Project Negotiation

Are we nearing the end of Cost Reimbursable?

Get Ready for Convertible Price Projects   When we see quotes like this from the Globe and Mail, “Investors are increasingly applying pressure on oil companies to trim their investments in oil sands projects,” it becomes clear that a change in how we do business in Alberta is on the horizon.  If the investment community is losing faith in our ability to extract oil at a reasonable and predictable cost, our industry is in serious jeopardy. There is a shift underway. Cost overruns on construction projects aren’t uncommon of course, and the oil and gas industry in Alberta has not been an exception. It has in fact shown to have one of the worst records for budget overruns of any energy geography in the world. There are a number of underlying challenges that have contributed to this unfortunate track record; but one of the primary culprits has to do with the predominantly cost-reimbursable contract culture that exists in Alberta. This culture creates a challenging environment for projects to stay on budget. The nature of these contracts suggests that there is compensation for all costs incurred plus a rate uplift, with little to no risk absorbed by the contractor for when projects are extended or when they aren’t executed at maximum efficiency.   When the cost-risk is so lopsided like that, the owners face having to bear all the added cost of any inefficiencies, productivity issues and errors that occur with any contractor or engineering firm on the project. There can be dozens of contractors and engineering firms (EPCM) on a project, and with the way contracts are currently structured, everyone just passes their problems up the food chain (even the best, most efficient contractors).  Nobody’s

How to Solve Project Management Client Problems

  Even the best project managers occasionally encounter clients who make completing a project difficult.  From being indecisive to delaying the project schedule, clients can impede what would otherwise be an effective and timely outcome.  By utilizing PMP training and being proactive, you will be successful in achieving project goals.   Communication Breakdown Communication can be the key to success for any project, but what do you do when you can’t get in contact with a decision-maker?  Keep in mind that it’s easier for a busy client to say yes or no than to provide a detailed explanation as to what they want or need. Do some groundwork in advance to explore possible options.  When a decision needs to be made, clearly indicate which course you think is best, and then confirm that this is direction your client wants to go.  It also helps to present a well-defined project schedule to the client prior to beginning work.  This can help manage expectations and provides a tangible framework for the client to either consent to or object.  Having these primary steps in place will allow a potentially “slow” client to make a yes or no decision and allow you to move forward.   Indecisive client Clients are busy, and not always ready to provide you with direction if you need it.  In fact, some clients may not be able to envision what they want until a certain portion of the project is complete.  Develop a foundation for your work by having the client explain the exact requirements of the project before you generate a plan. Use these guidelines to develop as specific a plan as possible.  The client may waver on making decisions, but referring back

Project Change: Strategies for Making the Best of it

A must-read article on the effects of change in projects by Arthur O’Leary called Coping with Changes during Construction takes a very savvy look at both the reasons changes happen, along with strategies around managing the risk. While O'Leary's focus is on construction projects, this advice and rules are equally valid for projects in any industry that have complexities such as: many moving parts, suppliers, subcontractors, customers, complex WBS, multiple resource types, etc. O’Leary states: “It is seldom that any construction contract can be pursued from start to finish without some changes having to be made. This is in spite of the best of intentions of all parties. Despite stories about fat contractor profits in changes during construction, in reality they are an onerous economic burden on all concerned. Contractors often have difficulty in breaking even on changes.”   So why is it that change has such a big effect on projects?  O’Leary goes on to discuss exactly that point: “Projects plagued by numerous changes can become mired in confusion if they are not administered in an orderly manner. Serious problems arise when multitudes of changes are in various stages of progress. Some in the stages of deciding what to do, redesign or engineering, pricing, reconsidering, negotiation of price, contention about responsibility, approval in part, final approval, or cancelation. Some changes will have a profound effect on scheduling while others will have unexpected effects on interfacing trades. Some parts of the work may have to be deferred while awaiting final decisions and ultimate approvals of proposed changes. In some cases the proposed changes, after careful consideration, are canceled, and the deferred work then becomes critical to the time schedule." "Often, controversy develops among owner, architect,

Why Resource Classes Matter – Billing Rates

4castplus offers the capability for you to categorize your Labor, Equipment and Materials resources into what are called resource classes. This capability is an extremely powerful control and reporting mechanism that enables you to achieve two key objectives: To standardize billing rates To organize resources into strategic groupings for reporting and vendor negotiations To get a handle on how you would make best use of resource classes in your organization, I’ll give you a few examples below. I’ll break out the discussion into two areas: Billing and Reporting to give you some ideas as to how they’d be used in either scenario.  There’s a lot of overlap between the two usages and most organizations can make use of both – even if you have no billable resources in your projects. For this post, I’ll focus in on the Billing side. Billing Having a standard set of project billing rates is a key part of the business of generating revenue from billable resources.  Establishing the rates themselves, however, is only one part of the whole picture.  Resource Classes in 4castplus are there to help bring some structure to simplify the often complex management of Billing Rates. In a nutshell, resource classes are a convenient way to group resources together that have the same billing rate. Each actual resource grouped under the same Class may have a unique Cost Rate (what the cost is to you), but using a Resource Class, you can bill them out at the same Billing rate. For instance, when negotiating with customers on a project bid, you’ll probably share your charge-out (billing) rates with them; and on your rate sheet that you send to your customer, you’ll most likely specify the type

History is a Great Negotiating Tool

Establishing a starting-point and benchmark for costing out new projects is greatly simplified if you have good information to start with. When negotiating prices with subcontractors or suppliers, it helps to have good historical trend and benchmark data to support your negotiating position (at the very least to know what things have cost in the past, and how those costs have changed over time). Looking back on past projects and reporting on, for example, the average cost you’ve paid for a particular material over the past year or two; can be incredibly empowering during negotiations. A further advantage is being able to side-by-side compare costing items such as average material rates and total amounts purchased - by Supplier and even by Project. Additionally, Side-by-side comparisons of subcontractors, in terms of both rate and productivity, will give you further sway in future contract negotiations with those and other contractors. Vendors will often up their rates without much of an announcement and also add in their own contingency factors somewhere in their bid to make up for historical losses. Rate increases are obviously a normal course of business and are often justified. But, if over time, consistent rate increases are sneaking in without your notice, then you’ll have little or no position to negotiate a better rate if you don’t have good historical reporting and trending tools to position yourself with. Looking at it from a slightly different angle – if you’re a Contractor and you’re bidding on projects, it’s vital to know how your charge-out rates have played out over time to give yourself maximum credibility in your customer’s eyes. It also positions you with a good strategy of how, when, and how much to increase your