Project management – 1994

In 1994 I have presented to the ICEC International Forum, in London, the paoer below, that was mainly a consequence of my experience from 1978 to the beginning of the ’90s. It’s worthy to read again this paper now,  in 2017, to see what has changed and what remained unchanged


 

GIANLUCA di CASTRI

NEW ROLES IN PROJECT MANAGEMENT AND MONITORING

(ICEC International Forum, London, 1994)

 

The purpose of this report is to show how new roles are being introduced in the management of major international projects.

It is worthy to note that the discipline of Project Management, initially created either to keep under control military operation or to manage construction projects, generally for public works, in now extended not only to the whole engineering and construction sector, even for minor projects, but to different kind of projects (scientific or technologic research and development, marketing projects, etc.) and even to activities where management by projects seems not immediately applicable, such as Government Authorities, Banks, Manufacturing Companies.

As a matter of fact, management by project can be successfully applied in a wide range of activities, by considering as projects some of these activities, which are generally considered only as routinely activities. Furthermore, management by projects can be used for governing any kind of international activity.

A further application of the techniques known as management by project can be found in most cases of the so called crisis management: as a matter of fact, to face a crisis and to get out of it is a kind of project, since crisis has not to be faced as a catastrophic and probably final event. It has to be faced, actually, as a difficult project whose scope is to modify the whole organization in order to cope with the modified external or internal conditions that caused the crisis itself.

As far as engineering and construction project are concerned, there is no limit to the possible schemes although the majority of them can be referred to the following cases.

First we have to take into consideration the Employer or Owner; we shall make no distinction between them, unless it is strictly necessary, and we consider all of them as a single organization whom we shall call “the Owner”; as a matter of fact, this is not always true. The Owner can be different from the Employer, namely from the person or authority which enters, as first party, in the engineering and construction contracts; generally the Owner is also the End User, but sometimes they can be two different organizations. Other parties can be concerned since they give funds, loans, etc; please refer to the following real cases:

  1. Construction of Sabah Hospital in Kuwait (1978)

Employer: Ministry of Public Works

Owner & End User: Ministry of Health

Financing: National Bank of Kuwait

  1. Construction of Officer’s Club in Tripoli, Libya (1982)

Owner: the Libyan Arab Armed Forces

Employer: the Military Prucurement Dept. with the technical supervision and management assistance of the Military Works & Propery Department

End User: Military Club Dept.

Although all these authorities were belonging to the Armed Forces, they were actually acting as separate organizations with their directors, committees, etc.

So with the word Owner we are really referring to a complex of realities, which we have to know exactly and understand how they work, because they are interfering in our project.

As far as engineering and construction are concerned, a lot of alternatives is possible, some of them are the following:

  1. the whole of engineering, procurement and construction can be assigned to a General Contractor with full responsibility. This alternative, which is the easier from the organization and contractual points of view, becomes sometimes difficult for very big projects, chiefly if they are to be carried out in particular countries, since it is impossible to find a company so strong to accept such a burden;
  2. in some countries, at least for public works, the law states that Engineering and Construction have to kept divided. There is an Engineering Contractor, who makes the design and engineering and generally the supervision on procurement and construction works, Procurement is assigned to the Engineering Contractor or is kept directly under the responsibility of the Owner (only for civil contracts procurement is generally part of the construction contract), Construction is assigned to a Construction Contractor;
  3. even if it not legally compulsory, this is a normal choice in order to divide the risk. In a lot of cases relevant to public or semi-public works in semi-industrialized countries, Engineering and Procurement, together with Supervision on construction works are assigned to a foreign company while Construction itself is assigned to a local company and Transport from f.o.b. to site is directly under the responsibility of the Owner.
  4. A further subdivision can be made when construction contracts are divided by function (civil, mechanical, electrical) and assigned to different Contractors; generally this happens at a second contractual level (Subcontractors)

 

PROJECT MANAGEMENT

In case of major projects, generally it is not possible to award the whole of the project to a General Contractor, with full responsibility for engineering, procurement and construction; in general, there is the need to create a more complicated system which, although flexible on financial point of view, gives rise, on the other side, to many organization problems, some of them extremely serious.

In most cases there are several contractors for engineering, procurement, transport to site, construction and precommissioning. As en example, we could define:

  1. Engineering Contractors, whose responsibility is to grant right and licenses and to perform basic design and detailed engineering; on construction site, their responsibility is to check that the works are carried out accordingly to the drawings and specifications and furthermore  they have further responsibilities in training, commissioning and warranty.
    1. In industrial plants, such as refineries, chemical and petrochemical plants, power generation plants, steel mills, etc., the procurement of all the material needed for construction and its delivery F.O.B. is normally part of the engineering contract, while the transport to site is made by a separate Contractor.
    2. In general construction works, such as housing, roads, dams, etc. the procurement is normally part of the construction contract: this is becuse most of the material is available locally.
  2. Construction Contractors, whose responsibility is construction, precommissining and assistance for commissioning.
  • In a complex plant there are several Engineering Contractors, for different plants or utilities, one ore more Construction Contractor plus other minor Contractors with specific tasks, such as tests on concrete or X-ray on welding or other tasks relevant to Quality Control.
  1. In these cases, the task of managing and coordinating several contractors, each of them with different tasks, together with their interface and interference problems and their discrepancies are enormous; the Owner generally is not in a position to perform that job, since its organization has been designed for a different scope. So a Project Managing Contractor can be put in charge for the management of the whole project.
  2. A full Project Managing Contractor has a very wide range of action; as a matter of fact, he shall manage the project in the name and on behalf of the Owner, with full responsibility for all tasks assigned to him and full authority on the project itself. The tasks, in summary, are the following:
    1. General management of the project on technical, economical, financial and any other aspect.
      1. This includes for coordination of engineering, procurement, transport and construction works and solving all the problems due to interferences or discrepancies between different engineering or different contractors.
      2. This point also includes for the issuing of common criteria, procedures and specification to be used by all the contractors, either in engineering or in construction.
    2. Management of all the contracts signed by Owner and relevant to the project, including contract correspondence, progress statements, releases, time extension, claims and variation orders, site handing over, provisional and final taking over of the project, provided that the scope of works be not modified.
    3. In some cases, this task can be extended giving to the Project Managing Contractor a full power of attorney for requesting offers for deliveries or works relevant to the project, selecting contractors, negotiating and signing contract with them fixing the relevant prices and conditions, in the name and on behalf of the Owner. In this case the Project Managing Contractor, which should be more properly defined as Project Directing Contractor, shall have the same powers of the Owner and shall be also in a position to represent the Owner itself. Proper procedures shall have to be agreed, since Owner becomes liable for Managing Contractor’s acts.
    4. Contract administration, quantity surveying, payment procedures.
    5. Planning, scheduling and project control, including cost control, financial planning and cash flow. Reporting to Owner and assistance to Owner in its reporting to superior Authorities.
    6. Quality Control

By this way, the Project Managing Contractor becomes the real governing authority on the project, up to the final handing over; we could say, roughly, that its role is equivalent to the role of the Project Manager or Project Director of a General Contracting Company.

 

PROJECT COORDINATION, MONITORING, AUDITING

There is a possibility of an alternative, which allows the Owner to keep the management of the whole project, being assisted by specialized people organized as Project Monitoring or Coordinating Contractor, which are roughly equivalent to the role of the Project Coordinator in General Contracting.

The difference is that, while managing contractor has to manage the project  with full authority and full responsibility, the monitoring contractor has a more limited task, namely to check that the project is going on accordingly to certain standard, to keep the progress under control and to advise the Employer about the management of the project, which remains entirely under Employer’s responsibility.

In broad terms, the task of the Project Monitoring Contractor shall be the following:

  1. supervision of the programming and scheduling made by the different construction contractors and integration of these schedules in the overall project plan. The supervision includes also assessing the conformity of such programs or schedules to the general rules of planning and advising about the reliability of such programs or schedules, taking into consideration the actual capacity and reliability of the construction contractor;
  2. detailed monthly progress monitoring, with a summary analysis of deviations, their causes and their effects on the completion time;
  3. weekly summary progress monitoring, if possible;
  4. cost control;
  5. contract administration: preparation of contractual documents and main contractual correspondence on behalf of Owner, analysis of contract clauses and conditions, contract deviation and claims;
  6. assistance to Owner for contract milestones such as site handing over, releases, provisional and final taking over, etc.;
  7. assessment of the conformity of the payment certificates to the procedures agreed in the contract and project practice, to the terms of the contract and to the real progress of the works;
  8. assessment of the conformity of the quality control procedures to the international and contractual standards;
  9. advising the Owner, on all aspects of the project management, project organization, construction management, etc., with a periodical report on project management or with proper reports and advises, on request, for specific cases.

The Monitoring Contractor shall have no authority on the project, since it is only acting as adviser to the Owner; however, he shall have the right to request data from contractors, to inspect the works, to check the project accounting and the bookkeeping relevant to the works, etc.

On its side, the Owner shall have to cope, with its own people, to the coordination work and to all the aspects relevant to engineering, material, construction since all technical aspect are excluded from monitoring activities; however, monitoring contractor can give, under request, a qualified consultancy in that field. On this point, a distinction could be made between Project Coordinating and Project Monitoring Contractor, although such distinction cannot be definite.

As we have explained before, in some cases, either Managing or Monitoring contractors can be put in charge, the first to find the Contractors and to negotiate and sign, on behalf of the Owner, the contract with them; the second to introduce new Contractors to the Owner, to evaluate their capacity and to assist the Owner in negotiation and contract signature.

In this case, Managing or Monitoring Contractors have to act on behalf of the Owner; they have to exclude, therefore, any commercial relationship with Contractors. This is a basic condition for being professionally correct.

In some cases, there is a need of a Project Auditing: in theory, this is very similar to Project Monitoring, the only difference being that it is made on behalf of a third party, which is interested in the project although not directly involved. For instance, in the cases where Owner and Employer are two different authorities, the first can be willing to keep a certain control on the activities of the second. An auditing can also be requested by international financial institution; in case of public works, it can requested by the Government.

NOTES ON REAL PROJECT ORGANIZATION

Although projects of different kind are carried out either in public or private sector, their organization is almost the same. Project for refineries, chemical or petrochemical plants, industrial plants, power generating plants either conventional or nuclear, big size public works such as roads, dams, ports, housing projects and any other engineering project has some common characteristics, being and independent, not repetitive work each of them has to be done in a different site.

The choice between a Monitoring Contractor and a full Managing Contractor depends on a lot of factors, one of the most important is the overall project organization. As a matter of fact, if an Owner assignees the works to one or more General Contractors, there is no need for Managing Contractor, since the actual management of the project is included in the responsibilities of the General Contractors; in this case, it is enough for the Owner to have an Engineer for the technical and quality control aspects and a Monitoring or Auditing Contractor, probably with limited tasks, in order to be informed, through an independent source, about the status and progress of the project, and to be advised about any action to be taken.

In more complicated cases, such as where instead of a General Contractor there are different Engineering and Construction Contractor, the choice between Monitoring or full Managing Contractor depends on the Owner’s organization. If the Owner is organized to manage engineering and construction works, Monitoring Contractor is enough; if the Owner is only a financial institution, full Managing Contractor is needed.

In some cases the Owner and the Employer are two different organizations, the first being a financial institution while the second is a managing institution; in these case the Owner can put in charge a Monitoring Contractor, whose task shall be to assist the Employer in the project management and to keep the Owner informed about it. This is the case of the Auditing of public works, where Owner, Employer and sometimes End User are different institutions.

PROJECT FINANCING

Project financing is a separate field; it can be included in the scope of works either of Managing or of Monitoring Contractor. In its widest aspect, it means to find from the beginning finance for the project by organising and governing a pull of banks and other financial institutions and to negotiate all conditions for loans and its repayments, either directly or by means of buy-back or bartering agreements.

The companies or professional partnerships acting in the field of project managing or monitoring are generally specialized also in project financing; this means that, with a full power of attorney authorizing them to act, with exclusive clause, in the name and on behalf of the Owner, they can prepare an overall finance proposal for the whole project and submit it to the banking system, organize a pool of banks or other financial institutions ready to finance the project and negotiate with them all the financial conditions for the loan and its repayment and interest rate.

In some cases, also due to the different legal systems of different countries, it is not advisable to give a full power of attorney, and therefore there is only the possibility to act as financial consultants for the project: this alternative has a lower level of responsibility, but, on the other side, has not always the reliability needed either for Owner or for the Financial counterparts.

 

Rispondi

Inserisci i tuoi dati qui sotto o clicca su un'icona per effettuare l'accesso:

Logo WordPress.com

Stai commentando usando il tuo account WordPress.com. Chiudi sessione /  Modifica )

Google+ photo

Stai commentando usando il tuo account Google+. Chiudi sessione /  Modifica )

Foto Twitter

Stai commentando usando il tuo account Twitter. Chiudi sessione /  Modifica )

Foto di Facebook

Stai commentando usando il tuo account Facebook. Chiudi sessione /  Modifica )

Connessione a %s...