ABSTRACT It is a common question asked by the majority, why areconstruction projects are so prone to fail even though the industry is full ofeducated and experienced personnel? There are many and complex reasons for why large-scaleinfrastructure projects are still being delivered late and over the originalbudget. From the information and research gathered the author hasfound that some causes of failure are down to late contract award, lack oftrained workforce, complexity of the project, inadequate design and commercialpressures to win the project. It has been recognised that within the Construction industrythere needs to be some improvements. The Deputy Prime Minister John Prescott in1997 expressed deep concerns that the industry was not meeting the needs of theclient and because of this; the Construction Task Force was set up (The EganReport 1998).
Both Latham and Egan conducted a study in the nineties of howthey think the construction industry should move towards achieving a successfulproject. Everyone believes that collaborative working amongst allparties plays a key role in delivering a project successfully. Communicationbetween all parties is important to ensure that the project gets deliveredsuccessfully.
The Cost Manager makes a good point that cost, quality and timeare interlinked but the reality is that on every project some compromise mustbe made and one of these ideals usually has to suffer. We have seen that due to the nature of UK procurement laws,rules and regulations and Government inaction projects are being procured latehowever with the required end date never seemingly moving and hence placingContractors in to a very difficult position from the very start of aproject. One could argue that Clientsare in fact one of the primary reasons for projects failing. CHAPTER1- Introduction 1.1 Rationale for the researchThe 21st century hasseen a rapid demand in the number of infrastructure related constructionprojects in London particularly. These projects, due to the Brownfield natureof the project sites, are becoming increasingly more complex as newinfrastructure fits over, under and adjacent to existing buildings, tunnels andother underground structures; including existing foundation structures.
Thecomplex geography places even greater risks on Clients and Contractors. Despitepublication of The Latham and The Egan reports in the ninety’s there are stilltoo many large scale projects being delivered late and over budget. Most peopleamongst the industry and the public assume that delays and cost overruns arechiefly down to the Contractor’s shortcomings. This report seeks to understandwhere the issues lie and measures that could be taken to avoid their recurrenceand whether the Client is also at fault. The construction industry is alwayschanging and facing many challenges. In many cases, for example the CrossrailProject and Victoria Station Redevelopment, the tangle of existing structures hasled to the need for innovation which in some cases is untested and therefore athigher risk of failure.This research is set out to understand whether Contractorsare looking at lessons learnt from other similar projects. “Many companies donot document lessons learnt because employees are reluctant to sign their nameson documents that indicate they made mistakes.
Thus, employees end up repeatingthe mistakes that others have made.” (Kerzner, 2006). In addition, the failureof a Contractor can be due to multiple reasons, such as management issues, the economy,accounting issues and changes in type of work.
Furthermore, the Contractor maytake on work beyond their usual expertise. (Construction Informer Blog, 2012)Both the Latham report ‘Constructing The Team’ in 1994 and TheEgan report ‘Rethinking Construction’ in 1998 will be taken into considerationwhilst carrying out this research. Sir MichaelLatham described the industry “as ineffective, adversarial, fragmented andincapable of delivering for its customers.” (Designing buildings, 2016) A decade on, The Egan report has had someimpact but not the significant effect it was hoped it would have to improve theindustry. Partnering hasbecome popluar in the construction industry after The Latham report promoted acollaborative management approach between parties in a binding contract. Thismeans that parties can lean on each other “for success and this requires a change in culture,attitude and procedures throughout the supply chain.” (Designingbuildings, 2016) It iswise to use partnering on long term, high risk and large projects. However, whilst there is collaborativeworking with ‘mutual respect and cooperation’ between the Contractor and the Clientthere still remains the underlying contract.
The contract works well whenthings are going well however, it is well documented that when things go badthe parties can become adversarial especially when there is delay and costoverruns in the equation. (Adjudication,2005)Jointventures are now commonly used on large complex projects to bring together thedifferent expertise required to deliver the complex projects under the singleumbrella. This reduces the risk of delivery as all parties have a vestedinterest in the success of the project. The parties to the joint venture have aproportioned investment in the project, depending on the size of the projectand the scope of work they are specifically dealing with under the JV. Thebenefits of JV’s are clear; they bring a range of different experts to delivercomplex projects which require multiple different discipline types to bedelivered. (Construction Manager Magazine, 2013) Experience has shown that JV’s do not always work wellwhere different companies to the JV are from different countries leading tobreakdown in communication and conflict in working style and cultures; take thewell documented case of the Scottish Parliament Building at Holyrood.
Contactorsare facing increasing competition to put in low bids to win projects and then (Wells,2011) getting in to difficulty as they see their profit margins falling ascosts to deliver the project eat in to their profits.CHAPTER 2 – Historical Background2.1 UK Construction IndustryFor years, there has been a perception that the UKconstruction industries were to blame for waste and failure on large scaleinfrastructure projects. The Governmentcommissioned The Latham Report ‘Constructing the Team’, which was published in1994. This report and subsequent reports highlighted the reasons for thefailures in the construction industry and made many recommendations for betterpractices and contracts. Today, in the UK, the type of contracts being used toencourage collaborative working and push the ethos of partnering, andmost large-scale government projects are let onthe NEC form of contract which places a significant emphasis onprogramme and cost with the Early Warning mechanism.
However, given thetime which has elapsed since The Latham Report and the form of contracts beingused there are still too many large-scale projects finishing late and overbudget. The perception, whether trueor not, seems to be that wherever a project is completed late or over budget orwhen there is a dispute that the blame lies with the Contractor. However, even with the extralengths that Contractors have gone through over the last 20 years to improvetheir image, the image of Contractors in the public eye perhaps largely remainsa negative one. This is not entirely surprising to people in the constructionindustry. Take for example the works at Tottenham Court Road Station, inCentral London, which has seen major road closures for many years whilstutility diversion works were being undertaken (Office,2017). These utility diversion works were crucial to the project, aswithout the diversions the works for the new Underground station, includingtunnelling works, could not take place. There is no getting away from the need,in this case, to close major roads and create significant traffic congestion.
There has been significant traffic congestion around Central London due tothese road closures. Unfortunately, it is the Contractor who is the publicfacing entity whom the public see and the person who created the problem intheir lives. No matter what the Contractor does in this instance they will getbad press even though it is likely that the traffic management arrangementsplaced were based on the design issued by the Client in the first place.Sometime, no matter how hard a Contractor tries, they will get the negativepublicity.
2.2 Large Scale, Complex and ‘Unknowns’No matter how good the Clientdesign or how much ground investigation has been carried out by the Client itis likely that due unknown ground conditions and physical obstacles that therewill remain many risks to the project which have the potential to delay aproject and increase costs. Again, taking the example of the utility worksaround Tottenham Court Road, the nature and location of the existing utilitieswas likely a major unknown despite the Client having commissioned severalsurveys. It is not until the works are undertaken with full road closures, orpart closures under traffic management that the true number and location of theutilities can be understood (Office, 2017).It is the case historically that records kept by utility companies are at bestvery poor. This is an example of significant risk which will very likely leadto programme delay and programme overrun, which in part will have beencalculated by the Contractor (Manager, 2013).Any delay is not a complete surprise to the Client who is aware of thepotential for this to happen however, again the public will likely notunderstand this complex issue and again the Contractor will get bad publicity.In London, there are asignificant number of existing underground structures including tunnels and thefoundations of existing buildings (Manager, 2016).
Adding new structures and tunnels to an already congested area increases therisk of programme delays and cost overruns. The locations of the existinginfrastructure are not easy to reference due to poor records and to carry out afull and comprehensive survey before a project starts this adds a prohibitivelylarge cost to the Client especially when full funds are not available prior tothe project fully going ahead upon Contract Award. Projects are therebyinherently let with a major element of risk attached.2.
3 Programme, risks and the Target CostThe idea that a project,which finishes later than originally planned, is late and a project which endsup costing more than originally calculated is now overrun should be challenged.It is crucial to the argument that the public understand that large scalecomplex infrastructure projects in built up Brownfield sites are inherentlyrisky and that there are a significant number of unknowns which, if encounteredwill likely cause programme overrun and or cost increases. The NEC form ofcontract which is now used in the UK, and increasingly popular overseas, hasbeen formulated to take in to account that these complex projects will haverisks which cannot be foreknown and hence the risk is shared by both the Contractorand the Client under a pain-gain share mechanism. The very nature of the typesof project being undertaken means there is no precise completion date or finalcost. The programme has a ‘Planned Completion Date’ and the cost is a ‘Targetof the Prices’ meaning that everything is based on a professional judgementwith the available information (NEC3, 2005).2.4 Time Risk Allowance (TRA)Complex construction projectsmeans there is always an unknown element.
Take the relatively simple example oflaying a blockwork wall; from past records, we can ascertain that a reasonablyexperienced worker lays on average 12m2 per day per 8-hour dayincluding an hour break for lunch (Planet, 2011).This rate of production assumes that nothing goes wrong and that the supply ofbricks is constant and the mortar for the bricklaying is always available tothe correct specification and that the builder works at a constant pace with nostops apart from his lunch break. The reality is that there is always the riskthat things will not go to plan and that the works could be interrupted due tothe mortar mix not being the correct consistency and the supply of blockworkrunning out and that in fact the builder takes regular breaks to smoke. The Contractorbidding the works would therefore include within the programme of works anelement of time risk allowance (TRA) so that they can protect their programmeposition in case they are liable for liquidated damages for delaying thePlanned Completion Date (Eggleston, 2009).The NEC contract in fact places a requirement on the Contractor to reveal thepercentage of TRA he has included within his programme. There however is norequirement to include time risk allowance but to indicate what has beenincluded. The time risk allowance included could in fact be Zero days where theprogramme is very tight but the Contractor wants to show they can still meetthe required end date. This might sound surprising however Contractors areinclined to provide a programme with as earlier a completion date as possibleto reduce their overheads and hence provide a low tender price in order to gainan advantage in winning the job.
Clients however are much more tuned in to the’games’ played by Contractors and hence more scrutiny is now given to programmeduration and sequence during tendering process in order to obtain the mostrealistic programme from the Contractor and reduce the Clients risk. Inpractice though it proves to be a very difficult battle when the Contractorprovides a very lean programme with minimal or no time risk allowance and the Clientdemands that the Contractor include a generous time risk allowance whilst stillproviding a low tender price. 2.5 Activity Schedule and Contract Data Funding has been provided bythe Government for small team experts to put together the Contract Data sectionof the contract which will eventually form the key documents for the Invitationto Tender (ITT) which will then be priced by the Contractors in the marketplace. A Designer will have been procured to carry out an initial design tounderstand the scope of works required. The list of works to be undertaken willform the Activity Schedule which is effectively a list of every item of work tobe undertaken to deliver the project successfully.
Against each Activity aforecast cost will be placed which will then give the Client an idea of theproject cost. At this initial stage and due to limited funding, it is verylikely that the design undertaken will not be very comprehensive and that therewill remain a number of risk items which will form part of the Clients ‘RiskRegister’. The Client will at this stage put together a Reference Design,Contract Data giving the future Contractor a list of key dates such as sitepossession dates and a Contractual Completion date. This package, along withother site information, will form the ITT package (Manager, 2013).Note that the Clients teamwill also put together a detailed construction programme with a particularsequence to reflect their gathered knowledge of the site constraints and thirdparty interfaces together with planned activity duration. The Clients team willhave again a limited resource and knowledge base and there is an inherent riskthat the programme may not be realistic and that the Tenderers will come backwith a different planned completion date and sequence.The Client will at this stagecarry out a Risk Review and produce a detailed Risk Register listing allpotential risks with probability and costs against each risk should the risk beencountered on site. The programme will also undergo a Quantitative RiskAnalysis (QRA) to provide the Client with the probability percentile forachieving the desired Completion Date and Target Cost.
Again, the Clients ownaspirations are not definite and they are aware that both programme and costare an estimate. The public are not fully versed with this process and hence donot appreciate perhaps that things can go differently to that planned in theearly stages of the process.Note that given the level ofinvestigation and survey undertaken at this early stage it is very likely thatthe full scope of works has not been identified and that there is a significantchance of scope creep post contract award. Take for example works to anexisting water treatment plant where the infrastructure is over 50 years oldand likely past its design life (Manager, 2013).Unless detailed surveys are undertaken then the true nature of the worksrequired will not be known until the Contractor starts his works on site andthen gets to understand the issues and begins to understand the realrequirements to replace say the old equipment with new. Again, the Client willhave included some provision in the risk register but a good chance that noteverything will have been captured.2.
6 TendersThis is perhaps the stage ofthe project where the biggest risk to the programme and cost lies. Contractorsknow that they are in competition with other Contractors who are equally keento win the project. A Contractor who puts in a high price and a programme whichdoes not meet the Clients required key date knows that they will very likelynot win the project.
Given that Clients in the UK still place a very high scorefor the Commercial element of the tender scoring, Contractors will try toreduce their tender price wherever they can and place caveats within their bid tolessen their risks (Hassan, 2015). Contractorsare forced in to this position, as they do not want to lose the project. It islikely that any caveats will be removed by the Client and that the price willremain low which means that the Contractor, should they win the project, willstart off on the back foot from day one and will try to recover their costsduring the lifetime of the project.
This is a recipe for a bad Contractor and Clientrelationship from the very beginning. One of the ways in which the Contractor can recover their losses is toreduce staff numbers and overheads. This has historically led to reducedquality of works and disputes.
It could be argued that the Client has pushedthe Contractor in to this impossible position. This is something that thepublic do not see. Profit margins have decreased over the years meaning that Contractorsare forced into sharp practices. This has also led to a marked reduction inapprenticeships and graduate intake and training.Historically, UK Clients havealways based their tender scoring mainly on cost, as cost is what resonates withthe public and the Government who are always pushing for a low price and earlycompletion for obvious political reasons. One of the first things you hear inthe press is the cost of the project and there is always a huge push from thepublic and the Government to push down the cost. Quality does not appear totake the same stage as cost and hence Contractors are forced to reduce theircosts knowing that they are otherwise in a disadvantaged position.
Most Contractorswill win the job and then try and recover their costs (Wells, 2005). For thecontractor wining the job is better then losing the job. Clients are howeveraware of the risks and they usually carry out their own QRA and have acontingency pot of money and a most likely completion date which the public isnot usually aware of. The Client is aware of the very likely potential ofprogramme and cost overrun however the public are not aware of this and whenthe programme is delayed the Contractor usually gets the blame.2.7 Some of the reason for getting it wrongThere are many and varyingreasons why projects are still failing.
The list below gives some of the keyreasons:Commercial pressure to win the project: Contractors are increasingly joining forces withworldwide and European companies who have expertise in certain areas ofconstruction. Contractors are tendering for major projects as Joint Venturesgiving them the advantage to prove to the Client that they have the skills andknowledge to deliver the project. The market place as a result has becomeflooded with competition for large scale jobs and this has forced Contractorsto reduce their costs to win jobs. Contractor’s profit margins have reducedsignificantly over the last 10 years (Manager,2013).Late contract award:Rules and regulations and Government procedures has historically meant thatmany large scale projects have been awarded very late with the ProjectCompletion date staying the same. Take the recent example of the High Speed 2project in London which has been continuously delayed due to delays in RoyalAssent (news, 2017).
This has placedsignificant pressure on Contractors to place their bids showing that they canstill achieve the Clients required dates.Lack of trained workers: Contractors have been working on tight margins formany years. Budgets for training have been cut significantly and there isalways a shortage of skilled labour. The market place is flooded with cheapimmigrant labour from the European Union however often these workers areunskilled and in many cases, there are problems with language and communicationresulting in poor workmanship and aborted works. (Client, 2017)Complexity and objectives: Sometimes where no clear objectives are set this cancause confusion from the very beginning of the project. Occasionally someprojects maybe to ambiguous and cannot be achieved within the timeframerequested by the Client. Within the construction industry change is a verycommon factor this could be a reason why some projects don’t deliver to cost,programme and quality.
Inadequate Client design: Clients often tender the works on a limited design asproviding a detailed design is far too costly and therefore difficult tojustify before a project has been given the formal Government go ahead or RoyalAssent. (Contractor, 2017)2.8SummaryWhilst it remains the casethat it is still fashionable to blame the Contractor for things going wrongthis Chapter highlights the fact that things going wrong are often unavoidablegiven the way the procurement of large scale complex projects are undertaken inthe UK. Unless we can change the minds of the public that large cost does notalways mean failure and that these projects are inherently risky and willalways likely be completed later than planned.
In some cases however, money isno object in the case of meeting an immoveable deadline such as the 2012Olympics opening date. Contractors will always be accused of getting it wrong.The industry needs to change with greater emphasis on quality and deliveryrather than cost.