View from the Field Part 3 - Interface Management

This series of blog posts provides a practitioner’s view of the management processes and challenges associated with megaprojects as well as large and complex projects. Addressed by both Edward W. Merrow of Independent Project Analysis, Inc. and construction lawyer Andy Ness at a recent ABA Forum on Construction Law conference, their high-level perspectives are elaborated herein. This multi-part series has and will expand upon some practical aspects of the many challenges facing managers as well as highlight suggestions for implementation by inside or outside counsel.

Mr. Merrow’s High-Level Findings

In Mr. Merrow’s presentation, he addressed Contracting Approaches, Contract Types and Project Outcomes.  His findings are captured in these (his) diagrams:

Relative to other Contracting Approaches (i.e., Engineer, Procure, Construct (EPC) Lump Sum, Reimbursable EPC, Integrated Project Delivery), adjustments and accommodations to ways of working for “Mixed” are needed.  In “Mixed,” the risk profile is changed.

Mr. Ness’ High-Level Findings

Mr. Ness wrote a paper Why Megaprojects Fail So Often and Why You Should Care, No Matter the Size of Your Project and focused on business decisions in “4. Business Decisions That Hurt Prospects for Project Success.”  Regarding the discussion, Mr. Ness’ key point is:

Analysis of IPA’s database demonstrates that the form of the contract actually has very little impact on project success…And IPA’s database demonstrates that attempts to transfer risk wholesale to the contractor – such as by using a tough contract that has few holes and assigns the contractor responsibility for most everything – is simply ineffective.

Mr. Ness continues “The monumental mistakes usually belong to the business side.”

Why Consider Interface Management and Risk?

Given Mr. Merrow’s findings and Mr. Ness’ perspectives, it is legitimate to question the value of “Mixed” since most projects, although they may be large and/or complex, are not industrial megaprojects.  The reasons:

• Large & Complex success rate is 60%+, therefore, failure rate is 30%+.  However,

• The use of Mixed Contracting Approach (over, for example, EPC) significantly increases the number and complexity of interfaces and, as a consequence, risks.

• Interface management represent a valuable tool for planning and execution of large and complex projects (as well as megaprojects).

View from the Field – The Front-End

Interface Management – This skillset is elevated to a very high importance. Under “Mixed,” the number and complexity of the interfaces increase, possibly dramatically. The potential for managerial system breakdowns, delays, gaps and other issues is much larger (than EPC, for example).

Interface Audits – Prospective audits of all significant interfaces are effective managerial tools. These audits include: management, scope, technical, project controls, administration and others. Interface audits aid in the creation of robust interface definitions as well as reveal gaps and inconsistencies.

Resources include PMI Project Management Body of Knowledge (PMBOK), Project Integration, as well as Kerzner, Project Integration Management. The Responsibility Matrix (aka RACI) tool provides excellent interface definition when developed in a collaborative environment.  Alignment can be achieved using these (and other) processes. Some include RM/RACI work products as contract documents. The processes can be implemented within the Project Execution Plan (PEP, also known as Project Plan, Project Management Plan and other titles) using an extensive PEP workshop process.

Stakeholders such as inside or outside counsel may achieve insight into the preparation for Interface Management by attending a few workshop sessions and/or reviewing the PEP deliverables.

Owner Project Management Teams (PMT’s) – Under “Mixed,” Owner PMT staffing requirements are more extensive and demanding to manage or interface (quality, quantity, complication) with contractors and stakeholders. However, newly hired personnel often lack skills to manage interfaces.

Asset Performance – Ultimately, an Owner cares about the proper performance of its investment (e.g. plant, facilities).  Under EPC strategies, performance guarantees are generally obtainable from Prime Contractors.  This, since the prime(s) are in a position to assume and manage this risk.  Under mixed strategies, responsibilities and resulting liabilities can become so diffused that performance guarantees are difficult (if not impossible) to obtain and enforce.

Completion Management – With multiple parties and interfaces, the sequence and timing of commissioning and start-up is challenging.  Lack of competence in this process is a constant problem.  By default, completion management responsibility tends to fall upon the owner.  If in-house resources and expertise are limited, owner may need to hire a specialty contractor to perform this work.  Of course, that creates another interface that requires managerial skills and bandwidth.

Scope of Work – Under EPC strategies, the concept of “scope wrap” (a high-level contract provision that makes the contractor responsible for all scope necessary to complete the work) is viable, if not common.  With “Mixed,” this becomes increasingly complex.  Effective techniques for scope of work management are needed.  Interface audits are extremely valuable.

Deliverables Quality, Completeness and Timing – Deliverables (e.g., technical, documents, materials, equipment, lists and models), must be defined in terms of quantities, timing and quality.  The quality of the deliverables can impact the labor and related work necessary for the construction contractor(s) in fabrication and erection of the work.  Since these deliverables are typically the output of a predecessor contractor and defined by the related contract, the precession with which they are defined can have a large impact on the successor contractor.

The timing of deliverables must be carefully defined.  The timing of deliverables must be carefully defined.  The timing of the successor contractor’s receipt of deliverables influences the successor contractor’s ability to perform effectively and efficiently.  The sequence of these deliverables further exacerbates this influence.

Time Management / Schedule – The parties / stakeholders take on new roles, responsibilities and risks.  The project duration and delay to individual parties / stakeholders are decoupled.  Cause and effect for delays is difficult to isolate. The collection, status, controls and management of progress is highly complex. Critical paths for one contractor / stakeholder may not be the same for successor parties.  Time management problems tend to present themselves later in the project execution.  Interface audits are extremely valuable.

Conclusions (Part 3)

Interface management becomes increasingly complex and challenging when “Mixed” Contracting Approach is selected for project delivery. Prospective interface audits are essential tools needed to support interface management. Since the developmental processes are all the responsibility of the owner, owners must recognize and accept this role in order to implement Mr. Merrow’s most successful contract approach – “Mixed.” 

View from the Field – Supply Chain Management (Part 4)

Part 4 of this series will address the challenges of Supply Chain Management that is required when using “Mixed” contracting approach.

Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “view from the field.” Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas.