STRATEGY FOR A BORED TUNNEL

In the Paliament decision about the balanced fixed link a railway tunnel represented one of the crucial main elements. In 1987 after the client organisation had been established, tender projects for both an immersed and a bored tunnel were designed by a Danish-Anglo-American consultants joint venture. As furthermore the immersed tunnel could be either concrete or steel based, three technological alternatives were open for bidding. At this stage the competitive conditions for contractors have already been radically influenced by the client who, in proper conformity with EU rules, had implemented a prequalification procedure and selected four international consortia for the tender. During this process the largest Danish contractors had become included in all four consortia, in fact strongly urged by the client. Subsequently, these consortia submitted bids for all three types of tunnel solutions, and the client could eventually on this basis decide on the boring technology, referring to the following criteria of competitiveness: financially competitive with immersed tunnels diffusion of new technology to Denmark least impact on the environment The client, however, also drew attention to the fact that boring technology increases the risk of delays and related financial losses, but finally, five months after tender, the parliamentary majority behind the fixed link adopted the recommendation of the client. If observed from the point of view of a contractor, such as the MT Group, trying to optimise its competitiveness, the five forces of Porter can offer a partial structuring af the situation. The basic level of competition is in fact quite well-known: "Threat of New Entrants" are practically insignificant as the prequalification of four consortia have excluded intrusion from other actors. More real, however, is the Threat of Substitution as an overall question as well as concerning the selection of tunnel technology. Undoubtedly MT Group and its rivals face the risk of the total cancellation of the project if they price a bid too far above the client’s budget. In that sense the threat of the existing transport technology, maybe even intensified by emerging types of high-speed ferries, leaves no room for contractors to add in large time and price safety margins. Furthermore, the threat of substitution in relation to type of tunnel should be taken into account. As this final selection of technology is awaiting exactly the results of tender, evidently every prequalified consortium will be facing the dilemma between either concentrating its tender efforts on one specific type of tunnelling (which would minimise technological risk but enhance competitive gambling) or submitting bids for tender on all three tunnel types (which would reduce the threat of substitution but be costly and very demanding on technological competence). All four consortia employed the second of these strategies. Rivalry Among Existing Firms during a tender procedure is primarily aiming at presenting the lowest (qualified) price for the client. For the consortium the critical balance is to hit this price without taking excessive economic risk, i.e. it must underbid the competitors but still be able to execute the project within the contracted budget. Technology, however, constitutes a central momentum of this competitive situation, for instance through modification of mere price calculations: the consortium possessing the highest competence in relation to the technology demanded by the client, can manage the production most efficiently and therefore submit the lowest bid for tender based on strategic considerations about potential advantages such as achieving technological capability and market access the consortium might choose to downgrade the importance of the specific project profitability and then lower its bid a thorough appraisal of the technology based evaluation of the client’s project tender design might reveal weaknesses in the tender conditions, which later during construction will be deliberately used by the consortium as a lever in budget negotiations, claims and arbitrations. The initial bid can therefore be lowered. Obviously, a consortium’s possibility of employing such rationally substantiated technology strategies as means of rivalry is severely impeded by the sheer complexity of the project and tender procedure itself. Their exact conversion into a calculated price bid is therefore extremely risky - hence the quite common assertion that the contractor who miscalculates the lowest price wins the contract! (Bonke 1995). Also the Porter force Bargaining Power of Buyers, plays a crucial role for the free scope of technology management. The Great Belt A/S, being in this case a professional buyer with well-developed ideas about the feasibility of technological solutions and subsequently setting quite detailed terms for their realisation, evidently is able to maintain tight restrictions on the manoeuvrability of the consortium. Again this is a difficult act of balance for a consortium which is determined to win a contract on the fixed link: how far should it follow a client’s specifications and conditions at the expenses of its own business and management experience? Undoubtedly, the traditional attitude of one-off order production contractors is quite indulgent towards a client and consequently underestimating the importance of constructability. The consortia must finally also take into consideration the Bargaining Power of Suppliers in their estimations of technological competitiveness. Compared to ordinary building projects the tunnel project leaves only a little room for the contractor to exploit business strategies towards suppliers. At least two causes of this constraint can be identified: from the very beginning of the public debate about the fixed link project the argument for domestic multiplier-effects was given high political priority. Formally as well as informally this was passed on to the client as an imperative, obliging construction consortia to bring themselves in a rather restricting state of dependence on the relatively few potential Danish suppliers (and subcontractors). in particular the bored tunnel project appeared to involve problematic supplier aspects, due to the client’s detailed provisos concerning the number of boring machines, their technological properties and the terms of their delivery. Only one international supplier appeared capable of complying with these demands, leading to a contractual relationship which soon caused severe technical and economic problems (Bonke 1996).