New ways needed to procure construction projects in 2018

Management methodology in some municipalities is changing for the better, says Stephen Bauld. During 2017, Bauld spent a great deal of my time working on behalf of contractors, raising issues related to construction projects with municipal staff at every level. He has seen a commitment by senior management to make systems better and to listen to industry concerns to make positive changes to the process.

Government procurement staff want to make the system better, however, it is very difficult to change any part of a system that has been in place for decades without some sort of resistance from several competing interests, says Bauld. Nevertheless, he is optimistic that this year will bring about the changes required to better serve the public’s interests.

With that commitment in mind, Bauld recommends that every project management system should incorporate flexibility into its design. Of course, consistency of purpose and staying on course are critical to overall success, but the management methodology should be sufficiently flexible to allow for responses to changing circumstances.

The process should incorporate some time for continuous reflection, learning from experience and the ability to change one’s response. Projects occasionally fail solely because organisations tend to use the same mindset and the same approach over and over again.

Flexibility means managing risks as circumstances change
Risk management within a construction or other major capital project involves not only dealing with the allocation of risk between contractors, consultants and the organisation, but also with assessing the likelihood of contractor default and the occurrence of major loss through fire or similar catastrophe.

In the major capital project context, it is important to understand that undertaking such a significant project creates new dimensions to risk, outside of the normal scope of organisational activity.

Bauld is in favour of sharing the risk between all parties involved in a project and assigning each aspect of risk to the party best able to address it. Risk can be viewed as any factor, event or influence that threatens the successful completion and operation of a project in terms of cost, time or quality.

Risk and uncertainty must also be taken into account when settling upon the comparative merit of a proposed major capital project. In order to compare cost and benefit correctly, all elements of a project must be reduced to a cost that can be accounted and budgeted for.

Include contingency amounts
Costs are the unknown. Costs associated with potential risks must be included in the form of a contingency amount, based on either historic experience or some other reasonable estimate of the probability of occurrence as well as the magnitude of the threat that the risk presents. Contingency estimates should be defined and quantified throughout a project’s development as specific risk elements, which may then be used to create a risk management plan for the project. The appearance of false precision must be avoided.

Unsupported early optimism (i.e. low contingency amounts) will only cause problems as a project progresses.

As the project is refined, the contingency should reflect the shift of contingencies into actual cost categories. Contingencies should be expressed in terms that can be easily presented to and understood by the public.

Last year, while working for municipalities to help them incorporate some of these concepts into new policies and procedures, showed me that government wants to improve systems.

Working with contractors and industry partners can benefit everyone involved in the process. I look forward to working with both government as well as the construction community to ensure that we continue to keep management methodology flexible and pro-active for the upcoming year.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com