Technology-enabled infrastructure is more flexible and more efficient, as well as being better able to take account of the needs of the people who are actually using the bridge, road or other asset. However, many traditional infrastructure providers still view the up-front costs and risks of adopting new technologies as outweighing the many benefits.
This is part of a series exploring the opportunities and challenges of infratech, the integration of technology into infrastructure. You can read more in our special report or request an exclusive Pinsent Masons research report.
The way in which infrastructure providers perceive themselves has shifted over time from being firms that simply build, with low profit margins, to firms which provide design and operational services across the whole life cycle of an infrastructure asset. Doing so effectively requires an evolutionary shift in terms both of firms' operational and business models.
At the same time, there is an increasing drive from the client side to get better value from their infrastructure assets. Rather than order, say, construction of a new office building, clients are becoming more interested in how those who will go to work in that building will interact with it. They want their buildings to react to changes in temperature and lighting to create a comfortable, energy efficient working environment, and they want low maintenance costs and long-lasting facilities.
'Collaboration', 'innovation' and 'improving the customer experience' are the current buzzwords when it comes to contracting. But without a shift away from a contracting model which assigns blame to one in which risks are shared more fairly between clients, and in which technology partners and the supply chain are sufficiently incentivised to deliver efficiency improvements for the benefit of the wider project, the whole model is unlikely to succeed.
Under the traditional low margin model of construction, parties become focused on offloading risk and arguing about delivery costs. The same old disputes and confrontations are likely to arise. Problems with the traditional risk-based contracting model become even more acute when the nature of that risk is not clearly understood. Disagreements can rise around risk allocation and misunderstanding of the exact nature of the risks involved where infrastructure firms do not understand technology risks, or vice versa.
It is usually still cheaper – and probably easier – for clients to procure a contract for the construction of an asset for the cheapest possible price, rather than to get budget authorisation for a 'whole lifecycle'-type project incorporating five or 10 years' worth of operation and maintenance. Procuring authorities and other clients must back their strategic vision for an asset with the money to support that vision, and with a contractual framework that supports and incentivises closer collaboration.
The challenge for construction firms is that infrastructure is a mature sector, which is relatively slow to adopt new technologies and new ways of working. Partnering with technology firms is one way to accelerate this change; whether with external firms via contractual mechanisms or by bringing this expertise in-house through strategic acquisitions or establishing their own technology units.
Firms that feel hamstrung by existing contractual structures, which are preventing them from implementing their most innovative ideas, should not be afraid to speak up early in the bid phase. And firms which are not yet investing in technology to improve their internal performance, for example with regards to financial management, should act themselves why. Having people working for the business interacting with technology on a daily basis will drive cultural change from within.
Nick Ogden is a construction law expert at Pinsent Masons, the law firm behind Out-Law.com.