This article is the third of a series of articles specific to case studies from the author own projects’ experience. We have recently presented these case studies as a workshop; part of a Project Management Conference (PM360) in Singapore that was organized by Knowledge Method, sponsored by RMC Project Management, and supported by SUKAD and two other partners.
Project Management Case Study 3
- Mega Project: approved budget was about (~) $700 million US (early 1990’s).
- This mega project had two main sub-projects
- One sub-project was modifications to an existing refinery (~$100 million), and
- The second sub-project (~$600 million) was new facilities (grass roots/green field)
- Project was on an Island, in a country where there were limited labor and technicians.
The Project Owner
- The Project Owner was a joint venture consisting of three companies:
- 50% (N. America),
- 40% (N. America),
- 10% (Asia)
- The 10% company was a joint venture between the 40% company and a government of an Asian country.
The Service Providers
- Project Owner awarded a global contractor (main contractor) an Engineering, Procurement, and Construction (EPC) contract
- Contract was reimbursable (cost plus), incentive contract
- Main contractor was ultimately responsible for engineering, procurement, and construction management (UK); construction was to be awarded to a construction general contractor
- Construction general contractor, ended up being a joint venture between three companies (Europeans – mostly Germans)
- Construction labor came from Asian countries, senior construction staff were mostly European and Asian
The Project Owner was responsible for the overall management of the project (program)
- Most project management team members came from the main partner but with a few resources from the other partners
- The owner project management team was split between Europe (UK) and S.E. Asia
- The members of the owner’s project management team came mostly from North America but also had European and Asian members
- Because of the cost plus – incentive contract, the project owner delegated some of the project management activities to the main contractor
Nature of the Contract (Challenge)
- Cost plus – incentive; means:
- Main contractor will be reimbursed for all actual costs
- Its only profit is the incentive amount that they will have to earn
- Incentive was in three parts
- Time – schedule
- Cost …
- The first two were mostly under the control of the contractor. Cost was the challenge since the budget was the project owner budget
- Contractor cost risk
- The opportunity: for every dollar contractor save the owner, a percent of savings increased the contractor profit,
- The threat: with over expenditures, contractor profit reduces; possibly going to zero on the cost incentive,
- Owner protected the contractor from owner driver project changes and currency fluctuations.
Dealing with the Challenge (Stakeholders’ Involvement)
- Owner project control team was limited to 2 resources; mostly one,
- Main contractor control team had numerous resources,
- As a result, we unofficially integrated the project control team as the first step,
- Next step, we identified the main control accounts,
- Each control account had an owner (resident engineer, contract manager, etc.),
- Project control identified the budget for each control accounts,
- Analyzed the accounts for possible cost savings (from project control perspectives),
- Met with each control account owner, and shared with them project control perspective,
- Invited the accounts’ owners to be proactively involved in the control aspects (they usually focus on implementation) and work with us on identifying more opportunities,
- Once we agreed on the approach, project control provided accounts manager with management reports, in addition to weekly, or monthly, meetings to discuss status and opportunities.
- Mixed results since not all control accounts owners worked with us closely,
- For most of the cases, the stakeholders involvement worked well with building relations, which led to cost savings,
- Key to success was: cost effectiveness reduced the owner costs, increased contractor’s profit, led to bonuses for contractor’s managers, plus good performance reviews …, in other words, it was a win-win-win situation (owner-contractor-people).
- Contractor earned the maximum on safety and schedule incentives and close to the maximum on cost performance
- Of course, the above case was not the only reason for this success; other practices played a significant role; primarily the innovative planning and implementation techniques