Meeting the challenge
A Tarmac case study

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Page 4: Changes in the external environment

Many of the core skills required by a company pursuing PFI projects already existed within the Tarmac Group. For example, Tarmac regularly invests funds in operations and new facilities at its quarries. The relevant ability to deal with project finance was already available in-house and this was enlarged to reflect a new workload. Tarmac’s work in construction also involves negotiating contracts of varying complexities. The ability to do this within the company, particularly when coupled with the skills of external advisors, has proved to be a key resource for use in PFI work.

The diverse objectives and different types of work associated with putting these projects together and in financing them, has led to the employment of specialist staff. Tarmac’s Private Finance Unit brings together people of different backgrounds such as lawyers, accountants, builders, engineers and bankers who, collectively, have the relevant experience and expertise to win and manage PFI projects profitably.

The main implications of the changes for Tarmac

It is not just the skills and resources that make PFI projects different from traditional construction work. The role of the contractor is also fundamentally different. Tarmac now has to approach projects, with a longer horizon – typically 25 to 30 years, instead of the traditional involvement over 3-4 years. On PFI projects Tarmac essentially provides a service rather than a tangible and traditional product. Working as a service provider requires a slightly different focus and Tarmac has expanded its initial skills base to accommodate the new resources needed to take on PFI work. Tarmac has also had to manage the design process in a manner which minimises the whole life costs – not just the initial expenditure. Tarmac’s extensive experience of design and construction management has allowed it to fulfil this role efficiently.

Tarmac has a long history of managing the quality of all of its operations to the highest standards and was one of the first construction companies to attain quality assurance registration. This ability to maintain rigorous quality standards on construction projects provides Tarmac with great confidence that maintenance costs will be minimised as a result. This is just one example of how existing skills within the Group have been utilised to good effect on PFI projects. Finally PFI work also meant the need to work with partners. Tarmac has had to select partners carefully in order to help it adapt to changes in markets. Tarmac’s success in obtaining PFI contracts can be attributed to careful strategic development which has responded to the changes since the launch of PFI.

Forging relationships with other companies

The range of projects awarded by the government has been diverse. This has involved projects which successful contractors are required to manage for a long period of time and some require skills in areas where Tarmac has had limited or no previous experience, such as prison management and healthcare.

Healthcare projects such as new hospitals usually include the requirement for the private sector company to manage all non-clinical services in the new facility. There are also requirements for the new facility to be equipped with the necessary medical equipment. Tarmac acquires the necessary skills by partnering with a medical operations company, United Medical Enterprises, on its hospital projects.

Major motorway construction projects require the contractor to maintain the road for a period after construction, typically 25 to 30 years. This type of work, until recently, was undertaken by National and Local Government. In mainland Europe, however, private sector companies have managed motorways for some years. With this in mind, the French road operator, Transroute is one partner (together with Hyder Investment and John Laing) with whom Tarmac is working on motorway projects in this country. The four companies have formed a joint venture company, UK Highways and in October 1996 the consortium was awarded the largest PFI road contract let to that date – to improve, operate and maintain 122 kilometres of the M40 between London and Warwick.

All of the companies mentioned have brought complementary skills to the projects on which Tarmac works. The combined skills of the participants in any project create a synergy that allows the group members to participate in work where an otherwise lack of ability in one specific area of the project would normally prohibit involvement.

Tarmac | Meeting the challenge