## Project Controls from the Front End
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## Best Practices in Program and Project Management
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## Best practices improve project performance
BUILDING FOR THE FUTURE Client, contractor partnerships key to a successful construction project
With cost and time overruns a key risk for major construction projects, organizers of the 2012 Olympics can learn from best risk management practices of successful buildings such as Terminal 5 at London's Heathrow Airport.
Since London celebrated its successful bid for the 2012 Olympic Games, the estimated cost of the event has risen from an initial 2.4 billion pounds ($4.9 billion) to the current 9.35 billion pounds ($19.09 billion). The construction budget is now set at 5.3 billion pounds ($10.82 billion) with a 2.7 billion pound ($5.51 billion) contingency fund.
"The main risks for the 2012 Olympics are time and cost overruns, which are always an issue for construction projects," said Birmingham, Englandbased Stuart Pemble, partner at Londonbased law firm Mills and Reeve L.L.P.
Time will prove a particular complication for the 2012 Olympics, which has a "drop dead date" or finite completion date. This will mean that the Olympic Delivery Authority will need to be flexible in other areas, said Paul Hopkin, technical manager of the Londonbased Assn. of Insurance and Risk Managers.
"In other projects, you can have some flexibility on the three main issues of budget, time scale and specification. In the case of the Olympics, one of thosetimeis absolutely fixed, and so you need to scrutinize the project all the more and have flexibility on the other issues," Mr. Hopkin added.
To avoid these risks, the Londonbased Olympic Delivery Authoritythe public body responsible for developing and building the new venues and infrastructure for the games on behalf of the London Organizing Committee of the Olympic and Paralympic Gamesshould concentrate on construction project procurement, Mr. Pemble said.
"Partnering," which attempts to move away from traditional "adversarial" relationships between clients and contractors in favor of a more homogenous approach, is crucial to the success of the project, noted Laurence Gilmore, construction and account director of Londonbased Aon Ltd., a unit of Chicagobased brokerage Aon Corp. "With any project nowadays, particularly major projects, the partners involved have got to work together. The days of employer contractual fighting onsite has gone. There is now the need to work together in some form of partnering," Mr. Gilmore said.
Terminal 5 at Heathrow Airport is seen as an example of good project risk management in the construction industry. The Terminal 5 agreement, a legally binding contract between the client, BAA Ltd., and its key suppliers, states that BAA highlighted two key areas that undermine progress, "cultural confusion and the reluctance to acknowledge risk." It recognizes that "traditional arrangements can result in a highly unproductive culture of blame and risk."
`Project principles `
The Terminal 5 agreement was based on project management principles set out in two mid1990s governmentcommissioned reports: Constructing the Team by Sir Michael Latham in 1994, and Rethinking Construction by Sir John Egan in 1998.
As laid out in the Terminal 5 agreement, BAA "accepts that it carries all of the risk for the construction project" and a "premium is placed on delivering solutions and results," according to the agreement.
This is done by way of a project incentive fund that aims to balance the successes and failures of individual contractors. It rewards contractors for completing work on time and within budget, experts say.
"What was different about the Terminal 5 agreementits successis that the time and cost consequences were borne by the client in the form of project insurance policy. Also, the project pool proved successful and worked well with the incentives given to the contractors," noted Mr. Pemble.
Had BAA followed the traditional contract approach, Terminal 5 would have been two years late and 40% over budget. This is according to Mathew Riley, BAA's commercial director for Terminal 5, in an interview published in the issue 31 newsletter from Turner & Townsend, a construction management consultant based in Leeds, England.
The ODA's aim "will be to make sure that contracts are suitably drafted to ensure that a spirit of 'partnering' takes place together with defined levels of retained risks and triggers for reward for defined performance levels in the execution of the works according to the contract," Robin Baines, director of construction risks at Londonbased Willis Insurance Holdings Ltd., said in an email.
The form of contract used on the Wembley Stadium projectin which the time and cost overruns led to litigation between clients and contractorswas a "fixed price" agreement, which places the contractor at higher risk and can encourage a culture of blame. It is one of the major reasons why the project ended in litigation between the client and supplier, experts say.
"Trying to transfer risk is fraught with difficulties," said Jeremy Ure, business director of Aon Ltd. "Designing a commercial (contract) that allows one party to win over another just gets you into court." Mr. Ure added.
If disagreements over contractual obligations do occur, it is vital to have evidence to back up any claims, noted Mr. Pemble. "With big contracts and big projects, the paper trail is vast, so claims get complicated. It often becomes a battle of who has (kept a better) record with claims. A problem for the Olympic organizers is that regular users of the system are more used to playing this game. This is perhaps one area where the experienced project partners could help." Mr. Pemble said.
`Constant involvement`
High levels of expertise on the client side and continual assessments, through constant involvement in the project, were also key to the success of BAA's Terminal 5 project, said Mr. Ure.
"BAA appears to invest strongly in a lot of expertise in order to manage and be heavily involved in each of the individual subprojects," Mr. Ure noted.
"They have constructed a good partnership model, but this is underpinned by their great involvement and continuing ownership of the project. They had to recruit more project managers on the BAA side, which reflects their continual reviewing of requirements and needs of their involvement," added Mr. Ure.
Although the organizers of the 2012 Olympics have yet to finalize their contracts, they have agreed to the 2012 construction commitments, which were drafted by the Strategic Forum for Construction, a U.K. construction industry body.
"The Olympics commitment charter is a good framework, which encourages good practice for a large construction project," said a spokesman for the Strategic Forum.
PHOTO (COLOR): Land acquisition was completed during the summer for the more than 750acre London site, shown under construction last November, that is to host the 2012 Olympic Games. Some 200 businesses and more than 400 residents had to move to make way for building the Olympics stadium, athletes' village and other sports facilities. "By helping businesses find new sites we have so far safeguarded 98% of jobs and in every case we will continue to offer support as people settle into their new homes and premises," Manny Lewis, chief executive of the London Development Agency, said in a July statement.
PHOTO (COLOR): An Olympic inspection team visits the O2 Arena in April 2006. O2, which opened in July of this year, is to host gymnastic and basketball finals in the 2012 London Olympic Games.
Reference:
Best practices improve project performance. By: Norris, Ben, Business Insurance, 00076864, 10/22/2007, Vol. 41, Issue 43