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PM 5008 Healthrow Airport

By Eddie Dunn,2015-03-26 00:30
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PM 5008 Healthrow Airport

INTRODUCTION

    This Case Study is now adapted for the purposes of

    Coursework assignment no.2 on PM5008 (2015).

    THE OBJECTIVE of this case study is to influence students’ thinking on a range of issues affecting procurement decisions at the tactical level on megaprojects. It is

    reproduced from a Case Study initiated by Manchester Business School to who all acknowledgements are made.

    THE CONCEPTS in Exhibit 9 below, of the full case study, remain as the foundation for this module’s tasks, which require a team approach to answer the challenges

    posed. Also, it should be noted that reference is made frequently in the study to the “Terminal 5 Agreement”. For commercial reasons the full text of this “project agreement” is not available; however, the Case Study contains adequate synopses

    of the main points of that key contractual agreement to allow you to analyse their impact. For the purposes of this coursework, we will not adopt the full “business school” approach used in the Manchester Business School study; and we will

    shorten the tasks, and if any additional data is required please contact the lecturer.

    NOTE THAT: in addition there is some material in the form of papers uploaded to Moodle which describe some of the history and issues affecting work at T5. Details for these extra papers are now all located in the Handouts Folder on Moodle. They are clearly referenced with T5 in the filename. There are also files describing the works by ceiling contractors at T4 (historic for comparison only) and T5.

    IN ADDITION: there are files in the HANDOUTS which are important related reading; these are papers affecting your understanding of the procurement challenges being assessed by the BAA/HAL T5 Project Team. These include well-known governmental reports (e.g. Egan, Latham etc) which are also referred to in the text of the Case Study below. All team members, fopr their personal benefit, should read these additional papers before finalising the team’s responses to the tasks.

TEAMS’ COMPOSITION (2015 cohort)

    For this coursework, which is based on roleplay to a limited extent, it will be necessary to form 6 teams of SEVEN people, in order to fulfil the 7 roles required (see next page). Since there are 44 students in 2015, two of the 6 teams will in fact have

    i

    8 members, and in the roles of each team member which are defined below, it means the two teams with 8 members will separate the roles of (a) Exec Director and (b) Programme Manager.

THE TASK(S)

    Part 1

    You are to imagine that each team represents rival suppliers for the supply and installation of the Ceilings Fit Out package being procured by the T5 Integrated

    Project Team. Your company is making a presentation to the T5 Team. Your team

    needs to comprise:

    1 In 4 teams this will be a combined role, and in 2 teams these will be separated, for:

    (a) Executive Director, and

    (b) Programme manager

    2 Project Manager/Leader responsible for day to day operation on T5 3 Design Leader responsible for T5 design inputs

    4 Lead Commercial Affairs (contracts) & Costs manager

    5 Planning /programming/ time scheduling manager

    6 Installation manager

    7 Commissioning and Handover manager

    Your Exec Director (Programme Mgr) and the Project Manager, have already both

    been briefed by the T5 Team, who told them:

    “We, the T5 integrated project team have to meet the HAL Client challenge,

    which is to develop new assets with increasing efficiency and effectiveness.

    Hard won experience has shown that conventional project strategies are not

    good enough to successfully meet the challenge. conventional project

    strategies are not good enough to successfully meet the challenge. Explain how

    your Company and the quality of your people will add value to meet this

    objective as part of your company’s proposal to supply the Ceilings Fit Out

    Package.”

    Your company wants to be prequalified by the T5 Team to bid for this contract. You must make a formal presentation to the T5 Integrated Project Team, and explain how your Company and the quality of your selected people, your product and your processes, will meet the objective outlined in their briefing to your director above. This will require some front-end strategising to ensure you display your company’s most appropriate attributes. You will be asked to provide a list of names forming your team, and which role they are responsible for.

    ii

This first part of your presentation should not last more than 10 minutes (strictly

    enforced! which is unfortunate because in “real life” each contractor would probably be interviewed for at least 45 minutes, but the proposition in this case study has been truncated and so each team’s presentation time is similarly shortened) .

    iii

Part 2

    The T5 Project Team have then asked that each team considers a response to the additional challenge of:

    “Move forward in time. The year is 2007 and looking back, the Ceilings

    Package is considered to be the most successful package team on the T5

    programme success. You, now as part of our integrated team, have delivered

    a product, which by any measure has achieved world-class results. Working in

    a dynamically complex environment, all aspects of your work on T5

    production, design, innovation, commercial management, production

    planning and execution - have set new standards of excellence, and are now

    considered to be the benchmark by which future work will be judged”.

    Using at least 3 team members from your team, describe what it looks and feels like to be part of the integrated Team working on T5. What have been the achievements and successes? The speakers must be able to describe contributions by all 7 members, and this second Part 2 should not take more than 15 minutes.

    After each presentation there will be a few minutes general question and answer

    session, both to probe the vision in your presentation and to enable [the T5 Team] to find out more about your key people. This does not mean every team member will be asked to speak, but all should be aware they may be asked about their understanding of the role they played in (a) wining the bid, and then (b) delivering the project.

    The “T5 Team” will be represented by the lecturer, and possibly other judges.

Part 3

    Additionally, each team must submit a written version of their team’s 2 presentations (with powerpoint slides, or if Prezi is used then hard copies of all components are required) PLUS a descriptive text as appropriate, and each of the [6] submissions must be signed by each member of the team, noting who fulfilled which role, and underneath their signature or on an attachment, they must write max 200 words describing their contribution (as if they are an employee of the supplier).

    (Note: this means there will be 6 submissions, each with 7 (or 8) signatories.

TIMESCALES:

    thThis coursework requires presentations on the last lecture of Term2 = 24 March 2015.

    They will take up all the lecture time available. Each student’s personal submission

    iv

    thin hard copy must be by 1000hrs, on Tuesday 17 March 2015, i.e. just before the lecture.

    It is a “groupwork” assignment to be undertaken in teams with each member of

    each team submitting in hard copy their team’s analysis, noting on the front cover their team’s names, the name of the role they played in the team (see below) and

    their own candidate no. and ID no.

    ASSESSMENT:

    Presentations 40 marks

    Written submissions 45 marks (baseline)

     15 marks (peer evaluation)

     100 marks

    This group coursework counts for 35% of the aggregated total mark for the module.

Team1 “Rollercoaster”

     Jingjing Shi 100802385

     Ruoxi Li 100769365

     Mengyao Zhang 100785314

     Mengying Zeng 100809221

     Kechao Wu 100787481

     Shuai Zhao 100791777

     Xiaojun Huang 100762789

    Team2 “JARKS”

    Name Student ID. Candidates No.

    Yichun Yang 100797279 1504467

    Andong Zhang 100806269 1506473

    Ranpeng Yang 100809273 1500595

    Fangrui Zhong 100797743 1501107

    Han Wang 100803309 1500539

    Xin Liu 100802078 1504983

    Siqi Zhong 100795311 1504823

    v

BAA: The T5 Project Agreement (A)

BAA: The T5 Project Agreement (A)

    From their office at the Compound C, Tony Douglas, T5 managing director, and Andrew Wolstenholme, T5 construction director, had a full view of the convoy of trucks getting through the Entrance Plaza of the construction site. The ?3.8bn (2004 prices) Terminal 5 (T5) programme was the largest construction programme in Europe at the time. It was developing a

     Construction on new terminal campus at Heathrow airport, Europe‘s most congested airport.

    site had started in the beginning of 2002 after the grant of a hotly-contested planning permission and a planning inquiry. From this outset, BAA had publicly committed to open the first phase on thMarch 30 2008. Unlike most infrastructure promoters, BAA opted to run the programme itself,

    insisting that outsourcing would cost more, not less. Close to the end of 2004, the two executives and their leadership team, needed to make a crucial decision about the contracting and procurement strategy to adopt for the later phases.

    Actual cost and schedule data indicated that the T5 programme was on time and on budget. The programme was reportedly 50% done, even if some of its parts faced significant challenges ahead, namely the buildings project worth a quarter of the programme value. Mike Scott had

    been recently appointed as Head of the Buildings project. Unlike the manufacturing experience brought in by Tony and the Heathrow Express experience brought in by Andrew, Mike had a background as director of petrochemical projects around the world. All these senior positions 1aimed to ensure that ―BAA had the right experience in place to meet the challenge‖. (Exhibit

    ) 1

    The bedrock of BAA‘s project management approach was the T5 agreement, a relational

    contract between BAA and all the T5 first tier suppliers that junked the traditional concepts of construction contract. Instead of spelling out a set of clauses accepting that things could go wrong, and seeking to pass the blame and recover money from suppliers, the T5 agreement aimed at creating incentives for positive problem-solving behaviors that would not allow things to go wrong in the first place. BAA deemed this stance fundamental for creating totally

    integrated project teams with the suppliers, and enabling the latter to achieve exceptional

    2performance. This ethos was exposed by the T5 commercial director:

    ―If things go as they normally do on major UK construction projects, the statistics say that T5 could

    be three years late and 80% over budget. But if we fail, the impact on our reputation and our relations with shareholders and the City would not be worth contemplating. We had to accept that BAA had all the risk for T5. It was something we could not pass on. The benefit is that by accepting that you have all the risk, you take away negativity, allow space for

    innovation and create the opportunity for people to perform at levels they haven‘t been allowed to before (...) you ask people to lose their company allegiances, and instead think of the project as their first love.‖

    The implementation of the T5 agreement tied with a commercial policy similar to a cost reimbursable contract with incentive targets. The key question for the leadership team was

    whether to extend the application of the T5 agreement to the fit-out phase. Fit-out work seemed different from the massive works which were starting to scale down. Up to the middle of 2005,

    2

BAA: The T5 Project Agreement (A)

1 BAA press release, 2004

    2 Interview to the New Civil Engineering Terminal 5 Supplement, February 2004.

    3

BAA: The T5 Project Agreement (A)

    the T5 programme would have mainly involved a small number of relatively large suppliers delivering work volumes sometimes worth hundreds of millions of pounds, such as excavation

    and civil works, steelwork, concrete, and the backbone mechanical and electrical systems. In contrast, the fit-out phase would involve a higher number of work packages, such as doors,

    flooring systems, painting, toilets, ceiling and bulkheads, glazing and balustrades, carpets, and desks. These packages would be, however, relatively small in value.

    A preliminary analysis from the fit-out acquisition team suggested a number of approaches ranging between two extremes. At one end, BAA could award the works to the first tier general builders which were already involved through the T5 Project Agreement. Preliminary inquiries suggested that they had the capabilities and spare capacity necessary to undertake the fit-out work. At the other end, BAA could procure the fit-out suppliers from the market, placing a tender

    3notice in OJEU . Some market research undertaken by John‘s team suggested that there could be some cost efficiencies associated with the latter alternative.

    BAA PLC.

    British Airport Authority plc. (BAA) was a private airport operator company that had been privatised by the UK‘s 1986 Airports Act and subsequently listed on the International Stock

    Exchange, London, since July 1987. The operation of airports was a regulated industry in the UK. The Civil Aviation Authority (CAA) was the prime airport regulator with the Competition

    Commission (CC) in an appellate role. The Airport Act prohibited the levying of airport

    charges at any airport subject to economic regulation, unless permission by the CAA was in force in relation to the airport. Airport charges were connected with the landing, parking or taking-off of aircrafts. CAA granted permission to BAA to levy charges in 1986 with a

    stcondition limiting the maximum amount of the airport charges imposed for 5 years from 1

    April 1987. Airport charges represented then about one third of the revenue for BAA. Other sources of revenues stemmed from operational activities such as services provided to the

    4airlines and passengers.

    BAA‘s goal was to be the most successful airport company in the world. Its corporate objectives were to develop property and retail potential; achieve world class standards in capital investment; and ensure passengers and airlines received excellence and good value for money. World class in capital investment meant achieving exceptional performance on safety, consistency of process, design to BAA standards, standardisation of components, preplanning completeness and quality, develop long term framework agreements with suppliers, and encourage off site construction to improve production productivity and reduce site congestion.

    3 The Official Journal of the European Union (OJEU) publishes notices of all contracts from the

    public sector, as well as from private purchases, valued above a certain threshold.

    2 4 Competition Commission (2002). BAA plc: A Report on the Economic Regulation of the

    4

BAA: The T5 Project Agreement (A)

London Airports Companies

    3

    5

BAA: The T5 Project Agreement (A)

THE TERMINAL 5 PROGRAMME

    BAA submitted the planning permission application for a fifth terminal at Heathrow airport in February 1996. Heathrow was the closest major airport to central London, the fourth largest airport in the world for total passengers, and the world's busiest international airport with demand far exceeding capacity in 2001 (Exhibit 2). Terminal 4, Heathrow‘s last terminal to be

    built, had opened in 1986.

    In the initial planning stages in the early nineties, BAA compiled a report called 2020 Vision examining the major issues, trends, and changes likely to affect airport developments. Its aim was to interpret information on future changes, offer future scenarios (e.g., ticket-less travel, new baggage systems, new way-finding strategies) and make foresight knowledge of experts accessible to the developers responsible for shaping the T5 design brief. In addition, BAA selected the renowned architecture practice, Richard Rogers Partnership, to develop a distinctive concept for the new terminal. After submitting the planning application in 1996, BAA expected getting the approval decision for T5 by 1997/8. However, the public inquiry period lasted longer

    5than expected, and government approval to develop T5 only arrived in November 2001.

    The scope of the T5 programme encompassed 16 major integrated projects, e.g., buildings, air

    traffic control tower, earthworks, airfield, baggage handling system, and two train extensions. These projects, in turn, were subdivided in 117 sub-projects (Exhibit 3). The cost of the

    programme was budgeted at ?3.1bn at 2002 prices, with a 20% budget contingency (?600m) to

    account for risks such as wage increases, planning, design, and construction failures, accommodation of changes in requirements, unsatisfactory supplier performance, and fraud/theft. The size of the T5 programme was very large for BAA as its equity was valued at ?5.5bn in the end of 2002. As BAA stated ―T5 represents the commitment of almost ?4bn to an extremely

    6complex and protracted project, combining engineering and construction risk.‖

    To compensate for the delay in getting government authorization, BAA compressed the original T5 control programme, which lasted 6 years including a 7-month buffer period designated for

    ‗risk.‘ A major review resulted in a 5-year programme, including a target construction period of

    4 1/2 years and a 6-month period for trials, testing, and operational readiness. Unlike the previous programme, the new programme did not include a buffer period for risk. Risk

    simulations undertaken by the planners suggested a 75% probability that it could be delivered in 5-years. To give assurance of delivering the programme in 5 years, planners recommended compressing the target construction period to 4 years. They acknowledged, however, that some assumptions in the control programme were challenging. In particular, planners expressed concerns that the programme reserved only 11-months to complete 275,000 sqm of fit-out. Benchmarking with other airport projects suggested nonetheless that the targets were do-able (Exhibit 4)

    5 This expectation was shared by other entities: the Merges and Monopolies commission, for example, assumed in its 5-year review in 1996 that the Public Inquiry would conclude in

     1997 and on-site construction would start in 1998.

    6

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