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Can better contractor selection mitigate project delays?

by CW Guest Columnist on Sep 10, 2017


Vasanth Kumar is the former CEO and co-founder of Arabian MEP and Al Malki Group.
Vasanth Kumar is the former CEO and co-founder of Arabian MEP and Al Malki Group.

It is a very common sight to see celebrations and a lot of happy faces whenever new project announcements are made and new contract deals are signed. But half way into the project duration, the euphoria evaporates and reality sets in.

Is this a very pessimistic view? Well, the numbers speak for themselves. A 2017 report by McKinsey Global Institute says nine out of 10 infrastructure projects face cost overruns and 61% exceed the original schedule. One more report on Middle East construction says that the region tops the list of project value disputes with an average of $82m and 15.2 months for the average length of dispute against the global average of $46m.

It’s quite unfortunate that various factors such as sustained low oil prices and liquidity are pushing the contracting industry into a new era: the age of price war, mistrust and lack of empathy. Not many are aware that the beginning of a new project also heralds the beginning of one more virtual fertile ground for conflicts that eventually becomes a burial ground for unassuming victims. 

Construction is a risky business with uncertainties due to many external and internal factors that influence the outcome of the construction process. Project delay is considered to be the most recurring issue and it has an adverse effect on project success in terms of time, cost and quality.

Delay leads to dispute and dispute leads to destruction. Dispute is a situation where two parties typically differ in the assertion of a contractual right. However due to the huge number of parties involved in a typical construction project, one dispute can easily trigger a chain of disputes leading to project delays and cost overruns. 

So why does this delay occur? Studies have identified there are 40 different factors which cause delay on construction projects, but the most compelling reason is money and the human factor. There are simply too many players out in this predominantly unorganised sector. There are no clear ground rules in this ruthless game of price war and in the majority of cases, the cheapest bid wins. If the buyer on the top of the supply chain exploits the seller, the chain reaction sets in and continues until the very last party in the supply chain. 

Human factor comes next due to the involvement of several parties in a construction project. Typically, there are five levels of conflict: intra-personal, inter-personal, intra-group, inter-group and intra-organisational. The fact that individuals from different race, ethnicity, gender, socio-economic status and religious beliefs are involved in a project, various kinds of perspectives are at play and that causes conflict among the project participants.

The best way forward to effectively prevent and curb this industry menace is to first eliminate the incompetent and shady stakeholders through a mechanism similar to how black points are given to non-complying drivers, resulting in the disqualification and cancellation of licenses, followed by the Integrated Project delivery model which calls for collaboration between all associated parties.

Only competent stakeholders are permitted to be part of the construction industry and they should sign a joint Ethical Undertaking document in which they should pledge to work together with utmost sincerity, professional ethics and transparency. At the same time, they should also sign a joint contractual document on guaranteed maximum price, completion time and payment schedule that shall be audited on regular intervals by independent third parties. The project outcome including cost savings or cost overrun should be mutually shared by the parties involved based on the project benefit weightage points.

If this core idea can be further developed by industry experts and implemented by authorities, it could be a game changer and everyone could be a winner.



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