Russia’s full-scale invasion of Ukraine has produced geopolitical waves that will likely ripple for years to come. Among them is a wide-ranging discussion on Ukraine’s future at top levels of Western governments, and more importantly, how to assure a successful for Ukraine.
In this context, there is growing anticipation around Ukraine’s reconstruction and a slew of questions as to how it should be structured, financed, managed, and what specific outcomes should be the focus.
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In this two-part article, I put forward my own views as to the management of the physical infrastructure component of reconstruction. My views draw on almost 15 years of experience in engineering and construction in Ukraine, working across numerous sectors, with multi-national industrial companies and international finance institutions. and for a wide range of clients. This experience does not make me an expert on all things related to reconstruction, but it has provided me with some valuable insights that I believe are useful to share.
Previously, in part 1, we looked at the key considerations, principles and the management structure. This second part examines the stakeholders that should be involved, the role of both the management platform and Ukrainian government, and the reforms needed for engineering and construction.
Establishing stakeholders and management
As a start, I would propose a stakeholder group comprised at a minimum of the Ukrainian government, with a focus on the reconstruction agency within the Ministry of Infrastructure, and the G7 embassies plus the European Commission. Additional consideration can be given to some of the donor agencies from the list above, if for no other reason to ensure they do not duplicate the work of the organizations to be contracted. Further inclusion should be offered to any organization which might contribute to reconstruction financing.
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The primary role of this group of stakeholders would be to hire a management platform of experts tasked with dividing the various infrastructure spheres; scope the initial planning work done within these spheres; and procure service companies to carry out this initial planning. Together with the management platform, they would then put forward comprehensive project plans detailing design and construction stages, appropriate contract models, and clear budgets for these stages.
My own recommendation would be for stakeholders to hire the primary management team of the platform. They would then allow this management to hire the complete team needed to ensure scoping and procurement is carried out at a timely pace, while maintaining a relatively lean structure to keep internal decision-making and accountability clear.
It stands to reason that the operational aspects of this platform will mandate that professionals hired for these tasks will require strong backgrounds in infrastructure development, notably from an engineering standpoint. Also important will be past operational experience in utilities or state companies, economics, urban planning or other relevant fields. They will undoubtedly need to be English speaking and free of conflicts of interests with prospective service providers.
I emphasize that this platform needs to be delegated clear responsibility regarding scoping, procurement, and the management tasks to be carried out. Furthermore, the professionals hired for this work must be accountable. It should not be an extension of larger public administration structures and should avoid creating internal bureaucratic shelters from responsibility.
Far from a comprehensive operational model for this platform, there are a couple of points I would recommend incorporating from some of my own experience:
1. As a starting point, the basic procurement framework used by the EU for hiring service contractors offers a number of advantages, not least in that it is well understood by most international engineering companies, but also that it will be foundational for Ukraine as it moves towards EU membership. There are specifics that I would modify, but as an initial approach, this would be the procurement model I would use.
2. As this platform is specific to Ukraine, the professionals developing the scopes for planning should include some Ukrainian professionals versed in the legal framework in Ukraine as it currently exists (I say professionals, NOT political appointees). This will ensure the development of these scopes incorporates the specifics of the Ukrainian market. This might seem obvious, but I have seen numerous examples of international experts drafting scopes of work for various engineering sectors in Ukraine that are completely misaligned with Ukrainian regulations.
3. Specific to hiring service or works contractors, whether it be for planning/feasibility study work, design tasks, or construction and the associated supervision services, a clear definition of compliance must be communicated and enforced. Too often, donor organizations publicly insist they only hire compliant firms (compliance defined as something akin to a western finance organization definition), but then hedge their requirements when it becomes clear that very few (if any) Ukrainian contractors can meet the standards. Later, this article discussed aspects of reforming the engineering and construction sectors in Ukraine.
Role of the management platform
As alluded to above, the primary role of the management platform will be to develop and manage the following project development plan in broad terms:
1. For each of the infrastructure facets outlined in the Lugano documents (and perhaps some to be added), define a project outline that provides a clear starting point – planning/feasibility study work in most cases – and which progresses through the needed number of steps through construction and commissioning. This plan might look quite different for the different types of infrastructure: the plan for national level transportation or energy projects will appear much different from those of municipal development.
2. Define a clear scope of work that can serve to procure international engineering service providers. Again, this is likely to look very different depending on the type of infrastructure. Large, national level projects in transportation or energy might be well suited to big, program management-type companies with the necessary technical capacity and experience. Municipal services, such as water and sanitation, waste management, and district heating likely need to be divided both technically and geographically: as an example, one such scope of work might entail developing the master plan and priority feasibility studies for the water supply and sanitation sector in all of the primary cities in a given oblast (pick your favorite). This could be repeated and tendered in each oblast (region), with adjustments to budget and schedule depending on the size of the cities in the oblast. This is only an example but illustrates the type of decision making foreseen by the management platform.
3. Upon successfully contracting service providers and completing the first step for each of the various infrastructure facets, a detailed project plan for realization of the feasibility studies should be developed by the service contractors and agreed with the management platform. These detailed project plans will need to address key questions such as proceeding with design-build type contracts similar to that reflected in FIDIC contracting, or using design-bid-build contracting in sectors for which the market in Ukraine is not yet mature enough to bid as design-build. Similarly, the budgets and implementation schedules for these various contract models should accompany the project plan.
4. With this information in hand, the management platform would then procure the needed services in accord with these detailed project plans, all of which should chart the course of the project through construction and commissioning.
The above breakdown puts a strong emphasis on the early stages of project development in terms of the input of the management platform. This intentional by design, for a couple of reasons. First, projects that are well developed in the early stages have a much higher chance of proceeding successfully than those that are not.
Anyone who has worked in engineering during different stages of project development will have encountered bad budgeting and scheduling for design and/or construction work because of flaws in early-stage project planning. Well planned projects go well, badly planned projects do not. This is a universal rule well understood, but frequently tragically ignored when project planning is done by the wrong people, or when the process is overly politicized.
Second, based on my experience in engineering in Ukraine, this necessary early-stage planning and feasibility study work is where the biggest technical weaknesses lie among Ukrainian engineering firms and individuals. Later stage services such as design, construction, and supervision are well understood within the Ukrainian engineering sector, and as such the level of international input, both from the management platform and the service providers, will likely not need to be as high.
Assuming strong Ukrainian partnership working with these international service providers, the Ukrainian market will likely rapidly learn the content and approach that is standard in Western markets for master planning and feasibility studies, but at least for the initial period of reconstruction, it is my recommendation that international input be focused on this part of project development.
Role of the Ukrainian government
In reading the previous section, it may seem that the Ukrainian government’s role in the reconstruction of Ukraine is reduced to little more than a spectator. This is not the case: the Ukrainian government at all levels has a key role to play in reconstruction. Its exclusion from the operation of the management platform should not be equated to exclusion from reconstruction. Rather, it should be seen as part of a division of roles and responsibilities that optimizes the reconstruction process.
The primary project partner from the Ukrainian government side specific to infrastructure is the recovery platform inside the Ministry of Infrastructure. Its primary role should be to work with the management platform to prioritize the needed infrastructure with urgency as dictated by variables such as the need for urban development in damaged or destroyed communities, assessing how reconstruction can facilitate economic growth in certain sectors and geographies, and population shifts driven by returning displaced people, among others.
This is no easy task, however, the recovery platform in the Ministry is already working with regional and municipal governments to these ends. Furthermore, the Ministry can ensure alignment of the prioritized work with local governments or other state bodies by way of clearing any administrative hurdles that may exist. The management platform and subsequent service providers will be ill-equipped to do so, as any experienced engineer or other service provider who has worked in Ukraine can attest to.
Reform of the engineering and construction sectors
Ukraine has been, and continues to be, under external pressure to undertake a range of reforms within the public sector. Many of these proposed reforms have been, and will continue to be, in support of the EU pre-accession process. These are not detailed here, as the list is long.
Instead, this article provides my thoughts on some of the basic tenets of reforming the engineering and construction sectors in Ukraine. There are two primary motivations for doing so that extend beyond the larger rationale which many in Ukraine are familiar, specifically to reduce the opportunities for corruption, and to improve transparency and accountability in the public sphere.
The first is to comply with EU legislative changes required for Ukraine to become a candidate country, and the second is to ensure reconstruction proceeds faster. The general reforms described below are consistent with at least one if not both of these motives.
The first fundamental reform of the engineering and construction sectors will be to dramatically reduce the number of specialized licenses, certifications, and other means by which only certain individuals (not companies) can carry out certain tasks.
The current wide array of such licensure creates artificial monopolies, slows down design and construction stages, and leads to price gouging in the provision of various services. An engineering company should not need to have a licensed professional only for ports, and another for highways, and still another for fire safety, and yet another construction layout planning. Nor should it be forced to subcontract all topo and geo surveys for even the simplest of projects. None of this adds value to the process of developing infrastructure, and, given the expected volume of work for reconstruction, the overall duration will drag on for years if left in its current state of affairs as a sector.
This is not to say some expert licensure is not desirable: most Western engineering markets have some licensed portions of engineering work, either at the level of individual or company. The situation in Ukraine, however, is excessive, and will hinder reconstruction.
The second fundamental reform will be the adoption of the FIDIC contract models (yellow, red and gray books) in structuring the design-build stages of project implementation.
FIDIC is frequently used now in Ukraine by some of the donor banks, and to a lesser extent by multinationals when investing in various industrial projects.
However, as recently as 2019, the Commercial Court of Ukraine formally announced that it does not recognize the FIDIC contract model in dispute cases. FIDIC is the core contract model of the EU for engineering services, and its adoption will be a requirement for compliance with EU standards. For this reason, the Ukrainian government will need to address the question of FIDIC in short order (it should be noted that this may be going on at the current time).
It is imperative that, at a minimum, these two aspects of the engineering and construction sector be addressed, if for no other reason than the engineering and construction companies in Ukraine must be able to grow and respond to the demands of reconstruction within the framework of a less regulated and contractually clear environment.
Daniel Aspleaf, a US citizen based in Kyiv, is Managing Director of CDM Engineering Ukraine.
The views expressed are the author’s and not necessarily of Kyiv Post.
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