April sees the publication of a new form of contract specifically for big, complex projects. It’s claimed to be the first of its kind, anywhere in the world. Keith Pickavance explains why we need it.
For the past 20 years I’ve done nothing but deal with time-related claims on major projects, things like a railway in Western Australia, a gas pipeline in Peru, a road in Hong Kong, and hospitals in England.
And when they go wrong, the impact is devastation.
The UK’s Wembley Stadium destroyed a major company, ruined several shareholders, put off the FA Cup for 18 months, and cost the FA £40m plus. It was an absolute disaster.
At the Scottish Parliament, £150m was paid in compensation for prolongation alone. That would have built a major hospital.
When I talk to people about this, someone always says: "But this never happens to me, my projects are never delayed!"
Let’s look at that. We did some research back in 2007 about the way the industry manages time.
Of the 2,000 projects we studied, more than 900 finished pretty much on time. But when we looked closely we found that they were simple things like petrol filling stations, repetitive housing, school classrooms, single-storey buildings – in a word, nothing you couldn’t manage intuitively.
If you’re going to build something like this, you need more than intuition, says Keith Pickavance
When we looked at things like petrochemical plants, airports, prison buildings, hospitals, the completions on time dropped to below 20%, and nearly 60% of them were six months late, or more.
What’s the difference? They are big and complicated, and you can’t manage them intuitively.
We also looked at the sort of contracts these big projects used, and there was a wide range: partnering, design-build, EPC, construction management, management contracting. But the type of contract made not the blindest bit of difference in the incidence of delay.
The problem is that all contract forms currently available across the Western world have exactly the same formula for handling the risk of delay: the employer carries the risk, the contractor has the tools to manage the risk, but if the contractor doesn’t manage the employer’s risk the contractor is given more time and more money, intuitively assessed by the contract administrator, based on information provided by the contractor.
It’s a basic formula that goes back to the first standard form of contract published by the Society of Builders (forerunner to the CIOB) and the RIBA… in 1871!
It’s a blind spot that has gone undetected and unresolved for 142 years.
Now, some contractors do competently manage the employer’s risk, mostly on small projects where they want the relationship to continue.
But on major projects, especially where they’ve been screwed to the ground on cost, they see this blind spot as a god-given opportunity to make a profit, which sometimes it is. The fact that it often bounces the wrong way and destroys them is forgotten.
So there’s no way under contracts now, any of them, for the employer to manage his own risks. He can be given a notice saying there is a delay, but there’s nothing he can do with that notice except ask the contractor: how much more money and time do you want?
Under the current regime,Â completion on time is in the hands of the gods.
So what’s new about this contract?
Everything, but if I were to boil it down to one thing, I would say: transparency.
In this contract the contractor must produce all his major time management tools and materials, electronically, in the software in which they were created, so that everybody knows what the state of play is at any given moment. (Even as I write this I almost can’t believe this is a novel thing in our industry.)
Furthermore, this information must be accurate, up to date, cogent and of a high quality. In all standard forms now, the quality of programming doesn’t even get a mention.
That’s fine if all you want is a bar chart against which you can see by how much you’ve missed targets. But if you want to use the programme as a predictive management tool that will tell you the consequences of the decisions you make, you’re out of luck.
Now, most people use the programme as a claims tool, not a management tool.
I was involved in a very large claim on a $1.2bn road project in Hong Kong. The claim was around $1.5bn. When we got hold of the contractor’s programme we found over 600 errors in it, which more or less prevented it from being used for anything at all. It was useless.
This contract also requires the contractor to keep progress records. Does this sound revolutionary? It is. There isn’t a single contract in the world that requires the contractor to keep progress records.
In the research we found that less than 50% of contractors keep any records at all. Less than 5% keep any cogent records. And none keep them on a database from which you can sort, search and retrieve the facts of delaying events.
And we wonder why big jobs go wrong!
This isn’t a contract for everybody. All the other contracts available are for everybody. This is for the big players where the result of getting it wrong is devastation.
Keith Pickavance is the author of Delay and Disruption in Construction Contracts. He is a Consultant Executive with Hill International and a Past President of the CIOB. The CIOB’s Complex Projects Contract is due to be published in April 2013. For further details, visit www.ciob.org.uk/events/introduction-complex-projects-contract.