A wake-up call for contract and commercial management
If it costs over 500 million Euros, it’s a Megaproject. An awful lot of them – some 65% – go wrong, substantially overshooting on budget or experiencing major delay. And since governments worldwide are expected to spend around 100 trillion euros on such projects over the next 15 years, their performance really matters.
Yesterday I attended a Megaproject conference where delegates – mostly academics – were pooling research aimed at understanding how success rates can be improved. The trouble is, we don’t really seem to know. And to the extent we do know, it appears better commercial management lies at the core.
Until now, the problems affecting megaproject performance have been perceived largely as issues for project management. However, the evidence – thin though it is – appears to point more towards weaknesses in stakeholder analysis, relationship definition, coordination and management. These are capabilities that should be provided through commercial skills and addressed through effective contracting structures and management.
Specifically, the major findings from research have been:
A need for ‘special purpose entities’ (SPEs). Essentially this is about defining the best relationship model for the project and structuring the organization for its delivery. An SPE is generally a newly structured company or joint venture.
A need for ‘modularization’. This is essentially about work breakdown and may take several forms, but is especially relevant in addressing some of the more common contract management issues, such as disagreement over scope and goals or contention over change management. Modularization could affect how and where work gets done; but it is executed through separation of contracts and might (I believe) include the type of ‘modularization’ one would see in agile contracting.
Impact of external stakeholders. This is an area that should be very familiar to any commercial manager – the need for thorough stakeholder analysis and reconciliation of their views. Beyond that, in megaprojects, consideration of external stakeholder needs may generate creative ideas for additional value; it will certainly influence how the project is presented, its value proposition and, therefore, will potentially alter scope and goals.
Establishing effective performance criteria and management. The business model for megaprojects varies. The criteria that need to be managed also vary – for example, the duration, the likelihood of cost overruns or delays. But in these complex environments, there need to be more measures than the traditional time, cost and quality. For example, behavioral characteristics or agile budgeting might be examples of additional areas requiring active management, as well as the characteristics identified as elements of relational contracting.
Professor Naomi Brookes provided valuable insight when she observed that the ideas being applied in the structuring and management of megaprojects are mostly decades old and never truly tested or validated; they were mostly developed for smaller projects; and they tend to be driven by the buyer or funding agency. In other words, without effective research, contract and commercial management will remain an area of guesswork and far too many projects will continue to under-deliver. That is why IACCM is so determined in pushing the research agenda and raising the skills and competencies within member organizations. It is time for the practitioner community to awaken to the scale of need and opportunity that this represents and to become far more active in support and advocacy of improved commercial and contracting standards.