A Practical Guide to Successful Construction Projects

Arent van Wassenaer

• Publisher: Informa Law from Routledge
• Year: 2017
• ISBN:
  9781315470030
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Written by experienced and innovative projects lawyer Arent van Wassenaer, this book explains what the critical success factors are for construction projects to be completedon time, within everyone's budget, to the right quality, with all stakeholders satisfied and without disputes. In so doing, van Wassenaer discusses how such projects could be structured, tendered for, executed and completed, and what legal and non-legal mechanisms are available to achieve success in construction projects.

Using examples of real projects, A Practical Guide to Successful Construction Projects provides tools for those in leading and managerial positions within the construction industry to change– where necessary– their usual operational methods into methods which are aimed at achieving project success.

Chapter 1
Introduction to the theme

‘The road to success is always under construction.’

Lily Tomlin, actress ¹

1.1 Why this book?

Why this book? Because it’s time.

The author has always been puzzled, not to say obsessed, with processes and mechanisms that could make construction projects more successful; that could prevent parties in construction projects from quarrelling or fighting over unnecessary – preventable – things.

The author originally being a lawyer, the solutions first sought for in this quest, obviously, were contractual. There should be a perfect contract, somewhere. And, if not, we can still do it. We, lawyers, are the ones who have always drafted such contracts. Therefore, we should be chosen to resolve all such issues, should we not?

Some of us, lawyers, cared less about this ‘success thing’. Where there are disputes, there is a need for us. More lawyers, even more disputes. But, personally speaking, the author does not like disputes. Oh, yes, they can spark great intellectual debate, on such intellectually challenging topics as hidden defects, disruption concurrent delays, early termination and security for payment. Having been there and done that, many such times, the author asked himself whether it might not have been easier for everyone to resolve their issues sooner? Perhaps to resolve them even better, less emotionally and more tuned to their mutual interests. Or to avoid having disputes over such issues in the first place.

And there are many issues to avoid fighting over. Obviously, there should be easier ways to resolve these than to find oneself with a bankrupt project, to have to wait for the final payment that will never arrive or to take those to blame to court or arbitration.

And why is it that so many construction projects apparently run over their budgets and their allotted time, leaving the participants pondering over the allocation of that misery. Could the professionals involved not have prevented that? Were there not simple processes available to make those projects successful and let the key players keep the daggers in their shafts? Are they not repeating their ritual dances over and over again without learning from their dodged pasts?

To set the scene, according to research undertaken by McKinsey & Company in July 2015, ² an estimated 98 percent of megaprojects – defined as projects over USD 1 billion – suffer cost overruns of more than 30 percent, and 77 percent are at least 40 percent late. In a later report ³ McKinsey figured that large projects across asset classes typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget.

Those are striking figures. But what do they tell us really, and what can be done to fix it, especially by lawyers, if anything can be done at all?

In preparation for this book, the author has been privileged to be put in a position to sit in front of some 25 distinguished CEOs, project managers, project directors and consultants, from all over the world. All of them had considerable experience under their belts in making projects a success. Some of them had had some experience with failed projects but had learned the lessons taken by heart. The questions put to the interviewees centred on themes such as what critical success factors they had identified and to what extent certain processes and instruments did or did not work in achieving that. The results of those interviews have been instrumental in guiding the author in the right direction.

In Annex 3, an overview of the method statement and of the persons interviewed is provided.

There is a massive body of knowledge and of literature available from various disciplines that deal with these issues. Lawyers often stick to their law books, engineers to their technical science journals, and project managers to their project management literature. But, there are other disciplines interested in achieving project success too: anthropologists, organisational psychologists, human resource professionals, management consultants. Many of those have authored learned studies or have guided important research on this topic. There are not many places where these disciplines come together. They act as the same silos that are present in project organisation structures put together to manage projects. And yet, there is so much to learn from each other.

There are excellent books that hover over some of these territories. Take Edward Merrow’s study on industrial megaprojects. ⁴ Merrow, for many, is one of the most, if not the most, influential authors on risks in connection with megaprojects. Independent Project Analysis (IPA ⁵), of which he is the founder and president, has collected a massive database of over 17,000 industrial megaprojects. These were executed and operated by more than 300 companies globally. Merrow is sought out by many large corporates to which he provides his advice. Using that database, Merrow is able to benchmark their (new) projects and to help them in successfully executing these, or to tell them not to go ahead with them because their business cases are flawed. Lessons learned from his monumental study will add to the dissemination of knowledge on how to make projects successful. Two further useful studies are Project Management and Disasters by David Nickson with Suzy Siddons ⁶ and Megaprojects and Risk: an anatomy of ambition by Bent Flyvbjerg, Nils Bruzelius and Werner Rothengatter, ⁷ which in particular deals with public projects.

There is a massive body of literature on achieving project success and how to achieve this. A beautiful example of that is Achieving Successful Construction Projects, a guide for industry leaders and programme managers by Ian Gardner, a director of Ove Arup & Partners Ltd. ⁸ Also noteworthy is the NETLIPSE study, first published in 2008 ⁹ followed by the 2016 10-year anniversary NETLIPSE publication.¹⁰ That study compares a number of public projects in Europe. The NETLIPSE initiative is now monitoring many public projects in development and in execution. Not to be missed here is Louise Hart’s wonderful and very well-written book on procuring successful government megaprojects, which appeared in 2015.¹¹ That book is a must read for everyone with an interest in the success of a public megaproject.

Talking about public megaprojects: the UK Office of Government Commerce (OGC) has published a vast body of guidelines on how to achieve excellence in construction projects, the OGC Achieving Excellence in Construction Procurement Guides.¹² These booklets provide a wealth of information on how to achieve successful (excellent) projects from the public authority’s perspective.

There are many manuals and guidelines on successful project management, such as the APM Body of Knowledge, ¹³ Managing Successful Projects with PRINCE2® ¹⁴ and Project Management, Achieving Competitive Advantage by Jeffrey Pinto.¹⁵

From a legal perspective, there are many noteworthy books, of which I name a few: Partnering and Collaborative Working, ¹⁶ Construction Conflict Management and Resolution, ¹⁷ Successful Contract Administration, ¹⁸ Construction Law and Management, ¹⁹ and, of course, Keating on NEC3.²⁰ Two noteworthy publications on successful project delivery were published by the Australian law firm Clayton Utz in 2011 and 2013.²¹

The thesis in 2013 by Karen Smits on Cross Culture Work provides very interesting insights into the necessity to manage cross-cultural differences in large construction projects.²²

In May 2016, in the Netherlands, a most wonderful book was published, Van het Gebaande Pad (Off the Beaten Track), ²³ which is dear to the author. It contains a number of excellent contributions by Dutch and international authors on topics very much related to the main topic of this book: how to make sure a construction project is successful. And there are many more books, internet publications, presentations, manuals and standards.

What picture can be painted from this body of knowledge and experience?

First of all, that it is certainly not the exclusive domain of the lawyers in resolving the issues raised in connection with a lack of project success. It takes the combined effort of everyone in the industry, technical, financial, organisational, with support from sciences such as business administration, human resources, psychology and cultural anthropology.

To prove this point: the NEC3 suite was not conceived by lawyers, but by an engineer. And it works (according to most non-lawyers).

This is only a fraction of the wealth of information available on project success or failure. This book aims at bringing together some best practices acquired in the project management field with approaches being developed in the legal arena, both on the procurement as on the contracting law and dispute avoidance and resolution side. This is not intended to be another project management handbook, nor is it a legal handbook, explaining the law of the resolution of construction disputes. It is meant to provide an overview of existing best practices, which, if applied wisely, could assist those responsible for building stuff in doing it right – leaving everyone involved happy. A practical guide, so to speak, from which everybody can pick the nuggets they like. Or pick all of them.

This introductory chapter hovers over some of the main topics to be discussed in the book.

1.2 Purpose

The purpose of this book is to discuss and analyse to what extent contracting techniques and management processes – whether or not achieved by means of public procurement procedures – may contribute to ‘successful projects’.²⁴ The underlying assumption is that most contracts (including often used general terms and conditions), as they are typically used in the industry, tend to focus more on a strict allocation of risks and liabilities than on agreeing on processes that will enhance the willingness of the parties involved to co-operate and to jointly achieve a successful project. Therefore, such contracts in themselves do not contribute to the project’s success, but rather with situations in which such projects may eventually sail when the weather gets rough. The question in such cases is to what extent processes other than those described in the contract are essential in achieving project success.

In other words, contracts that are most often used rather include clauses that deal with the consequences of ‘misery’ in these projects than with their intended success. That is no surprise, since these contacts are being written by lawyers who have a history of advising their clients in times of default, insolvency, damage, hell and misery. They have a tendency of not excluding any clause that could ‘insure’ their client’s position. For them, contracts are like prenups: cleaning up the mess before the fight really starts. And many contracts carry that long history of misery of such past projects with them. ‘This will never happen to us again; this clause will make sure of that!’

Furthermore, many of the larger projects nowadays are financed on the basis of limited or non-recourse finance. The financiers to such projects, most notably debt providers, do not wish to put their money in contracts that – in their view – may be seen as ‘moving targets’ where it comes to the final contract sum. They generally require black-and-white risk allocation with lump sum contract prices, plus loads of legal wording to ensure that there are hardly any escapes. Typical examples of such clauses are clauses about liability, penalties, demarcations of responsibilities, default, suspension, additional time and costs, claims, rescission and dispute resolution.

And so it seems that contracts that are used most often try to resolve what should be done if things go wrong, rather than to spell out how to ensure that things will go right. They do not tell you how to build the bloody thing, but how to fight each other if extra money or time is needed.

As a conseq...