Article for Institute of Public Works Engineering Australasia Nov 2019

1. 40
UNDER THE MICROSCOPE
The best way to avoid hidden costs arising from managing
contractors is by collaborating on fair contract terms.
Establishing robust relations with suppliers, from planning and
design through to asset handover, means both parties agree
wheretheresponsibilityforriskfalls-andthecommunitybenefits.
Managingcontractorsisanecessityforpublicworksengineers,
with most projects being completed by external private suppliers.
This is particularly the case where works are large and complex.
The process a project owner follows can influence both the cost
andoutcomeofworkexecutedbycontractors.
Planning and design
Projects fail before they begin – without good planning at the
concept phase, no construction contractor can deliver an
outstanding result.
Once stakeholders understand and agree on the desired
outcome, there are two key design considerations to address:
meeting performance requirements through good design; and
designing for constructability. The performance considerations
aregenerallywellunderstoodbythoseinvolvedinprojectplanning.
Constructability, on the other hand is too often neglected. While
designers can be experts in meeting performance requirements
for a project, without a construction industry background
they may lack awareness of issues around its buildability.
The experts in this area are the contractors you engage.
Ideally, they work in collaboration with designers from project
concept phase, as these two aspects of performance and
constructability need not be mutually exclusive.Major savings
in both cost and project duration can be achieved by forming
an early connection between the two.If this is not possible due
to procurement policies, a team member or consultant with
significant construction experience can contribute to this end.
It is important for the works engineer to recognise they have
a limited pool of contracting capability available to them. By
planningaprogramofworkspackages,theengineercanconsult
with other asset owners who engage the same contractors and
with the contractor community. In the short term this allows
release of works packages in a manner that improves the
likelihood of contractors being available to undertake jobs,and

2. 41
MANAGING CONTRACTORS
in the long term it can provide the confidence
requiredforcontractorstoincreasetheircapacity
by recruiting and purchasing additional plant
and equipment.
Procurement
Too often procurement processes and documents
are designed by legal departments. While legal
guidance is important, procurement is best
managed by people who understand the work
to be undertaken.
An easy mistake to make when preparing for
procurement is to push as much risk as possible
on to contractors.This may work with a first-time
supplier,however,over time contractors will factor
risk into their prices – the client always pays.
The best outcomes are when the party most able
to manage a risk is responsible for it.
For example, subsurface conditions should
normallybetheresponsibilityoftheprojectowner,
while construction equipment maintenance and
staffing are responsibilities of the contractor.
Good risk allocation means contractors don’t
need to price for risks they cannot control, and
they have the incentive to manage those risks
they can control. The result: better pricing and
outcomes for the project owner.
Likewise, complicated contracts can cause
problems for project owners. Stick with basic
templates that are familiar to contractors, such
as the Standards Australia suite, and keep
amendments to a minimum.Where amendments
materially change the nature of the contract, be
certain that contractors are made aware of the
adjustments – don’t assume the fine details
have been read and understood. If contractors
are surprised by terms after executing a
contract,the outcome is usually negative for all.
Low pricing is considered a positive when
assessing tenders, but fees that are too low can
be a warning sign. If contractors undercharge
for a project, it could result in shortcuts, poor
workmanship, under-resourcing and excessive
variation claims. In the longer term, cheap rates
can erode contractors’ profitability and reduce
the available pool of suppliers for future works.
By having projects costed by an experienced
estimator with good local knowledge, you will
get a reasonable understanding of whether your
responding contractors can make money at
their quoted prices.This step should form part of
tender evaluation criteria to deter acceptance
of under-priced responses.
Execution
If your project is well planned and designed,
both for performance and constructability, and
procurement is managed competently, many
execution phase problems can be avoided. A
thorough design phase ensures requirements
are met and construction issues kept to a
minimum. However, while good planning and
design can result in a huge reduction in execution
phase variations, some unknowns will always
exist,and variations should be expected.
Where possible,variations should be assessed
based on their value to the overall project. The
easy option is to revert to dayworks rates to
complete these tasks, however this does not
provide an incentive for efficient completion
of the works.A lump sum or unit rate approach,
based on original contract rates, ensures value
for the asset owner and provides an incentive to
the contractor to complete the work as efficiently
as possible.
Variations should recognise and compensate
contractors for the additional effort and cost
they have incurred but they should not be an
opportunity for higher margins. When assessing
variations, it must be clear to contractors that
their management of changes will be a factor in
assessing future proposals.
Post-construction
It’s too easy to think the job of the public works
engineer is over when your project reaches
practical completion. The forward-looking
engineer recognises the likelihood of partnering
with the same pool of contractors again.
A good debriefing allows the project owner and
contractors to learn from mistakes, share what
was successful and achieve better results in the
future.The expectation that project performance
will affect future contract award decisions
should motivate contractors to strive for the best
possible outcomes. And with this awareness, it
becomes evident that their future engagement
will depend on the job done today.
Successful long-term contractor engagements
are only possible when mutual respect exists
between the project owner and contractors.The
mindset that one party can or should benefit at
thecostoftheotherpartyisamyth.Assetowners
and contractors have a symbiotic relationship,
and the project owner who recognises this will
help their organisation to consistently deliver
high quality constructions for their communities
and other stakeholders.
James Baker is an internationally experienced
specialist project manager who provides contract
administration services to the construction
industry,including many ofTasmania’s government
business enterprises, local councils and major
construction contractors.
The forward-looking engineer recognises
the likelihood of partnering with the
same pool of contractors again.