Major Projects are Delayed by Months or Years, and Cost Millions More Than Budgeted, Because of Common Mistakes Made at the Contracting Stage
Organizations that invest huge amounts of capital in major building/industrial projects almost never do the engineering and building themselves. They hire engineering and construction contractors to do it for them. Unfortunately, selecting contractors and negotiating the terms of a major project is one of the most difficult aspects of project management...and organizations waste billions of dollars and "bake in" months or years of delay by doing it wrong. Contracting is also the area of project management that is most prone to firmly held opinions unencumbered by any facts. We intend to remedy that situation with this book. Drawing on a properietary detailed database of over 1100 major projects, the world's leading industrial engineering project consultant, Ed Merrow explains:
Key Principles of Contracting for Major Projects:
- Owners are from Mars; contractors are from Venus
- All the biggest risks in contracting belong to the owner
- Contracting “games” will normally be won by contractors, not owners
- Most risk transfer from owners to contractors is an illusion
- Contractors do good projects well and bad projects poorly
- Contractors may have shareholders, but they are not your shareholders!
- Mixing different contract types with different contractors on the same project is unwise
- Economize on the need for trust; trust only when being trustworthy has value
Merrow also explains:
- Which contract incentives work and which don’t and WHY
- Which of over a dozen contracting strategies work best and which ones hardly ever work and WHY
The strategic advice in this book is designed for owners and contractor project managers, team members and supply chain, executives, and other business leaders involved in major projects. It's also an indispensable resource for engineers, leaders of industrial firms, bankers, and academics studying the messy realities of the construction and engineering industries.
Table of Contents
Acknowledgments ix
Introduction: What This Book Is About 1
1 Ten Key Principles of Contracting 13
2 Data, Methods, and Nomenclature 29
3 Contracting and Project Outcomes: The Common Strategies 45
4 Exploring Why They Work the Way They Do 77
5 The Unusual EPC Lump- Sum Strategies 115
6 Collaborative and Relational Contracting Strategies 135
7 Prequalification 159
8 The Use of Supplemental Incentives 181
9 It’s All About Risk 215
10 Who Should Control Contracting Strategy? 243
11 The Effects of Scale 253
12 Toward Fair, Balanced, and Smart 261
Appendix: Description of Independent Project Analysis, Inc. 271
Glossary 275
Index 283
