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Concerns of failure a reality in global construction

Lindsey Cole
Concerns of failure a reality in global construction

A KPMG International survey interviewing construction project owners around the globe found that despite having confidence in planning and controls, failures still weigh heavily on the industry, with less than one-third of projects completed on time and on budget.

The 2015 Global Construction Project Owner’s Survey: Climbing the Curve, was conducted in late 2014 through face-to-face interviews with 109 senior leaders, many CEOs, from organizations that were involved in major capital projects, a release from KPMG states.

The respondent organiztions’ annual revenue varied from US$250 million to more than US$5 billion and covered a wide range of sectors including energy and natural resources, technology and health care. The report notes that more than a quarter of the respondents worked for public agencies, typically in government.

"As engineering and construction projects get bigger, the complexity grows exponentially," says Geno Armstrong, global chair, engineering and construction and a principal with KPMG in the U.S. in a statement.

"The improvements by owners in planning and risk management have been significant, yet there is further work to be done to reduce the number of project failures, and bring more projects in on-time and on-budget."

According to the results, only 31 per cent of respondents’ projects came within 10 per cent of the budget in the past three years, with 25 per cent coming within 10 per cent of the original deadline within the past three years. Fifty-three per cent suffered one or more underperforming projects in the previous year as well, the report notes.

KPMG states while the number of "underperforming projects are troublesome," the survey shows that 84 per cent of owners of major capital projects are reporting that their company screens projects in terms of financial and risk analysis, with 74 per cent of firms requiring formal project delivery and contract strategy analysis prior to authorization.

Talent shortages and owner/contractor collaboration were listed as challenges facing the industry, with 44 per cent struggling to attract qualified craft labour and 45 per cent lacking planners and project managers.

Contracts play a role as well in the divide between contractors and owners, the report states, as 58 per cent are lump sum (fixed price). Seventy-two per cent hold full competitive tenders when awarding contracts and 48 per cent expect to have more negotiating strength in relation to contractors.

What’s more, only 32 per cent have a high level of trust in their contractors, and 69 per cent identify "poor contractor performance as the biggest reason for project underperformance."

"Project owners should continue to invest in relationships with contractors to raise mutual trust and discuss problems or shortcomings," adds Armstrong. "Improving collaboration, along with continued investment in project management tools and processes should help pave the way to greater project success."

According to KPMG, respondent representation was spread across the Americas at 38 per cent; Europe, Middle East and Africa at 26 per cent; and Asia Pacific, with 36 per cent.

Lorne Burns of KPMG, a Canadian real estate industry leader, says while this was an international survey, Canada isn’t immune to these issues.

"I would expect that a lot of the issues and findings would be equally applicable in Canada," he says, adding owners need to stay in tune with projects.

"The underlying message is, owners can’t give up ownership of a project. They still have to own it, and they have to make sure that they manage it and they don’t abdicate that ownership over to the contractor inadvertently."

Proper planning is important, especially when it comes to preparing for the unknown, he explains.

"There is a massive need on these massive projects to deal with proper planning, proper project management systems and really managing the contingency element," says Burns.

"The way to manage that contingency element is through some forms of scenario planning to deal with those contingencies when they arise, not waiting until they arise. Fool me once shame on you, fool me twice shame on me. It’s really making sure that you go in eyes wide open."

Follow Lindsey Cole on Twitter at @DCN_Lindsey.

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