Procuring for the green economy
As governments and organisations around the world mobilise their responses to the climate emergency, investment is progressing in green projects, and innovative technologies are being developed and deployed at an unprecedented scale.
When the UK Prime Minister, Boris Johnson, announced his "ten-point plan for a green industrial revolution" at the end of last year, the aim was for £12 billion of government investment over the next decade to create and support up to 250,000 highly skilled green jobs in the UK – seeking to unlock more than three times that amount in private sector investment by 2030.
Breaking new ground
We are now seeing ambitious projects like Net Zero Teesside emerge which are right at the forefront of the country’s efforts to reach net zero by 2050. The project represents a world first for a commercial scale gas-fired power station, incorporating both carbon capture and storage as well subsea electrification technology.
Breaking new ground does however bring its own set of challenges. By their nature, these green markets are not fully established yet, and the performance of novel technologies is unproven at scale. Resource and skills gaps in the supply chain are inevitable, so too are cost and price point issues, creating a greater aversion to risk from lenders.
During a recent virtual roundtable, co-hosted with Clyde & Co, we discussed these issues and more. In this article, we identify five steps for procurement to enable governments and organisations to overcome the challenges presented by the green industrial revolution, to manage the risk and turn action into social, environmental, and economic reward.
1. Choose outcomes wisely – and the rest will follow
Effective procurement starts with an understanding of what clients and shareholders want, and how they value it. This determines how they can work with the market to achieve the desired outcomes – not the other way around.
As our roundtable guests pointed out, investment decisions need to be aligned with shareholders’ perception of overall value for the business, so that contracting strategies are designed to deliver the desired macroeconomic outcomes.
Richard McWilliams, Director, Sustainability, recommended that clients take a look at the Construction Innovation Hub’s Value Toolkit, which helps set up projects and programmes so that value can be procured and realised. As Richard put it during the session:
Contract for outcomes – not for the work itself.
2. Take the supply chain on the journey
Clients must be clear and consistent with the market to ensure that supply chains are aware of the value they must bring to a major project or programme, and how they need to invest and adapt their own business models.
Engaging the supply chain early is crucial when going out to tender – as one of our attendees pointed out:
If the first thing your supplier sees is an invitation to tender, you’re too late.
If clients can support the supply chain in maturing the technology required for the green industrial revolution, suppliers can mitigate technology risks and build capability accordingly.
From a long-term perspective, Tiers 2 and 3 of the supply chain are where the experts who can unlock future capabilities are found. Reaching them early can ensure the right skills and resources are developed and available to be called upon when required.
3. Don’t wait – anticipate future challenges now
The green industrial revolution requires agile thinking and decision making, because the technology being implemented is often first-of-its-kind. This means there is no predefined procurement strategy or benchmark project to refer to, creating further uncertainty and risks. To mitigate this, the roundtable participants discussed the importance of having in-house confidence and capability, and the need to fully understand the market context, drivers and risk when developing procurement and contracting strategy.
Return on investment for new technology will be fluid, and therefore places increased focus on cost and schedule predictability at final investment decision.
One attendee spoke on the importance of developing and analysing ‘what-if’ scenarios, to help ascertain which stakeholder is best placed to manage the associated risks – legal, project, commercial and engineering – to better define contracting strategies. Standards of care should also be clear and back-to-back across all contracts in the supply chain.
Getting this wrong can result in high profile litigation cases – with Robin Rigg being one of the most notable examples in recent years.
4. Think about the lasting legacy
Clients are increasingly talking about broader social and environmental outcomes when bidding for work, considering the longer-term benefits for communities – including job creation. At the roundtable we discussed some of the existing targets for offshore wind, which include generating 40GW by 2030 with 60 percent local content and ensuring 33 percent of the workforce by 2030 are female.
Attendees raised the UK’s opportunity to be a world leader on technologies such as offshore wind, Carbon Capture, Usage and Storage (CCUS) and hydrogen – but only if significant resources are mobilised. Initiatives and groups such as the Green Jobs Taskforce hold the key and will enable the UK to capitalise on and enhance its fantastic engineering capabilities.
Many of these newly created jobs could be transferred from existing industries such as oil and gas, automotive and aerospace.
5. Open the door to fresh thinking
Innovation occurs in many forms and levels of the supply chain, and it can’t just be applied solely to technology solutions. Net zero requires innovative thinking and behavioural change right through the chain of command, particularly in procurement and contracting decisions.
The roundtable explored the long-term skills outlook, and the need to capitalise on the concept of the green economy to reach audiences who may not previously have been interested in construction and manufacturing. This includes the need to engage specialist organisations that can broaden the talent pool, such as those that promote career development and opportunities for young people and women, and for whom green transition careers are attractive.
There is a significant opportunity to make the sector more diverse than ever before, thereby opening the door to freer and fresher thinking.
These may be uncertain or changing times, but we are fortunate enough to operate in a fluid, dynamic and exciting sector.
Making the most of this opportunity depends on how much and how quickly we are prepared to evolve our ways of working, adapt through all stages of the journey and maintain a committed passion to achieving the end goal of reaching net zero.
Listen on-demand to our virtual roundtable, co-hosted with Clyde & Co, where our panel explored this topic in detail.