MDA Law
Are eurocentric project implementation strategies appropriate for the African environment?
IF NOT, WHAT CAN BE DONE ABOUT IT?
Carrying out projects in Africa is demanding for a number of reasons. Firstly skills availability. The higher up the management tree you look, the more difficult it is to source the human resources necessary for the technically and commercially demanding world of modern contracting. Secondly, materials of an acceptable standard to conform to modern quality requirements may not be readily available and quality and durability issues can present themselves. Thirdly logistics, distances are big, and road and rail access can, in extreme cases render projects simply non-viable.
In addition, infra structure development projects are perceived as an opportunity to provide short term job opportunities and to enhance skills transfer. There are therefore heightened expectations from local stake holders that are often not met.
Many projects in Africa are, furthermore, funded by various aid agencies and come with requirements that the work be designed and supervised from the community providing the funding. In Africa, we are used to operating in a multi-cultural environment. People with, for example, a northern European background, are not necessarily so attuned to working on projects where there are multi-cultural challenges, and this can lead to frustrations and conflict.
Against this background, it is vital that the implementation strategy adopted on a Project in Africa provides a platform where these risks and expectations are accommodated in a fair and reasonable manner.
The FIDIC suite of documents is designed for international contracts, where (presumably) the possibility that the Contractor, Engineer and Employer, as well as the financier may all come from different countries is anticipated. These contracts do, however, assume that a modicum of competency (both technical and commercial) across the various players is available and the standard risk allocation adopted by FIDIC for all their contracts, wherever they may be located, will be fair and reasonable to all the parties.
One of the challenges facing the promoter of a project and of the designer of such a project, is to anticipate the risks that are likely to be encountered and to allocate these risks fairly to the Party best able to manage such a risk.
The problem arises when risks that are not anticipated (either by the Employer, Engineer or Contractor on a project) manifest themselves during the execution of the project, and there are no mechanisms in place to deal with these or even, in extreme circumstances, a willingness to address these risks collectively. They are just lumped under the one banner as “Contractor Risks”.
Conventional construction contracts like for example the abovementioned FIDIC suite of documents are what are termed as “adversarial” contracts. They promote a “them and us” environment for dealing with the issues arising under a contract. In other words, risks are dealt with in what is suggested (by this observer) may be a potentially unfavourable environment.
Scarcity of work and an overtraded construction industry can lead to under-pricing (particularly where the main tender adjudication criteria is price), poor performance (where service providers perform down to their price) and an escalation of claims and disputes.
Scarce resources are then diverted from their core tasks to resolving what are essentially peripheral issues and the project outcome is invariably unsatisfactory.
Steps therefore need to be taken to avoid this predicament and to facilitate team work. A collaborative implementation and more realistic risk sharing strategy needs to be adopted.
COLLABORATIVE CONTRACT FORMS
It is suggested that to achieve these objectives, the Parties need to adopt a more collaborative approach to implement the project such as what is commonly called an “Alliance”.
This can be achieved by the adoption of a memorandum of understanding whereby the Contractor, Engineer, Employer, (potentially, it is suggested including major suppliers, the work force and the local community) are bound and incentivised to cooperate to the end of achieving a successful outcome that can be objectively measured against a predetermined performance profile.
Standard forms for this “memorandum of understanding” are available such as FAC-1 drafted in 2016 by a team at Kings college London.[1]
FAC-1 is compatible with all and any combination of FIDIC/ICC/JCT/NEC/PPC contract forms, sub-contracts and term contracts[2].
NEC also published in June 2018 their NEC 4 Alliance Contract which combines the Alliance Memorandum and the Project Contract.
Alliances are not a new concept. They have been used successfully, for example for the exploitation of the North Sea Oil Fields where conventional contract implementation strategies obviated these developments for economic reasons. Applying Alliancing, savings in both cost and time meant that these assets could be exploited successfully[3]. Some harsh lessons were however learned such as savings in capital expenditure resulted in certain instances, in increased maintenance and running costs[4].
Track forward 20 years and we find a healthy stream of, in particular building contracts, and specifically refurbishment contracts, that have been very successfully implemented using Alliances[5].
One of the unsung heroes of Alliancing was the reconstruction of Christchurch, New Zealand following its destruction as a result of a series of multiple earth quakes in February 2011[6].
What is significant, in this observer’s opinion, in these examples is the ability to integrate stake holders into the planning and management process. Something that could not be achieved (it is suggested) with conventional Eurocentric adversarial implementation strategies.
So, for example, the community in Christchurch was used as the source of skilled resources for the design and reconstruction. Because of the inclusive and open nature of an Alliancing arrangement, better communications could be achieved with the community and this diffused what otherwise could have been potentially disastrous conflict over prioritising of the work. One can imagine the arguments that could have eventuated about whose street and whose house should be rebuilt first!
This is why the model has also been successfully used for refurbishment of Brown Fields projects where residents often have to be decanted for one area of the building being refurbished to another area to allow refurbishment to take place.
Whilst ultimately, the objective of this form of contracting strategy is to drive down costs and make money that is in short supply, go further[7], it is suggested, in the African context that there are other benefits that motivate for the adoption of this form of implementation strategy including:
- Greater community involvement
- Sustainable job creation
- Skills development
- Generally improved value.
THE PROCESS[8]
Although there have been a number of approaches to establishing Alliances, the following summary is based on the Two Stage Open Book and Supply Chain Collaboration model developed by Kings College London.
Two Stage Open Book is a system of preconstruction phase project processes governed by the early appointment of a full project team. The involvement of the Contractors at the earliest stage of the project is crucial to the successful outcome of the project.
The process obviously commences with a commitment from the Client organisation to this process.
The Client then invites prospective team members, whether for a single project or under a framework or alliance, to bid for a project on the basis of an outline brief and cost benchmark.
A number of Tier 1 Contractors and Consultant teams compete for the contract in a first stage, with bidders being chosen based on their capacity, capability, stability, experience and strength of their supply chain plus their profit/fees/overheads and their other costed proposals as appropriate.
The adjudication criteria therefore, in summary, are as follows:
- Technical capacity and competence
- Cultural fit of the Employer, Consultant and Contractor organisations
- Commercial terms
- Price
In a multicultural environment cultural fit is paramount to the success of the collaboration and by implication, the Alliance.
The successful Tier 1 Contractor and Consultant team are appointed to work up detailed proposals on the basis of an Open Book cost that meets the Client’s stated outcomes and cost benchmark as a second stage.
The Two-Stage Open Book model reduces industry bidding costs, enables faster mobilisation and provides the opportunity for Clients to work earlier with a single Integrated team testing design, cost and risk issues ahead of start on site following full project award at the end of the second stage.
At the heart of this model is a systematic approach to early Tier 1 Contractor and Tier 2/3 Subcontractor/Supplier engagement, with deadlines for their design and risk contributions during the Preconstruction Phase, and with an agreed fixed price and clear risk profile before the Client authorises the Construction Phase.
Two Stage Open Book comprises a set of Client-led processes designed to develop an Integrated Team through which the Tier 1 Contractor and Tier 2/3 Subcontractors and Suppliers are appointed early in order to make the maximum contributions to improved design, costing, risk management and programming of the work/supply packages comprising a project or programme or work.
Thereafter the project should fall under the control of a committee made up of representatives from each of the Alliance members that should direct the day to day operations on the project.
A more proactive risk management strategy should be enforced. The provisions of clause 8.3 of the FIDIC Red Book 1999 (for example) should be enhanced to ensure that it is everyone’s business to identify risks and to manage them when they arise.
Risks may be reallocated, where a Party to the Alliance is in a better position to manage such risk.
Cultural fit (and appropriate behaviour) is very important in collaborative contracts and this will require that where an Alliance approach is to be adopted, the cultural fit between the Employer, Consultant and Contractor needs to be assessed prior to entering into the Contract.
Furthermore, Alliance unfriendly behaviour should not be tolerated. Alliance unfriendly behaviour would require an individual to undergo counselling or in extreme cases the individual should be removed from the site. Where differences between the Parties cannot be resolved and a dispute arises, the disputing Party should be expelled from the Alliance.
The essence of this arrangement is one of flexibility, in reacting to the dynamic everchanging contract/construction environment. Allocation of work is also flexible on a best fit basis, so that the skills utilization in the Alliance is optimised. Similarly, the collaborative nature of the contract should be enhanced by appropriate amendments to the Contract.
WHAT ARE THE PROVEN BENEFITS OF TWO STAGE OPEN BOOK AND SUPPLY CHAIN COLLABORATION?
- Cost Savings – Of up to 20%, transparently agreed without eroding margins.
- Cost Competition and Control – Robust, competitive processes to select Consultants, Tier 1 Contractor(s) and Tier 2/3 Subcontractors and Suppliers, for the whole project/programme of work and for each work/supply package, with ongoing cost controls and regular Project Budget reconciliations.
- Improved Design – Systematic evaluation and early incorporation of innovations and other design proposals from Tier 1 Contractor(s) and Tier 2/3 Subcontractors and Suppliers (Section 9.1) and a natural fit with the objectives, relationships and processes that underpin Building Information Modelling.
- Risk Management – Preconstruction Phase contributions by all Integrated Team members to identify and reduce/eliminate risks.
- Time Management – Agreement of clear, binding deadlines at all stages, and new opportunities for Tier 1 Contractors and Tier 2/3 Subcontractors and Suppliers to propose time savings.
- Extended Warranties – Early evaluation of extended warranties potentially offered by prospective Tier 2/3 Subcontractors and Suppliers.
- Sustainable Solutions – Early evaluation of more sustainable materials and working methods proposed by prospective Tier 2/3 Subcontractors and Suppliers.
- Stakeholder Consultation – Increased opportunities to consult end-users and other third parties, including affected community residents and to take their views into account.
- Appointment of SMEs and Local/Regional Businesses – A unique opportunity for joint assessment by the Client(s) and Tier 1 Contractor(s) of particular benefits offered by SMEs and local/regional businesses in relation to particular work/supply packages.
- Employment and Skills Commitments – The ability to measure and improve the agreed employment and skills commitments of Tier 1 Contractors and Tier 2/3 Subcontractors and Suppliers.
Author: Ian Massey, Director, MDA Consulting
[1] See for example PPC 2000 and TPC 2005 now redrafted by a team at Kings College London as a new form of Alliance Contract known as FAC-1
[2] Professor David Mosey PhD
[3] BP Expro- Andrew Platform Completed in 1996
[4] Anecdotal- Kerfoot. N- Advance Consultancy
[5] 26 case studies in http://ppc2000.wiserhosting.com/wp-content/uploads/2016/12/10-Year-Anniversary-PPC-and-5-Year-TPC.pdf
[6] Duncan Gibb ICE Brunel Lecture 2015
[7] See the Government (UK) Construction Strategy [2011] which set out to achieve savings in construction procurement of up to 20%.
[8] This is based on the Two Stage Open Book and Supply Chain Collaboration guidance document prepared by Professor David Mosey and reproduced subject to the Open Government License. A copy of this license can be downloaded from psi@nationalarchives.gsi.gov.uk
