By Josh Girvin, O3 Solutions CEO
If I had a dollar for every time I heard someone say “We don’t need to do AWP on this project. It is lump sum”, I could retire tomorrow.
Let’s break that down a little. Clearly, we are just talking about Construction here, because Engineering is very rarely done on a lump sum basis. So, we aren’t even really talking about AWP at all. We are just talking about WorkFace Planning (WFP), which is the culmination (and customer) of the overall AWP process.
The argument seems to be that, since we have pushed performance risk onto the contractor (and paid the associated premium for that safety net), we don’t have to worry about project execution.
That logic will last right up until the first change order, or the first time the schedule update shows a slippage on the completion date. Any lump sum contractor will know a vast number of ways to put conditions and caveats on the lump sum price and will protect themselves by exercising their contractual right to change as soon as something goes wrong.
“You didn’t deliver the drawings on time”. “We excluded that item in our clarifications”. “The fabricated material (by others) was late, so we got delayed”. You will very quickly find yourself spending most of your time dealing with notifications, changes, and claims.
Cost is, of course, a major factor in most projects. But it is by no means the only key factor. Projects fail just as often as a result of schedule delays. The Owner will typically only start to recoup their investment once the project is up and running, so time truly is money. Lump sum contracting provides some protection for execution performance for cost, but it provides no guarantees at all when it comes to schedule.
AWP can help; regardless of the contracting strategy, you are using for the Construction scope. Even with a lump sum, you can significantly reduce the project risk by aligning the Engineering, Procurement, and Construction elements of the work.
Firstly, this will provide far greater visibility of the interfaces between those groups. By planning to a more granular level, using an AWP breakdown structure, you can see how finite Engineering deliverables and the associated material will impact the ability of the Construction contractor to perform the work. You can see problems and issues much further upstream, rather than waiting until the contractor notifies you of a missing spool when there is a crew of people waiting to install it.
Secondly, you can use internal construction experience (or better yet, bring the contractor in early) to define the best sequence for installation and make sure that Engineering and Procurement can support it.
So, what are the benefits to the Owner for insisting on WorkFace Planning for projects where the Construction work is done on a lump sum basis?
Mostly it comes down to visibility. The WFP process, if done well, can provide a huge amount of data that can give you invaluable insights into the performance of your project.
Are all of the Installation Work Packages (IWPs) going to be complete within the Construction Work Package (CWP) schedule window? If not, the schedule will very possibly slip.
If the performance of the early packages shows that the contractor is taking more hours than estimated to complete each small scope, it is a good indication that they are going to struggle with completing the balance of the scope on time.
Does the contractor have enough people to perform the work at hand? Do they have enough work in hand for the number of people on-site? Are they managing their constraints, and clearing them before starting the work? Are they planning multi-discipline scaffolds? Do we need to start talking about recovery plans (rather than waiting until the project is 75% complete before we show delays)? Are they on track to provide the turnover systems on the dates and in the sequence that we need them?
The list is very extensive, and that is just a small sample. And that doesn’t even begin to take in some of the less tangible, but no less real benefits of well-planned work such as reduction of safety incidents and lower rework.
If your project is only concerned with cost, and the contractor is taking on all the risk with no conditions, you might be able to get away without needing AWP. But if you also need to be on time, safe, and provide a quality product, AWP and WFP can help.