ABSTRACT

It is a common question asked by the majority, why are
construction projects are so prone to fail even though the industry is full of
educated and experienced personnel? There are many and complex reasons for why large-scale
infrastructure projects are still being delivered late and over the original
budget.

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From the information and research gathered the author has
found that some causes of failure are down to late contract award, lack of
trained workforce, complexity of the project, inadequate design and commercial
pressures to win the project.

It has been recognised that within the Construction industry
there needs to be some improvements. The Deputy Prime Minister John Prescott in
1997 expressed deep concerns that the industry was not meeting the needs of the
client and because of this; the Construction Task Force was set up (The Egan
Report 1998). Both Latham and Egan conducted a study in the nineties of how
they think the construction industry should move towards achieving a successful
project.

Everyone believes that collaborative working amongst all
parties plays a key role in delivering a project successfully. Communication
between all parties is important to ensure that the project gets delivered
successfully. The Cost Manager makes a good point that cost, quality and time
are interlinked but the reality is that on every project some compromise must
be 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 late
however with the required end date never seemingly moving and hence placing
Contractors in to a very difficult position from the very start of a
project.  One could argue that Clients
are in fact one of the primary reasons for projects failing.

 

 

CHAPTER
1- Introduction

1.1  
Rationale for the research

The 21st century has
seen a rapid demand in the number of infrastructure related construction
projects in London particularly. These projects, due to the Brownfield nature
of the project sites, are becoming increasingly more complex as new
infrastructure fits over, under and adjacent to existing buildings, tunnels and
other underground structures; including existing foundation structures. The
complex geography places even greater risks on Clients and Contractors. Despite
publication of The Latham and The Egan reports in the ninety’s there are still
too many large scale projects being delivered late and over budget. Most people
amongst the industry and the public assume that delays and cost overruns are
chiefly down to the Contractor’s shortcomings. This report seeks to understand
where the issues lie and measures that could be taken to avoid their recurrence
and whether the Client is also at fault. The construction industry is always
changing and facing many challenges. In many cases, for example the Crossrail
Project and Victoria Station Redevelopment, the tangle of existing structures has
led to the need for innovation which in some cases is untested and therefore at
higher risk of failure.

This research is set out to understand whether Contractors
are looking at lessons learnt from other similar projects. “Many companies do
not document lessons learnt because employees are reluctant to sign their names
on documents that indicate they made mistakes. Thus, employees end up repeating
the mistakes that others have made.” (Kerzner, 2006). In addition, the failure
of 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 may
take on work beyond their usual expertise.  (Construction Informer Blog, 2012)

Both the Latham report ‘Constructing The Team’ in 1994 and The
Egan report ‘Rethinking Construction’ in 1998 will be taken into consideration
whilst carrying out this research. Sir Michael
Latham described the industry “as ineffective, adversarial, fragmented and
incapable of delivering for its customers.”  (Designing buildings, 2016) A decade on, The Egan report has had some
impact but not the significant effect it was hoped it would have to improve the
industry.

Partnering has
become popluar in the construction industry after The Latham report promoted a
collaborative management approach between parties in a binding contract. This
means that parties can lean on each other “for success and this requires a change in culture,
attitude and procedures throughout the supply chain.” (Designing
buildings, 2016) It is
wise to use partnering on long term, high risk and large projects.  However, whilst there is collaborative
working with ‘mutual respect and cooperation’ between the Contractor and the Client
there still remains the underlying contract. The contract works well when
things are going well however, it is well documented that when things go bad
the parties can become adversarial especially when there is delay and cost
overruns in the equation.  (Adjudication,
2005)

Joint
ventures are now commonly used on large complex projects to bring together the
different expertise required to deliver the complex projects under the single
umbrella. This reduces the risk of delivery as all parties have a vested
interest in the success of the project. The parties to the joint venture have a
proportioned investment in the project, depending on the size of the project
and the scope of work they are specifically dealing with under the JV. The
benefits of JV’s are clear; they bring a range of different experts to deliver
complex projects which require multiple different discipline types to be
delivered. (Construction Manager Magazine, 2013) Experience has shown that JV’s do not always work well
where different companies to the JV are from different countries leading to
breakdown in communication and conflict in working style and cultures; take the
well documented case of the Scottish Parliament Building at Holyrood.

Contactors
are 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 as
costs to deliver the project eat in to their profits.

CHAPTER 2 – Historical Background

2.1 UK Construction Industry

For years, there has been a perception that the UK
construction industries were to blame for waste and failure on large scale
infrastructure projects.  The Government
commissioned The Latham Report ‘Constructing the Team’, which was published in
1994. This report and subsequent reports highlighted the reasons for the
failures in the construction industry and made many recommendations for better
practices and contracts. Today, in the UK, the type of contracts being used to
encourage collaborative working and push the ethos of partnering, and
most large-scale government projects are let on
the NEC form of contract which places a significant emphasis on
programme and cost with the Early Warning mechanism. However, given the
time which has elapsed since The Latham Report and the form of contracts being
used there are still too many large-scale projects finishing late and over
budget.

The perception, whether true
or not, seems to be that wherever a project is completed late or over budget or
when there is a dispute that the blame lies with the Contractor.

However, even with the extra
lengths that Contractors have gone through over the last 20 years to improve
their image, the image of Contractors in the public eye perhaps largely remains
a negative one. This is not entirely surprising to people in the construction
industry. Take for example the works at Tottenham Court Road Station, in
Central London, which has seen major road closures for many years whilst
utility diversion works were being undertaken (Office,
2017). These utility diversion works were crucial to the project, as
without the diversions the works for the new Underground station, including
tunnelling 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 to
these road closures. Unfortunately, it is the Contractor who is the public
facing entity whom the public see and the person who created the problem in
their lives. No matter what the Contractor does in this instance they will get
bad press even though it is likely that the traffic management arrangements
placed 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 negative
publicity.

2.2
  Large Scale, Complex and ‘Unknowns’

No matter how good the Client
design or how much ground investigation has been carried out by the Client it
is likely that due unknown ground conditions and physical obstacles that there
will remain many risks to the project which have the potential to delay a
project and increase costs. Again, taking the example of the utility works
around Tottenham Court Road, the nature and location of the existing utilities
was likely a major unknown despite the Client having commissioned several
surveys. It is not until the works are undertaken with full road closures, or
part closures under traffic management that the true number and location of the
utilities can be understood (Office, 2017).
It is the case historically that records kept by utility companies are at best
very poor. This is an example of significant risk which will very likely lead
to programme delay and programme overrun, which in part will have been
calculated by the Contractor (Manager, 2013).
Any delay is not a complete surprise to the Client who is aware of the
potential for this to happen however, again the public will likely not
understand this complex issue and again the Contractor will get bad publicity.

In London, there are a
significant number of existing underground structures including tunnels and the
foundations of existing buildings (Manager, 2016).
Adding new structures and tunnels to an already congested area increases the
risk of programme delays and cost overruns. The locations of the existing
infrastructure are not easy to reference due to poor records and to carry out a
full and comprehensive survey before a project starts this adds a prohibitively
large cost to the Client especially when full funds are not available prior to
the project fully going ahead upon Contract Award. Projects are thereby
inherently let with a major element of risk attached.

2.3   Programme, risks and the Target Cost

The idea that a project,
which finishes later than originally planned, is late and a project which ends
up costing more than originally calculated is now overrun should be challenged.
It is crucial to the argument that the public understand that large scale
complex infrastructure projects in built up Brownfield sites are inherently
risky and that there are a significant number of unknowns which, if encountered
will likely cause programme overrun and or cost increases. The NEC form of
contract which is now used in the UK, and increasingly popular overseas, has
been formulated to take in to account that these complex projects will have
risks which cannot be foreknown and hence the risk is shared by both the Contractor
and the Client under a pain-gain share mechanism. The very nature of the types
of project being undertaken means there is no precise completion date or final
cost. The programme has a ‘Planned Completion Date’ and the cost is a ‘Target
of the Prices’ meaning that everything is based on a professional judgement
with the available information (NEC3, 2005).

2.4   Time Risk Allowance (TRA)

Complex construction projects
means there is always an unknown element. Take the relatively simple example of
laying a blockwork wall; from past records, we can ascertain that a reasonably
experienced worker lays on average 12m2 per day per 8-hour day
including an hour break for lunch (Planet, 2011).
This rate of production assumes that nothing goes wrong and that the supply of
bricks is constant and the mortar for the bricklaying is always available to
the correct specification and that the builder works at a constant pace with no
stops apart from his lunch break. The reality is that there is always the risk
that things will not go to plan and that the works could be interrupted due to
the mortar mix not being the correct consistency and the supply of blockwork
running out and that in fact the builder takes regular breaks to smoke. The Contractor
bidding the works would therefore include within the programme of works an
element of time risk allowance (TRA) so that they can protect their programme
position in case they are liable for liquidated damages for delaying the
Planned Completion Date (Eggleston, 2009).
The NEC contract in fact places a requirement on the Contractor to reveal the
percentage of TRA he has included within his programme. There however is no
requirement to include time risk allowance but to indicate what has been
included. The time risk allowance included could in fact be Zero days where the
programme is very tight but the Contractor wants to show they can still meet
the required end date. This might sound surprising however Contractors are
inclined to provide a programme with as earlier a completion date as possible
to reduce their overheads and hence provide a low tender price in order to gain
an 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 programme
duration and sequence during tendering process in order to obtain the most
realistic programme from the Contractor and reduce the Clients risk. In
practice though it proves to be a very difficult battle when the Contractor
provides a very lean programme with minimal or no time risk allowance and the Client
demands that the Contractor include a generous time risk allowance whilst still
providing a low tender price.

 

 

2.5  Activity Schedule and Contract Data

 

Funding has been provided by
the Government for small team experts to put together the Contract Data section
of the contract which will eventually form the key documents for the Invitation
to Tender (ITT) which will then be priced by the Contractors in the market
place. A Designer will have been procured to carry out an initial design to
understand the scope of works required. The list of works to be undertaken will
form the Activity Schedule which is effectively a list of every item of work to
be undertaken to deliver the project successfully. Against each Activity a
forecast cost will be placed which will then give the Client an idea of the
project cost. At this initial stage and due to limited funding, it is very
likely that the design undertaken will not be very comprehensive and that there
will remain a number of risk items which will form part of the Clients ‘Risk
Register’. The Client will at this stage put together a Reference Design,
Contract Data giving the future Contractor a list of key dates such as site
possession dates and a Contractual Completion date. This package, along with
other site information, will form the ITT package (Manager, 2013).

Note that the Clients team
will also put together a detailed construction programme with a particular
sequence to reflect their gathered knowledge of the site constraints and third
party interfaces together with planned activity duration. The Clients team will
have again a limited resource and knowledge base and there is an inherent risk
that the programme may not be realistic and that the Tenderers will come back
with a different planned completion date and sequence.

The Client will at this stage
carry out a Risk Review and produce a detailed Risk Register listing all
potential risks with probability and costs against each risk should the risk be
encountered on site. The programme will also undergo a Quantitative Risk
Analysis (QRA) to provide the Client with the probability percentile for
achieving the desired Completion Date and Target Cost. Again, the Clients own
aspirations are not definite and they are aware that both programme and cost
are an estimate. The public are not fully versed with this process and hence do
not appreciate perhaps that things can go differently to that planned in the
early stages of the process.

Note that given the level of
investigation and survey undertaken at this early stage it is very likely that
the full scope of works has not been identified and that there is a significant
chance of scope creep post contract award. Take for example works to an
existing water treatment plant where the infrastructure is over 50 years old
and likely past its design life (Manager, 2013).
Unless detailed surveys are undertaken then the true nature of the works
required will not be known until the Contractor starts his works on site and
then gets to understand the issues and begins to understand the real
requirements to replace say the old equipment with new. Again, the Client will
have included some provision in the risk register but a good chance that not
everything will have been captured.

2.6
 Tenders

This is perhaps the stage of
the project where the biggest risk to the programme and cost lies. Contractors
know that they are in competition with other Contractors who are equally keen
to win the project. A Contractor who puts in a high price and a programme which
does not meet the Clients required key date knows that they will very likely
not win the project. Given that Clients in the UK still place a very high score
for the Commercial element of the tender scoring, Contractors will try to
reduce their tender price wherever they can and place caveats within their bid to
lessen their risks (Hassan, 2015). Contractors
are forced in to this position, as they do not want to lose the project. It is
likely that any caveats will be removed by the Client and that the price will
remain low which means that the Contractor, should they win the project, will
start off on the back foot from day one and will try to recover their costs
during the lifetime of the project. This is a recipe for a bad Contractor and Client
relationship from the very beginning. 
One of the ways in which the Contractor can recover their losses is to
reduce staff numbers and overheads. This has historically led to reduced
quality of works and disputes. It could be argued that the Client has pushed
the Contractor in to this impossible position. This is something that the
public do not see. Profit margins have decreased over the years meaning that Contractors
are forced into sharp practices. This has also led to a marked reduction in
apprenticeships and graduate intake and training.

Historically, UK Clients have
always based their tender scoring mainly on cost, as cost is what resonates with
the public and the Government who are always pushing for a low price and early
completion for obvious political reasons. One of the first things you hear in
the press is the cost of the project and there is always a huge push from the
public and the Government to push down the cost. Quality does not appear to
take the same stage as cost and hence Contractors are forced to reduce their
costs knowing that they are otherwise in a disadvantaged position. Most Contractors
will win the job and then try and recover their costs (Wells, 2005). For the
contractor wining the job is better then losing the job. Clients are however
aware of the risks and they usually carry out their own QRA and have a
contingency pot of money and a most likely completion date which the public is
not usually aware of. The Client is aware of the very likely potential of
programme and cost overrun however the public are not aware of this and when
the programme is delayed the Contractor usually gets the blame.

2.7 Some of the reason for getting it wrong

There are many and varying
reasons why projects are still failing. The list below gives some of the key
reasons:

Commercial pressure to win the project: Contractors are increasingly joining forces with
worldwide and European companies who have expertise in certain areas of
construction. Contractors are tendering for major projects as Joint Ventures
giving them the advantage to prove to the Client that they have the skills and
knowledge to deliver the project. The market place as a result has become
flooded with competition for large scale jobs and this has forced Contractors
to reduce their costs to win jobs. Contractor’s profit margins have reduced
significantly over the last 10 years (Manager,
2013).

Late contract award:
Rules and regulations and Government procedures has historically meant that
many large scale projects have been awarded very late with the Project
Completion date staying the same. Take the recent example of the High Speed 2
project in London which has been continuously delayed due to delays in Royal
Assent (news, 2017). This has placed
significant pressure on Contractors to place their bids showing that they can
still achieve the Clients required dates.

Lack of trained workers: Contractors have been working on tight margins for
many years. Budgets for training have been cut significantly and there is
always a shortage of skilled labour. The market place is flooded with cheap
immigrant labour from the European Union however often these workers are
unskilled and in many cases, there are problems with language and communication
resulting in poor workmanship and aborted works.  (Client, 2017)

Complexity and objectives: Sometimes where no clear objectives are set this can
cause confusion from the very beginning of the project. Occasionally some
projects maybe to ambiguous and cannot be achieved within the timeframe
requested by the Client. Within the construction industry change is a very
common 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 as
providing a detailed design is far too costly and therefore difficult to
justify before a project has been given the formal Government go ahead or Royal
Assent. (Contractor, 2017)

2.8
Summary

Whilst it remains the case
that it is still fashionable to blame the Contractor for things going wrong
this Chapter highlights the fact that things going wrong are often unavoidable
given the way the procurement of large scale complex projects are undertaken in
the UK. Unless we can change the minds of the public that large cost does not
always mean failure and that these projects are inherently risky and will
always likely be completed later than planned. In some cases however, money is
no object in the case of meeting an immoveable deadline such as the 2012
Olympics opening date. Contractors will always be accused of getting it wrong.
The industry needs to change with greater emphasis on quality and delivery
rather than cost.

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