Maintaining transport: three critical steps to support suppliers

Across our rail portfolio we have seen three positive action areas which have focused on protecting the programmes and their respective supply chains. These actions also focus on delivering the maximum possible within original funding envelopes – ultimately to realise full customer outcomes.

Taking positive action

1. Protecting the capital plan and its team

Light rail and metro programmes have felt significant impacts through the immediate drop of passenger numbers. As these programmes are often self-funded many capital projects have been re-assessed and the portfolio re-prioritised as fare-based revenue reduces due to lockdown guidelines. To protect the overall objectives of the capital plan and its benefits, clients are focusing on getting ‘shovel ready’ and shifting capabilities and key resources into projects in early phases to accelerate the overall programme. This approach not only protects critical resources and skills within the organisation, it also accelerates the overall programme of work – presenting broader opportunities once funding streams and working arrangements reopen.

2. Protecting the programme delivery envelope

Delivery productivity has been adversely impacted through changes in working arrangements as well as the need to close sites. Typically the impact of such events has immediate impacts on the delivery budget, creating a project overspend and resulting in a significant number of contract change events. To minimise these impacts, various methods are being deployed:

• The centralising of all contractual matters relating to COVID-19 impacts: Creating an efficient operation to capture all contractual issues, standard modes of communicating and a consistent approach to resolving these matters which maintains collaboration between the parties. This approach has, in some cases, seen the creation of a specific cost breakdown element within the finance systems to provide full visibility of the pandemic on the organisation and broader funding bodies.
• Below the line reporting: The event and its subsequent impact on the investment budget cannot be attributed to project performance, as such some clients are reporting this impact ‘below the line’, making it fully visible while at the same time not defining this as a project overspend. This approach will negate the need for each project to work through the organisation’s governance process to seek further financial funding due to the impact of the event. This approach allows for clarity on the ‘normal’ management of delivery risks while also ensuring the event does not create a bottleneck in the governance process.

3. Protecting the supply chain

The resilience of a programmes’ supply chain and its ability to bounce forward quickly will be critical for future success of the organisation and the broader economic recovery. The challenges faced have been unprecedented and the risk of losing corporate commitment and knowledge, key skills and talent have never been more acute. Across the sector we have seen approaches which have included:

• Engagement of direct suppliers and broader supply chain on an ‘at cost’ arrangement: Protecting the skills and capabilities in readiness for re-mobilisation. This approach is on an ‘open book’ basis with the expectation of a detailed cost assurance exercise post event to provide transparency.
• Early payments, where clients pay ahead of the curve on a forecast of work to be achieved. This approach ensures the suppliers have healthy cash flow, allowing them the ability to invest and bring forward the skills and innovations the projects will require.
• Rapid payments: Where invoices are paid as quickly as one day after the invoice is received, further supporting the supply chains ability to convert cash.
• Contract extensions and direct awards: Where contracts were due to expire we have seen clients extend these arrangements through direct awards or contract extensions which have been fully supported by corporate governance. This retention of skills through this critical period has been seen as key to enabling the rapid mobilisation of projects post COVID-19.

Key conclusions

The rail and transport sector is key in the economic and social recovery post COVID-19. Positively, the sector is finding opportunity amongst the crisis and:

• Identifying critical skills and projects, prioritising them to maintain activity and keep supply chains active
• Protecting the programme delivery envelope through more innovative reporting and contract approaches
• Relaxing contractual conditions on supply chains and flexing payments collaboratively

To maintain this momentum and contribute to economic and infrastructure revival longer term, the transport sector must continue to drive activity, new ways of working and definition of projects as ‘critical’. Working together with supply chains, capital plans will be realised and a sustainable pipeline formed to support communities and infrastructure capital plans post COVID-19.

Further resources

Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.