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Building Back with Better Commercial Management

Building Back with Better Commercial Management

The author, John Mullen’s, 40 years of experience in construction and engineering should give a mature view of which management failures most commonly lead to problems that can end in claims, dispute and increased costs. Recently combining that experience with an informal survey of the worldwide perspective of colleagues across Driver Group’s multiple offices confirmed that similar issues repeat across continents and project types. In the limits of this short paper, they are only set out in summary and are far from comprehensive, focussing on the most commonly reported, starting with project inception and ending with dispute resolution. 

John Mullen, Non-Executive Director and Diales Principal and Quantum Expert.

Management failures can start from inception phase, with:

  • Rushed procurement;
  • Premature procurement based on incomplete design and/or site acquisition;
  • Lack of involvement of end-users;
  • Passing risks to the contractor that it is least able to control;
  • Lack of understanding of local laws, regulations and culture.

Enquiry documents lay fertile ground for later problems where they:

  • Use an inappropriate standard form;
  • Mismatch contract strategy to design certainty / complexity;
  • Use ill-conceived one-off terms;
  • Poorly amend a standard form;
  • Contain onerous provisions;
  • Are lazily drafted;
  • Are over-lengthy;
  • Are ambiguous or contradictory;
  • Ignore laws, regulations and culture.

 At tender stage the opportunity to mess things up passes to the contractor in its pricing, where that activity involves:

  • ‘Buying’ the job;
  • Failing to identify and price risks;
  • Lack of co-ordination between tender and project teams;
  • Failing to understand completion requirements;
  • Failing to recognise particular project restrictions / circumstances;
  • Naïve pricing based on a previous ‘similar’ project.

Particularly where a tenderer gets such aspects wrong, the damage is exacerbated if the employer then makes its selection:

  • Solely or principally on price;
  • Without establishing that the contractor understands, such as:
  •  Scope;
  • Specification;
  • Programme;
  • Risks. 
  • With no requirement for programme, method statements or resource details. 

Post-contract, all parties can be responsible for failures of project management arising from:

  • Lack of awareness or understanding of contract terms;
  • Lack of experienced staff;
  • Unrecorded verbal agreements;
  • Parking contractual requirements ‘in good faith’;
  • Supply chain mismanagement;
  • Lack of a fit for purpose electronic project file structure.

As design progresses and is issued, the most common causes of problems include:

  • Lack of a realistic Information Requirements Schedule;
  • Late design information;
  • Inaccurate design information;
  • Incomplete design information;
  • Contradictory / incompatible design information;
  • Late approval of contractor designs;
  • Designs that ignore local regulations.

On a project of any complexity the programme should be an essential tool in managing both works and the design.

However, common errors include:

  • Not following any express contractual requirements such as for sectional completion;
  • Using a flawed or inadequate baseline programme;
  • Lack of regular programme updates;
  • Failure to regularly monitor against programme;
  • Unrealistic updates: under-reporting effects; slanting effects.

All projects carry elements of risk, especially in relation to ground or weather conditions, resource availability and resource cost escalation. All too often such risks are managed without identifying them early enough, or fully anticipating their potential, or with a flawed response to start with.

Whilst change may be considered inevitable and/or desirable, mis-management often includes:

  • Failure to limit the scope of change;
  • Lack of timely quantification of time and cost effects;
  • Exaggerated external pricing;
  • Understated internal reporting;
  • Denial of valid claims;
  • Lack of / inexperienced staff: to quantify and submit; to review and respond.

If a contractor cannot properly control, monitor and report its costs then it will not only undermine its margins, but it may resort to making claims to recover the loss. Common failures of cost management include a lack of cost control; lack of a properly detailed financial budget; failure to regularly monitor costs against budget; and inaccurate reporting. Processes around Interim Payments can be burdensome and time consuming. Mismanaged, they can lead to a range of issues such as claims for interest, instigation of dispute procedures and even contractor failure.

Common errors include:

  • Excessive use of ‘payments on account’;
  • Inaccurate measurement and valuation;
  • Omission / undervaluation of valid claims;
  • ‘Cash flowing’ the contractor;
  • Issues in relation to Payment Notice procedures;
  • Late payment.

Problems that arise from the various examples of pre- and post-contract failures such as set out above do not have to lead to claims, but if they do, parties often exacerbate the negative effects by failures of claims management such as:

  • Contractor failures:
  • Late submission;
  • Exaggeration;
  • Poor preparation;
  • Flawed methods of delay analysis;
  • Using inaccurate records;
  • Using flawed methods of quantification;
  • An inability to quantify the effects of disruption.
  • Employer / Contract Administrator failures:
  • The self-defensive Contract Administrator;
  • Denial of valid claims;
  • Late recognition of valid claims;
  • ‘kicking the can down the road’ until Final Account or Completion.
  • All parties:
  • Adversarial attitudes;
  • Lack of objectivity and use of exaggeration and emotive language;
  • Unrealistic reporting;
  • Tactical invention of counterclaims.

Record keeping can be a key part of managing change and limiting its scope for causing problems. Those records may be of:

  • Events;
  • Effects;
  • Resources;
  • Allocation.

In relation to such records, change management can be undermined by failures such as:

  • Lack of records;
  • Partial records;
  • Inconsistent records that are hard to combine;
  • The wrong type of records;
  • Reliance on emails for saving data;
  • Inaccurate / one-sided records such as minutes.

Alongside records, contractual notices are a key component for the successful resolution of any claims that arise.

Common errors include:

  • Lack of awareness of contract requirements;
  • Failure to implement contract requirements: in good time; in right form / details;
  • Defensive responses to Notices;
  • Disputes regarding ‘Conditions precedent’ 

In the event that a claim becomes a dispute, efficient resolution can often suffer from:

  • Exaggerated claims and counterclaims;
  • Unrealistic negotiation positions;
  • Attorney / advisor inexperience;
  • Use of Experts: too late; poor quality; the ‘hired gun’.

Many other examples of bad management practice have persisted through the years and jurisdictions, causing unnecessary delays, costs and disputes. The above is the most common reported within the Group. It also seems to the author that these are perennial failures that have repeated throughout his career and that some markets seem to do little or nothing to learn from.

The root causes of such bad management practices can perhaps be summarised as the following short-list:

  1. Combinations of inexperienced parties and poor quality advisors.
  2. Unrealistic expectations.
  3. An emphasis on cost rather than value for money.
  4. Lack of training and retention of good people.
  5. Poor communication.
  6. A lack of personal and professional integrity.
  7. Failure to learn lessons from past failures.

If the construction and engineering industries, through the food chain from clients to suppliers, could all address these broad issues, then perhaps the bad management practices that repeatedly seem to prejudice their abilities to achieve goals in relation to time, quality and costs would be reduced and even avoided entirely.

Originally written as part of the Driver Trett Digest, issue 24. To view the publication, please visit: www.driver-group.com/digest-compendium



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