How to Adapt to an Increase of Compliance Assurance from Public Owners

We observe through our interventions an increase in compliance assurance from public and semi-public owners. This implies more formality in demonstrating compliance to requirements and the approval of possible deviations, as well as delays regarding the treatment of contractual claims. This compliance activity is not always properly planned and implemented, making it an increased burden on the teams. In our new White Paper 2022-02 ‘How to Adapt to an Increase of Compliance Assurance from Public Owners’ we discuss the reasons for this evolution and what needs to be anticipated to minimise the impact on project execution.

Societal evolution requiring more accountability from public and semi-public institutions is the underlying reason for a significant increase of compliance assurance activities by the project owners. This increased assurance activity is however sometimes compounded by bureaucratic developments and the expectation by owner staff to avoid any possibility of blame. This leads to significant efforts to document decisions, develop and formalise objective assessment criteria for all important decisions to be taken on projects (from contract awards to the acceptance of changes, or any decision impacting schedule, cost or quality). This in turn often creates additional delays in taking decisions because of the need to document them and to ensure that the decision file is watertight and can support audit scrutiny; in addition, decisions are often expected to be taken as a group during steering committees to ensure proper alignment.

While there had always been a substantial difference in actual bidding and contract management approaches by public and semi-public owners in particular with regard to competition rules, an evolution towards increased compliance requirements is quite noticeable in the last few years in developed countries and marks an increased difference with private owners in the way projects are run. Compliance requirements do increase as well for publicly listed private owners but are generally not significantly affecting project execution.

For all the aspects mentioned above, it is essential for the contractor to plan and prepare in advance a strategy to support compliance. This includes particular attention to agreeing with the owner how compliance is expected to be proven and setup the required systems and processes for timely collecting all the expected documentation and proofs. A requirements management system can often be a good solution to support those needs.
In addition, specific cost and schedule management strategies must be put in place, which may require a specific way of setting up project schedules so as to accommodate the specific compliance needs, for example in terms of owner response time on certain aspects.

Compliance requirements for public owners have increased significantly over time and this has led to substantially increased hurdles for the proper execution of those projects. Increased documentation requirements, less flexible specifications and most importantly, longer and delayed decision-making, do affect projects. Those issues need to be taken into account and anticipated during project planning; however, they still may significantly affect projects particularly when unexpected events happen that require to rebaseline the execution plan. Contractors for public owners need to be fully aware of this trend and its implications and anticipate accordingly at project setup. Read our new White Paper 2022-02 ‘How to Adapt to an Increase of Compliance Assurance from Public Owners’!

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/2022-02_impact_increasing_compliance_public_clients_v1.pdf

Why the Owner Always Takes the Most Risk in an Industrial Project

During our work with project owners and financers, particularly those that have a limited experience and low maturity in terms of project management, we have realized that they don’t always understand their actual risk associated with industrial projects. Moreover, they often live under the delusion of having transferred their risk to a turn-key contractor. In our new White Paper 2022-01 ‘Why the Owner Always Takes the Most Risk in an Industrial Project’ we re-establish that most of the risk always lies on the owner side, and therefore that it is its own responsibility to setup an adequate organisation to manage this risk proactively.

Although the owner can only transfer to contractor a very small proportion of the actual risk it takes, owners and financers too often live under the illusion (or delusion) of having transferred their risk to a turn-key contractor and they tend to minimise involvement into risk management activities. This is particularly the case of financers with limited technical knowledge that often live under the delusion of risk transfer by requiring all contracts to be turn-key lump sum contracts. Lump sum contracts don’t fare better in terms of project execution performance than other contract forms; any change is an opportunity for a claim from the contractor that will inflate cost; and contractors may fall prey to the temptation of diminishing quality to save costs which may affect the long-term reliability and operability of the facility if not properly monitored by the owner during project execution. Therefore, turn-key lump-sum contracts are not a panacea, and they are actually only usable for mature technology and well-known project circumstances.

In general, risk should only be sustainably transferred to another party if that party is much more competent or capable in addressing the risk. In reality, due to competitive pressures or market habits, risk can get transferred and accepted by contractors that may not be much more able to manage it than the owner. When the parties to which the risks are transferred are contractors, they will only be able to bear the risks to a limited extent which is much less than the impact of the risk on the owner. Therefore, risk transfers only work when the risk remains limited but always fail when it grows beyond a certain proportion. Even when the risk has been accepted contractually by the contractor, if such a risk were to occur, the contractor could potentially go bankrupt or be forced to default so as to limit the exposure to the cap. In either case, the owner would have to change contractor, incur substantial delays, potential quality issues and substantial costs.

Ideally, the owner would hope to transfer risks that can be controlled as much as possible to other parties. Unfortunately, the owner will in all cases continue to bear a large majority of the risks associated with the project. Therefore, the owner must implement a thorough risk management process covering all types of risk from its perspective. This requires resources and specialist personnel, since it remains deeply necessary to really understand the amount of risk taken and to monitor and manage it appropriately. Read our new White Paper 2022-01 ‘Why the Owner Always Takes the Most Risk in an Industrial 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/2022-01_how_owner_always_takes_most_risk_v1.pdf

How to Change the Main Contractor on a Problematic Project

Struggling projects sometimes require a change of the main contractor. This is feasible although it will have consequences on the overall project performance. However, having the possibility of this choice requires a number of precautions from the project onset. In our new White Paper 2021-12 ‘How to Change the Main Contractor on a Problematic Project’, we investigate in detail under which conditions swapping the main contractor can be possible and beneficial.

Sometimes a contractor will deliver a much weaker performance than expected. Consequences can be significant in particular if there are possible interface issues with other contractors (who will of course claim for delay, possible disruption and change of sequence and thus additional cost waiting for the last contractor to deliver).

From time to time, it is thus necessary for the owner to descope some part or an entire contractor remit and transfer the scope to another more competent or available contractor in the midst of project execution. This is a major event that has to be prepared carefully, if possible, by a dedicated discrete taskforce operating in parallel to the project implementation team.

This decision will require a lot of effort and be necessarily overall more expensive and time consuming than the original plan. However, it is sometimes the only way to complete the project in an acceptable span of time and budget.
This transition can only happen at certain definite milestones of project execution which correspond to a transition between activities.

In order for the owner to be in the best negotiation position in this occurrence, certain conditions need to be fulfilled in terms of contracts, document control systems, project control and procurement.

Descoping a contractor is a rare occurrence but may be necessary depending on the circumstances. We have witnessed successful occurrences, therefore it needs to be considered as a viable strategy. Certain conditions need to be fulfilled, in particular a good grip of the owner on its documentation and project control, so as to be able to pursue the project in good conditions. In general, it is important for the owner, from the beginning, not to place itself in a position to be taken hostage by the contractor. While de-scoping and re-awarding part of the scope will generate substantial work and have consequences on the project, it can be better than sticking with the original plan and this should always remain in the mind of the owner as an option.

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/2021-12_changing_main_contractor_v1.pdf

How Contractor Capability Should Be The Main Driver for Project Contracting Strategy Development

When it comes to developing a contracting strategy for a project, owners would like to have a minimum number of contractors to avoid having to deal with interfaces. At the same time, contractors often wish to expand their scope as an opportunity for development. This often leads to overextended contractor scope compared to their competency, creating delivery challenges for the project. In our new White Paper 2021-11 ‘How Contractor Capability Should Be The Main Driver for Contracting Strategy Development’, we explore this issue, showing that it is more important to focus on actual contractor capabilities even if this leads to a larger number of contractors that need to be coordinated.

Contractors that do not master their scope are significant threats to the actual execution of the project and its success. The owner will need additional supervision and could find itself in the need to guide or even get involved in the actual delivery to compensate for areas of contractor weakness, while not being organised and resourced to do so.

If there was a single rule to follow in terms of contractual strategy, it would be that it is essential to hire contractors on scopes for which they are competent (and their competency is proven by their track record). Hiring contractors on scopes for which they are inexperienced is a sure recipe for failure.
Competency includes a proven track record in terms of HSE, and the actual demonstrated usage of best-in-class HSE practices, which should be a decisive criterion. It is also important to understand that the notion of competency when it comes to the construction phase also requires adequate experience in the specific country, its rules and habits; and of the site conditions (for example, arctic projects require experienced contractors for those specific climatic constraints). In brownfield projects, competency also includes experience working on the specific site under site requirements, therefore long-term maintenance and improvement contractors are often the most competent for the tie-ins of new units.

The contractor competency rule would look quite straightforward and reasonable enough however experience shows that it is too often not followed, often due to various stakeholder pressures such as financing or project governance. Still, experience shows repeatedly that it is better to coordinate a number of contractors competent on their scope rather than to over-extend scopes beyond their abilities. Punctual consortiums as a way to push down the coordination activities are not either a good solution if the consortium participants don’t have the experience of working together or a proven coordination capability. At the end, the contracting strategy will be defined by the actual contractor market at the time of launching the project. Read our new White Paper 2021-11 ‘How Contractor Capability Should Be The Main Driver for Contracting Strategy Development’ to understand more about this essential issue.

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/2021-11_how_contractor_capability_key_contracting_strategy_v1.pdf

How to Map a Project Contractual Strategy

Following up from our White Paper 2021-09 ‘Why It Is Important to Distinguish Contracting Strategy and Commercial Approaches’, we share our new White Paper 2021-10 ‘How to Map a Project Contractual Strategy’ an effective way to map a project contracting strategy. In particular, this technique allows to readily identify scope gaps while showing which interfaces need to be dealt with.

A project contracting strategy – i.e. how the scope is split between entities and contractors, is an essential element of project maturity and project execution. Specific aspects include making sure the entire project execution scope is effectively covered by the strategy and identifying the key interfaces that will have to be managed by the project team.

Too many projects start with a contracting strategy that is not comprehensive or underestimate the amount of coordination work that will have to be carried out by project management.

We have found that the contracting strategy is not often represented in a way that provides an easy overview. We propose a fairly simple way of representing such a contracting strategy, which is a table showing horizontally the scope breakdown (as per the Product Breakdown Structure) and vertically the various project phases. Our new White Paper 2021-10 ‘How to Map a Project Contractual Strategy’ provides a few examples.

Mapping the project contracting strategy is a very effective way to make visible the issues of that strategy. It is a technique we often use in our consulting interventions and project reviews since weaknesses of the contracting strategy often become self-evident when the exercise is performed. Try it out on your 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/2021-10_how_to_map_project_contractual_strategy_v1.pdf

Why It is Important to Distinguish Contracting Strategy and Commercial Approaches

A confusion often arises between the scope covered by a contract and the associated commercial approach. Specifically, EPC (Engineering – Procurement – Construction) contracts are not always lump sum! In our new White Paper 2021-09 ‘Why It is Important to Distinguish Contracting Strategy and Commercial Approaches’, we aim to clarify that issue as overcoming this preconception often opens the field of possibilities in terms of contractual strategy.

It is important to realize that both dimensions of contract scope and commercial approach are quite independent. Therefore, in particular, an EPC contract is not necessarily lump sum (which is often presupposed when using the “EPC turn-key” terminology).

It is quite interesting to explore the possibilities offered by this dimensional space and examine when combinations of scope of commercial approach are relevant. This is of course a simplified vision as a single contract can contain several commercial approaches for different sub-scopes. In the following analysis it should also be reminded that the choice on the scope dimension will generally be very dependent on the actual track record and capability of the contractor, and not only on the scope to be performed in an ideal approach.

Thus, the recognition of the two dimensions of scope and commercial approach opens the field of possibilities particularly for situations that include innovative technologies, or for contractors that have to work closely together because of a significant amount of interfaces and interference (for example, for projects involving very dense and compact spaces such as nuclear, submarines etc.).

Scope and commercial approach should always be considered to be different dimensions that can be combined to suit the particular situation of the project. In a single contract, different sub-scopes can also be subject to different commercial approaches. This realization opens the door to contracting strategies that are better suited to the specific challenges of the project. Read our new White Paper 2021-09 ‘Why It is Important to Distinguish Contracting Strategy and Commercial Approaches’.

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/2021-09_contracting_strategy_not_commercial_strategy_v1.pdf

How To Setup An Integrated Owner / Main Contractor Team When It Is Unavoidable

While normally owner and contractor teams work separately with various levels of possible collaboration, in some instances considering a fully integrated owner / main contractor team is deemed more favourable. However, this solution is fraught with specific risks that need to be considered adequately. In our new White Paper 2021-05 ‘How To Setup An Integrated Owner / Main Contractor Team When It Is Unavoidable’ we investigate what are the instances that would justify such a setup and what are the specific risks and issues that need to be addressed.

Fully integrated teams respond to the following criteria:

• Full colocation of the teams in the same project office
• While there is a contract with the main contractor with a specific scope, the project organisation chart mixes owner and main contractor staff without specific scopes identified for one organisation
• Owner and main contractor use the same information systems for document control, project control, procurement etc. in a fully integrated and collaborative manner (there is no duplication of systems and document transmittal).

Such an integrated setup is quite rare because the collaborative nature of project delivery will then tend to invalidate most liabilities that can be imposed on the main contractor as to its delivery performance.

The White Paper explains what are the benefits and drawbacks from such a setup for both parties. In any case, in the situation of an integrated team, there are some minimum steps that need to be taken by the owner to protect itself in particular with regard to the main contractor’s performance and possible future claims.

Integrated team setups between owner and main contractor are often attractive but are fraught with risks. They should be reserved to special situations where it proves to be unavoidable. The main issue is that it removes accountability of the main contractor as to the performance of its project scope. Some minimum measures must be taken by the owner to remain in a reasonable position in the event of claims or major issues during project execution. The most important part is to maintain trust at the governance level to ensure that there is a proper alignment of interest and objective between the owner and the main contractor.

Read our new White Paper 2021-05 ‘How To Setup An Integrated Owner / Main Contractor Team When It Is Unavoidable’ to better understand how to manage these situations.

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/2021-05_Integrated_Owner_Contractor_teams_v0.pdf

How to Approach Project Portfolio Management

Project portfolio management is a concern for organisations that manage a set of projects sharing common resources. This situation requires a specific portfolio-level approach. However, different grades of inter-dependencies between projects will call for different approaches. Our new White Paper 2021-04 ‘How to Approach Project Portfolio Management’ exposes the specifics of portfolio management and what are the best ways to manage this situation.

A project portfolio is not the same as a program. In a program the set of projects all contribute to a single goal, while in a portfolio the set of projects each aim at a different objective, but they share certain resources and constraints. For example, developing a new aircraft of defence system is often referred to as a program, composed of multiple projects or sub-programs that have to converge toward a single objective; however, an owner or a contractor manages a portfolio of projects for various purposes or on various locations that share certain human and equipment resources.

Interdependencies between projects in a portfolio can be of different natures and of various grades of intensity.
The basic interdependencies between projects relate to certain rare resources, that have limited capacity and cannot be easily duplicated or sourced in an alternative manner. These key resources are often specialised disciplines or trades; or specialised equipment. Common examples are certain expert resources, specific qualification laboratories or analysis equipment, or specialised construction or transportation equipment.

Approaches to portfolio management will greatly depend on the grade of interdependency.

• For limited interdependency (limited number of well identified scarce resources used across the portfolio), developing and updating a specific schedule for those scarce resources will generally be sufficient.
• For higher grades of interdependency there is no other solution than to develop an integrated schedule of the entire portfolio, covering all projects and identifying specifically the activities linked to the shared scarce resources and using resourcing techniques to optimise their usage over time.

Irrespective of the level of portfolio interdependency, there are also certain rules that appear to apply. They are derived from the critical chain theory.

When scarce resources are needed across various projects, proper project portfolio management can have a substantial impact on the overall performance of projects and the organisation. It is important to understand the grade of interdependency – how portfolio level issues may affect individual projects’ performance – as it will inform what is the adequate portfolio-level governance, tools and processes. Solutions are different for low and high interdependency. In all cases a proper grasp of portfolio-level issues is required to effectively drive the entire organisation performance.

Read our new White Paper 2021-04 ‘How to Approach Project Portfolio Management’ to understand better how to address portfolio management challenges.

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/2021-04_Portfolio_mgt_WIP_v0.pdf

What Are Key Project Control Performance Indicators for EPC projects?

With the objective to properly control integrated EPC projects, adequate Key Performance Indicators need to be computed and followed by Project Control to monitor the effective performance of the project. In our new White Paper 2021-03 ‘What Are Key Project Control Performance Indicators for EPC projects?’ we will describe which key indicators we believe should be tracked, with a specific focus on transverse indicators across disciplines.

When it comes to EPC projects, beyond KPIs that are specific to a particular discipline such as productivity measurements or progress measurements, transverse KPIs are useful to understand the actual overall performance of the project as a whole. Such KPIs can be classified in 3 categories:

• KPIs transverse to several project control disciplines (cost, schedule & risk),
• KPIs transverse to several E-P-C-C chain disciplines (engineering, procurement, construction, commissioning),
• KPIs that are early indicators of performance issues.

Those KPIs are not complicated. However, they may not be straightforward to measure if the project setup has not accounted properly for the need to measure them, for example in terms of data coding to cross data from several sources in order to produce them at the required level of breakdown, or in terms of system in place to capture the specific data at project level.

The White Paper lists a number of such KPIs, like for example:

• The comparison of physical progress and cost progress
• Checking whether risk mitigation actions have effectively been costed in the project forecast
• Quantities of main key material
• Number of revisions of Approved For Construction documents
• Contingency utilisation
• Ratio of prepared available work packs for construction and commissioning

Read our new White Paper 2021-03 ‘What Are Key Project Control Performance Indicators for EPC projects?’ to know which indicators to monitor for the health of an EPC project. They are easy to implement and track, at various breakdown levels – provided their production has been anticipated in the data structures and data gathering processes. They give clear, straightforward indications on the actual health of an EPC project with a focus on consequential impacts throughout the entire EPCC chain. Most can be expected to be systematically reported in project performance 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/2021-03_key_PCM_KPI_EPC_v0.pdf

How Projects Should Move from Being Document-Centric to Data-Centric

Traditionally, projects are document centric. This applies to exchanges between parties or expected deliverables as well as to measurement of project management and engineering team progress. However, there would now be great benefits to move instead to a data-centric approach, where documents are only specific views of the underlying data. This approach would allow to fully benefit from the enriched information available, while assuring better consistency across the project. Our new White Paper 2021-02 ‘How Projects Should Move from Being Document-Centric to Data-Centric’ explores the potential benefits and the challenges for projects to move towards a data-centric approach.

Traditional project management revolves around documents. Document registers are setup that list all project deliverables; progress is measured based on document stages, while documents are being transmitted between parties and reviewed and commented. In traditional approaches documents are really the elementary piece of work that is managed throughout the project.

Modern projects produce vast amounts of data, some of which do find their way in a summarised manner in documents. There is a substantial loss of usefulness of data that is transferred in a document: loss of detail, loss of recoverability for other usage, transformations that may not be reversible; etc. The underlying datasets include a much richer information. A simple example is when 3D engineering models are transferred to drawings. The transfer is not reversible as it would be quite cumbersome, and probably incomplete, to generate the 3D model from the collection of drawings it has generated. Limiting oneself to the drawings implies a significant loss of data. In a wider view, it is very difficult to extract useful information from document control databases even if they have been properly setup and tagged.

There are still a few issues that prevent moving immediately towards a data-centric approach.

• Moving towards a data-centric approach requires a preliminary agreement on the data standards for exchange and data utilisation between all the parties involved in a project.
• The data structure and content must clearly respond to a specific purpose which also has to be defined in advance. For example, what is the aim at producing a “digital twin”?
• In data-driven systems, it is much more difficult to freeze the data, because the whole approach is to constantly upgrade the data model collaboratively based on new knowledge. It will therefore be difficult to freeze the data during a review period
• There are substantial benefits in writing summary documents and ensuring there is adequate consistency across all the different aspects to be considered. Therefore, data-driven approaches should not supersede completely the need to produce certain key documents that require strategic thinking

In projects the trend is definitely to move towards data-centric approaches because the traditional document-centric approach now appears to be too reductionist and an impediment to easy utilisation of the underlaying project data. The shift will certainly start on the technical and engineering side with enriched 3D models. The industry needs to overcome the issue of sharing and exchanging data throughout the value chain. The rest of project management will also certainly move to the data-centric approach, generating documents from data bases that will allow increased configuration control and improved usage of the data. This shift is still in its infancy but can be expected to become mainstream in the next few years.

Read our new White Paper 2021-02 ‘How Projects Should Move from Being Document-Centric to Data-Centric’ to better understand this underlying trend in project management.

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/2021-02_data_not_documents_v0.pdf