Innovative Procurement of Infra Product and Services - Case Finnish Road Administration

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Warren Griffin
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1 1 Nordic Conference Innovation and Value Creation in the Service Economy Oslo October Innovative Procurement of Infra Product and Services - Case Finnish Road Administration Markku Teppo Procurement Director Finnra

2 2 Interpretation of Public Law Concerning Finnra s Evolution... Generally, the main hindrances in the Infra chain are the strict rules and regulations in the entire process (especially procurement), which do not support or allow flexibility to create life cycle decisions, decrease environmental consequences, lower costs, and develop products & processes. The level of Quality is being sacrificed and the industrial quality development is stagnant.

3 Innovative Procurement Strategy Of Finnra 3 Finnra's procurement strategy has been approved and accepted by consultants & contractors Innovative Procurement Strategy Competence Change towards more innovative procurement practices Time

4 Development of Productivity of Construction 4 Industry Has Been Poor Average Annual Growth of Productivity on Different Service Sectors in in Finland Telecommunication Industry Finance and Insurance Logistics Retail Trade Real Estate and Rental Wholesale Trade Vehicle Trade Housing and Nutrition Construction Public Services Business Services Education Health Care -1,6-0, ,2 3 2,4 2,1 1,3 0,6 0,4 5,5 4, %

Innovation and Partnering Indexes On Different Service Sectors 5 Examples of Innovation and Partnering Indexes of Different Service Sectors 100 90 80 70 60

5 Innovation and Partnering Indexes On Different Service Sectors 5 Examples of Innovation and Partnering Indexes of Different Service Sectors ICT Industry Logistics Construction Social and Healthcare Services Source: Jukka Yliherva, Finnish Road Enterprise

6 Innovation- and Partnering Index (Innovation, Partnering, Procurement and Networking Competence) Orgazation 1 Organization 2 Organization 3 Organization 4 Organization 5 Organization 6 Organization 7 FInnra Public Client Organzations in Finland Within Infrastructure Branch Source: Jukka Yliherva, Finnish Road Enterprise

International Lessons Learned 7 Innovation Contract Duration Flexibility Contractor Risks Productivity Cost Savings Separate Consulting

7 International Lessons Learned 7 Innovation Contract Duration Flexibility Contractor Risks Productivity Cost Savings Separate Consulting & Physical Works Contracts Conventional contracts Financing Alliancing PSMC Hybrid Own Forces Input Driven Output Driven Outcome Driven

8 Infra-Sector Circle of Regret ALL Parties LOSE 8 LOW-BID NO TRUST & STRICTER INSPECTION INNOVATION IS SUPRESSED LITTLE or NO COST EFFIECIENCY POOR PRODUCT DEVELOPMENT LOW PROFIT LOW MARGIN CONTRACTOR CUT CORNERS PRODUCTIVITY DECREASES

9 Infra-Sector Circle of Hope ALL Parties BENEFIT 9 TRUST & PARTNERING CREATED Innovation Via Long Term Contracts INNOVATION CAN BE UTILIZED COST SAVINGS & EFFIECIENT PROCUREMENT OPPORTUNITY FOR PRODUCT DEVELOPMENT PROFITABLE BUSINESS PRODCUTIVIT Y INCRESES

10 An Example of Innovative Strategy Procurement of Maintenance Services 10 Integrated & Long term contracts that provides a mechanisms that promote and maximize the potential for innovation and a project delivery method that is agreed upon by the industry. Subsequently integrate resurfacing and reconstruction aspects into these contracts. Developing and implementing Outcome Based Criteria.

11 11 Maintenance Contract Development Regional Contracts 3 Years km Broad Range of tasks Hybrid - Lump Sum plus Unit Prices Integrated Performance Contracts 7 Years (500) km Fully Integrated Client Services Lump Sum Outcome Based Criteria

12 Capital Procurement (Present Methods) 12 FEASIBILITY STUDIES ES PRE-PLANNING & ENGINEERING YS ACQUISITION & COSTING TS FINAL DESIGN RS CONSTRUCTION R UPKEEP & IMPROVEMENTS Y MAINTENANCE H CONSULTANT. CONTRACTS CONSULTANT. CONTRACTS CONSULTANT. CONTRACTS CONSULTANT. CONTRACTS DESIGN BID BUILD (D-B-B) CONSULTANT. CONTRACTS CONSULTANT. CONTRACTS CONSULTANT. CONTRACTS D-B-B, DESIGN-BUILD CONSTRUCTION MGMT. (AT-FEE & AT-RISK)

13 Capital Procurement Future Methods 13 FEASIBILITY STUDIES PRE-PLANNING & ENGINEERING ACQUISITION & COSTING FINAL DESIGN CONSTRUC- TION UPKEEP & IMPROVEMENTS MAINTENANCE FEASIBILITY REPLANNING/ENGINEERING/ACQUISTION D-B-B REPLANNING/ACQUISTION DESIGN- BUILD DESIGN-BUILD PLUS DESIGN-BUILD-FINANCE-OPERATE (DBFO & DBOM) FUNDING FULL DELIVERY or PROGRAM MANAGEMENT

14 FIATech Vision Model 14 Real-Time Project & Facility/Coordination & Control Scenario Based Project Planning Automated Design Integrated Automated Procurement & Supply Network Intelligent Job Site Intelligent Self-Maintaining/ Repairing Operational Facility Scientific Data Feedback & Experience New Materials, Methods, Products, & Equipment Technology- & Knowledge-Enabled Workforce Integrated Data & Information Management

15 Where Can Be Created The Most Radical Innovations? 15 Machine - automation, numerical control ICT, mobile- Data transfer Censor technology Life cycletechnology Infra- Branch Ecological - efficiency Virtual - modelling, New IT

16 RECENT AWARDS TO FINNRA 16 RECEIVED ENVIRONMENTAL AWARD FOR 2003 HONORABLE MENTION FOR INNOVATIVE PROJECT DELIVERY STRATEGY AWARDED BY - CONFEDERATION OF FINNISH CONSTRUCTION INDUSTRIES (VISION 2010) FINNRA

17 What has been the result of development of procurement methods? 17 The service level (quality) provided for road users has been secured at the same level as before. Productivity of infra sector has increased. Price level has decreased during the last 5 years: In road maintenance services > 30 % In road construction > 10 % In design services > 10 % Co-operation with different service providers and stake holders has increased

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19 19 Finnra Procurement strategy can be downloaded in the internet address: in English in Swedish ) in Finnish

The GNA project s recommendations

G N A A COMMON NORDIC INFRASTRUCTURE MARKET Possibilities for a Better Functioning Nordic market in the Construction Branch The GNA project s recommendations VIA NORDICA, Helsinki, June 9 th, 2008 Director