Applying concepts used in commercial construction can greatly improve the odds that federal projects will be delivered on time and on budget. Image: Atkins/Norma Villafana
When we think of major projects within the federal government, one of the first words that comes to mind is inefficiency.
The script is common. A major project is announced with the expectation that the project will be delivered on time, on budget, and will meet the needs of taxpayers. Then months or oftentimes years later, costs are more than anticipated and the project is nowhere near completion. The federal agency that announced the project is frustrated that its day-to-day operations are impacted or, worse yet, the original project promises are unachievable.
At the same time, design and construction costs balloon, resulting in claims for additional compensation or extensions of time, further slowing down the project. The taxpayer, who ultimately foots the bill, is left to wonder: Are my tax dollars being used wisely?
Cost overruns and delays are not new to our industry. Recent research by McKinsey shows nearly 98 percent of mega projects (projects valued at more than $1 billion) suffer cost overruns of more than 30 percent, and the federal marketplace is no different. For example, the costs to build a Department of Veterans Affairs hospital near Denver, scheduled to open this year, has ballooned from $600 million to $1.7 billion, while the consolidation of the Department of Homeland Security headquarters in Washington, D.C. is still ongoing — 15 years behind schedule.
It is never the goal of an AEC firm to deliver work late or incur cost overruns, but major federal projects are multifaceted endeavors. Federal projects feature numerous stakeholders, which can complicate even the simplest tasks, and risks are often not properly accounted for, stakeholder alignment is weak, and communication and decision-making are hamstrung by bureaucratic red-tape. Add to this a byzantine labyrinth of laws, rules, and procedures unique to the federal sector and you have a recipe for construction delays and cost overruns.
Adapt commercial sector concepts
So, what can be done to improve the process? The answers may lie in the commercial sector.
Unlike in the federal sphere, dynamics that figure prominently into the commercial approach to the planning, procurement, design, and construction phases of a major or complex project include the following:
- The project is likely revenue-generating and therefore owners are motivated to work closely with the AEC team to eliminate delays and inefficiencies.
- Long-term cost considerations that affect the owner’s future profitability and competition for project end-users play prominently in the design and procurement process.
- Risk-sharing among project team members, coupled with incentive-based completion provisions for project delivery, help to bring alignment and focus to the team.
- Early identification of a single, dedicated, and often integrated project team, including procurement, owner’s representative, designer, and contractor who oversee the work from start to finish.
While we cannot add revenue-generating aspects into every government project or eliminate federal regulations and laws, we can certainly adapt many commercial-sector concepts and approaches to our federal projects.
Implement procurement strategies
One of the most impactful lessons from the commercial sector that can be applied begins with choosing an appropriate procurement strategy and methodology. Unlike the commercial market, where we are seeing growth in inclusive procurement methods and considerations, including total cost of ownership, performance-based contracting, integrated project delivery and public-private partnerships (P3s), we’ve seen the opposite in the federal market with a drive toward simplification, standardization, and commoditization. The net effect is the transfer of most of the risks to the AEC firms. Combine this with a reliance on firm-fixed-price contracting and the procurement environment is difficult.
Given these dynamics, project scopes are rarely well-defined, resulting in overreliance on the government’s independent estimate. This creates a competitive model focused solely on low price, which increases the risk to the federal contractor. In other words, a responsive bidder is often caught in a “Catch-22” — having to decide between adding contingencies into their bid to account for ill-defined or unknown risks or developing an unrealistically low bid to win the job. This has project delivery ramifications that often manifest themselves in delays, claims, and requests for equitable adjustments.
Institute robust partnering
Another major concept is alignment of project staff with agreed-upon and shared programmatic goals. With commercial projects there exists a growing preference for cooperative sharing of capabilities and risks. While advanced forms of these structures (such as P3s) are less common on federal projects, the partnering concept of these structures can still be applied in the federal sector. This can be accomplished through robust partnering sessions involving the full gambit of project participants, including the federal contracting officer, program team, third-party stakeholders, and the design/construction contracting team.
The advantage of a partnering session includes clear and early identification of project goals as well as risks, and formulation of a plan to allocate or mitigate those risks. The goal should be to memorialize the decisions made during the session and develop a protocol document or a “project charter” that addresses handling of risks or other issues that arise. Establishing a charter can greatly improve and simplify communication, as well as the speed at which decisions are elevated. The result is faster decision-making and avoidance of impacts to project timetables.
Streamline and improve communications
Other practices that serve commercial organizations well include a dedicated and integrated project team, resulting in better communications between the owner and their AEC contractors. In commercial projects, there is obviously no contracting officer entrusted with managing the contract on behalf of the owner. This means that communication between commercial owners and the project team are usually direct — allowing decisions to be made in real time. Though eliminating the contracting officer position for federal projects is impossible, making the contracting officer truly a part of the team results in faster, more direct lines of communication with the federal agency’s key decision-makers and helps to ensure projects stay on track and ultimately within budget.
With a Congressional budget finally settled through September 2019, we are likely to see an increase in the number of complex or major projects across the federal government. As such, federal projects that apply these commercial concepts — thoughtful implementation of procurement strategies that match project goals and risks; using robust partnering sessions and project charters that define project risks; and developing project processes and communication with less bureaucracy and an overall streamlined approach — can greatly improve the odds that those projects will be delivered on time and on budget.
J.R. Steele, Federal Business Unit director in SNC-Lavalin’s Atkins Business in North America (www.atkinsglobal.com/en-GB/north-america), oversees comprehensive engineering and consulting services for numerous clients in the federal marketplace, including all branches of the U.S. Armed Forces and multiple civilian agencies.