OPPORTUNITY KNOCKS. Delivering the UK s infrastructure pipeline CONTACT. Arcadis United Kingdom

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1 CONTACT Greg Bradley Head of Business Advisory, UK Simon Rawlinson Head of Strategic Research and Insight, UK OPPORTUNITY KNOCKS Delivering the UK s infrastructure pipeline Disclaimer This report is based on market perceptions and research carried out by Arcadis as a design and consultancy firm for natural and built assets. It is for information and illustrative purposes only and nothing in this report should be relied upon construed as investment or financial advice (whether regulated by the Financial Conduct Authority or otherwise) or information upon which key commercial or corporate decisions should be taken. Arcadis United Kingdom 2017 Arcadis 1 2

2 As the countdown to Britain s departure from the EU begins, the clock is simultaneously ticking on the UK s need to upgrade its infrastructure. The demand for new roads, railways, utilities and airport capacity is a huge opportunity for the industry. We have the chance to deliver the UK s infrastructure ambitions at an unparalleled scale, but we need to embrace change to achieve this. 2 Infrastructure matters. It provides the backbone of pipes, wires, roads, railways and airports that connect people, goods, information, power and services across the UK and with our trading partners globally. Delivered correctly, infrastructure has a front-line role in making Britain one of the most financially competitive nations in the world. It provides an economic demandside stimulus and, more importantly, a 21st Century platform to drive much needed gains in national productivity. Investment is vital. The latest rankings from the World Economic Forum place the UK in 24th position globally for the quality of its infrastructure. This puts us mid-table among the industrialised nations, but the good news is that we are well-positioned to improve on this. A step-change in the volume and speed of infrastructure delivery has the potential to be one of the most powerful drivers of economic growth. But how can the UK meet the challenge? means that we can now take advantage of new and exciting technologies that will enhance and speed up delivery. This is about programme delivery on an extraordinary scale. If we get it right, there is the chance to generate a major increase in the UK s global competitiveness. However, this once-in-a-lifetime opportunity can only be realised if the industry embraces the right tools and approaches to deliver major programmes in line with national needs. If infrastructure is to give a genuine lift to our long-term economic success, the industry needs to undergo a significant shift in its ways of working to achieve the level of output required. This calls for a new level of collaboration; with public stakeholders, planning authorities and the supply chain all working towards one goal, there has never been a better stimulus for change. It is not a simple challenge, but the chance to drive a genuine revolution in the UK s infrastructure capacity and capability is one that we can t ignore. The opportunity is ours for the taking. The fact is, we are better equipped than ever before. Infrastructure spend is on the up, investor confidence is rising and the impact of the digital revolution 3

3 THE 95K CHALLENGE The UK is entering a period of unprecedented commitment to infrastructure investment. The National Infrastructure and Construction Pipeline (NICP) frames the UK s infrastructure ambitions, offering visibility to government departments, investors, suppliers and end users alike. The latest iteration includes over 500 infrastructure projects across six main sectors, with a value of almost 500bn over the next 10 years. This represents the largest potential spend on public and private sector infrastructure seen so far in the UK. New railways, roads, power plants and utility networks, new smart technology and cities; we have the chance to deliver at a scale not seen since the Victorian era. In turn, this will create new jobs, social mobility, economic prosperity, and ultimately an improved quality of life. Yet the question remains: How can the UK deliver this? The reality is that realising the Pipeline as it stands would mean doubling historic peak output to more than 50bn a year. This equates to delivering 95,000 worth of infrastructure construction every single minute for the next 10 years. The Pipeline represents a huge opportunity, but, incredibly, understates the scale of the potential programme. For example, the NICP currently excludes some of the UK s most important future programmes, such as Heathrow s proposed third runway and Highways England s Lower Thames Crossing. Equally, future programmes to adapt existing infrastructure related to disruptive technologies, such as autonomous vehicles or the battery storage of energy, could also come to market in the next 10 years, but don t feature in the Pipeline. The challenge is that the UK has never delivered much more than 20bn of infrastructure construction in a single year. Bureaucracy, planning constraints, investment and funding challenges, and a shortage of capacity have all played a part in keeping a lid on output Number of infrastructure projects in the National Infrastructure and Construction Pipeline 95K per minute Level of construction output needed to deliver 10-year Pipeline x2 UK must double the maximum infrastructure output ever achieved Doubling output to 95k a minute will need proactive and positive action. In reality, individual programmes are in a race for funding, talent and capacity. Challenges associated with securing industry resources in a busy market will push the deliverability question to the fore. It will force clients and their programme teams to do things differently, to innovate, and to do so at a massive scale to achieve the step - change required. The opportunity is immense. For those with established and emerging infrastructure commitments, getting it right will be the most important driver for competitive advantage. 4 5

4 THE SIZE OF THE PRIZE MAJOR UK INVESTMENT PROGRAMMES bn 1.44bn 2.58bn 3.77bn Infrastructure delivery is at the heart of making our UK cities and regions more competitive and prosperous. 3bn 3bn 765m 731m 1.9bn Outside the South East, the UK has historically neglected to leverage the productivity benefits of infrastructure development. However, an abundance of political capital and a new vision for rebalancing the UK economy has created the need and environment for more UK-wide infrastructure, including an aggressive focus on timely delivery. Now, for the first time, some of the most complex and technically challenging projects in the world - from Crossrail 2 and the Thames Tideway Tunnel to Nuclear New Build - are all happening simultaneously. The industry is having to deliver in one of the most competitive markets it has ever known. The Northern Powerhouse region, including the cities of Manchester and Leeds, has more than 13bn of combined infrastructure opportunity to 2021, with schemes such as the Manchester Airport Transformation Programme and Network Rail s Transpennine Route Upgrade between the two cities now coming to the fore. The Midlands Engine, including Birmingham, and the Great Western region, including Bristol, have more than 11bn and 13bn of opportunity to 2021 respectively. Greater London alone offers over 28bn of infrastructure opportunity over the next four years, including Thames Tideway Tunnel and significant investment in the railways. All of our key cities have the chance to benefit from this unprecedented wave of investment. Yet with such a large infrastructure construction pipeline on the table, the fight for access to the best supply chain, talent and technology could ultimately impact the ability to deliver. Industry participants need to position themselves to succeed in this race for talent and capacity. The good news is that there are a number of positive steps that can be taken to navigate the UK s complex infrastructure market. With the pace of infrastructure delivery accelerating in the UK, the 95k/minute race is now on. Edinburgh Leeds Manchester Birmingham 45m 955m Edinburgh & Scotland total: 12.35bn 0 824m 1.37bn 2.07bn 7.24bn* 0 0 Leeds, Yorkshire & the Humber total: 2.93bn 0 875m 1.47bn 2.25bn 9.11bn 800m 1.35bn 1.23bn Manchester & the North West total: 10.29bn 3.05bn 3.12bn 4.73bn 15.88bn* Bristol London Birmingham & the West Midlands total: 11.51bn Bristol & South West total: 13.71bn London total: 28.15bn The data presented here has been sourced from the UK National Infrastructure and Construction Plan (December 16 Update) and the Scottish Government Infrastructure Plan (March 2017 Update). The data is not exhaustive and focuses on the city regions described only. Spend has been allocated to the city regions based on analysis carried out by Arcadis. It therefore does not include all pipeline spend excluding both regulated and other spend not attributable to the specific city regions under our methodology. This presentation is intended only to indicate the scale of opportunity in the infrastructure market across the six specific city regions to Includes HS2 50/50 KEY Rail Road Airports Water Energy split between London & Birmingham 6 7

5 THE DELIVERABILITY BLUEPRINT How to win the resource race Successful programme delivery involves many moving parts, but the primary objective is to develop a solution that meets the needs of stakeholders and delivers optimal lifetime value. This solution must also be investable, deliverable and attractive to the market. However, issues over delivery can often take second place to overwhelming programme drivers associated with technical solutions, time and cost. This means that key delivery challenges are not given enough consideration at the early stages of development. The Arcadis Deliverability Blueprint identifies six critical factors that play a key role in positioning a project for success. Our focus is on enabling clients to build the competitive advantage necessary to attract talent and industry capacity in a crowded market. The UK needs new infrastructure to compete, and owners need to deliver the intended benefits from their programmes. Thinking about deliverability at an early stage will help all stakeholders meet their objectives and to grasp the opportunities of the race to 95k per minute. Bringing the blueprint to life Working on programmes as diverse as Thames Tideway Tunnel, Digital Railway, the Lower Thames Crossing, Manchester Airport Transformation, Ofwat s AMP6 and Ofgem s RIIO programmes, Arcadis has built a deep understanding of the factors that contribute to successful delivery. 1. Understand the Pipeline 4. Embrace technical innovation Achieve greater productivity and deliverability by: Setting-up the programme to create opportunities for investment in R&D and innovation. The Digital Rail Academy, for example, is a key platform for industry growth. Creating volume by re-using existing solutions don t reinvent the wheel. Optimise delivery strategies by: Using offsite manufacturing and offshore design at scale to increase capacity and productivity. Forecasting pipeline volume by asset class and location. Incorporating digital solutions at all stages of the programme from design to operation. Identifying and understanding competitive position. Bundling projects and programmes together. Collaborating with other programmes, and the supply chain. 1. Understand the Pipeline 3. Align with Industrial Strategy 5. Get the basics right Long term visibility of the Pipeline enables the best delivery strategy to be identified. It also enables collaborative planning, so you can attract the resources you need. The UK s Modern Industrial Strategy should focus investment on regional growth, world-leading sectors and raising productivity. Design your programme to tap into this. Innovation will improve productivity, but it is also essential to get the basics right in planning, design and delivery to ensure target programme outcomes are achieved. 5. Get the basics right Improve overall programme performance by: 2. Identify what makes a project attractive Prioritising health, safety and wellbeing throughout the lifetime of the asset. Create a compelling proposition to attract and retain the best by: Aligning design, delivery & operational asset managment. Identifying opportunities to make the programme stand out. Designing the right controls and governance to manage risk and value. Ensuring the programme is investable and deliverable. Tracking benefits and managing their realisation as part of programme governance. Highlighting parts of the programme that will inspire and motivate the team. Using BIM and digital visualisation to drive certainty. Managing the balance of risk, enabling suppliers to make a fair return. 6. Establish the right commercial model Drive positive behaviours into the delivery by: 3. Align with Industrial Strategy Seize the opportunity by: Aligning with government priorities for infrastructure investment. Joining up the dots with the regional development agenda. 2. Identify what makes a project attractive 8 Clients and projects are competing for the best talent for their businesses and from their supply chain. Why should they work for you? 4. Embrace technical innovation Investment in science, research and innovation will be a key part of the Industrial Strategy. Grasp and embed innovation to drive productivity on your programme. 6. Establish the right commercial model Management of risk and reward has a significant impact on behaviours throughout the supply chain. The right model will play a big role in attracting talent and capability. Supporting investment in skills, including attracting under-represented groups, those with new skill-sets and sharing resources across sectors. Initiatives like The Tunnelling and Underground Construction Academy play a key role. Procuring the programme to deliver whole-life value. Investing in best-in-class procurement to attract and retain the supply chain. Adopting long-term collaboration models to align project team objectives - linking risk and reward incentives to project outcomes. Getting close to the supply chain and involving suppliers early to co-create delivery plans. Investing in a programme-wide behavioural framework to promote collaboration. 9

6 ARCADIS Our world is under threat from climate change and rising sea levels to rapid urbanisation and pressure on natural resources. We re here to answer these challenges at Arcadis, whether it s clean water in Sao Paolo or flood defences in New York; rail systems in Doha or community homes in Nepal. Applying our deep market sector insights and collective design, consultancy, engineering, project and management services; we work in partnership with our clients to deliver exceptional and sustainable outcomes throughout the lifecycle of their natural and built assets. Arcadis has a strong focus on the creation and operation of built and natural assets as well as the assembly of the programmes and supply-chains needed for their delivery. We have the breadth of experience and range of solutions necessary to position our clients programmes for success. Using the Arcadis Deliverability Blueprint, our aim is to help our clients position themselves to take maximum benefit from investment opportunities in UK infrastructure. We are 27,000 people active in over 70 countries, and in the UK work closely with a number of leading industry and professional bodies. Our memberships include the Major Projects Association (MPA), Management Consultancies Association (MCA), Institute of Asset Management (IAM) and the Construction Leadership Council (CLC), where the focus on themes of digital, manufacturing and whole-life performance helps to deliver better, more certain outcomes across the sector. Arcadis. Improving quality of life