We have observed that failures in major construction, energy and infrastructure projects typically arise because of bad risk management at the outset, and its continuation throughout the project’s delivery, as well as disjointed and ill-considered responses to commercial and project delivery issues when they inevitably arise.
From our experience supporting the delivery of many major capital and infrastructure projects throughout the country and abroad, we have identified that successful and effective delivery of major projects requires a very specific approach to legal and commercial support.
If done well, it can have a transformative impact on the business of delivering major projects and their success (on time, on budget completion).
It requires a different approach at various stages of delivery of a major project.
Pre-construction
During the planning and setup phase, including delivery method selection and contracts formation, better and more strategic outcomes are achieved when legal, commercial, construction, engineering, HSEC and project controls teams are brought together in a structured and safe environment to collaborate for the benefit of this crucial stage.
This environment and co-ordinated workshop style creates a platform for the different functional groups to share lessons learned from previous projects and to participate in robust decision-making that lays the foundations for successful project delivery. This is because project/contract delivery method selection locks in the execution strategy and the content of the contractual documents taken to market sets the critical risk allocations on the project as well as the commercial tone for the project’s delivery. Correct decisions here have a material impact on project success – the opposite is equally true.
By facilitating the cross-disciplinary collaboration we mention above, we see robust decisions made and collective ‘buy-in’ achieved on the commercial and risk management strategies from the outset. This process arms the commercial and legal talent with a mandate for preparing and negotiating the contractual frameworks that align with the execution teams’ expectations (without it, alignment is seldom achieved).
The following are examples of some critical elements that require considerable thought during these early workshops:
- Tender process design (including bid list composition, timing of stages in the tender process including use of Best and Final Offer rounds, use or otherwise of ECI processes, specific tender deliverables to call for, project background brief content, infancy or maturity of design, technical complexities inherent in the execution method to seek competency responses from the market on)
- Contract delivery method and remuneration model selection responsive to the scope of work challenges, bid list composition, delivery team management style, preference and prior experience
- The use and design of simple and workable KPI schemes to incentivise the right behaviours, or a decision made to not include a KPI scheme at all
- The identification and isolation of contract package-specific risks, to be dealt with in the contractual documentation and during the tender process (often these are not the same as the typical project risk register lists, which are more macro in focus)
- The identification of project-wide risks or specific circumstances to be considered and dealt with in the contract and tender process (e.g. industrial relations, specific WHS challenges, unique site logistics constraints, accommodation and manning constraints, other project specific issues contractors need to respond to and deal with when executing the work etc.)
- Investigation into the status of the design of works and likely state of design at contract award versus IFC.
- Specific design or execution challenges that can be catered for via risk mitigation by the project owner (e.g. free issued logistics or company supplied items, transfer or early input from the preferred contractor).
Individuals on major project delivery teams come from varied backgrounds, having worked on prior projects, usually internationally. There is always a vast amount of collective experience and wisdom within a large project delivery team and it is a gold mine that must be tapped during the planning and contract formation phase. It is useful to explore collective understanding of:
- The market and a specific category of contractors’ preparedness for assuming risk;
- Each contractor’s likely strategy to control costs and maximise profit;
- Restrictions or controls which the principal should have in place to counter/minimise specific inherent risks in the particular contract package in question, taking into consideration the type and complexity of the work and the remuneration model selected;
- What has worked and not worked in the past on similar projects in similar commercial, political and geographical context;
- Areas where a particular contract could be ‘gamed’ by an overzealous contractor who is not aligned in a relationship sense with the delivery team and method; and
- Special considerations such as where the particular scope of work involves offshore pre-fabrication of major structural works or components, including quality assurance.
It is important to appreciate that in setting the context for this type of cross-group collaboration, there is never one ‘right’ answer or one oracle of everything. Framing the workshops and perspective of attendees through this lens creates safety to share ideas and greatly enhances the odds of success. Effective and co-ordinated extraction of cross-disciplinary insight for synthesisation and feeding into the project setup process materially increases the prospect of a successful project in our experience. It requires skills and experience to facilitate this process and do it well, along with an ability to shift gears between commercial, legal and technical mindsets and to extract just as much insight and wisdom from the introverts in the room as the extroverts.
Too often, projects proceed with key risk and delivery strategy decisions having been made independent of the actual project delivery team or declared by one person, with those decisions thrust upon the delivery team along with a mandate to deliver the project for the declared budget. Aside from failing to extract the best collective knowledge of the team who is now tasked with (and experienced in) delivery, this creates a lack of accountability and ownership, which can be disastrous when, inevitably, pressure is applied mid-project as issues are encountered during execution. During those tough periods, collective effort, teamwork, grit and a desire to come together and dig deep to succeed is necessary. This is much harder to foster when there is a lingering sense of disillusionment or genuine disagreement about the strategy adopted or lack of consultation about it from the outset.
During construction
Post contract formation, continued collaboration with different functional groups, along with specialised project delivery legal support, is vital to ensure that all of the good work carried out during the formation process (described above) does not go to waste.
In every common law, developed, western country, and every contract agreed with international arbitration governing dispute resolution provisions, the rule of law and contractual arrangements are key, despite the best of everyone’s intentions in never having to resort to them. Often the saying ‘we put the contract in the bottom drawer and never look at it again after it’s signed’ is a badge of pride worn by relationship-oriented contractors and project owners.
Unfortunately, if ever that ‘bottom drawer’ is reached for, it is usually because things have gone very bad and it is now far too late to avoid major project cost overruns or major time- and money-wasting disputes; this is usually the point when we are called on to help wade through a very complex dispute. It is complex not just because of the technical issues usually inherent in construction/infrastructure disputes but because of additional factual and legal complexity arising from the fact that the parties have conducted themselves inconsistently with their contractual bargains and this needs to be reconciled with the law and site records. This is never a cheap or simple exercise.
Instead, what is required to increase the prospect of success is something in the middle of the following two extremes:
- ‘never looking at the contract’ which completely stakes success on successful relationship management, people doing the right thing by one another and hoping nothing much goes wrong; or
- running the project as a death by a thousand cuts contract notice procession which completely evaporates relationships, destroys goodwill and eradicates the value of soft skills. These are the projects where all parties swear to never work with one another again.
Getting the balance right is crucial because the stakes are high, and the money involved is substantial for all parties. A close, transparent and supportive working relationship between the legal, contracts, commercial teams, and their close interaction and working relationship with the construction and project management teams, all reporting to the project director/senior leadership, assures this optimum balance is struck, and can avoid major disputes by keeping relationships healthy, forthright but fair and focusing all parties on the right project success goals.
Appropriate deference should be shown by the contracts, commercial and legal teams to the construction management and project management teams executing the works on the ground. Too often there is stark disconnect between the commercial, contract and legal functions on major projects and the reality of life ‘on the ground’ for the construction managers and project managers tasked with getting things built on time and to budget. This is avoided by deep and positive working relationships across the teams we mention above and by the lead commercial advisors spending time on-site with their colleagues to see and understand the challenges being faced; along with a healthy dose of pragmatism – a quality seldom taught, but instead learned from experience.
If our process is followed, when commercial issues do arise (and they often do) the quality of the relationship between the functions coordinated by our specialist legal and client side commercial teams drives sensible responses and informed escalation of issues to project directorship and leadership for decision making, ensuring:
- The commercial response is co-ordinated and proportionate to the risk it poses to the project success;
- Strict contractual responses are not blindly applied with the effect of obliterating goodwill, damaging relationships and escalating issues to unnecessary formal legal disputes;
- Collective experience and wisdom in commercial negotiation is brought to the table and deployed smartly to arrive at an acceptable outcome which is best for the project (which often rails against a strict contractual approach); and
- Appropriate commercial escalation triggers are identified and used early on to elevate matters ‘off project’ through both the Principal and Contractor organisations rather than letting matters deteriorate to a point of near no return on site.
If despite best of endeavours a disagreement or issue does arise which needs formal resolution, by adopting the above approach, the issues are already narrowed, properly documented, do not come as a surprise to either project owner or contractor senior leadership and can be channelled through a resolution process ‘off project’, saving time and avoiding considerable cost and distraction to the teams executing the works, which is essential for protecting the success of the project.
Completion
Closing out major projects is a fertile ground for innovation in our experience.
All major projects, whether successful, running over time or exceeding the budget (or both), are an excellent source of learning.
The challenge is that much of the intellectual capital required to harness the lessons learned from major capital projects resides in the heads of the talent who delivered the project and it is normal for these people to start leaving the project months before the ‘completion’ milestone is reached.
Further, when a project has not been successful there is a natural human instinct to not want to actively participate in a thorough review of the project’s delivery for fear of being attributed blame or being asked to provide feedback which requires having challenging discussions.
For these reasons identifying areas for improvement is not a well-designed or often completed part of the completion process for a major project or if there is a ‘lessons learned’ briefing, it is often reduced to a corporate briefing papers for internal corporate reporting purposes, as opposed to thorough collection of intelligible factual driven data and input designed for use on future projects. This is a major learning opportunity missed.
With advances in computing and technology, a central repository of cohesively ordered intelligence extracted from experienced project delivery professionals throughout and after each major project’s delivery could be developed and used in the engineering design, project delivery strategy selection and contracts formation exercises for future similar projects, helping to avoid repeating errors and capitalising on time-honoured wisdom.
Because projects involve large teams of people working together to tackle a challenging goal, success will always be most attributable to excellent people leadership and technical leadership, however leveraging prior experience in the form of prior lessons learned can serve to capture the already low hanging fruit of not repeating the same mistakes and benefiting from prior innovation/optimal decision making on similar projects and similar scenarios.
Capturing this low hanging fruit, is much easier than attempting to decipher the art of successfully leading high performing teams of the disparate groups of people who come together to deliver big projects (the other key driver for success). You only need to skim the years of research on the topic of leadership theory to know that no one has really nailed that magic formula yet. It remains the mysterious ‘you know it when you see it’ skill of exceptional leaders (many of whom have very different styles) that is hard to formulate and is the reason why excellent project directors and people leaders are worth their weight in gold.
The washup
There are many elements to successfully delivering major projects. They include satisfactory technical expertise across various fields of engineering, health and safety, planning, QA and construction/project management disciplines along with adequate prior experience in project delivery on similar projects as mandatory prerequisites, however most project teams have this or strive for it already.
What can make all the difference is insightful commercial and legal support that extracts and exploits the benefits of cross-disciplinary collaboration early on, is agile, realistic and nuanced in the approach taken throughout the project to resolving issues and administering commercial relationships and by taking the time to learn from lessons on other projects. Done well, this form of commercial and legal support proves a point of strategic advantage to project leadership teams, improves decision making in response to challenges, enhances the project leadership team’s ability to ‘read the play’ and preemptively respond rather than react to issues and increases the prospects of on time, on budget project delivery.