industry best practices.
All raw materials needed to come to the site by rail…but there was no existing rail link on the property. This resulted in temporary infrastructure having no use beyond the construction period of the T5 construction. BAA spent £25 million. The payoff was a reduction in lead time from 10 days to 48 hours and a 10% reduction in the cost. PPC runs between 80% and 90%.

BAA claims their progressive commercial framework is responsible for creating the right environment, enabling the supply chain, and putting them in a position to listen to subcontractors. As an "informed client" rather than an arrogant client they are interested in subcontractors challenging them. Leadership is essential to making this work. It doesn't have to only come from the client. "The more leadership we get from the industry the more we will accomplish."

What Did You Learn?

Key issue is the assumption of risk. (Heard the same from Sutter.) That is the watershed for embracing lean.
Immensity of the logistics
There was an investment in infrastructure without remaining value
Equality among all team members
Informed client that knows how to run an airport and appreciates those who know how to build
Demanding best practices while accepting the risk
Leadership can come from anywhere
Client has a huge role in project success
The money and time spent on planning
Creating a single entity to collaborate
Owners need to identify what is important to them and produce alignment to that from all the parties
Environment or cultural management
BAA manages the cause of risk not the consequences
Owner's role of leadership of collaboration rather than being a dictator

Key Questions

How did you get to the watershed?
How does BAA hold subs accountable?
How is the project doing against its goals?
How was the team selected?
How did the contractors perceive this?
Who defines what is best practice and how is that taken further?
How is the contract language referencing world class performance and best practice?
What is the project safety record?
What are the performance metrics in the cost-plus contracts?
How do you handle non-performing subs?
What does it really mean to say BAA is taking all the risk?
Where does the incentive come for performance given BAA takes the risk?
How is PPC measured? Daily? Weekly?
What other tools beside PPC?

Doug's Closing Comments

BAA will pay any cost incurred by any contractor on T5 as long as it has been properly incurred. That includes mistakes. Doesn't include fraud. They manage this through their "Star Chamber" made up of the key contractors on the job. In the three years of the project they have only once refused to pay a supplier.

There is a gain-share scheme where BAA holds either risk money or incentive. When teams hit target costs or exceed budgets they get a pay out from the pot of money. The team, not individual subs, gets 2/3 of the gain with 1/3 going to BAA.

Safety performance on T5 is phenomenal. People are leaving the project for a promise of more money but return because of the difference is safety. Their target for accidents is zero. Unfortunately, this year they had one fatality. Their rework is about 5% to 7%. They are currently operating within budget and within time. With 2 1/2 years left the schedule has only slipped 4 weeks. The civil portion of the project is the first project delivered on time and on budget in the last 40 years in England.

David Schmaltz Does It Again

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Colophon

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