Pitfalls of Managing International Contract Administration

There will be TIME AT THE END FOR QUESTIONS / DISCUSSION HOWEVER, IF YOU CAN’T HEAR ME OR IF I USE ACRONYMS / TERMINOLOGY NOT UNDERSTOOD PLEASE INTERUPRT To that end anybody here for pure contact administration and only contract administration this is not what this paper is about – it could have been called project administration non-technical aspects of a Construction Program technical aspects being design, Health and safety, estimating, etc. non-technical aspects being draw-down of funds, change management, payments, commercial close out and reporting.
READ THE SLIDE What has prompted me to write this paper is my awareness of how in certain circumstances the benign and sometimes ‘taken for granted’ aspects of contract administration can become a ‘showstopper’ on major construction programs based on my experience in international Petrochemical, Public Infrastructure, Leisure and Hi-Tech Semi-Conductor projects.
My Objective ALTHOUGH THE PROJECTS THEMSELVES MIGHT BE LARGE AND COMPLEX CAPTIAL PROGRAMS Individual projects / individual PMT can have reasonable and balanced processes, procedures and systems however on LARGE, ONCE-OFF, MULTI-LAYERED, INTERNATIONAL there CAN BE SO many PROJECTS, SUB PROJECT – MANAGEMENT TEAMs and ONE OVERAL PROGRAM MT COMMONS SENSE CAN GO OUT THE WINDOW You get layering of Business Process and re-entry of Business data INTO DIFFERENT APPLICATIONS to accommodate needs of different parties to the enterprise
I have seen valuable, finite resources diverted from an already stretched program team to form taskforces to solve administrative type issues. Regularly these teams find that many of the issues could have been avoided with focused attention at the planning stage of the program.
Assuming YOU HAVE THE BEST PROJECT CONTROLS PROCESSES AND SYSTEMS What complicates the administration of these projects
100,000 m2 (1,000,000 sq. ‘) MANU & SUPPORT BLDGS. - 22 months DESIGN & BUILD ENGINEERING, PROCURMENT, CONSTRUCTION, MANAGER - Too big, too fast, too dependent 1 EPCM – SPAN OF CONTROL AS IS SO OFTEN THE CASE A CONSORTIUM – these consortia drawing from a GLOBAL pool of resources. Meetings can have as many nationalities as participants STEP THROUGH EPCM 1, 2 & 3 - CALL OUT THE COLOURS During the FORMING, NORMING, STORMING process - teams are challenged with DESIGN, Estimates and Schedules who has time to consider the Contract Administration requirements JUMP on the Schedule – enabling ****contract****, demolition, site clearance, PARALLEL – ****contracts***** let to commence programming and DESIGN LUMP SUM ****contracts**** for simpler, ancillary buildings (Offices, Warehousing, Multi story car parks) – KILOMETERS AWAY PACKAGE ***CONTRACTS*** for FACILITY ITSELF FAST TRACKED MULTIPLE PACKAGES (~300 #) Not my intention to say who is BEST SUITED, seen it ably performed by Client’s in-house construction group Program Consultants acting as client reps One of the EPCMs General or Prime contractor HOWEVER, IF IN THIS EXAMPLE 1 of the EPCMs is made the lead – as well as issues of Conflict of interest Trust & confidentiality - as outside of this once off Program they could be competitors Every EPCM will have its own tried and tested Business Processes and Systems that they will want to use or that they are MANADATED TO USE ON THE ABOVE EXAMPLE YOU COULD HAVE 3 Project Manuals vying for supremacy NEXT THERE IS THE ‘RAGGED END’ impact of the program’s different execution methodologies for each sub project EPCMs normal procedures might insist upon daily manpower & physical progress by trade by location under certain forms of Contract this might be inappropriate Likewise each entity will have it own systems of record All might have to interface into the Client’s system of record e.g. Oracle, SAP MAYBE MORE IMPORTANT than the impact on the various construction managers, consultants and general contractors is the IMPACT ON THE TRADE CONTRACTORS who could be working on any 1 or ALL of the above sub projects e.g. Change Order procedure, Payment Process
What further complicates the administration of these projects
HOW MANY PROJECTS/PROGRAMS SIT DOWN AND WORK THIS OUT. Interfacing Corporate and Project Business systems and processes - are required to exchange information or comply with other non project, non construction organisations. Therefore not only do they need to be scalable across diverse projects they also need to communicate and meet the needs of the core corporate business e.g. ANSWER TO THE FINANCE COMMUNITY reports, governance, balance sheets, ASSET SETTLEMENT and the like. This can create a lot of tension especially in a dynamic REAL TIME business environment. AGAIN, NOT SAYING WHO’S NEEDS SHOULD TAKE PRECEDENT THE PROJECT OF THE CORPORATION WHAT I AM SAYING IS to TALK ABOUT these issues BEFORE CONTRACTS ARE AWARDED AND HOLES ARE DUG IN THE GROUND
What further complicates the administration of these projects
The location of the generators and the users of the data can literally be anywhere in the world and need widely varying amounts of information as depicted below. One real life program had projects in Russia, visiting ProJECT Managers (who had signature authority) based in Ireland, Cost Control being done out of the UK, Purchasing being executed from Israel and all on behalf of a US corporation located on the west coast. LINE OF SIGHT – TRANSPARENCY PULL NOT PUSH reporting Not having this causes great complications / conflict
The needs of the former DIVERSE CONTRACTING STRATEGIES COMPLEX DATA REQUESTs ONEROUS REPORTING REQUIREMENTS can drive very complicated multi-dimensional CODING structures – a virtual maze THE POINT IS With today’s technology these coding requirement should be no problem – Lots of SOFTWARE being showcased here today that can accommodate this and more complicated structures However to implement this during the execution of a project is a recipe for disaster To fail to get the requirement in the bid documents and HERE I MEAN the EPCM’s bid documents i.e. to try and do this after award is to hand the EPCM not only ready made excuse for bad performance but in some cases an open cheque book
The team you used to manage the cost and contract admin. during the construction of 5 of these plants in 5 different states in North America can be virtually unrecognisable on the 6 th . You are building in Asia Not only might your best PCM not travel your best PM might not travel also
STEP THROUGH 1 TO 4 on Example See diagram based on a REAL PROEJCT that had 1 funding source, 5 diverse locations and a number of different contracting strategies. There were 4 separate cost systems in use but the Owner expected and received 1 consolidated monthly report and the various Project Management Teams also got their reports in the detail they required. Each had various numbers of cost engineers managing them NOW YOU CAN HAVE THE DEBATE WHETHER THIS IS THE JOB OR COST ENGINEERING OR CONTRACTS ADMINISTRATION – but that is precisely the point of my paper UNTIL YOU SIT DOWN AND DRAW THIS OUT - SUCH SITUATION AS THIS SHOWN ABOVE - SIMPLE EVOLVE ON PROGRAMS
Entities coming together 1 st . Time who fail to to articulate, anticipate, innovate and manage these non-technical activities can jeopardise the whole endeavour. Companies, organisations and people have a STEEP LEARNING CURVE to CLIMB TOGETHER for a successful outcome against an unforgiving ‘ticking clock’. As one project manager said to me once, “If you don’t work out your difficulties now, you are sure to fight over them later”. REPEAT BUSINESS MIGHT BE IN COSTA RICA, CHINA, PHILIPPINES, SERBIA Is this what you want the PM, Engineers, Cost Eng., QSs to be working on ? JUST LETTING THINGS EVOLVE . REAL LIFE EXAMPLE program averaging 72 days request of payment to actual receipt of funds. Parts of the world - adequate but in this particular location, 30 days was expectation. (Another example of how location can impact on elsewhere-accepted practices and how otherwise standard corporate operating procedures might have to be adjusted). - After business process re-engineering, cycle .. reduced to 19 days no compromise to the standards of review. Most of Re-Eng. removal of duplicate approvals. Duplication was caused by the layering of contracting entities. “Checkers checking the checkers”. A new twice-monthly payment cycle was introduced- suited contractors/suppliers/EPCM.‘Spin-Off’ from this review - large sums of money could be paid in 10 days for discounts bringing a commercial incentive to the client very often lacking in the more traditional approaches. ***Principles similar to these can be applied to the management of RFIs, submittals, document control and all manner of program reporting. The same types of problems occur; similar personnel are involved.
international location are already aggravated by Local industry and business practice differences Fortune 500 Company (Household name) went to a region of the World – large Program – local contractors EXCITED but none would accept the Fortune 500 PO as everybody did work by issueing Letter of Credit. KCC cheque – Euro subsidiary v US multination****usa FACTORY REPLICATE 3 TIMES ****** RSJ V STEEL PLATE ***3**CPP impact Language difficulties within project teams and the workforce – MANAGEMENT but also with Trade Labour FOREGIN LABOUR E.G. 400 CHINESE LABOUR + OTHER NATIONALITES DRIVE UP COST OF HEALTH, SAFETY, TRAINING GENERAL CONDITIONS – SLOW DOWN LABOUR GETTING INTO THE FIELD – TRANSLATION OF DOCUMENTS, VISAS, Food requirements in the works canteen Cultural differences that impact behavioural relationships DEALT WITH THE SITUATION OF A SERVING ARMY GENERAL IN THE RESEVES BEING SUBORDINATE TO JUNIOR OFFICERS ON PROJECT – you try making him follow the Variation Order process Currency fluctuations in the world market DISTORING THE PMT’S TRUE PERFOMRANCE Time zone and physical distance 1 – 2 HRS TO GET ALL COMMUNICATION ACHEIEVED Yes! We have email etc., but we all know the benefit of teleconference face to face WHY ARE WE HERE IN TORONTO? WILL THE CORPORATE AUDIT REVIEW BOARD BE FLEXIBLE ENOUGH TO HAVE REPEAT MTGS AT DIFF. TIMES TO ACCOMMODATE TIME DIFF. OR DO YOU HAVE TO DIAL IN AT 3 am. SAME FOR RELEASE OF FUNDS, CONTRACT SIGN OFF REVIEW, CHANGE REQUESTS, Infrastructure differences (e.g. broadband, electricity, roads, etc) GREAT IDEA BACK AT CORPORATE HQ CAMPUS BUT IN A TRAILER IN GDANSK, POLAND OR ON A PLATFORM OFF THE COAST OF VENUVELA WITH A 2 HR. SATELITE LINK is that fancy formatted report really necessary???????????? Today’s Clients can be very impatient and frustrated by the length of time construction takes.# These clients demand predictable results to enable their business goals. All the more reason not to have the program jeopardised by something as benign or as fixable as contract administration.
Clear goals and expectation based on research and feasibility studies are carried out at the beginning of Programs regarding the Scope, Schedule and Budget NOT SUGGESTING CONTRACT ADMINISTRATION SHOULD GET EQUALLY BILLING, EMPHASIS – just that it should be considered. Contract Admin. is not and should not be on the Critical Path and it is very embarrassing when a CA issue gets on the Critical Path Too often it is left to evolve and after all it is only Admin. work. Therefore it can falling into he hands of people with little or no construction background / training – GOOD PEOPLE – but they get trained on YOUR program that is travelling at break next speed On once off, technically complex, multi layered, cross cultural, international, construction programs VITTALLY IMPORTANT TO HAVE KICK-OFF MEETINGS outlining the CA aspects of the program and not just aligning SCOPE, SCHEDULE, BUDGET – HEALTH & SAFETY The Team and SUB TEAMs need to understand where they sit with regards to the Business Process and Business System requirement of their sub projects
UNLESS YOU HAVE THE ABOVE The productivity and morale of the program and project, sub project team (s) can be adversely affected by the need for extra steps and workarounds due to this mismatch. How many times have you been force to do something because the manual did not anticipate this situation of just because the system is EXPECTING/requires it For REAL LIFE example When a parent company’s signature loop was different than that of the local business entity’s regulatory requirements. Local business practice is not to include the cost of working foremen in their ‘gang’ rates. Having a project in a country whose currency requires the business systems to support 16 digits. SILLY – OBVIOUS - COMMONSENSE MAYBE BUT each of these caused a delay on Awarding Contracts Explaining away inconsistency between projects every month or to each next/different manager Delayed production of a Cost Report AND WHAT HAPPENED IN EACH CASE > TASKFORCE ESTABLISHED DURING THE LIVE PROJECT TO FIGURE OUT WHAT WAS BROKEN?
PEOPLE NEED TO KNOW WHERE THEY FIT IN – THIS IS A CLASSIC APPROACH AGAIN IT IS NOT MY INTENTION TO SAY IT MUST BE DONE THIS WAY BUT AGAIN !!!!!!!!! WHEN APPROACHING A ONCE-OFF, COMPLEX PROGRAM IT IS ESSENTIAL TO TAKE PROJECT TREAMS THROUGH SOMETHING LIKE THIS
Conclusion Once off, Complex, multi-layered, cross cultural, international, construction programs are OFTEN managed by a group of ‘once-off’ contracted parties with their ‘canned’, inherited, processes and systems **they think ARE THE BEST ***come together for a finite period of time. Their failure to consider this and other unique aspects of the program’s structure on contract administration from day one can unnecessarily jeopardise the whole enterprise. ***Ties in with the 2 speakers, anticipate and be aware*** No project was ever built by just doing the paperwork. However, if the paperwork is done once and done correctly, then everybody can get on with building the project. In order to execute a project, Faster, Better, Economically Efficient and Safer – it is imperative that clear and achievable expectations be set and communicated to all FROM THE OUTSET. This is just as important in the area of contract administration as it is in the management of the Scope, Schedule and Budget. Aligning the appropriate people resources ***AACE plug*** with consistent, scalable, accessible, flexible and changeable business processes and systems supporting contract administration from day 1 will help achieve these goals.

Pitfalls of Managing International Contract Administration

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