Advantages and Drawbacks of Various Approaches for Owner – Contractors Collaboration, and Key Success Factors for Delivering Complex Projects

Complex industrial projects increasingly require the contribution of a number of contractors, coordinated by the owner. Due to the imbrication of those contributions, strictly and solely focusing on the application of bilateral owner-contractor contractual terms is not generally conducive to successful delivery and can generate substantial disputes and delays. A number of models have been tested globally to address this issue. Our new White Paper 2024-08 ‘Effectively Delivering Complex Industrial Projects: Advantages and Drawbacks of Various Approaches for Owner – Contractors Collaboration, and Key Success Factors’ exposes what are those models and their advantages and drawbacks.

Large complex industrial projects increasingly require collaboration between owner and contractors to be successful by managing interfaces successfully. A number of contractual setups have been used over time, some being more adapted to certain situations. However they have had various success.

In the White Paper, the following setups are discussed in detail in terms of advantages and drawbacks:

• One-to-one contractual setups with incentivisation on project overall result
• Owner fostering the creation of a JV of contractors with the task of coordination delegated to the JV
• Forms of contract requiring the availability of a dispute board with independent assessors
• Collaboration agreement between all parties involved in the project, focused and including incentives based on collective project success, on top of more conventional one-to-one contracts focusing on individual performance
• Alliances (in particular in UK and Australia) whereby the owner and the contractors work together as a single integrated entity

In reality, success will depend more on softer aspects related to personal emotional engagement of contributors to the project. An early engagement at the right levels of all organisations involved, through structured integrated team and governance approaches, as well as a longer term view on the benefits of collaboration, are key success factors to be investing in from the onset of the project.

Read our new White Paper 2024-08 ‘Effectively Delivering Complex Industrial Projects: Advantages and Drawbacks of Various Approaches for Owner – Contractors Collaboration, and Key Success Factors’ to understand better which setup is more suited to your project, and how to implement it in the most effective manner.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-08_effective_owner_contractor_collab_v1.pdf

How to Setup a Proper Project Management Capability within an Owner Organisation

Setting up and adequate owner organisation for large, complex capital projects can be a challenge for organisations that do not execute such projects regularly or are faced with projects of an unprecedented magnitude and complexity. It is a transformation journey that needs to be conducted in a time-bound manner, in a context of very significant business impact. Based on our experience supporting owners through this journey, our new White Paper 2024-07 ‘How to Setup a Proper Project Management Capability within an Owner Organisation’ provides a structured approach to this challenge.

Establishing a competent and adequate owner team for capital projects is a journey that must start early during project definition. It will involve substantial investment for the organisation, hiring of experienced project professionals, and investment in specific infrastructure. A successful setup also requires sufficient awareness by senior executives to ensure the necessary steps are taken in a timely manner. It must be led like a transformation project around a roadmap agreed with all relevant stakeholders and provided with the adequate budget and governance. It is an investment, and this has a high return on investment on the actual success of the project: it should be considered as such, and anticipated as needed.

As a rule of thumb, the owner team expenditure should represent about 2-3% of the overall Capex for project execution (for the core team only, not counting on-site quality control technicians or similar expenditures directly linked with execution). As an example of the application of this ratio, for a 1 B$ Capex project executed over 3 years, this thus represents typically about 20-30M$ or 7-10M$/year or about 60-90 professionals. For the project development phase, the percentage will higher, with the team building up progressively to the execution size. Organisations with limited experience in large capital projects are often astonished by the team size required by this rule of thumb, but we see it as necessary.

Read our new White Paper 2024-07 ‘How to Setup a Proper Project Management Capability within an Owner Organisation’ to understand better the challenges involved and how to overcome them.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-07_journey_setup_PM_orga_owner_v0.pdf

How Contingency Calculation Is Different Before and After the Final Investment Decision

During a project development phase, estimating uncertainty will typically decrease as project maturity increases. At the same time, the estimates will include some contingency. What are the expected levels of uncertainty and contingency, and how to evaluate them in a mutually exclusive manner? Why is the approach different from the project execution phase? Our new White Paper 2024-06 ‘Managing Contingency and Uncertainty During Early Project Estimates: How Contingency Calculation Is Different Before and After the Final Investment Decision’ delves into more detail on the issue of contingency and uncertainty evolution during project development, and the differences with project execution.

During the project development phase, the uncertainties need to be considered carefully, based on experience, to ensure that expectations are managed as to the final estimate at Final Investment Decision. The contingency element included in the base estimate must be focused on identified risks, and the uncertainty element estimated separately based on project development stage and benchmarks.

At this stage, it is important that the elements included in both uncertainties and contingency are mutually exclusive, to avoid double dipping.

When in execution phase, contingency generally includes both elements of discrete risks and more systemic risks and uncertainties, therefore the basis of calculation will change. This is not always fully understood and needs to be carefully communicated to the decision-maker to make sure the project remains well protected against unexpected events.

Read our new White Paper 2024-06 ‘Managing Contingency and Uncertainty During Early Project Estimates: How Contingency Calculation Is Different Before and After the Final Investment Decision’ to better understand the definitions and usage of uncertainties and contingency at various stages of the project.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-06_contingency_vs_uncertainty_v0.pdf

Benefits and Limitations of Project Modularity – Towards a Trend of Facilities Built of Smaller Components produced in Series

Modularity and the series effect are key success factors for large industrial projects. They improve performance, reliability, reducing the likelihood of dramatic failures. This concept is discussed in the book ‘How Big Things Get Done’ by Bent Flyvbjerg and Dan Gardner. It is leading to significant business model transformations in some industries. In our new White Paper 2024-05 ‘Benefits and Limitations of Project Modularity – Towards a Trend of Facilities Built of Smaller Components produced in Series‘, we explore the advantages, drawbacks and limitations of this approach.

We believe that it is a definite trend that industrial facilities will be designed to be increasingly modular, which has the benefit of avoiding excessive process scalability concerns. When possible, the combination of modularisation and standardisation can be a major driver of project performance and project delivery reliability.

However, this approach is not always applicable or cost-effective and also comes with drawbacks that need to be carefully considered in view of the circumstances of the project. Furthermore, the multiplicative nature of series projects can create significant variances in case of poor estimating of time and cost for the individual item.

Modularisation and standardisation are a trend that requires higher level of reliability and quality of the project management processes, and greater maturity of the organisation, in all aspects of project management and industrialisation. This needs to be taken seriously upfront to be successful in these modern industrial approaches.

In our new White Paper 2024-05 ‘Benefits and Limitations of Project Modularity – Towards a Trend of Facilities Built of Smaller Components produced in Series‘, we explore in detail what are the key drivers and success factors leading to improved performance through modularisation and series effect.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-05_project_modularity_v0.pdf

Why It is Essential to Understand the Impact of Forgetting Quantity Allowances When Buying Material for Industrial Projects

Recent PVD experience highlighted the need to remember that there is a substantial difference between the quantities that are produced by the designer and those that need to be procured by the project. It affects both the cost forecast and the efficiency of construction if insufficient quantities have been ordered. Our new White Paper 2023-11 ‘Understanding the Impact of Forgetting Quantity Allowances When Buying Material for Industrial Projects’ reminds some basic rules about bulk quantities for industrial projects.

Inadequate estimation of quantity allowances can lead to either ordering insufficient, or excessive material. For the design related allowances, it may also affect weight control, which in certain instances is an essential parameter for infrastructure performance (floating infrastructure, modules that need to be heavy-lifted, seismic calculations etc).

We still sometimes (too often) find projects that completely forget to include allowances on top of the design software material quantities, which leads to lacking material when the project reaches 70-80% progress, with substantial consequences in terms of cost and reputation.

Bulk material ordering is too often not taken sufficiently seriously in project planning, maybe because it looks less noble or urgent than complicated equipment procurement. Still, inadequate quantities ordering may lead to significant consequences.

Projects must fully understand the difference between designed, erected and procured quantities and the ratios between those quantities to adequately forecast material cost and ensure that there is no stoppage of the project construction due to lack of material. Less mature organisations may lack precise allowance ratios based on experience or forget to apply those altogether, leading to situations with potentially very damaging consequential impacts, in particular when bulk material is missing while the construction team and the site are mobilised. Discover more in our new White Paper 2023-11 ‘Understanding the Impact of Forgetting Quantity Allowances When Buying Material for Industrial Projects’

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-11_forgetting_quantity_allowances_v0.pdf

Why is There a Need for Owners to Produce End-of-Development Phase Reports?

When supporting owner clients, we are often challenged over the need to develop full reports at the end of project development phases (such as scoping, preliminary feasibility and detailed feasibility). Still, we do insist on the production of those reports. Our new White Paper 2024-04 ‘Why is There a Need for Owners to Produce End-of-Development Phase Reports?’ explains why it is important to invest the time in producing those comprehensive reports.

When an owner develops a project, a gate-based process is generally applied with key milestones where the project maturity gets reviewed and go/no-go decisions are taken on the project.

At that occasion it is common practice for the project development team to produce a comprehensive report describing the current maturity. This report generally contains an executive summary, and detailed chapters covering all aspects of the project, technical maturity, understanding of project environment in its wider sense, and preparedness for the next project phase.

However, producing such a report is quite an onerous and time-consuming process and we are often challenged on the need to produce such a deliverable: would it not be sufficient to show the set of available deliverables from the various studies that have been conducted during the last project development phase in a PowerPoint summary presentation?

If the project team skimps on the production of the report, and this is accepted by project governance, we have observed the following major consequences:

• Consistency of all the studies performed is not verified, leading to an unsound basis for future studies,
• Lack of assurance that estimates are all based on the basis of a consistent set of assumptions, and that their uncertainty level is consistent across the board,
• Possible blind spots in the value chain of the project either in execution or in terms of project scope, and in the risk analysis of the project
• Frequent lack of maturity of the project preparedness for the next phase (as this is generally not part of the natural deliverables of the previous phase).

We really recommend owner teams to take the time and effort to step back and produce comprehensive reports of the project maturity status at the end of each project development phase, and in preparation for the decision milestones.

It is time that will be well spent taking a high level, systemic view of the project, ensuring consistency across the board, and possibly questioning some assumptions. In addition to ensuring a better project maturity at the milestone, it will feed the next project phase with the right objectives and activities to make the project more successful. Discover more in our new White Paper 2024-04 ‘Why is There a Need for Owners to Produce End-of-Development Phase Reports?’

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-04_why_development_milestone_reports_v0.pdf

How Logistics is a Major but Underestimated Contributor to Project Risk

Based on our experience consulting for large, complex industrial projects globally, we find that logistics is a major source of disruption to projects, while not being identified as such in most risk assessments and project organisations. In our new White Paper 2024-03 ‘How Logistics is a Major but Underestimated Contributor to Project Risk’ we investigate this issue, why it is underestimated, and what can be done to address effectively this risk area.

In our experience, there are roughly two different categories of logistics risks: loss and damage during transportation to site, and on-site logistics driving erection productivity.

Loss and damage during transportation is much more prevalent than generally considered. In a dozen years’ experience as project consultants on major industrial projects, we can’t count projects that have been put in jeopardy (or have been very closely jeopardised) because of ships sinking, containers being lost at sea, lifting mishaps, out-of-size convoy trailers encountering bridges and other obstructions… resulting in the damage of key pieces of equipment requiring long durations for replacement. The consequential impact of such events on projects can be significant, orders of magnitude more than any compensation by insurance of the actual event.

Worksite logistics from lay-down and prefabrication areas to erection areas is a major driver of on-site productivity. While in this case damage appears to occur less frequently, the general organisation of logistics on the worksite is often under-analysed resulting in major project impacts in terms of erection productivity and schedule. Often, the erection teams are blamed for productivity shortfall while the issue may actually be more due to the logistics arrangements that create bottlenecks or do not deliver material in a way that is easily usable by erection teams. Productivity issues during erection where large teams are mobilised on site have very significant impacts on project cost and schedule.

Logistics is an underestimated area of project performance risk, and it comes to play much more frequently than estimated in large, complex, international industrial projects. This applies both to off-site logistics and to on-site logistics feeding erection. As logistics is considered a secondary function it often does not receive adequate attention during the planning and risk mitigation assessment stage. Our recommendation is to increase this level of attention by mobilising experienced professionals early in the project and providing them with the means to effectively control the key critical points in the project logistics setup. Discover more in our new White Paper 2024-03 ‘How Logistics is a Major but Underestimated Contributor to Project Risk’

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-03_logistics_major_risk_area_v0.pdf

Why it is Important to Rationalise Procurement Documentation in Large Complex Industrial Projects

On large projects, the documentation provided to support procurement can often be extensive. The large number of documents produced by different originators can sometimes result in contradictory requirements, are often not rationalised, and may become unmanageable by smaller suppliers This is often a blind spot of client organisations that rely on different subject matter experts to provide their requirements. In our new White Paper 2024-02 ‘Why it is Important to Rationalise Procurement Documentation in Large Complex Industrial Projects’, we investigate closer this issue and what can be done to address it.

Documentation sent to prospective and chosen suppliers will generally include a set of general requirements and specifications, and a set of specific requirements and specifications for the product or service being acquired.

Sets of general requirements and specifications can sometimes be extremely extensive, covering many areas starting with safety, quality, general technical specifications, logistics and delivery, etc. The owners of those specifications are internal technical authorities on the various subjects. This set of documents can easily represent thousands of pages, in particular if the client has significant project experience in many different situations. Being general requirements not everything is applicable to the particular case, nevertheless it is often easier for the client organisation to just send over the full body of general documentation. In certain cases, as various sections will have been written by different departments of the client organisation, internal consistency is not assured even within the general specifications.

Specific requirements and specifications will be based on the specific engineering performed by the project. It may complement or even contradict the general specifications. However, for expediency purpose, it will often simply be sent on top of the general documentation, with a statement that in case of contradiction, the specific (or the most stringent) takes precedence. The rationalisation of requirements is left to the supplier, which may not have the resources or capability to do so.

The supplier will therefore receive thousands of pages of general specifications, most of which are not really applicable, and hundreds of pages of specific requirements, some of which may be contradictory and with no clear process for deciding what is really applicable.

Lack of rationalisation of requirements and specifications, combined with their natural inflation over time, is a major impediment to productivity in a world where the number of requirements tends to grow significantly due to regulatory evolution and search for more complicated functionalities. Significant effort has to be taken at organisational and industrial branch level to rationalise them and ensure that they are transferred and understood by suppliers. This is still often a blind spot for many organisations that must be identified and addressed. Discover more in our new White Paper 2024-02 ‘Why it is Important to Rationalise Procurement Documentation in Large Complex Industrial Projects’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-02_procurement_docs_rationalise_v0.pdf