Thames Tideway Tunnel
Context[1]
- London relies on a 150-year-old sewer system built for a population less than half its current size. As a result, millions of tonnes of raw sewage overflow the system each year and end up in the River Thames. The GBP4.2 billion (USD5.7 billion) Thames Tideway Tunnel (TTT) is being built to tackle the problem for at least the next 120 years and enable the United Kingdom to meet European environmental standards.
- The TTT is the largest water infrastructure project in the UK. It involves the construction of a ‘super sewer’ tunnel that will run for 25 km through central London, following the route of the River Thames. The completed tunnel will modernise London’s sewerage system by reducing untreated discharges into the River Thames that arise from sewage overflows by tens of millions of tons per year.
- The program’s scope of works includes two new major tunnels, 7 km and 25 km long, up to 75 m deep across 24 live works sites in central London with complex infrastructure constraints including multiple underground rail lines and stations.
- The tunnel, which is being funded through customers’ bills, was originally estimated to increase bills by up to GBP80 (USD134) per year. Due to the competitive procurement process the increase is now expected to average GBP20-25 (USD33-41) per year.
Problem[2]
- Large, complex programs of this type traditionally experience a lack of a co-operative approach between client and contractor teams arising from lack of cohesion between client and contractor. This leads to scope, cost, and schedule issues that are often inefficiently identified, understood, and resolved.
- Initially, too much financial risk was to be delivered by Thames Water without government support, and the UK Government had little appetite to underwrite all of Thames Water risks and debt.
- Projects of this scale traditionally suffer from an imbalanced risk allocation between the client and contractor due to a lack of investigative works and consultation during the planning process. This precludes the optimal allocation of risk and often results in insufficient contractor appetite to deliver large complex projects, such as TTT, or having contractors price substantial risk premiums into their tenders or inappropriately apply their risk experience from smaller-scale infrastructure projects to large-scale civil projects.
- Thames Water needed to procure this program with a blend of private financing and its own funds, and create a robust delivery model to:[3]
- Minimise reliance on any single contractor
- Maximise risk transfer to contractors where efficient
- Ensure effective incentivisation aligned with the project objectives.
Improvement[4]
- The TTT program saw the project owner, its project management consultants, and delivery consortium members all operating under an ‘Alliance Framework’. The teams co-located to create alignment in outcomes and facilitate easier knowledge sharing and issue resolution, and to encourage issues to be addressed in a collaborative manner:
- Under the collaborative working model, the alliance framework members operated as an integrated team in a collaborative manner where parent company identity was ‘left at the door’. All parties shared a common set of goals and worked under aligned incentives focused on generating program and cost efficiencies and leading health, safety, and wellbeing (HSW), and quality standards.
- To incentivise collaboration and alignment of outcomes the project owner implemented a variety of incentives from HSW, social impact, project controls, and project performance incentivisation at multiple levels from overall program to consortia, to single entity.
- Through project performance incentives, the contractual arrangement was setup for risk mitigation and early identification of potential issues. Payments (including painshare / gainshare mechanisms) provide the project owner and its contractors with financial incentives determined on a sliding scale to incentivise parties to reduce overall program length and improve the management of cost and associated risks.
- Additionally, the project owner was provided with a government support package to provide mitigation against high-impact but low-probability scenarios during construction that would have impacted the financing of the project. The support package included:
- Playing the role of ‘insurer of last resort’ by providing cover for insurable events above the amount the market was able to cover
- Providing equity financing to fund cost overruns above a certain threshold
- Having the option to discontinue the project and compensate equity and debt investors
- Providing GBP500 million (USD694 million) of liquidity in the event of market disruption.
- The TTT program made use of early contractor involvement through a six-month optimised contractor involvement phase (under the alliance framework) after contract award. This provided an opportunity for the contractor and project owner to collaboratively explore how elements of the design could be changed to improve the project.
Stakeholders[5]
- Bazalgette Tunnel Ltd (Tideway) – Project owner
- Allianz, Amber Infrastructure, Dalmore Capital, DIF – Project investors
- Jacobs – Program manager
- Balfour Beatty, Bam Nutall and Morgan Sindall (West Section), Ferrovial, Agroman and Laing O’Rourke (Central Section) and Costain, Vinci & Batchy Soletanche (East Section) – Main works contractors
- Amey – Systems integrator contractor
- Thames Water – Systems operator.
Timeline[6]
- November 2012 – Market engagement commenced
- October 2013 – Announcement of shortlisted consortia bidding for construction contracts
- April 2014 – Tender of shortlisted contractors by Thames Water for construction contracts
- September 2014 – Development Consent received for the project
- August 2015 – Tideway appointed by Thames Water; project achieved financial close
- January 2016 – Commencement of pre-construction works by Tideway
- November 2018 – Commencement of tunnelling
- 2023 – Expected completion of tunnelling
- 2023-2025 – Commissioning
- 2025 – Construction due for completion.
Results / impact
- Environmental, sustainability and social impact: Tideway has conducted an initial social return on investment study which has concluded that for every GBP1 spent on the project there is a social benefit of GBP3.19 through improved natural environment, rejuvenated river economy, and employment of under-represented groups through community investment.
- The co-location of the project owner, its project management consultants, and delivery consortium members under the ‘alliance framework’ created a unique culture that enabled the sharing of ideas and fostered delivery improvement. Co-location also led to the effective management of a divergent group of stakeholders to build consensus. In 2014, the project achieved a Development Consent Order (DCO) for approval for the TTT to be built through 14 London boroughs.
- The collaborative approach, underpinned by commercial incentives, ensured the alignment of outcomes leading to increased collaborative behaviours, such as main works contractors sharing knowledge with each other to improve performance.
- The use of early contractor involvement processes drove efficiencies and innovation into the design and construction phase of the project and reduced the risk of uncertainty for tenderers.
- Advanced design and procurement of power for main sites occurred three years ahead of the award of main contracts due to long lead times. A key success was the design integration through co-location and removing barriers through seamless integration of the project owner, its project management consultants, and delivery consortium members.
Key lessons learnt
- When setting up the commercial model, the incentives need to be such that they create the right behaviours and sustain them over the life of the entire program. A key part of this on TTT was for the client to be flexible, and for all parties to evolve over time as lessons are learnt and the level of trust grows over the program.
- A collaborative delivery team culture drives performance.
- The target price derived from the GBP80 estimate is extremely important to the ultimate efficiency of the TTT delivery and is the foundation upon which the efficiency incentive / risk sharing mechanisms are built. As a result, Tideway has strong incentives to deliver the TTT on time at the target price.
Notes
Design-Build Institute of America (DBIA): Progressive Design Build
Last Updated:
16 October 2021