As proponents of major projects in Alberta seek to dramatically reduce costs and improve efficiency to compete with other global investment opportunities, teams should not ignore the importance of contracting strategy, according to the Construction Owners Association of Alberta (COAA).
The opportunities presented by effective contracting strategy may not be as top of mind as efficiencies for better front-end loading, for example, but they are nonetheless critical for improved performance.
Project owners who don’t invest time and resources into a comprehensive contracting strategy are missing a fundamental step in the construction process, says Nicki Haig, co-chair of COAA’s contracting steering committee.
Currently, many Alberta companies do not have a standardized contracting strategy development process, she says, often basing contracts on what worked on the last project rather than tailored to the specific circumstances of the current operation.
Bill Somerville, Nexen’s general manager of supply chain management, chair of the COAA contracting strategy committee, lists some of the criteria for an effective contract strategy: “What are our project objectives? What are the project and contract risks? What are the different ways we can contract this project? What do we need to self-perform? Who should we invite to evaluate this?”
He says it is critically important to have all main disciplines represented in developing contract strategy and urges project owners to do this using cross-functional discipline teams that are aligned to predetermined project objectives.
He finds these teams force people to think about different ways to contractually execute a project’s scope, generally ending up with a hybrid approach of contract models, which tends to achieve the best results.
This planning should take place during the front-end engineering and design (FEED) phase. Somerville notes that early involvement of construction contractors is valuable. If the construction contract is awarded early, the construction contractor could, for example, offer beneficial expertise when the engineer is in the planning phase. Using the same contractor for FEED and execution can also provide faster cycle times.
If the contract strategy is developed early, COAA notes the project will have a better chance of being fit for purpose, flexible, and able to accommodate and react to bumps along the way.
Quilts and contracts
A key contracting best practice is using an effective work breakdown structure (WBS). This table details who is responsible for what key deliverable by working backward from the project’s final objective to determine a comprehensive classification of scope that organizes the team’s work into discrete, manageable sections, COAA says.
With each scope being coded a different colour, a WBS is sometimes referred to as a “contractor quilt.” If two colours are in the same square of the table, that’s known as an “interface,” an area of overlap that can generate delays and a lack of accountability. Gaps in interfaces, Haig warns, generally fall back on the project owner, causing disputes and conflict.
A WBS can help a project owner see where the risk factors are by managing interfaces, identifying vague project scopes and identifying what deliverables will be impacted by a late work package.
Industry needs education
Effective contract strategy is not a substitute for the fundamentals of project execution. “It’s no silver bullet,” says Haig. Best practices for contract strategies aren’t effective if they’re not appropriately managed.
Alberta companies need education around management of contracts, says Patrick Etokudo, a board member with the Supply Chain Management Association of Alberta and director of supply chain management planning and government with Enbridge.
“What we need to do now is build competencies, not just with supply chain folks but also the guys who are actually in construction: the project managers, the project engineers, the project directors.”
Etokudo notes that Enbridge has brought members of the Institute for Supply Management into its offices to help build the company’s competencies, and encourages other companies to use the supply chain resources available to make sure all members of the project team are on the same page when it comes to contract management.
COAA is currently working on completing its contracting strategy best practices document, which is expected to be available later this year.
JWN's Build Better content is provided as part of our partnership in the Alberta Projects Improvement Network with COAA, GO Productivity and Supply Chain Management Association Alberta.