October 1, 2013 by DAVID BOWCOTT
Why are we so anxious to get started on our key projects that we are willing to forgo strong planning practices that will almost certainly improve our chances for success?
There’s a feeling that if we aren’t actually doing what we have set out to achieve, then we are wasting time. It seems most of us value action over planning.
We’ve all heard the saying “measure twice, cut once” and yet we seem to prefer measuring once and getting right to the cutting.
With all the great ideas I’ve seen come across my desk to effectively manage risk on the development and operation of an asset, none trump the impact that good pre-construction planning brings to a project’s success.
Procurement practices that are established with input from all key stakeholders, if followed, provide the greatest assurance that a project will go ahead according to plan.
Owners and their key stakeholders—like shareholders, taxpayers and debt—should all delve deeply into their procurement practices (or their investment’s procurement practices) to determine if they meet or exceed what is deemed best in class.
Here are a few areas to consider when reviewing your procurement practices:
Prequalification of Key Stakeholders: Have strong counter-party risk assessment practices prior to picking your team.Gone are the days when you should feel embarrassed to ask somebody to see information on how they run and finance their operations. Most progressive organizations welcome transparency and scrutiny in order to find new ways to improve. If the concern is confidentiality, there are practices and protocols that can be used to ensure that information will not be disclosed.
Design and Construction Collabortion: Practices that foster communication and transparency between your design and construction teams should be encouraged. Even better is finding ways to encourage collaboration and transparency between design, construction and operations. Don’t be afraid to implement a “no dumb questions” policy amongst stakeholders in all phases in order to uncover potential risks and find ways to manage them. Insurance and project finance data clearly shows when there is increased collaboration and transparency amongst the players in all phases of an asset’s life, the risk of claim (for insurance) and credit default (for project finance) decreases.
Design Clarity and Completeness: Design clarity and completeness correlates very highly with project execution and success. Dollars spent prior to construction on design and design clarity, are well worth their investment. This is particularly true for complex asset developments.
Risk Allocation: Quite simply, risks are best managed by those with the best ability to manage them. Once you’ve identified key project risks in all phases of the asset’s life, make sure you assess very carefully who amongst all stakeholders is best able to manage the risk. From there recognize you will have to pay for risk allocation decisions.
Contract Clarity: Once allocation decisions have been made, ensure they are transparently allocated through contracts such as design, construction, subcontracts, and operations and maintenance. Clear contracts make for clear responsibility — clear responsibility makes for limited risk of dispute.
Bid Process: We all have deadlines to make but sometimes we can increase the risk of failure when we place more value in deadlines than we do in clarity of scope. The lump sum bid process may lead to low-bids that on the surface look good, however, by virtue of the high-pressure process used, could lead to long-term unforeseen costs in construction and operations.
Planning Costs: Up front planning is a worthwhile investment in your project—but it costs money. If you choose to allocate those up front planning costs to those bidding on your project, don’t be surprised if some of the best and brightest shy away from bidding on your project. Thought should be given to the ideal split for pre-bid costs considering both the ability to provide you with most efficient pricing while ensuring you attract the best and the brightest from within the construction and operations community.
To improve your procurement process. Take the time to assess your procurement processes and bring in key stakeholders to seek input so you can arrive at the ideal process that assures your asset is delivered and operated to an optimal level.
David Bowcott is senior vice-president, national director of large/strategic accounts at AON Reed Stenhouse Inc. Send comments to email@example.com.