Typical Pitfalls in Delivering Mega Projects April 26, 2007 Stephen Revay APEGGA Annual Conference Managing Mega Projects

AGENDA  Common causes for claims (requests for more money)  Common causes for disputes (unresolved requests requiring third party intervention)  Opportunities to minimize unproductive behaviour

CENTRAL THEMES  SCOPE DEFINITION  TRUST / COMMUNICATION  PROCESS

COMMON CAUSES  SCOPE  FAST TRACK  PROCESS BREAKDOWN  AVOIDANCE / EARLY ATTENTION

Construction Owners Association Alberta

CLAIM Ingredients – Fixed Price Contracts Acceleration: Overtime / Congestion Poor Scope Definition: Extensive Growth / Rework People : no communication and no

TRUST  BETWEEN PROJECT PARTICAPANTS AND  WITHIN THE PROJECT TEAM

Fast Track

& Hard money & Hard money Excellent source of business for claims consultants

What the Owner thinks the project looks like SILO 1 CONTRACTORS SILO 2 CONTRACTORS SILO 3 CONTRACTORS SILO 4 CONTRACTORS

What the project actually looks like SILO 1 CONTRACTORS SILO 2 CONTRACTORS SILO 3 CONTRACTORS SILO 4 CONTRACTORS

UNRESOLVED CLAIMS THIRD PARTY INTERVENTION

Who is responsible  Owner  Engineer  Contractor Unrealistic expectations at senior management levels Agrees to unrealistic expectations Poor documentation and project controls “Get the job done – worry about problems later” EVERYONE ENCOUNTERING A SHORTAGE OF EXPERIENCED PEOPLE

One sided perceptions Distorted generalities

Claims Should be about money Too often About people

Claim Objective Transfer money

Ostrich Approach

“The research suggests that the culprit in 85% of project failures is silence. The study showed that there is a definable set of project communication problems that are far more common than most senior leaders realize. An estimated 90% of project managers routinely encountered one or more of five critical problems in the course of a project but the killer is the silence that follows.” Computer World: “For IT projects silence can be deadly.”

NOTICE CAN BE FATAL

NOT A POKER GAME

PROOF ENTITLEMENT (CONTRACT) CAUSE FACTS LINK OF CAUSE TO EFFECT EFFECT DAMAGE / COST INCURRED

TOTAL COST CLAIMS A total cost claim occurs when a contractor attempts to recover its entire man-hour and/or cost overrun, i.e., claiming the difference between its planned and actual manhours or the difference between what has been spent and received.

TOTAL COST (OR MODIFIED TOTAL COST )  THE TENDER WAS REASONABLE  THE ACTUAL COST IS FAIR AND REASONABLE  ALL OF THE INCREASES IN COST RESULTED FROM THE COMPLAINT  THERE IS NO PRACTICAL WAY TO DETERMINE THE QUANTIFICATION

PROCESS

Contract Requirements Ignored  Statutory Declarations  Change Order Provisions  Scheduling Specifications

Claims Avoidance Avoidance is perhaps Impossible Minimizing the effect is quite achievable Notice provisions Project Controls Change Order Management Contractin g Strategy Non Adversarial communication Minutes of Meetings Record Keeping Early Attention Scope Definition

Improvement Required 1965 NRC Study  Lack of proper organization  Inadequate scheduling  Lack of detailed cost controls  Lack of supervisory training

CHANGING BEHAVIOUR

OPPORTUNITIES FOR IMPROVEMENT  PARTNERING / COMMUNICATION  PROJECT DELIVERY WORKSHOPS  FACT BASED MEDIATION / PROJECT NEUTRAL

The root causes of poor communication*  Fear  Misaligned Expectations  Confusion  Loss of momentum  Dissatisfaction  Lack of commitment  Unconscious incompetence * June 2006 –Cost Engineering Journal - Sue Dyer

WORKSHOPS  PLANNING  INTERFACE  RISK

PLANNING WORKSHOPS  CLEAR END-STATEMENTS  KEY RESULTS  STAKEHOLDER ANALYSIS  CONSTRAINTS  MILESTONES AND GATES  PRIORITIES / DRIVERS

INTERFACE WORKSHOP  SCOPE DEVELOPMENT  WORK BREAKDOWN STRUCTURE  RCIANO RESPONSIBILITY CHARTS  DELIVERABLES DEFINITIONS  TASK DEFINITIONS  STAKEHOLDER MANAGEMENT

R – Responsible C – Contributor I – Input Required (data) A – Approves (reviewer) N – Notified When Completed O – Owns on Completion (customer )

RISK WORKSHOP  RISK IDENTIFICATION  RISK ANALYSIS  OPPORTUNITY ANALYSIS  VALUE IMPROVEMENT IDENTIFICATION  COST AND SCHEDULE CONTINGENCY  RISK MANAGEMENT PLAN

In the event parties have a legitimate difference of opinion Requiring analysis

Options  Each party engages claims consultant  Each party diverts project people to perform analysis  Two parties engage independent to provide objective basis

Proposed Best Alternative The appointment of an impartial independent claims consultant to offer:  Unbiased advice and decisions  Assist in negotiation  Conduct forensic analysis

Model Fact Based Mediation  Voluntary and economical  Assists negotiation  Relies on communication to achieve resolution  Problem solving approach  Uses impartial claims consultant for forensic analysis and to facilitate conciliation process  Decision is not binding

Forensic Analysis  Initiation of Process  Fact Finding  Draft Report  Final Report

Initiation of Process  Differences with regards to delay / productivity  Generally speaking not scope issues

Fact Finding  Access to documents from all parties  Access to project people from all parties  Better results less cost

Draft Report  Issued with the expectation that it will be challenged  Each party has input into final result  Manage expectations regarding outcome

Final Report  Parties have contributed to final result  Legitimate interests have been considered  Most economic alternative  Based on objective criteria