PRIZES AND PITFALLS OF RELATIONSHIP BASED CONTRACTS KRISTINA HERMENS (CH2M Beca), WALLY POTTS ( City Council), GIJS HOVENS ( City Council), MARK CHRISTISON (CH2M Beca), ANDREW WATSON (Beca)

ABSTRACT More local authorities across are working in collaboration with professional services providers by entering into relationship-based contracts to help them deliver infrastructure assets and services to their communities more efficiently and effectively.

Why are collaborative frameworks favoured over engagements on a project by project basis? Local authorities have to respond to the pressures of constructing or upgrading infrastructure to meet community needs and industry standards, while operating services that are essential to our daily lives. Having a professional services provider that specialises in delivering infrastructure and that can come to understand a community’s needs through a long-term relationship, will enable a local authority to more successfully achieve its goals.

This paper will describe specific examples of relationship-based contracts in New Zealand, ranging from cities that are expanding their infrastructure to meet growth, to smaller districts that are facing static or declining populations.

These examples will provide insights into what has worked well and not so well for both parties. The learnings that will be explored will be around the need to define roles, integrate the client’s key personnel, the importance of culture and commitment, and the sharing of common goals to achieve mutual success and how this can consistently deliver better outcomes to the community.

KEYWORDS Infrastructure, communities, delivery, relationship, contracts, collaboration

INTRODUCTION CASE STUDY – CHRISTCHURCH More local authorities and professional Christchurch is a city of 376,000 people services providers are entering into combining a large urban area and the rural relationship-based contracts to deliver townships on Banks Peninsula. The vast infrastructure assets and services to majority of the City’s wastewater is treated at communities around New Zealand more the Christchurch Wastewater Treatment Plant efficiently and effectively. (CWTP) located in Bromley. The treatment process involves advanced secondary This paper provides case studies for treatment with biosolids thermal drying and collaborative arrangements in Christchurch, natural ultra-violet disinfection. Tauranga and Horowhenua. It describes why In 2007 Christchurch City Council (CCC) local authorities choose this delivery format, moved to a Professional Services agreement partnership approaches, ways to measure with CH2M Beca to design, project manage performance and learnings for both parties. and supervise capital works at the CWTP. Prior to this time CCC had utilised a more traditional approach to delivering new and renewal projects at the CWTP site. Typically the in-house design team (City Solutions) would be involved in the civil elements and then other external consultants would be contract. The original contract involved a three engaged on an adhoc basis depending on the year term with two rights of renewal of two nature of the project. This led to conflicts in years each. The consultant automatically areas of responsibility, variation claims from received the right of renewal if the percentage both designers and constructors, delays to of KPIs achieved during the term exceeded the project delivery, litigation and large annual performance measure for the extension to be carry forwards in the capital works budget. granted. If the KPI was not achieved there was no obligation on the part of the client to offer Response to Change Drivers the extension. The extension of term is In 2006 CCC launched a procurement process probably the most effective motivator in this to make a transformational change in the type of agreement. Figure 2 in the Appendix delivery of capital works. CWTP was chosen as shows how CH2M Beca performed over the the pilot for the new approach because: period from 2008 to 2014 against these KPIs.  The CCC internal design group did not The slight drop off in KPI performance was have any process design skills and so the associated with $70m of extra work being impact on them was minimised. added to the programme and the inherent planning delays associated with supporting and  CWTP was a discrete asset on a site with then resolving insurance related issues. Value clear lines of demarcation from a contract for money and development of a more scope perspective. constructive working environment are key  The site has a medium sized ongoing drivers for relationship contracts. The CWTP renewal programme and a variety of agreement has demonstrated both these upgrade works to be completed on a brown attributes over time. Refer to Table 1 in the field operational site. Appendix for a summary of performance against key metrics from 2008 to 2015.  Operational input into renewals and development is critical at key points in a A relationship contract such as the CWTP project but needed disciplined approach. platform put CCC in a very strong position to respond to damage at the plant post the 2010  CCC had good baseline data on the and 2011 earthquakes. Within 24 hours CH2M previous three years against which to Beca had an integrated team mobilised and measure the new contract performance. formed on the site for assessing damage, CCC utilised an interactive procurement preparing costings and optioneering, assisting process as indicated in Figure 1 in the with safety management and earthquake claim Appendix. lodging and assessment. It is doubtful that a traditional contract model would have provided Measuring Performance the same timely and proactive response with a A series of approximately 16 Key Performance team that understood the site and its Indicators (KPIs) were established across four operational modes and procedures from Day 1. Key Result Areas (KRAs) being Customer Innovation (30%), People (15%), Financial (40%) and Process (15%). The people section The initial form of agreement was essentially a incorporated safety. During the term of the panel agreement with one partner. The agreement these KPIs evolved to recognise agreement since has evolved past pure design changing priorities for CCC (e.g. assistance works and the parties continue to develop more with the Canterbury earthquake claim process efficient project delivery mechanisms with became a KPI after 2010). CH2M Beca having more direct access into CCC systems to reduce transactional and Two mechanisms were built into the support costs. agreement. The first was a pain/gain on fees paid in any quarter and the second was associated with extensions to the services New areas of development are constantly CCC’s drivers. Don’t be afraid to modify under consideration with the driver to bring KPIs to reflect changing priorities. value to both parties.  Risk and reward – drive commercial Asset management, health and safety and performance. This does not have to be in operational support have been provided on an direct monetary payments. Contract increased basis over the last few years of the extension for outstanding performance is a agreement, demonstrating the inbuilt flexibility key motivator for consultants and of these agreements and the level of trust built contractors. between the parties.  Certainty of work – provided a platform for An example of this is the involvement of CH2M the consultant to “invest in the site”. Beca in developing a site capital works strategy for the 2016 financial year.  Cost effective – the relationship model has proved to be cheaper in terms of both The model continues to work well for CCC, with professional fees and total project outturn CH2M Beca recently awarded a 3+2 contract costs due to lower procurement costs and using the same delivery model. resource knowledge about CWTP. Key Lessons  Integrated working team – delivers better Both CCC and CH2M Beca have valued the outcomes than the traditional engagement ongoing relationship over the last eight years methods. through some very trying times. Some of the key lessons for CCC and CH2M Beca after CASE STUDY – TAURANGA eight years of relationship contracting include: Tauranga is the largest city within the Bay of  Long term view – it takes time to build up Plenty region with approximately 120,000 intangible institutional knowledge which residents. It is one of the fastest growing provides additional benefits to delivery in centres in New Zealand with the population the long term. expected to reach 180,000 over the next 30 years.  Dual recognition and having the right team – it is important for both parties to Tauranga is serviced by two wastewater recognise each other’s skills and treatment plants that provide tertiary treatment knowledge – listening and understanding prior to discharge at one ocean outfall. This are critical to success. arrangement is unusual in New Zealand as most cities of this size only have one  Periodic critical self-assessment – is wastewater treatment plant. Both plants are needed to keep the team focused. located within the city boundaries and have  Try new things – they unlock value. been surrounded by development in recent years. Figure 3 in the Appendix provides an  Regular and open communication – overview of Tauranga’s wastewater network. meeting regularly to discuss deliverables and minimise surprises. Communicating Tauranga City Council (TCC) owns and changes in systems, structure, and internal operates both plants using in-house staff. TCC direction early on has delivered better has used typically one professional services understanding of objectives and reduced provider to plan and design the upgrades and resource wastage on both sides. expansion of its wastewater treatment plants since the early 2000s.  Concise, measureable KPIs – that are well understood provide an environment of Response to Change Drivers no surprises. Regular meetings at the In early 2014 TCC went to the market for a relationship level to discuss performance more formal arrangement with a professional and question both good and bad allowed services provider to plan, design and oversee CH2M Beca to better understand the the upgrades and expansion of its wastewater treatment plants. CH2M Beca was appointed share portion of CH2M Beca’s fee that is to this role in mid-2014 for a term of five years measured on a quarterly basis and adjusted on with two potential renewal terms each of three an annual basis. years. Partnership Structure The main drivers for this professional services TCC and CH2M Beca began its wastewater agreement were: professional services partnership in June 2014.  Substantial capital upgrades – The Te Some of the first tasks were to introduce Maunga wastewater treatment plant partnership roles and work on a partnership required substantial upgrades to support charter and determine KRAs and KPIs. Figure long term growth. The Chapel Street plant 4 in the Appendix depicts the structure and also required upgrades to maintain its roles within the partnership arrangement. standard of treatment. Partnership Charter  Partnership relationship – TCC wanted The partnership charter was created in an its staff to work alongside the services initial workshop where staff introduced provider to make sure that the right themselves and shared how they would outcomes would be achieved for the plants individually contribute to the partnership vision and entire wastewater network. TCC of “Best for Tauranga.” This charter (shown in envisioned a collaborative working model Figure 5 in the Appendix) also combined vision where its operational staff could develop statements and values from both organisations. technically and have the opportunity to Key Lessons work on more substantial projects. TCC and CH2M Beca are at the beginning of  Complete overview – Planning their partnership agreement but have worked wastewater treatment for a growing city well together over the past two years. More with two treatment plants adds a layer of planning work has been required than originally complexity as flows must be considered anticipated but both parties feel they are now between the two plants. TCC wanted one on the right track to deliver significant upgrades provider to have a complete overview of to the plants when they are needed. both plants and to understand their Some of the key lessons learned in the last two relationships with the overall network and years have been: ocean outfall.  Team performance – Forming teams and  Consistent approach – TCC wanted a getting them to perform well together takes consistent approach to be applied to the time. It is important that those operating master planning of the two treatment plants the plants and those planning and and core input into the 30 year designing upgrades have time to build trust Infrastructure Strategy. This could not be and confidence which leads to improved achieved by using more than one provider. project outcomes. Procurement and KPIs  Projects vs programme – Staff carrying TCC carried out a very similar two stage out projects need to know how their project procurement process to CCC with three fits into the overall programme and its respondents shortlisted and invited to tender objectives. for the contract.  Shared professional development – TCC and CH2M Beca also agreed KRAs and Getting together every three or four months KPIs to measure CH2M Beca’s performance to share information on new technological that were very similar to CCC. However, in this developments can boost morale and help contract the KRAs are Delivery (30%), people see a common purpose. Financial (20%), People (25%) and Relationship (25%). There is also a pain/gain  Refresh – As people change it is important performance, it would be extended by up to two that new staff are informed about the more years (i.e. 3 + 1 + 1). partnership structure and charter. This can The scope of services included be achieved by periodically holding transportation/roading, water, wastewater and workshops to refresh the structure in stormwater design and project delivery for people’s minds. renewals and new capex projects. Beca also  Performance monitoring – Sometimes provided strategic planning, resource KPIs need to be changed to reflect consenting, and asset management support. changing priorities. Regular governance The overall approach was: meetings of senior staff encourage discussion on performance of both parties.  Integrating the HDC and Beca teams as far as practicable to promote a collaborative  Value for money – Early planning is culture. essential and it is important to ‘plan the  Establishing the programme in a way that planning’ to make sure the developed maximised its effectiveness and efficiency. programme is achievable and affordable.  Setting up the team and systems to deliver  Innovation – This often means getting on the three prongs of the programme: 1,000 little things right. It is best to break strategy, asset management, and projects. down assumptions so that uncertainty can be stripped away as much as possible. Figure 6 in the Appendix shows the Vision Statement, Objectives and Behavioural CASE STUDY – HOROWHENUA Settings created. Horowhenua is a district on the west coast of Measuring Value over Time – KPI Approach the lower with a population of HDC and Beca also agreed KRAs and KPIs to 31,400 (June 2015 estimate). It forms part of measure Beca’s performance that were very the Manawatu-Wanganui Region, and is similar to CCC and TCC. There was also a located north of and Kapiti. pain/gain share portion of Beca’s fee that was The largest town, and the headquarters of the measured and adjusted on a quarterly basis. District Council, is Levin. The other towns in Quarterly management meetings were held to the district include Waitarere, Foxton, review the performance from both HDC and Shannon, and Tokomaru. Beca perspectives. These meetings identified Change Drivers activities that were progressing well, areas for improvement and associated actions to be was faced with static implemented. growth, historical under-investment in existing infrastructure, and a legacy of lapsed or about- Beca was generally harder on its performance to-expire resource consents. These challenges than HDC were. were creating real issues for Horowhenua Over the three years the quarterly score District Council’s (HDC) infrastructure renewal ranged between +1% and +5.8%, out of a and creation, exacerbated by the community’s possible score of -10% to +10%. expectations around levels of service that were difficult to align with the available funding. The KPI system focussed the Beca team on areas of performance that mattered to HDC the HDC decided to collaborate with a professional most, and provided a feedback mechanism services provider to increase its capability and between performance and reward. capacity in infrastructure planning and delivery. Working as partners – streamlined Response to Change Drivers processes In 2012, HDC awarded Beca a three-year Beca and HDC adopted a collaborative and contract with provision that, subject to good partnership approach in working together. This approach took a forward-looking focus based Relationship-based professional service on effective planning and strategic thinking to contracts place a high reliance on a few key deliver cost effective services and solutions individuals on both the client and consultant while building knowledge within HDC’s sides. If those individuals change, then that can organisation. significantly change the basis of the relationship. The Beca Programme Manager spent one day each week working from the HDC office. This CONCLUSION integration meant that upcoming projects were discussed in advance of a project commencing, New Zealand local authorities are successfully which assisted HDC to identify options that had collaborating with professional services not already been considered. It also enabled providers to deliver, maintain and expand their Beca to appreciate HDC’s objectives better, services to their communities over the short, and fully understand what was required from medium and long term. both an engineering and political perspective. It Some of the key learnings from relationship- also allowed any potential issues to be raised based contracts in Christchurch, Tauranga and early, and measures put in place to resolve Horowhenua have been: issues or solve problems. Relationship – It is important that all staff Continual Innovation  involved understand the common goals and Innovation was captured in the Value for objectives of the contract and personally Money KPI, reflecting any clever ideas or commit to working together as a team. clever execution in the delivery of the This can be enhanced by regular meetings professional services (for example in and discussions at all levels; joint consenting, design, or construction professional development and periodic management). Examples of innovation/ value workshops to refresh the arrangement in for money were recorded and discussed at the people’s minds. quarterly management performance review meeting.  Measuring performance – on a regular basis allows for feedback and learnings for Non-Renewal of Professional Services both parties and provides for continuous Contract improvement. Having a risk and reward Although the professional services contract component and the potential to extend a was set up with a right of renewal for a further contract term can also further motivate and two years, HDC elected to not renew it. In the improve performance. third year of the contract, the HDC management changed. The new management  Better service to community – the longer wanted to take a different approach to the both parties work together the more they procurement of professional services and know about each other’s capabilities and changed to a more traditional style of delivery. how to optimise the steps required to deliver value for money and innovative Key Lessons services to the community. Over the three year period a real step change occurred in addressing the historical under- investment in existing infrastructure and the ACKNOWLEDGEMENTS consenting backlog - almost 100 individual Thank you to Tauranga City Council, projects were worked on, and over 550 Christchurch City Council, Horowhenua District deliverable packages were issued to HDC. Council and Tim Scott, Octa Associates Ltd for The KPI approach worked well and the Beca their contribution to this paper. performance was consistently on the positive end of the marking range over the three years. AUTHOR BIOGRAPHY

Gijs Hovens Gijs Hovens is the 3 Waters and Waste Operations Manager for Christchurch City Council. His team is responsible for the city's water and wastewater treatment. Gijs is a chartered mechanical engineer and a certified six sigma black belt; and also serves on the Competence Assessment Board for IPENZ. Email: [email protected]; postal address: Christchurch City Council, PO Box 73041, Christchurch 8154.

Wally Potts Wally Potts is the Team Leader: Drainage Services for Tauranga City Council. As such, he is responsible for the wastewater and stormwater activities for the city. He is a former Board Member and President of Water New Zealand. Wally has worked in the three waters sector of local government for over 25 years and has experienced many different approaches to consultant engagement over this time. He has established two relationship agreements with consultants for the planning, design and delivery of wastewater infrastructure – one for plants and one for wastewater pumping stations. Email: [email protected]; postal address: Tauranga City Council, Private Bag 12022, Tauranga 3143.

Kristina Hermens Kristina Hermens is the CH2M Beca Partnership Manager for the Tauranga Wastewater Treatment Plant professional services contract. Kristina is a chartered civil engineer with specialist skills in project management, three waters infrastructure planning and community consultation. Email: [email protected]; postal address: Beca Ltd, PO Box 903, Tauranga 3140.

Mark Christison Mark Christison is an operational specialist who has spent his working career in senior roles delivering energy, water and waste services to public and private sector clients. Mark has extensive experience in developing, implementing and running innovative contract platforms and was a key driver behind the establishment of the Christchurch Beca relationship agreement. Email: [email protected]; postal address: Beca Ltd, PO Box 13960, Armagh Street, Christchurch 8141.

Andrew Watson Andrew Watson was the Beca Project Director for the Horowhenua three waters and roading professional services contract. Andrew is a civil engineer with more than 30 years of engineering experience in the design, design management, and technical leadership of projects, specialising in water supply. Email: [email protected]; postal address: Beca Ltd, PO Box 3942, Wellington 6140.

APPENDIX – FIGURES AND TABLES

Figure 1: Procurement Process for Christchurch Wastewater Treatment Plant Professional Services Agreement 2006

100 Start of Canterbury Quakes 4-9-2010 90 80 70 60 50 2008 2009 2010 2011 2012 2013 2014

%KPIs Actual % KPIs Target

Figure 2: History of total KPI Performance from 2008-2015 – Christchurch

Measure Traditional CWTP CWTP CWTP CCC Engagement PSA PSA PSA Corporate Target 1-7- 1-7- 1-5-2013 2008 2011 to 30-6- to 30- to 30- 2015 6-2011 6-2013 Annual 27% 2.2% 16.3% Not <20% Capex carry recorded forward as due to % CWTP insurance capex process budget Total 12.1% 9.9% 10.9% 12.7% <12.1% in professional terms of Fees this (including agreement CCC time) as % total delivery cost Total Capex $41m $49.8m $59.7m $34.5m Spend over period Litigation Yes No No No Nil Active Patchy and Yes Yes Yes Part of controlled poor Project Operations processes input into site development

Table 1: Key Output Metrics of CCC-CH2M Beca Continuing Services Agreement

Figure 3: Overview of Tauranga’s Wastewater Network

•The role of the governance group is to monitor the delivery of the wastewater programme and make decisions on significant Governance issues. Group •Receive reports quarterly.

•Meet weekly to discuss programme performance. Programme •Monthly reports. Discuss and resolve issues. Managers

•Deliver individual projects. Project •Meet as required to deliver the project. Delivery

Figure 4: TCC-CH2M Beca Partnership Structure

Figure 5: TCC-CH2M Beca Partnership Charter

Figure 6: HDC-Beca Vision Statement, Objectives and Behavioural Settings