Particularly when confronted by adversity and disaster, human beings behave…well, like humans. Common decency to help those who need it becomes the norm. This current crisis is no exception – there are many examples of people from different walks of life collaborating together for the common good in their communities.
But what of the impending economic disaster that is likely to strike after the battle against COVID-19 has been won? What calamity is likely to beset the global Engineering Construction Industry … and so soon after seeing some recovery from the effects of the oil price crash of 2014?
Today, Brent light crude is trading at around USD 21.0 – that is a long way from the December 2019 level of USD 67.31 and significantly below the level that justified the business case upon which many current commitments were made. So, what is going to be the effect on Engineering Construction projects?
Three concurrent scenarios seem probable;
- Delays and significant additional costs incurred on current projects which, without intervention from owners, will be borne by contractors and the supply chain.
- Existing projects need to be re-commenced and/or continued and completed.
- Most likely, owners’ new investment plans will be shelved, and recent new commitments probably cancelled.
And this at a time when contractors’ and supply chain margins have not improved to sustainable levels and their need for new revenue-generating projects is paramount. But, despite the World’s need for continuing investments in Engineering Construction to help stimulate the global economy, the business case for owners’ significant investments in new plants looks implausible if the oil price remains close to the current level, there is little prospect of it increasing substantially any time soon and if there is the same reaction as there was to the 2014 oil price crisis. We also know from the 2014 crash that the effects are not confined to the oil and gas industry – it transcends other Engineering Construction sectors.
It looks then as though Engineering Construction is facing the prospect of the perfect storm – a significant fall-off in income over the medium term coupled with the burden of significant additional costs and cash flow shortfalls resulting from the effects of COVID-19 and the impending probability of major disputes at a time when there is a need to re-start and/or continue with and complete existing projects. If we thought the post-2014 crash was a disastrous period, this is nothing compared to what the industry could now be facing – it could be decimated by multiple company failures.
But need this be so? What could be done to avert a major disaster and for the Industry to manage its way successfully through these extraordinary set of circumstances?
First, accept that this is a crisis occurring in what may be considered to be a hostile environment and the corresponding behaviours that are often exhibited under such conditions;
- at a time when effective communication is important, it is less likely
- at a time when mutual sensitivity between project members is important, it is less likely
- at a time when collective responsibility and teamwork are important, they are less likely
(M. Loosemore: The three ironies of construction crisis management).
Second, recognise the power of effective human behaviour and decency expressed through collaborative working to overcome the expected behaviours in a crisis as identified by Loosemore and achieve common goals that benefit projects and the Industry.
Third, embrace and act upon the wisdom of “…never wasting a good crisis…”.
There is a school of thought that says the traditional models of procuring Engineering Construction are broken beyond repair and should be replaced by alternative models based upon collaborative working. Despite its demonstrable benefits, collaborative working arrangements have not been widely adopted by Engineering Construction.
In his new book Collaborative Construction Procurement (2019), David Mosey says “…While there is widespread concern at the complexity and cost of construction disputes, collaborative working is often described as a way to avoid reliance on contracts, as if contracts themselves are the cause of disputes…traditional construction procurement models and contracts are still based on the assumption that divergent commercial interests cannot be integrated or even reconciled, and this continues to fuel fragmented and defensive structures….construction dispute resolution shows how this fragmentation and defensiveness do not support effective pricing, programming, change management, quality, safety or sustainability…”.
This crisis might just be the incentive for global Engineering Construction to change the way in which projects are conceived, contracted and delivered. In this context collaborative working practices could be applied effectively to;
- Resolving cost overruns and delays on current projects. Stakeholders could take a pragmatic approach that eschews the inflexibility and win/lose concepts of the contracts typically in use, to arrive at settlements on terms agreeable to the stakeholders and avoiding time and money-wasting disputes.
- Establishing new baselines (schedules, execution plans, organisations, budgets etc) for the continuation and / or recommencement and completion of current projects. Stakeholders could work together to determine the most effective, efficient, productive and economic means of bringing plants into operation at the earliest practicable opportunity and at the lowest possible additional cost. This would also mean stakeholders understanding, respecting and living up to their respective contributions to achieving agreed common goals. It would also lead to the risks being taken by the stakeholder(s) which is most able to manage them.
- New investments. Prospective project stakeholders could explore together the benefits, possibilities and opportunities that collaborative working provides to reduce delivery times and cost. The objective would be to eliminate waste, duplication of effort and ineffective processes and practices. Instead, identify and utilise available resources (money, expertise, experience, know-how and competencies) in the most effective and productive way. The overall common goal would be to drive down investments to affordable levels while returning reasonable profitability for delivery stakeholders.
It is all about mindset: project stakeholders’ willingness to embrace appropriate behaviours to achieve common goals and letting go of the belief that legal remedy alone can produce or guarantee satisfactory outcomes for project stakeholders.
But why has collaborative working not been universally adopted by Engineering Construction? This is probably answered by need, opportunity and means. The present circumstances satisfy the first two. Collaborative working is not an easy option. It does not happen just by people saying we are going to collaborate. Effective collaboration is driven fundamentally by behaviour. But, changing behaviour that has developed over decades and is enshrined in the belief, as David Mosey points out, that “…divergent commercial interests cannot be integrated or even reconciled…” is a real barrier. But this barrier can be overcome. The means are available.
Based on Sir Ian Wood’s report “Maximising Economic Recovery” commissioned in 2014 that assessed the condition of the UK Oil and Gas sector, the Engineering Construction Industry Training Board (ECITB) developed its Project Collaboration Toolkit (PCT) – Enhancing project performance through collaboration. Edition 2 of this was launched in March 2020.
Case studies reveal that where the PCT has been applied, there has been significant improvement in delivery times and cost savings. These case studies used the traditional construction procurement models BUT applied very different thinking and behaviours between project stakeholders. This just illustrates and confirms David Mosey’s point that it is not the contract that causes disputes.
The PCT is “…about bringing specific organisations and people together for specific tasks, to achieve the desired result…” and “…is intended to serve as a ‘go-to’ guide for executive managers, project sponsors, project managers and project teams with responsibilities for specific project activities…”. It is not the panacea to solve all the Industry’s ills. But by embracing and applying the principles enshrined in it, project stakeholders may create opportunities to enhance project performance and save themselves a great deal of uncertainty in what are very uncertain times.
Join us at one of the forthcoming discussions [click the links for further information]:
Kingsfield Academy Webinar – Collaborative Working – date to be advised – watch our webpage.
Stay safe, stay well.
John Fotherby – Partner Kingsfield Academy