is construction cost growth breaking your budget?
TRANSCRIPT
Is Construction Cost Growth Breaking Your Budget?
APWA2008 Annual Conference
New Orleans
2
Who is PSMJ Resources, Inc.?• Content Providers of Management Information• Focused Exclusively on the A/E/C Industry• More than 30 Years
Newsletters Surveys & Books
Seminars & Conferences Consulting
Strategy
Marketing
Project Delivery
Finance
Human Resources
Transition
2
Your Speaker
• Michael S. Ellegood, PE (Mike)• Former Director of Public Works‐Maricopa County (retired)
• 22 years as a consulting engineer and project manager
• Published author• Associated with PSMJ since 2000
– Technical content leader, public works programs
• Member, APWA
3
The Problem
• Excessive construction cost growth
• In Maricopa County, construction cost growth exceeded 13% on average
• According to a recent AASHTO study:– On larger projects (>$5M)
• 82% exceeded original bid
• 30% exceeded over 10% of the original bid
• How does your agency perform?
4
Why Do Projects Fail?
5
PSMJ’s Top 20 Excuses for Project Failure
1. The project team was full of incompetents.
2. I didn’t have enough time.
3. The customer kept making changes.
4. The budget was unrealistic.
5. I couldn’t get enough help.
6. Working for that client is impossible!
7. I couldn’t get the information I needed from accounting.
8. The schedule was unrealistic.
9. Everyone kept charging to the job.
10. _____ was taken off the job at the worst possible time.
11. I wasn’t given enough authority.
12. The designers wouldn’t stop designing.
13. The contractor didn’t understand the job.
14. This job was unique.
15. The building dept. is full of idiots.
17. The subs would not cooperate.
18. The word processing people kept getting pulled off my job.
19. ________ quit and left me holding the bag.
20. The CADD operators didn’t know what they were doing.
6
Frank Stasiowski’s* Definition of Project Management
• “The art and science of guiding all of the stakeholders through a series of changes that we call a ‘project’”
*Frank is the founder and CEO of PSMJ Resources. A highly respected architect , he is widely respected as the developer of many of the project management protocols now in common use.
7
8
“Change is inevitable, the trick is to discover it early” (then manage it)!”
Managing Change
9
Change Effect Over Time
10
$
COMPLET ION
PLANNING PHASE
DESIGNPHASE
BID & AWARD
CONSTRUCTION PHASE
Time
The earlier in the project change is recognized, the easier and cheaper it is to manage.
Resolution Management Consultants
11
Charter
PS&E
ManualsTraining
Phases of a Project
Change Management Begins Here
Project Charter AcceptancePrepared by :
Program Review:
Sponsor Approval:
Project Manager Acceptance:
Type name of assigned PM, Project Manager Date
Note: A final signed copies of the project charter will be provided to the Program Office, Customers and Director.
12
• Develop a Project Change Management Process• Determine project change threshold
– (Perhaps an aggregate change of 10%)
• Establish a structured review process– “Summit meeting”
– Project change control board
• Never authorize a change without:– Modifying the Scope, Schedule, Budget, WBS & PMP and a change to your supplier contract
– Obtain your client’s signoff
13
Change Management Plan
Recognize the Typical Causes of Change
• Changes in IT requirements
• Changes in codes
• Security concerns
• Adjacency (land use, tenants, etc.)
• “NFW” changes desired by the client
• Underground conditions
• Environmental and permitting changes
• Political / Public Acceptance
14
Putting Change Management Together
• Develop and disseminate a project charter– Jointly developed with the client and signed off
• Develop a project change process
• Develop risk and quality management plans
• Do not short change the underground investigation.
• Conduct a proactive public outreach program
15
Tools to Manage Change
16
News Flash: Projects Are Built in the Field!
Common Problems Ways to Avoid ThemWrong or outdated design references
Incorrect or differing survey datum
Utility interferences
Unchecked plans
Stale plans
Field conditions vary from design assumptions
Identify design references by edition and date, not “latest edition”
Reference adjacent facilities to your datum
Field reconnaissance with the PDT at the start of the project
Design staff required to field check during design
Construction Manager (or other experienced construction person) involved in all design reviews
Plan-in-hand review at 70%
Final field check just before IFB17
Forget this andstand by for changes!
How good are your plans?
“Bid spread is one of the most effective measures of the quality of a plan assembly (and the potential
for change orders)”.
18
What do we look for?
• Bid spread of ≤ 20% low to high
Or
• Bid spread of ≤ 15% among three close bidders
19
Storm Sewer Renovations
• Low Bidder ‐ $193,100.00
• 2nd Bidder ‐ $276,300.00
• 3rd Bidder ‐ $283,200.00
• 4th Bidder ‐ $285,150.00
20
Downtown Alley Parking & Lighting
• Low Bidder ‐ $1,052,839.13
• 2nd Bidder ‐ $1,104,140.58
• 3rd Bidder ‐ $1,221,183.60
• 4th Bidder ‐ $1,362,120.00
21
Asbestos Abatement
• Low Bidder ‐ $339,181.00
• 2nd Bidder ‐ $382,426.00
• 3rd Bidder ‐ $414,880.00
• 4th Bidder ‐ $599,957.00
• 5th Bidder ‐ $610,000.00
• 6th Bidder ‐ $773,057.00
• 7th Bidder ‐ $827,162.00
22
In Spite Of Our Efforts In The Planning And Design Phases, Changes Do Occur During
Construction. They Just Cost More!
Managing Construction Change
23
Impact of Change: #1 Cause of Conflict
If This Happens…Excusable delays
– Weather– Strikes– Acts of God
Owner delays– Late owner‐furnished equipment,
material or information– Failure to make timely decisions– Denied access– Acceleration (directed or constructive)– Change in sequence– Formal changes– Suspension of work
Design professional delays– Over‐inspection– Late approvals– Deficient design
Contractor delays– Subcontractor delays– Failure to adequately staff the job– Defective work
The Result Could Be…• Increased Labor Rates• Additional Labor Hours• Increased Supervision (O.T., Shift Work)• Inefficiency• Material Escalation• Increased Material Handling• Extended Job Duration• Extended Field Overhead• Misallocation of Home Office Overhead• Additional Equipment• Idle Equipment• Assessment of Liquidated Damages• Termination for Default
24
TRANSLATES
I NTO
Resolution Management Consultants
Categories of Construction Change
• Delays – owner, designer, contractor caused, act of god (force majeure)
• Scope Changes
• Condition Changes (actual conditions differ from design assumptions)
• Design Related Changes (Errors, etc)
25
Delay Related Changes
• The most common cause of claims• Often result of non‐responsiveness to RFI’s and contractor
communications
Tips• Develop a process for managing contractor communications
(RFI’s, submittals, etc)• Maintain communications – ask the hard question• Discuss contractor communications at every weekly meeting.• Determine schedule impact of contractor communications• Go over RFI’s & Submittals at every meeting and ask the hard
question: “Do we owe you anything?”
26
Scope Changes
Usually the result of:
• Customer requests after set milestone dates
• Not following the plan assembly
Tips• Don’t hesitate to inform the customer of increased cost
• Remember, the plans are more than a suggestion!
27
Changed Conditions
• The site conditions differ from the design assumptions (often underground conditions such as hidden utilities, rock outcroppings, etc.)
Tips • Investigate immediately, identify alternatives, act before it
delays the project
• Flow chart the impacts – scope, schedule, budget
28
•Hindsight: Don’t skimp on the underground investigation even if you (think) you know what’s there.
Design Related Changes
• Usually related to, if not caused by, design error
Tips
• Assess the alternatives
• Identify the impacts on scope, schedule, budget
• Make a decision
29
•Hindsight: Thorough design review, documentation of plan check, field checks and a release for construction process will help prevent this from occurring.
For every Change Order:• Identify costs relating to change• Identify activity (or activities) affected by change• Require documentation showing whether a time extension is
required (Is this on the critical path?)• Contractor should segregate change costs and hours from base
work• Contractors should include all change‐related costs at the time
the change is executed• Owners should attempt to close out change order (full and final
settlement) by including all direct and indirect costs and any time extensions due
30
Change Order Management
Remember …
• Change is inevitable, find it early and deal with it.
• Unlike fine wine, changes do not get better with age.
• Always consider the schedule impacts of change –scope, schedule (is it on the critical path?), budget.
• Move for quick resolution – contract modifications should include scope, schedule and budget.
31
Not all identified claims will result in actual claims, contractors will use
them as place holders in case of need.
Claims Management
32
Protocols for Managing Claims
• Inspectors’ logs• E‐mails• Critical Path Items • Schedule and Review times• Documentation• Weekly Construction Meetings• Put a time‐limit on filing claims• Ask at each project meeting if any claims are pending
33
Conflict Resolution Policy
1. Issues will be resolved at the lowest level.2. Time and cost impacts will be identified immediately.3. Issues will be resolved or elevated before impact on cost or
time.4. Elevate together – elevation is not a sign of failure. Identify
issues and elevate ASAP as indicated above.5. Inaction is not an option.6. Time available to resolve issues before impact will be
allocated as noted.7. Once made, a decision is owned and known by all.
34
Keys to Claim Avoidance
• Is it on the critical path?
• Rapid and effective claims management process
• Clearly Defined/Understood Contract Documents
• Timely Attention to Time/Cost Impacts of Change
• Manufacturer/Builder Input in Design Process
• Directions in Writing
• Quick Turn‐Around of Submittals, RFIs and Proposals
• Realistic Expectations
• Partnering
• Third‐Party Intervention When Communication Stops!
• Accurate Daily Logs/Schedule
35
COMMUNICATE - COMMUNICATE - COMMUNICATE
Claims Prevention Checklist
36
A. PRE-DESIGN 1. Adjacent Properties
a. Have all properties adjacent to the site perimeter been reviewed in detail?
___
___
b. Are there: ___ ___ • Seasonal watercourses? ___ ___ • Heavy traffic patterns? ___ ___ • Other independent construction
activities? ___ ___
• Other __________________________ ___ ___ • Other __________________________ ___ ___
2. Boring (Subsurface) Data a. Are boring depths inconsistent? ___ ___ b. Are boring locations erratic or unusual? ___ ___ c. Are boring locations relevant to
construction:
• Are borings provided outside the area? ___ ___ • Are gaps left within the building area? ___ ___
d. What time of year were the borings taken? ___ ___
Yes No
www.RESMGT.com
Where to Get More Information
1. PSMJ Web Site: www.psmj.com2. Project Management Institute: www.pmi.org3. Resolution Management Consultants: www.resmgt.com4. Other Professional Societies
(APWA, ASCE, AIA, ACEC, NSPE, CMAA, ASLA, etc.)5. PSMJ’s Monthly PM Newsletter: PM Tactics (Ask about
organization‐wide electronic distribution)
37
Thank You For Coming
?
Project Planning
Project Charter Table of Contents
Table of Contents 1. INTRODUCTION .......................................................................................................................................1
1.1. PROJECT CHARTER PURPOSE .................................................................................................................11.2. PROJECT OVERVIEW..............................................................................................................................1
2. PROJECT OVERVIEW AND SCOPE.......................................................................................................2
2.1. PROJECT OBJECTIVE..............................................................................................................................22.2. SCOPE...................................................................................................................................................22.3. MAJOR DELIVERABLES..........................................................................................................................22.4. PROJECT JUSTIFICATION ........................................................................................................................32.5. ESTIMATED PROJECT COST....................................................................................................................3
3. PROGRAM GUIDANCE............................................................................................................................3
3.1. PROJECT SPONSOR ................................................................................................................................33.2. DESIRED COMPLETION ..........................................................................................................................33.3. BUDGET................................................................................................................................................43.4. KEY ISSUES ..........................................................................................................................................43.5. OTHER GUIDANCE.................................................................................................................................43.6. OTHER AVAILABLE INFORMATION.........................................................................................................4
3.7 Signature Page ……………………………………………………………………………………………………………….… 5
PSMJ| Resources, Inc. ©
1.800.537.PSMJ www.psmj.com
“Ready for Construction” Verification
PROJECT MANAGER’S NAME: PROJECT NAME: WORK ORDER #: PROJECT #: DATE: Signature of the person who verified information.
1. Plans have been checked by design team in the field within the previous thirty (30) calendar days and any resulting issues have been resolved.
2. Design and construction references have been checked, are appropriate
and are specifically identified by date and/or edition number. 3. The spatial datum (benchmark) has been identified, properly referenced and
located in the field, and adjacent existing improvements are referenced to the same datum.
4. There is a set of check prints on file verifying that the plans have been checked. 5. Specifications are not in conflict with the plans. In those instances where plans need to
contain specifications for clarification of the design, the project manager will verify that the reference is identified with the specifications.
6. Issues raised and errors found in the review processes (40%, 70%, 90%, etc.) are
reconciled and/or corrected in the final documents. 7. Pavement design has been reviewed and approved. 8. The IGA, if any, has been fully executed. 9. Environmental issues have been resolved. 10. Utility issues have been resolved. 11. Right of Way has been acquired and issues resolved. 12. Possible need for updated public notice or involvement has been evaluated.