Municipal procurement needs to look at new and more efficient ways to procure construction projects in 2018.
To ensure the prospects of successful completion, every project management system should incorporate flexibility into design. Consistency of purpose and staying on course are critical to overall success and to proper financial management.
However, the management methodology should be sufficiently flexible to allow a response to changing circumstances. The process should incorporate some time for continuous reflection, learning from experience and the ability to change in response. Projects sometimes fail solely because organizations tend to use the same mindset and the same approach over and over again.
In my opinion, management methodology in some municipalities is changing for the better. During 2017 I spent a great deal of my time working on behalf of contractors raising issues related to construction projects with municipal staff at every level. I do see a commitment by senior management to make the overall system better and listen to the industry concerns to make positive changes to the process.
I have always felt government procurement staff has wanted to make the system better, however, it is very difficult to change any part of a system that has been in place for decades without some sort of resistance from several competing interests. I am optimistic this year will bring about the changes required to better serve the public interests.
I have written extensively over the years about the role that risk management plays in the overall construction project. Risk management within the major capital project involves not only dealing with the allocation of risk between contractors, consultants and the organization, but also assessing the likelihood of the contractor default and the occurrence of major loss through fire or similar catastrophe.
In the major capital project context, it is important to understand that undertaking such a significant project creates new dimensions of risk, outside the normal scope of organizational activity.
When I have talked about risk, my opinion has been in favour of sharing the risk between all parties involved in the project, assigning each aspect of risk to the party best able to address it. Risk can be addressed as any factor, event or influence that threatens the successful completion and operation of a project in terms of cost, time or quality.
Risk and uncertainty must also be taken into appropriate accounting when settling upon the comparative merit of a proposed major capital project. In order to compare cost and benefit correctly, all elements of the project must be reduced to a cost that can be accounted and budgeted.
Costs are the unknown and costs associated with potential risks must be included in the form of a contingency amount based on either historic experience or some other reasonable estimate of the probability of occurrence and the magnitude of the threat that the risk presents.
Contingency estimates should be defined and quantified throughout the project’s development as specific risk elements, which may then be used to create a risk management plan for the project. The appearance of false precision must be avoided.
Unsupported early optimism (i.e., low contingency amounts) will only cause problems as the project progresses.
As the project is refined, the contingency should reflect the shift of contingencies into actual cost categories. Contingencies should be expressed in terms that can be easily presented to and understood by the public.
Last year, working for municipalities to help them incorporate some of these concepts into new policies and procedures showed me that government wants to improve the systems.
Working with the contractors and industry partners can benefit everyone involved in the process. I look forward to working with both government as well as the construction community to ensure we continue to keep management methodology flexible and proactive for the upcoming year.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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