In the early 2000s, the construction of Heathrow Airport Terminal 5 (T5) was the largest construction project in Europe.
The British Airports Authority (BAA), a major airport operator that was privatised in 1986, realised that if the projects were to be built on time and within budget, a unique approach would be required.
The foundation of the BAA’s project management strategy was the T5 Agreement, a relational contract between the BAA and all the T5 first-tier suppliers. The Agreement was structured differently from traditional construction contracts. It aimed to create incentives for positive problem-solving behaviours in order to minimise the conflicts that had previously plagued major projects.
The BAA took a different and unique approach to risk in the T5 project: it held all the risk. As such, incentives were required to encourage all other partners involved in the project to minimise risk. This was achieved through financial incentives for suppliers, rewarding successful performance.
GBP 100 million was taken from individual projects and put into a central pot. This allowed the risk contingency to be allocated based on need. This allowed for greater control over the financial implications of risk at a more global level and thus tighter overall budget control.
Source: UK National Audit Office