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Questions & Answers

What causes typical project blowout?

 

Many commercial businesses, during progressive expansion, engage in significant project work where their business is exposed to risks through the lack of understanding the concepts and life-cycles of project delivery.

 

Whilst the client’s business is recognised as an expert in its chosen field, the lack of project delivery expertise presents unique problems with regard to project blow-out, both financially and scheduled completion. Companies therefore should engage third party contractors to assist in the area of project execution and delivery. This includes (but not exclusively restricted to) reviewing the client’s project expectations and outcomes to include for the management and reporting cycles, engineering design deliverables, procurement and long lead items, fabrication, site construction and commissioning implementation.

 

There remains plenty of evidence demonstrating many significant projects going over budget not to mention completion date penalties with the project investments not producing due to late delivery expectations.

 

Whilst the engaged contractor may be an expert in their field and can undoubtedly deliver the contracted works, there can be invisible factors at play that you as a client are possibly vulnerable to; for example capital risk exposure.

 

In the current financial climate, construction companies are more interested in winning the tendered work rather than worrying about the potential profit at the time of contract award. In today’s current project environment there are fewer business opportunities with many construction contractors entering into a “survival phase” business model. This concept is based on starting a project with no profit margins or built-in contingency budgets. These returns therefore rely on creating project opportunities best known as variations. These variation opportunities are generated with higher profit margins than the agreed contracted work scope due to the additional effort to generate the change. Generally the engaged construction contractor has the knowledge that you, the client, does not have the project execution expertise to enable a defence against the variation claim(s). This is a potential goldmine to EPCM contractors, the secret is to know the contract inside out, make claims wherever possible, drag out issues and really maximise their gains from the client’s exposure to the project completion dates.

 

As an example, experience on a recent construction project for Origin CSG processing plant. Origin being the gas producers, not designers or construction experts exposed themselves to risk through their lack of technical expertise in that particular field. The initial project budget was allocated a budget of $1.7M at contract award. The construction sub-contractor managed to claim a further $1.5M in variations, purely on the basis of knowing not only Origins weaknesses but also their designer’s short-falls. There were fundamental errors in the design which were easily identified within the first week on site. The designers never came to site once, they used young engineers to do the work to keep project costs down. The issues raised took 10 days before the first modification was received (which could not work). It took a further four revisions before a feasible engineering concept was received. This delay amounted to 4 weeks’ time extension with additional cost around $600K which was allocated to the Civil budget. Variations such as this also tend to come at a premium because the client still wants the contractor to get back on schedule generating overtime and penalty conditions for the site crew. The contractor will do exactly what they are instructed to do, or in many cases not, and wait for the client to response will the variation costs continue to increase.

 

What can be done to avoid this?

 

Well this is where engaging NCPE will give you the project delivery expertise that will provide you the fundamentals of project delivery and controlled outcome. NCPE core team experience amounts to in excess of 50 years. All people engaged by NCPE have extensive experience throughout the project life cycle, with constant awareness to achieving successful project outcomes. We are all experts in our respective fields, which covers everything from design reviews, constructability reviews, quality systems, scheduling, construction methodology, MDR delivery, commissioning & handover to the client, as a basic guide to our skill set. NCPE can operate in all the required project disciplines to include for civil, mechanical, structural, piping, electrical & instrumentation scopes of work.

 

Why are NCPE different?

 

NCPE like to think of it as "virtual engineering". Much of the work done to save money on the project is pro-active rather than reactive. Most of the work would be executed either at the client’s office or other such suitable office facilities suiting the convenience of all parties. Part of NCPE’s function would include provision for site visits such as, site assessments, audits, validation of works performed etc.

 

To be most efficient, clients will benefit from engaging the services of NCPE right from the start of the project to review and expose all risks at the earliest opportunity using HAZOP studies, 1-3 for project justification/ validation. NPCE’s involvement in early scheduling execution will identify when you, as the client, are likely to need particular attention to high risk areas of the project schedule.

 

By engaging NCPE as your client representative you stand to gain the following:

 

Project Management:

 

  • Constructability and Design/Engineering Review

  • Contractor/ Architect/ Engineer suitability selection

  • Development and review of contracts

  • Pre-construction services

  • Review of bid packages

  • Cost estimating

  • Establishment and implementation of project procedures

  • Risk management

  • Project cost and schedule control

  • Project management

  • Change order management

  • Job progress evaluation, reporting and monitoring

  • Claims/ variation mitigation & management

  • Project close-out

 

Cost Estimating:

 

  • Preparation of conceptual, rough order of magnitude (ROM) and pre-bid estimates

  • Quantity take-offs

  • Preparation of project/program budgets

  • Cash flow modelling and trending

  • Value engineering cost estimates

  • Value and construction cost analysis

  • Bid analysis and bid checks

  • Progress payment assessments

  • Change order estimates and checks

  • Cost to complete determination/analysis

  • Check estimates

  • Quantification for claims preparation

 

Risk Management Techniques:

 

  • Risk simulations and analysis

  • CPM schedule analysis

  • Quantifying expected values and modelling risk profiles

  • Decreasing risk aversion

  • Due Diligence

 

Risk Management Assessments:

 

  • Contract and specification requirements

  • Constructability review

  • Budgetary and final project costs

  • Schedule acceleration strategies

  • Change order Identification and approval

  • Constructor technical queries assessment

  • Construction methodology

  • Delays and disruptions

  • Damages assessment

 

Troubled projects may be plagued with the following problems:

 

  • Circumstances resulting in cost overruns

  • Difficulties in meeting milestones or completion deadlines

  • Risk of failure in delivering anticipated benefits

  • Failure or unwillingness to allocate resources to the project

  • Inability to maintain project scheduling

  • Significant and/or critical technical issues with the project

 

NPCE provides three primary construction inspection services:

 

Owner’s representative services:

We work for owners to ensure that the construction process follows the plans and specifications.

 

Contractor/Architect Support:

We can provide on-site services during the project to ensure that the construction follows the plans and specifications.

 

Pre-Construction Services:

We review plans and specifications and advise clients prior to the commencement of construction.

 

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