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Climbing the Curve

KPMG International, the accounting and consultancy firm, has published its Global Construction Owner’s Survey for 2015 entitled “Climbing the Curve”. This is the ninth edition of the survey in which the KPMG construction specialists survey 100 project owners worldwide to determine their current and emerging issues in their interactions with construction firms and their contractors on their projects.

According to Construction Dive, one of the most interesting findings in the study is that “only a third of owners responded that they have a high degree of trust with the contractors on their projects.” That reinforces the concept that trust is primary in the owner contractor relationship, especially on larger more complex projects. The survey reports that, “…there is, however, another way of looking at the results. Owners may want to stay closer to contractors because they do not fully trust them. Only a third believe they have a ‘high’ level of trust in their contractors, with 60 percent describing the degree of trust as merely moderate."

Our reading of the report uncovered a couple of other findings that we wanted to pass along to you. First, “82% of the respondents expect greater owner/contractor collaboration over the next 5 years. Much of that collaboration will likely be driven by new forms of delivery and the current trend of owners shifting risk to the contracting team.” From the report:“Successful projects are dependent upon strong teamwork, and owners are constantly reviewing the effectiveness of their relationships with contractors…An overwhelming majority of the respondents anticipate more collaboration over the next 5 years. One interpretation of these findings is a desire to integrate contractors into the boardroom to help streamline project delivery, drive down prices and pass on greater risk.”

The risk shifting is an issue for many contractors. KPMG suggests that contractors should shoulder the risk for their delivery, but not for those items in the owner’s purview and control. We expect a healthy tension to continue in those relationships.

Second, budgets and schedule results are critical to overall owner success and not always widely reported, “53% (of the reporting firms) suffered one or more underperforming projects in the previous year. For energy and natural resources and public sector respondents, the figures were 71% and 90% respectively. Only 31% of all respondents’ projects came within 10% of budget in the past 3 years. Just 25% of projects came within 10% of their original deadlines in the past 3 years.”

The five conclusions are true “points of consideration and action” whether you are an owner, contractor or subcontractor. Those conclusions are:

  1. A fresh approach to talent management - an effective recruitment, development and retention strategy should encompass data analytics to help predict future talent needs. By widening the net of potential candidates, organizations can attract candidates with new ways of thinking who can augment the existing pool of engineers. Beyond the broadening skills set, there is ultimately no substitute for experience, and owners must find ways to tap into the skill base of older or retiring employees.
  2. Integrated project management information systems - the scale and complexity of many of today’s construction projects call for swift coordination and real-time reporting. A fully integrated PMIS can keep key stakeholders informed of schedule and cost status, and help enable faster decision-making to keep projects on track.
  3. Realism eats optimism for breakfast - owners should demand practical targets from contractors based upon realistic expectations of what can go wrong. Scheduling needs to balance sufficient slack with targets that stretch – but don’t overwhelm. If necessary, owners may seek external scheduling expertise to ensure that they understand the workflow and the full financial impact of delays.
  4. Sophistication in contingency - contingencies should encourage prudent cost management and not be an excuse for overspending. The use of a management reserve acknowledges the potential for uncontrollable risks, while a draw-down approach enables project managers to react quickly and flexibly to situations, while keeping strong control over expenditures.
  5. Building an extended team - project owners must invest in relationships with contractors to raise mutual trust and discuss problems or shortcomings. Rather than simply passing all or most of the risk to the contractor, it is preferable to create an integrated project team with common goals and rewards. Where contractors are felt to be lacking in certain skills, owners can discuss how to enhance the team with external expertise.

This project owner’s survey give valuable insights into the current thinking and the potential solutions that will make projects more successful as they grow in complexity.