3 is a magic number!*

Imagine you are the project manager on a €300m project that is running 6 months late, with €25m of delay damages looming, and the budget is bust by about €20m.  Despite all of your team’s hard work, you can’t see a way to deliver the project anything like on time or in budget, while keeping your bosses and the owner vaguely onside.  You are feeling responsible for the delay.  The decision by your central procurement department to buy the unusually high amount of structural steel from the cheapest, untested supplier has, unsurprisingly, been a disaster.  They didn’t perform and were late, with your team trying to pick up the pieces.  The daily problems of getting 2,000 men onto the site caused by the owner’s inefficient permitting process has been a headache from day 1 but everyone says ‘it’s always like this around here’! The owner’s insisting that the project gets back on track, so you feel you have no choice but to accelerate the job, even though the required weekly productivity is ridiculous and you’ll have to pay subcontractors premium rates. You feel like quitting…

Do these circumstances sound familiar? Seems like no hope? It’s a simple summary of what we were briefed on by a client. As is also typical, the ‘presenting’ problem was not the real situation.

Reflecting back over 2015, we helped at least 3 contractors achieve major negotiated settlements on their projects which had been presented at first glance as fairly no-hope situations.  It is interesting to look at the common themes;

  • All 3 of the contractors were faced with a significant loss or liability – and none could come up with an effective strategy to address and resolve it
  • All 3 of the projects had ‘first of a kind’ components – whether new technology, new markets and/or new relationships
  • In all cases the (poor) decisions made at the bid stage had come home to roost, and were further compounded by ineffective management decisions
  • All were in delay, owners had instructed them to recover, and the contractors had agreed without really asking who’s responsible for the delay, is it possible to recover, and importantly, who’s going to pay?

In our experience, no-one wants to end up in court and our approach is to enable the contractor to regain control of the situation such that the team can reach a negotiated resolution to the problems. To get here, it all boils down to asking the right questions at the outset, particularly;

“Where do you want to end up?”, and “What are you prepared to do about it”?

Once we work through these together, the contractor is usually able to see the way to get there, even if the team needs some support in putting the case together, creating opportunities for negotiation and bringing about a settlement.

Back to our struggling project manager… so we looked at the critical path and found (to everyone’s surprise) that there was float in the structural steel erection and this was not the critical delay. But the owner’s protracted permitting system and other issues had caused about 50% loss in productive daily worktime and was the dominant cause of delay.  Fortunately the contractor’s project execution plan, bound into the contract, had detailed all the assumptions and assistance needed from the owner in order to achieve what everyone acknowledged was a very aggressive schedule including mitigation actions to significantly reduce the impact of the permitting system and with which the owner had not complied. It was obviously way more complicated than this but by thorough analysis of key issues and with the aid of simple charts to build a compelling picture, we told the story of this first to the project manager (who could immediately recognise this pattern and started to feel empowered again) and then assisted the team in finding the best strategy to communicate this to their client.  The result was that no liquidated damages were imposed (which had previously had to be declared in the contractor’s accounts) and a significant amount was paid to the contractor making a big difference to the outturn project P&L position. Our fees were around £300k which is less than 1% of the total contribution gained due to no LDs and additional income.  As in the other 2 cases, where our clients had also been exposed to tens of millions of Euros in damages, we asked the right questions, got the client to decide what result he wanted to achieve then devised and supported a fit for purpose strategy and action plan to get there. And magically, we helped achieve a great outcome for all 3 of our clients! (By the way, many thanks to the efforts of both our clients and our small teams who worked exceptionally well together to achieve these not insignificant results.)

* For our more mature readers, “3 is a magic number” was the title of a song by Bob Dorough in 1973; for younger listeners it was covered by Blind Melon in 1995!

Karen Cherrill – Director, Kingsfield Consulting