Net Zero 2050 – What does it mean for Engineering Construction Globally?

Net Zero represents an unprecedented reallocation of capital: USD 9.2 trillion per annum for the next 28 years (McKinsey, Charting new approaches to capital projects delivery, February 2022).

The global project delivery system has a critical role to play in delivering the massive number of engineering construction projects required to meet the Net Zero objectives.

The challenge for global engineering construction is to deliver large and complex projects rapidly, cost effectively and with a low carbon footprint. However, the industry has a legacy of failed projects: 3 out of 4 mega projects (>USD 1 bn.) are late and over budget, and many do not start up as planned or meet safety levels mandated by the industry.

A Unique Opportunity

The Net Zero project portfolio represents a unique opportunity for the industry to change fundamentally the way in which projects are conceived and delivered, in order to reduce delivery times, eliminate waste, lower risk, reduce costs and increase value.

Capital reallocation of USD 9.2 trillion per annum over 28 years represents a pipeline of continuous work that provides the opportunity for industry to implement the transformational change that must take place if the industry is to improve performance necessary to achieve the Net Zero objectives.

Without such change, the Net Zero objectives will not be achieved. Does engineering construction want to be seen as the reason for the world not reducing its carbon emissions to the required levels within the time stipulated, especially when the political system is largely aligned and a global coalition of financial institutions representing USD 130 trillion in assets has committed to reaching Net Zero by 2050?

The People Perspective

Engineering construction is and will largely remain for the foreseeable future, a “people” industry. The industry has two basic challenges;

A shortage of skilled, experienced and qualified people resulting from people leaving the industry, mainly through retirement, and not being replaced by a sufficient number the “new generation” in all functions and disciplines
A low level of productivity and a high level of wastage across all aspects of project delivery

These are not new phenomena: the industry has known about these issues for years, but has not managed to resolve the problems – now the situation is acute. Fundamental change invariably occurs as a consequence of crisis. We are in crisis, but is this sufficient to drive change – it certainly should be. The complacency that has beset engineering construction for decades must cease.

The Market

Market demand is now beginning to outstrip supply across the entire supply chain and in all sectors of the industry. This is only likely to intensify. The industry has been here before – with catastrophic results for projects, owner/investors and the supply chain. If Net Zero objectives are to be achieved, the industry cannot permit a repeat performance.

Traditional Contracting Arrangements

The hierarchal “race to the bottom” approach practiced for many years in the industry, and which transfers the risks to parties least able to manage them, coupled with aggressive delivery times, low margins and unbalanced contract conditions, is demonstrably flawed and not fit for purpose in today’s market place, and not at all suitable for achieving Net Zero objectives.

Collaborative contracting and working has been around for 20 years or more, but this has not thus far become main-stream. However, there are now strong signs that this could be a viable alternative – is there the will in industry to make the step change? Based upon the demonstrable benefits, especially in the context of achieving Net Zero objectives, there certainly should be.

Advanced Work Packaging (AWP) European Conference

I attended this event promoted by Group ASI in London on 5 & 6 April 2022 – Increasing Productivity and Environmental Efficiency through AWP. The prime focus of discussions, covering several topics over the two days, was Net Zero, the challenges, opportunities, and how AWP, in consort with other complementary tools and initiatives, can help the industry meet the Net Zero objectives.

AWP is an effective project management tool endorsed by the Construction Industry Institute (CII) as a best practice. Research into its use across a variety of projects in different engineering construction sectors, and with a broad range of sizes, reveals that significant improvement is demonstrated in shorter delivery times, lower costs, increased productivity, improved quality, better safety performance and much more reliable and predictable project results. Its use can also help the industry to reduce its carbon footprint.

Should engineering and construction remain content with the reported levels of performance improvement in these areas? The answer must be no – far greater improvement could and must be achieved in the pursuit of Net Zero.

AWP is best known in North America, but it is becoming more familiar in South America, the Middle East and Asia where communities of practice (CoP) have been established. In Europe, the European Construction Institute (ECI) is the home to the AWP CoP in Europe.

Conference Take-Aways – Meeting The Net Zero Challenge

The conference will have meant different things to different people. From my perspective the key take-aways are;

Radically re-think the entire project delivery process – adopt what is currently effective process and practice for effective, efficient and economic delivery, and abandon and replace all others with ones that are fit for purpose
From the project outset – conceptual stage -, focus continually on start-up and operation of the facility – when ROI begins – and what is needed to achieve this
Adopt a strategy of continual performance improvement – learn from experience, and adapt and improve – never be fully satisfied with outcomes
Innovate wherever necessary and possible – challenge accepted wisdom
Maximise the use of project management and other modern tools (eg. AWP, BIM, Digitalisation, Lean, 4/5/6-D Planning, etc) and integrate using appropriate software
Engage and involve key stakeholders, including the supply chain, early so that their expertise, experience, capability and capacity is maximised and incorporated in the design development
Standardise design as far as possible to modularise components that maximises the opportunity for replication across multiple projects and types of project
Maximise offsite manufacture and fabrication
Maximise the use of technology for on-site construction installation to minimise the people required on the site

The People Issue

The shortfall in resources will not be solved by adopting the traditional recruitment practices. While the industry needs to recruit and retain people over the next 30 years, this will not solve the immediate problem.

The reality is that in the short to medium term, engineering construction needs to attract people with skills and experience from other industries that can be adapted to engineering construction, and, simultaneously, maximise the use of technology by leveraging the younger generation’s familiarity and expertise in this key area.

Furthermore, the industry has largely ignored 50% of the population with the potential to provide the requisite skills – the industry needs to recognise the need to create the conditions that make it an attractive career proposition for women.

Collaboration – The “Red Thread”

Throughout the AWP conference delegates continually referred to the need for collaboration in delivering Net Zero projects. Indeed, there was consensus that collaborative working and contracting is essential for the achievement of the Net Zero objectives. This is consistent with McKinsey’s recent publication;

“…by initiating a collaborative transformation process, participants in the project delivery system can do their part and become indispensable partners as the world builds the energy and civil infrastructure needed to achieve net zero…”.

Given the failing project delivery legacy, coupled with the no longer fit-for-purpose traditional contracting model, and taking on-board the demonstrable benefits, in terms of project delivery performance, of collaborative contracting and working, it seems inconceivable that engineering construction would not seize upon the opportunity to utilise this as the go-to method for Net Zero projects.

Collaborative Working and Contracting; What’s Next?

There is no single collaborative working and contracting model that “fits all”. There is a range of models that can be adopted and adapted that align with the specific project type, size and requirements. However, all collaborative working and contracting models share common features: a fundamental shift in mindset and corresponding behaviours that puts successful project delivery (however that is defined) as the number one objective for all stakeholders. And that those stakeholders share in the success – they succeed or fail together.

Collaborative working and contracting is not a “soft option”, but it works on positive energy that generates creative thinking and actions that focus on the stakeholders’ shared interests. This stands in contrast to the negative energy that is created by traditional contracting models that focus on positions and separates the stakeholders’ interests and which often results in divisive actions that harm project outcomes.

Interested in learning more from like-minded people about collaborative working and contracting? Why not join the Collaborative Contracting Community (CCC)? This has been set up for enterprises engaged in capital projects around the World. It is FREE to join today.

The tools and methodologies for collaborative working and contracting are available.

The Engineering Construction Industry Training Board (ECITB) Project Collaboration Toolkit (PCT) provides the means to undertake collaborative working on any type and size of a project.

The European Construction Institute (ECI) has developed the Collaborative Working Agreement (CWA) which is a contracting model that incorporates the principles of collaborative working enshrined in the ECITB PCT.

The Collaborative Contracting Community will be running THREE free webinars in April, June and September this year;