Future Forward Full Interview: Think Long Term for Maximum Value
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Dr. John Brown Miller is a global expert on public infrastructure with an eye on efficiency and value. He has a thirty-five-year focus on bringing practical business, legislative and contractual solutions to the world’s burgeoning public infrastructure needs.
Dr. Miller was professor of construction management as well as civil and environmental engineering at MIT. He is an elected fellow of the American Bar Association and the American College of Construction Lawyers.
He is managing member of Ironside Strategies LLC, a consulting firm focused on bringing practical business, legislative and contract solutions to public infrastructure needs, and Ironside Law Group LLC, providing project-specific legal advice. He also is founder and president of nonprofit Barchan Foundation Inc., which aims to provide a common understanding of how public infrastructure projects are being delivered and financed across the world to promote “best practices” in transparency, competition and procurement.
V1 Media: Can you provide a brief professional background?
Miller: I’m a city kid from Connecticut who went to MIT and studied civil engineering. I finished a master’s degree in what was then called soil mechanics—now geotechnical engineering. Then I went to law school and was a construction lawyer for a couple decades. I went back to school for a PhD in infrastructure, also from MIT. At that point, even my parents said “enough school,” but by then I was grown up and had kids and family and everything.
I’ve always been straddling between my construction practice as a lawyer and my engineering work in large projects and how they’re designed, how they’re financed, how they’re structured. My legal work has mostly been in procurement: How do you buy things in the construction industry if you’re a private owner or if you’re a public owner? It all ties together.
I have a tax degree from Boston University (BU) law school as well as my JD degree from BU. I’ve been in this space for about 30-35 years from an engineering point of view as well as a procurement and contracts point of view.
V1 Media: Can you provide a brief differentiation among Ironside Strategies, Ironside Law Group and the Barchan Foundation.
Miller: Ironside Strategies is a small consulting firm I run that looks at how projects are structured and tries to help clients find the best structure for projects going forward. From an owner’s point of view: How do I want to structure a procurement? What kind of contracts do I want to use? How am I going to compete for those things? That’s what Ironside Strategies does.
Ironside Law Group is a solo law practice. Sometimes consulting work bleeds over into law, and I have separate entities for that.
Barchan Foundation is a non-profit charity organized in Massachusetts. We’re collecting information from around the world about how some of the coolest and biggest projects in the world are being structured, financed and delivered. People use different words for what they’re doing around the world, and Barchan separates out all the words and gets them into a common format. It’s interesting to compare what they’re doing in Britain to what they’re doing in Canada to what they’re doing in Australia or the United States.
V1 Media: What’s your current assessment of U.S. infrastructure in comparison to the rest of the world?
Miller: The Unites States still has the greatest infrastructure networks in the world. Because we have such an open system, what can be imagined can be built. If we have the engineering skills and the materials and the means to do it, these projects are wide open in the private sector. And those projects and technologies quickly bleed over into the public sector. The last time I looked, America had 90 percent of the world’s airports. We’re so far ahead in many ways compared to every country in the world. It’s very extensive. It’s very good.
Now, is it in good repair all the time? No. And I think you see some of that. The American Society of Civil Engineers (ASCE) has report cards they publish annually. Those are an interesting list of things that are not in good repair. To me, that’s a delivery issue, because if you have roads and bridges that are far out of proper repair, it’s going to cost you more to fix those facilities, bridges, roads, etc., than it would if you kept them in good repair. As an analogy, if you wait very long to change your oil, the consequences of that are going to be a lot heavier after you’ve skipped five or six oil changes for your car.
I think those are delivery problems and policy problems, not vision problems, not will—we have plenty of will.
V1 Media: What do you consider core infrastructure networks?
What I mean by that is facilities or systems that have been here for 35 years and are going to be here for the next 35 years, so you can think about their lifecycle costs. For example, the Navy is probably going to have the San Diego Navy Base for the next 35 years. They’ve had it there for the last 70 years. It’s going to be there. Key military installations such as that in the defense department, key facilities, key bridges, etc. I-70 has been there in some form since it was an Indian trail in Colonial times.
We know we’re going to take care of them; we know we need them; and we should be thinking differently about them. I would call that a lifecycle. We need to move to a lifecycle thought process for those pieces of core infrastructure.
V1 Media: What are the most challenging problems in terms of public infrastructure, both current and future?
Miller: For core infrastructure, we’re thinking over too narrow a time horizon. So instead of the planners and designers thinking about, “how are we going to design something,” they should be thinking about “how is it going to be designed, built and maintained for the next 35 years.” We should be hiring designers to design it and build it while looking at future operations and maintenance costs. That’s not within the remit we’re assigning to designers and planners.
That’s not what happens in the private sector. Because of how public infrastructure financing works through the appropriation process, we’re a little too lumpy, and we’re thinking over too short a time horizon.
Consequently, when pieces of infrastructure get out of repair, you have to go back through that funding cycle to get maintenance money; to get capital replacement money. For example, take I-70 and the various pieces along I-70, we’re churning a lot on the little pieces of the roadway as we go through the 35 years. The same amount of engineering is going to be done, the same amount of construction and repair and replacement is going to be done. The same amount of labor hours and everything else is going to be done, but we’re doing it in a lumpy way. And we allow the asset to fall into disrepair for periods of time while we wait to let our procurement processes catch up. I think that’s one of the major reasons we’re not as effective as we could be, nor as effective as other countries are.
V1 Media: As a little bit of background, could you describe the 2007 MCPIP you worked on?
Miller: It’s a model procurement code that came out of the American Bar Association. Maggie McConnell, who used to run procurement for Arizona, and I were reporters on that project. It has a menu of procurement options—project delivery options—in that model for state and local governments.
There are 90,000 state and local governments in the United States. The idea of the MCPIP is to give public owners the same flexibility that private owners have to go out and get what they need at the time they need it, and in the right place to keep infrastructure properly maintained and operating.
The MCPIP is the Model Code for Public Infrastructure Procurement. It’s like going around a traffic circle, and you could hire someone the traditional way to do something—to use design/bid/build. You could hire a design builder. You could hire a design/build operator. You could hire a design/build operator who brings finance. You could hire someone to do solely operations and maintenance. But the idea is to give the same flexibility to the public sector that the private sector has.
V1 Media: I heard your thoughts on public infrastructure described as your “approach.” Could you describe what that approach is, and how 35 percent can be shaved in avoidable costs?
Miller: It involves two basic elements. First you need to open up procurement models so that if repair is needed, there has to be an easy way to do that. And it has to be available to public entities quickly. We talked about that a little bit on the MCPIP. That opens up the models.
The second piece is that the contracting models have to be able to work over long periods of time, like 35 years. For example, when Terminal One at JFK was being replaced about 10-15 years ago, the Port Authority of New York and New Jersey put that out for a concession over 35 years. And they used the future income stream from that terminal as a way to finance the complete rebuilding, design, build and operations of the International Terminal at JFK. That one concession entity became responsible for designing, constructing, and doing all the little bits of maintenance and repair along that 35-year period. And they took the risk, so if the repairs aren’t done and if maintenance isn’t done, that costs them money, and they have an incentive to do all the repairs. If you go to that terminal today, it’s run by Schiphol: the airport from Amsterdam, Holland.
Another example is Canada’s Northumberland Bridge between Prince Edward Island (PEI) and New Brunswick. They were able to look ahead to what they thought they were going to have to build over the coming 35 years to keep their ferry system going. They were also able to look back over the prior 30 years at what they had spent running ferry services between New Brunswick and PEI. Then they were able to use that as a business case for evaluating whether a bridge would save money. The result was about a 35-percent lifecycle cost savings for that bridge.
The same thing happened in Tolt, a water supply project in Seattle—a core infrastructure project. They know how many people live in Seattle. They know what their water usage is. They know how much water they need. It’s a core piece of infrastructure.
The city looked at what it would cost to do the Tolt project the traditional way. If a 35-year concession were awarded, what would that cost users in annual fees? And that was a 40-percent savings in lifecycle costs. When you put the design, construction and ongoing maintenance risk in one place rather than distributing it, you get more value for money if you can think ahead over long periods of time.
If you allow designers from the very beginning to look across the design and construction periods as well as have responsibility to look at it as a long-term operations and maintenance (O&M) period, then the designer makes different decisions about ease of maintenance. Does it make more sense to spend more money on materials early, because you save money on the O&M side.
Most people don’t understand that when you close out the initial construction project, you then will spend 10 times that amount during the operations period. And if you change your thinking during the beginning, you can make some big, big savings and get real value for money.
V1 Media: Is this why it works for core infrastructure networks, because you need long-term concessions and large companies and organizations to be able to enact all of these parts?
Miller: It may not be just concession plays. Take air-traffic control as an example. It’s possible over the next 35 years that technology is going to change a lot in air-traffic control. You start to think: “Do I really want to spend a whole bunch of money on a technology that might go out of vogue in five years or be replaced in 10 more years?” So you could package air-traffic control systems differently, so what you’re buying is air-traffic control, not a particular piece of hardware, not a particular building, not a particular antenna.
It’s not that the concession is required; it’s the service that the public owner is buying that is required. It’s the level of service that is required. And there are a lot of different ways to package that other than just bricks and mortar at the beginning. It requires intelligence on maintenance, and it requires all types of downstream thinking.
This reminds me of Tren Urbano, the new subway in San Juan, Puerto Rico. Siemens supplied the trains, but they were also the design builder, so they were responsible for designing and building it as well as operating it for five years before it got turned over to the public entity. And because Siemens had maintenance responsibility, they were really interested in design, asking questions such as: Why are we designing it this way? How do I get to the track? How do I access the electrical systems? Having someone around who has to run it when the design is being done is very helpful in terms of saving long-term lifecycle costs.
It’s not that other people’s money is required; it’s long-term thinking. Lots of things are changing around us, and sometimes it’s better to know that these things are going to happen and think long term. You’re going to have opportunities downstream to save money, upgrade systems and earn value.
V1 Media: It seems a lot of these relate to turning over government projects to the private sector and using their expertise. Do you have any advice to how to improve efficiency and management in the public sector?
Miller: Governments should concern themselves with the following questions: What is the content, what is the design, and what are you building? How do you maintain it, and how do you put that package together at the cheapest cost for the level of service you want? I’m not advocating turning control over to the private sector. But you don’t want to build the wrong thing that’s hard to maintain because you pay too much to build the wrong thing, and you’ve made it more expensive to maintain. It’s the efficiency; and it’s the design, construction and operations that I’m focused on—not turning control of things over.
On Tolt, the city was fully in control of that plant, but it’s being done for them by contract; the city is in charge. Nobody is setting water rates or anything like that for users.
V1 Media: What would be a summary of your advice to engineers? What should they think about or change how they do things?
Miller: Wherever possible for core infrastructure—the things your government is going to have for the next 35 to 50 years in some form—think lifecycle costs. Because you want your designers, builders and operators thinking about lifecycle costs. It’s only by thinking about the next 35 years for those core infrastructure facilities when can you squeeze out up to 35 percent in avoidable costs.
When I was at MIT, we had grad students and research funding, and we regularly found 35-40 percent savings when these types of projects, like Tolt, were put out for competitive pricing. In the Tolt situation, the city of Seattle didn’t expect this would happen. So, in their bid documents, they said “unless we save at least 15 percent over what we expect to spend, then we’re going to do it the traditional way.” And when the answers came back, they were 35-40 percent less than what they were expecting to spend.
You can make these choices knowingly, and there’s no reason not to test them out in the competitive space. Two things I would recommend are “open procurement” and what I call “enterprise risk management” (ERM) practices, which help get the right money to the right place at the right time.