*|MC:SUBJECT|*

CAASA NEWSLETTER FEBRUARY 2025

The motivation behind this monthly newsletter is to provide better and more frequent communication to CAASA members, and to solicit suggestions and responses to the contents. We need input from you to ensure that the content of this newsletter, our webinars and annual conference remain both topical and relevant.

Any comments, suggestions or proposals please forward to secretary@adjudicators.co.za

CONTENTS:
Why do Projects go Wrong
Webinars
LVDR

WHY DO PROJECTS GO WRONG

We need to start off by asking what are the fundamental elements for project success. In my opinion it is the following:

Well defined Scope of Work
Credible Project Estimate
Sensible Planning and Programming
Appropriate Delivery Model and allocation of Risk
Competent teams – Employer, Engineer, Contractor

These factors are interrelated, not independent.

I attended the MDA Collective Wisdom Conference where the following statistics were quoted: “In total only 8,5% of projects hit the mark on both cost and time. And a minuscule 0,5% nail cost, time and deliver the expected benefits. Or to put it another way, 91,5% of projects go over time, over budget, or both, and 99,5% of projects fail to achieve the time, cost and expected benefits, or some combination of these. Doing what you said you would do should be routine, or at least common. But it almost never happens[1]. ”

Wow – what an indictment on our industry. However we only have to look in our own backyard to see the truth in this. From the complex mega-projects such as Kusile and Medupi, down to the straightforward construction of schools and clinics we see excessive overruns in both cost and time, often with projects left uncompleted.

There are three basic reasons:

1. Overly optimistic estimates
2. Poor project management and contracting practices
3. Scope changes

Overly optimistic estimates – Optimism Bias and Anchoring

Humans by our very nature are inherently optimistic and overconfident. The success of the gambling and lottery industries are a testament to this. Optimism bias results in an underestimation of the time, costs and risks in delivering a project, while overestimating the benefits and based on this, the commitment to carry out the project is made. We will always try and find a way to “make it work”, rather than to admit that the project is a no goer from the start.

Research shows that on civil engineering projects optimism bias can lead to a 25% underestimation of the time to complete and a 66% underestimation of capital expenditure.

Anchoring refers to the tendency to rely too heavily on the first piece of information offered. In the case of construction projects this is usually the original budget and programme. These become fixed in everyone’s mind, regardless of the fact that they were developed early in the process and with only limited information. Even when people know that the “anchor” is too high or too low the adjustments away from it are always insufficient. Contractors often have to spend an inordinate amount of time justifying why the anchor was wrong from the outset.

Poor project management and contracting practices

One of the most important decisions an employer will make is which form of contract will be used to deliver the project. It should be one of the standard forms. The employer and his representatives should be well versed in using the standard form, clearly understand their roles and responsibilities, and be given the requisite authority to act. Special conditions, if any should be kept to a bare minimum.

There is a critical lack of contract administration skills in the construction industry, particularly on the part of the employer. All too often the employer is “sold” a form of contract which is not appropriate for the project. He then includes a variety of special conditions to try and cover all the times he was caught out in the past. Invariably there is conflict between the general and special conditions, a fertile ground for disputes.

The most critical decision a contractor will make is the appointment of his project manager. He needs to be a strong leader, a good communicator with sound commercial competency.

As a rule of thumb the contractor spends between 10 – 20 percent of the project costs completing the last 5 percent of the work. Often, because of his experience and skills, the project manager is moved to start up a new site before the work is completed. I was involved on a project where, for various reasons, we had 6 different project managers over the contract period, with disastrous results. Each had his own area of focus and accepted no liability for the decisions of his predecessor.

Scope Changes/Scope Creep

Projects are often put out to tender without knowing the final scope of work - design as you go. Invariably this results in scope changes and creep during construction resulting in disruption, unproductive working, time and cost overruns.

A perfect example of this is the Medupi and Kusile Power Stations. Eskom had a long and successful history of building “six pack” power stations. Medupi and Kusile were brand new state of the art facilities and, when put out to tender, the scope definition was far from complete. The last six pack to be built, Majuba Power Station, was used as the basis for the Bills of Quantities, despite Majuba bearing no resemblance to Medupi and Kusile. In hindsight Eskom would have been far better served by taking more time to complete the design and scope and only then go out to tender. However the country was in an electricity crisis and government had to be seen doing something.

A further example is the iconic Sydney Opera House. A Danish architect Jorg Utzon won the competition to design the opera house. Construction commenced in March 1959 with a budget of 7 Million Australian Dollars, and with the building set to open in January 1963.

At the time of award there were no detail engineering plans as to how the sail like roof would be built. This required extensive design and redesign. The site had to undergo widespread ground improvement to carry the weight of the structure requiring the installation of 550 piles, each one metre in diameter. Funding, strikes, design changes and political pressure all impacted the construction In 1966 Utzon resigned from the project citing undue pressure from the Australian government.

Construction was finally completed in 1973, ten years late and at a cost of 102 million Australian Dollars, 14 times the initial budget. In 2002 a further 45 million Australian dollars was allocated to bring the building more in line with the architect’s original design.

The lesson – do not go out to tender until the scope is fully defined and designed. If possible freeze the design when construction commences and only make adjustments after taking over. If you need to make changes during construction keep them to a minimum.

[1] Bent Flyvbjerg – “Introduction: the Iron Law of Megaprojects”

WEBINARS

We again appeal to all our members, and particularly our panelists, to come forward and prepare and present at one of our monthly webinars. The time slot is for no more than an hour.

If you go to the CAASA website under the Training tab you will find the proposed schedule and topics for 2025. We have tried to follow three broad themes. However if you have some other topic which you believe will be of interest please share this with me at chairman@adjudicators.co.za.

LOW VALUE DISPUTE RESOLUTION

In the January newsletter I highlighted that 425 out of the total 2,243 referrals to adjudication were resolved through either a low value or fast track adjudication process. This accounts for almost 20% of adjudication referrals received.

There is a place for Low Value Dispute Resolution in the SA construction industry and we as CAASA members need to reach out and promote this wherever possible.