Reason contractor budgets out-of-control

From http://www.constructionmanagermagazine.com/insight/real-reason-why-so-many-contractors-are-failing/

The real reason why contractor budgets spiral out of control
30 November 2017 | By David Rogers


Chevron’s Gorgon liquefied natural gas (LNG) plant in Australia might be called a “gigaproject”. It was billions over budget (Source: Chevron)
David Rogers meets a man who believes project controls software holds the key.

The recent history of UK contracting has been alarming, with big, sophisticated companies watching in dismay as their share prices enter free fall after profit warnings and the revelation of gargantuan losses.
Among the usual reasons given for the disasters – the failed expectations, the inaccurate forecasts, and the “challenging market conditions” – there is always a clutch of “problem contracts”, which one can sometimes suspect is the underlying cause.
Their persistent presence calls into question how contractors are actually doing what they are supposed to do best: estimating costs, setting budgets and supervising the subcontractors who do the actual work.
This state of affairs has created fertile ground for marketers of project control software, a kind of financial equivalent to the Building Information Model (BIM), in that it makes cost data available to whoever needs it, and maintains a “single source of truth”.
This has the effect, so they say, of easing the administrative burden borne by all contractors and consultants in project and client teams, and providing an early warning system when things are beginning to slide.
CM sister website GCR met with one such proponent, Guy Barlow, the global commercial director of Australian software house Aconex.
“I don’t want project controls to be seen as a panacea, but if you can’t see how your subcontractors are performing, and you can’t manage the hundreds of design changes, you get blindsided by them and costs spiral. It’s the canary in the coalmine,” he says.
In the past, this company established itself as a provider of document management systems, and has been a pioneer of the “software as a service” model, whereby companies rent cloud-based solutions for the life of a project.
Now it is moving into the $1bn project controls market, and Barlow, a former Oracle manager who’s based in Phoenix, Arizona, is travelling around the world to persuade contractors and clients they can’t afford not to rent a system from Aconex – or the six or so other suppliers of rival software solutions.

The hard sell
The pitch for project controls software in general is that it automatically gathers data from the site and applies the power of real-time analytics to a project’s finances. So, although it looks a bit like a spreadsheet, with all the usual budgetary information, it is dynamic and it connects to what Barlow calls “the evidence”.
“If there’s a £100,000 change because an oil tank was found during excavations, you can drill into that change – you can see photos from the site, you can see the initial estimates, the environmental impact assessment, and all the supporting documentation. It’s not just what’s happened and the dollar amount, it’s also why has it happened. It gives you the confidence to make a decision.”

Guy Barlow: ‘If you can’t see how your subcontractors are performing, and you can’t manage the hundreds of design changes, you get blindsided by them and costs spiral.’
Aconex’s particular solution, which it bought fully formed from a developer called Ares, has been on the market for about seven months. Barlow’s pitch for it is that it combines an intuitive “user experience” with the convenience of the cloud.
And, it turns out, the “convenience of the cloud” is quite important. “People don’t realise how much cost and time is associated with implementation,” Barlow says. “For something like Oracle’s Unifier, it takes between 30 and 45 days just to get your log-on credentials. Then you’ve got to have it customised for your business, so that means bringing in consultants, and you’re looking at millions of dollars and a six or nine-months wait before you’re in operation.
“Because we're cloud-based, we can log you on inside two hours – here's you password, knock yourself out. We do like to give some training, obviously, but it’s not a long engagement.” As well as the software itself, Aconex has built up datasets on types of projects in particular locations, and can use them to give firms benchmarking data and warn about typical problems.

Ditching the industry standard
That said, Barlow does not regard rival vendors as his main competitor. The real enemy is the Excel spreadsheet. “That’s the industry standard, and our biggest competitor, globally speaking. The UK and Western Europe are very advanced – more advanced than the US and Asia – and you are still are using spreadsheets in a lot of cases.”
Barlow says spreadsheets offer the comfort of familiarity, but they are not the best way to manage complex projects. “One of our UK clients gave us one of their spreadsheets, and we identified a calculation mistake which put it £150,000 out.
“Not a lot of money, but it shows how error-prone these things are – and if you use the same document over a number of years, that figure will grow. And they’re not scalable. There are spreadsheets around with 50,000 items in it, and when they get to that size, they break.”
That point about scalability is one of the reasons Barlow is visiting the UK. He’s giving a talk about the rise of the “gigaproject”, meaning schemes such as Chinese smart cities and Australian LNG plants that are in a league above the common-or-garden $1bn bridge or office complex.
His point is backed up every year by Dutch consulting engineer Arcadis, whose Global Construction Disputes Report keeps a tally of construction’s $43bn-worth of legal disputes. It regularly blames this on the increasing complexity of projects coupled with companies’ failure to administer the contract and their tendency to make “incomplete and unsubstantiated” claims, both areas where accurate, up-to-date financial information can be of help.
In the future, project controls will become more sophisticated, Barlow says. One obvious area is to connect the project control package with the BIM, so that if a wall is moved on the model then it changes data in the project controls database. The information can also flow the other way, so that the BIM can be populated with the latest financial data for that particular scheme, producing a 5D BIM.
Perhaps one day this degree of sophistication in the collecting and presenting of information will do for construction what self-driving vehicles may one day do for road transport and make life a little safer for all concerned.