Author : Chris Sheel
Delivering major capital projects on time and on budget has always been a challenging and elusive goal. Even more so now, seasoned professionals in the construction industry have seen budgets disrupted considerably by fluctuations in pricing and lead times that have shredded carefully drafted cost estimates and project schedules. Budgets previously developed require reactive revisitation as estimates balloon. “Supply chain issues” has become an accepted catch-all term to explain a range of circumstances.
Until recently, public owners have relied on a common approach of drafting conceptual drawings, commissioning quantity surveys, and buffering their budgets to allow for a percentage contingency. The pandemic initially impacted supply and demand on many items but now there is a broader material and labour landscape that needs to be closely examined, understood, and carefully navigated. Constraints, obstacles, and variability have arisen in several areas that were previously far more predictable. For example, some mainstay products like civil work piping and HVAC systems remain elevated and are having disproportionate impacts on budgets. Lead times for mass timber, mechanical and other specialized systems still have extended delivery dates. When adversity prevents status quo solutions it often becomes a wonderful opportunity to plan and deploy new solutions.
The procurement world around us is changing rapidly. To adapt, our relationships and project delivery models must become more effective, efficient, and strategic. We can achieve cost confidence by utilizing progressive project delivery models that involve design and construction project partners very early, and by engaging in transparent collaboration.
Labor Cost and Availability
Initially, for the construction sector, material costs and extended lead times were the greatest concerns. Now, inflationary pressures have increased ancillary costs and most noticeably, labor compensation. Hourly wages for general and specialized construction jobs have spiked, and it is unknown when things will level off. There is an attrition and attraction challenge in the construction industry, which is certainly not a new trend, but it is now foremost in mind for all involved as companies pay increasingly higher wages and benefits while competing to retain and recruit talent. Skilled workers are the lifeblood of industry, and their contributions are valuable. Collective agreements offer some predictability, but lump sum tendered bids often must guess the future and buffer to avoid loss.
Large capital projects have multiyear cost models that must accurately estimate labour costs, allow for compounding, and be budgeted accordingly. Collaborative project delivery allows for the project partners to transparently discuss “actual” known labour costs, analyse trending, and develop a “costed” risk register together. Workloads are mapped through focused discussion on process sequencing and optimizing flow. Potential labour increases are responsibly considered and if they do not manifest, the savings are shared and reinvested for other needs.
Benefits of Integrated Problem-Solving Teams
When pricing and realistic delivery dates for some categories of construction are unstable, an effective way to decipher and accurately gauge impact to a project is to involve the designers and contractors who are intimate with the subjects, proactively. When professionals are asked for their opinion and information in a psychologically safe environment, interesting and beneficial options for application surface. It is educational and concerning that designer-driven hard specifications, cost pressures, and the realities of product availability often determine decisions more out of necessity than choice.
Collaborative project delivery provides a multi-party planning environment that allows for the most relevant equipment selections. Decision-making using Choosing by Advantages (CBA) and that incorporates Total Cost of Ownership (TCO) principals provides customer-centric solutions that pay dividends far beyond initial construction.
Risk Sharing versus Transfer
Traditional Contract Management and Project Delivery methods in Public Sector often transfer risks down the chain away from the Owner to the General Contractor, and so on, down the line to Sub-Contractors. This risk absorption is directly reflected in bid prices. Bidders add money to bids to avoid potential losses. Uncertainty and potential costs allocated to the risk do not disappear for the owner, they merge into the final bid amount.
Discussing, costing, and contractually sharing risk “opens the books” and explores the genuine costs associated with owning and operating a business. It involves honest discussions about what can happen when things go wrong and developing processes to manage those things. It requires Owners to be open about their own circumstances and understand the differences in how Designers and Contractors earn revenue, pay bills, and derive profit.
It can require radical candor for all parties to learn about and better understand the true cost of business. It is substantiated and grounded by historical data combined with the reality, context, and specific circumstances of the project being delivered.
Responsibility
Owners have an important role in the construction marketplace to be progressive and demonstrate a growth mindset while also demonstrating a duty of fairness to bidders. “Trust but verify” is a long-held saying that offers good advice worth following. Conducting proactive audits with project partners helps to confirm both their financial health and the veracity of the information provided.
Trust is precious and essential, and it must be preserved, so be open and transparent about money up front. Early intense collaboration and a growth-mindset culture allows a lot more room for cooperation.
Enjoying close collaboration and developing a foundation of trust is not achieved naively or blindly. It is achieved by a disciplined process of information exchange that uses transparency to allow all parties to review, discuss, and reach their own conclusions.
For project procurement and delivery, I actively promote collaboration and solution alternatives to challenge the traditional adversarial positioning in capital construction. For some, at first it is not a comfortable or natural process to discuss overhead and profit. It soon becomes liberating though, as recognition increases that siloed decisions and “toss it over the fence” change-order culture is deteriorating relationships and adding more cost to doing business.
This article offers the perspective of an Owner’s Representative with training and experience in Public Sector Procurement, Risk, and Project Management. The statements and opinions are offered to promote a dialogue that examines the status quo and offers suggestions about how to evolve into the future.
Currently I am in an Integrated Project Delivery (IPD) collaboration involving an Integrated Form of Agreement (IFOA) comprised of eleven signatories that are utilizing Lean Construction methods to design, construct and deliver a large Recreation Centre in the Interior of British Columbia.
Public Procurement in Canada
Certified procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through procurement webinars, the landscape for public procurement offers many opportunities to explore.
Procurement services in Canada encompass a wide range of activities, all aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certification or a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Certified procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement in Canada is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country as a whole. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management courses to ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by Chris Sheel
Chris has been a practicing public-sector procurement professional for over 25 years. His areas of expertise include operational strategies, public sector compliance, navigating procurement policy, trade agreements, contract management strategy, and collaborative project delivery. Chris volunteers with the Okanagan local community association, golfs a bit and finds relaxation in making hügelkulturs out in the country.
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.