Several other factors often prevent construction projects from achieving their schedule, quality and financial objectives. Although not exhaustive by any means, the following risks can also lead to costly mishaps during the construction cycle, and so should be factored into the process:
Country and Political Risk
Many of the same management skills necessary for successful project execution apply to construction projects in all corners of the globe. But at the same time, it is important to recognize there are special differences when working in countries outside of the United States, and particularly in emerging market countries. These include political and economic risks. For example, a nation's economic performance and political stability exerts considerable impact on construction investment and activity. Issues to consider include a government's:
- fiscal responsibility;
- monetary policies;
- ability to adjust to internal and external "shocks;"
- terms-of-trade with trading partners;
- availability of resources;
- infrastructure and access conditions;
- shifts in political leadership; and
- changes to administrative agendas.
A project's economic viability largely depends on its capital structuring and its ability to attract reliable sources of funding at reasonable terms. These issues are typically quite complex and require rigorous financial analysis during the project's programming phase. These factors are compounded when working in countries outside of the United States, where tax structures, project equity and ownership laws, and credit availability may be dramatically different. Such issues include:
- tax structures and incentives;
- availability and ability to obtain adequate credit;
- ability to pay down project debt;
- allocation of project equity among project owners; and
- fluctuations in currency exchange rates.
Weather and Natural Disasters
Construction sites are highly susceptible to the vagaries of weather and natural disasters. Obviously, adverse conditions such as snowstorms, earthquakes, hurricanes, prolonged temperature extremes and extended periods of rainfall can impact any project schedule. Recommendations that can help to mitigate their unpredictable nature and consequences include:
- Assure during the design phase that seismic and hurricane building code requirements have been appropriately factored into the contract documents.
- Ensure that provisions for inclement weather protection is adequately addressed in the design specifications and contractor bids.
- Determine whether project schedules contain any contingencies for inclement weather that may occur during the performance period.
- Assure that the manpower selected for the project is properly trained, adequately equipped and outfitted, and mentally prepared to work under these potentially adverse conditions.
- When appropriate, consider granting non-compensable time extensions to the contractor to cover the schedule delays introduced by adverse weather conditions or natural disasters.
Ideally, every project should address environmental issues during the programming and design phases of the project. These issues typically revolve around special regulations, permits, and approvals required by local, state or federal entities, and can take significant amounts of time and manpower to finalize. It is not uncommon, however, for unforeseen situations to surface during the construction and close-out phases that require prompt attention and swift resolution. When these types of issues are surprises, their impact on project schedule and budget can be adversely exponential. As a consequence, special attention should be given to:
- early identification of hazardous site conditions;
- early identification of archaeological and/or historical site conditions;
- mitigation of vehicular traffic;
- conducting public hearings as required, and compliance with special notification procedures;
- coordination and concurrence from involved governmental entities and interested third parties;
- resolution of easement and/or boundary conditions;
- negotiations with utility companies;
- obtaining required permits (including any special permits);
- pending legislative initiatives; and
- compliance with special notification procedures.
When considering these issues, a realistic assessment of the process involved and the time required for resolution should be made by the project team and incorporated into the project schedule as early as possible.
During the programming and design phases it is particularly important that interdisciplinary communication occur in timely, routine and regimented fashion. The architects and engineers should regularly review progress with each other and confirm that adequate attention has been given to internal quality assurance, coordination of various design disciplines, and manufacturers' specifications. Once construction begins, periodic field inspections should be performed to ensure conformance of the work with the design. Specific recommendations to mitigate potential errors and omissions include:
- Assure that the most up-to-date and complete set of contract documents have been distributed to all involved parties.
- Conduct an adequate number of geotechnical probes and geological surveys so to reduce the potential for encountering differing and unknown site conditions during construction.
- Conduct third-party design reviews, which is particularly important when novel techniques, materials and applications have been specified.
- Minimize the use of novel techniques, materials and applications with a fast-track or design-build model.
Project Management and Controls
The success of construction projects hinges largely on the experience and decision-making capabilities of its management team, and the control systems in use. Key issues and recommendations to consider include:
- Monitor progress on a routine basis and develop recovery plans. Evaluating and a troubling issue can be a complex exercise, best accomplished by using a well-defined management structure and systematic cost control system. Once the root causes have been isolated, project participants should develop methods to effectively resolve these issues. Implementation must proceed rapidly and changes in progress must be monitored continually.
- Ensure that oversight roles are communicated and disseminated to all project participants, and that adequate numbers of skilled project supervision is in place.
- Establish document controls and reporting protocols that correspond to the size and complexity of the project.
- Assure that internal quality assurance and control programs are in place and that they are followed.
The evolution of an abstract idea into a fully-built project can take years, sometimes decades. The process is complex and requires the creative efforts of dozens of skilled and experienced construction professionals, who along the way are charged with addressing and resolving thousands of decisions. While difficult - if not impossible - to accurately predict the vagaries of politics, weather and economics, following these straightforward guidelines will tend to mitigate many of the risks that can impact performance on a construction project.
Wayne H. Kalayjian is a director with in LECG's real estate and construction advisory practice in Los Angeles. He has over 25 years of industry experience, with specialties in construction cost investigations and project audits, defect actions, cost estimating, financial controls, organizational change, and process improvement. Mr. Kalayjian is a licensed professional engineer in several states, and has testified as a construction damages and liability expert in federal and state courts across the country. He holds academic degrees in civil engineering from Tufts University, structural engineering from Stanford University, and business management from the Massachusetts Institute of Technology. Wayne can be contacted at (310) 712-0149 or at email@example.com.
|How to Avoid Mishaps During the Construction Cycle|