Infratech contracts need to accommodate the delivery of both the infrastructure and technology components of the project. A traditional contract from either an infrastructure or technology background may not be sufficient to achieve this. Technology is rarely procured through a PPP or alliance contract, for example, whereas infrastructure is rarely procured under a systems integration or agile development contract. Whether the infrastructure or technology contractor is the ‘lead’ or ‘prime’ contractor may influence the contracting model.
By combining infrastructure and technology, Infratech projects provide scope for higher commercial returns than traditional infrastructure projects, creating potential new sources of value for both technology and infrastructure suppliers. In particular, the ability to use data to optimise infrastructure creates significant potential for both savings and growth.
Infrastructure projects are typically focussed on the delivery of outputs, with significant on the ground presence, whilst technology delivery models have tended to focus on outcomes with more remote delivery. This is apparent both in the differing approaches to project acceptance and defects management and in the approach to change management. Infratech projects will need to combine elements of the two, ensuring that the requirements and pathways for delivery are clear from both an infrastructure and technology perspective.
Risk of Delay
Just like their traditional parents, Infratech projects are also at risk of delay and budget overruns. They combine the technological risk of delay in the scoping, requirements and design phase, with the implementation and installation risks of the physical works. The risks from both sides need to be better understood and addressed.
Risk of Failure
Infratech projects bring a higher risk of failure compared to pure infrastructure projects, and an increased risk of failure after delivery. Trying to adopt an exclusively infrastructure or technology approach is not sufficient to mitigate this risk. Any risk allocation mechanisms need to address both the physical and technological risks. A sound understanding of the risks on both sides helps to ensure satisfactory risk allocation and satisfy financiers.
As Infratech projects deal with both physical and intangible (software) components, separate ownership terms are required for each. It is important to have an understanding of any licence rights, and how they might constrain or limit future use or commercialisation of the project. Third party technology components also need to be thought about, and escrow may be important where there is software forming a critical part of the project.
Infratech projects challenge the assumption that infrastructure will remain static for long periods. This requires different approaches to investment decisions, future capital investment and rates of return. Conversely, technology providers in an infratech project need to adapt to longer term delivery and run models. In combining the infrastructure and technology components, the interplay between the two different types of components needs to be considered, and obligations for any upgrading or replacement of obsolete technology needs to be agreed. Clarity is also required regarding costs to replace or upgrade obsolete third party technology.
Role of Data
Data, particularly when combined with artificial intelligence, is key in Infratech. It provides the ability to optimise the infrastructure asset and drive value. There is also the possibility for the data generated to have value beyond the infrastructure, generating a commercial return in its own right. Understanding the ownership and rights of use of data on a motorway, for example, is key. On the other hand, understanding the risks in relying on data, and liability for potentially inaccurate data, will also be important.
Infratech introduces a cybersecurity risk into the context of critical infrastructure, which can be daunting and potentially posing a significant increase to the risk profile of a project.