Re-Engineering the Owner/Contractor Relationship for More Predictable Project Outcomes

Although historically the energy industry was able to absorb cost overruns, that is no longer the case. In short, there is now a focus on certainty of project outcomes. For oil and gas companies, an austere economic forecast has challenged the balance sheets and shareholder dividends, leading to cuts in project spending and increased focus on productivity and cost control. To achieve the strategic benefits from capital programs, owners are increasingly shifting their focus from accelerated program execution to delivering value for money through effective and efficient program management…leading to the need for rigorous planning, execution and control through the project life cycle. We cannot expect that a higher oil price will offset a cost overrun. We cannot rely on suppliers and service providers to offset low product price…Given low oil and gas prices, we need to find dramatic reductions in project cost; given the volatility in oil and gas prices, we need to be much more predictable in our estimates of project costs and time to first oil…The key point is that capital projects now present a major business risk that project investors need to manage.

Why are Predictable Outcomes So Difficult to Achieve?

A wide range of factors come into play when it comes to managing a capital project from concept to full-time operation. Common challenges that must be addressed include adequate project shaping, the size and duration of the project, the degree of contract complexity, environmental and logistical issues, and ensuring the availability of the skills and experience required to bring in a project as planned and budgeted, safely, etc. Prior to project kick-off, the focus of discussion and decision-making for leaders in the owner and contractor organizations revolves around some of the issues above, and other technical aspects of project management and delivery. However, planning for the non-technical aspects of project management and delivery – i.e. team and leader ongoing development and on-going coaching - are rarely part of the FEEL process.

As team effectiveness professionals in the global energy industry for 25+ years, we’ve observed first-hand that project leaders and stakeholders frequently overlook – or significantly underestimate - the amount of investment (time and money) needed to design and engineer the human capital resources on a project to deliver reliable, value adding performance that contributes to project success. We believe there is a simple formula that can be used to improve project outcomes: IMPROVED ALIGNMENT > INCREASED TRANSPARENCY > AUTHENTIC TRUST.

STRATEGY #1 Establish Initial Alignment Across the Project Organizations

The success of a project depends on a combination of factors, not the least of which is the degree of alignment that exists between senior leaders in the owner and contractor organizations, and the dynamics of their interpersonal relationship. A PROJECT’S CULTURES IS SHAPED BY THE PEOPLE AT THE TOP.

STEP # 1: ALIGN SENIOR LEADERS IN THE OWNER AND CONTRACTOR ORGANIZATIONS. Relationship Management “101”: The “soft” skills are the “hard” skills!

It’s a fact that an adversarial culture has hung over the construction industry for many years. And, although the atmosphere is improving, old mindsets and behaviors can still be triggered by negative surprises, the appearance of coercive tactics, or the withholding of key information by either party.

SOLUTION:

Prior to project kick- off, schedule an off -site team building session for senior project leaders in both organizations, facilitated by a neutral third party. Be sure they talk about their relationship during the session first, and the technical issues are discussed second’

Discussion Topics That Facilitate

Relationship-Building:

• Both parties describe what type of relationship they would like to have going forward, e.g. open, collaborative, honest, confidences protected, etc.
• What each party needs from the other for the project to succeed?
• A discussion of what could go wrong in the relationship down the road and how to prevent it - or deal with it- if it happens?
• Test for agreement that both parties will commit to putting “difficult” issues on the table, before they become costly and damaging to the project.
• Publish session notes and distribute to participants.

STEP #2: PREPARE FOR PROJECT KICK-OFF and Team Misalignment (SCOPE, SCHEDULE, COST, QUALITY, SAFETY)

Ensuring that all the arrows are going in the same direction and at the same target begins with the Project Charter. This document is developed by project leadership and is typically introduced to the rest of the project team at an all-hands project kick-off meeting. WHEN TEAMS HEAD OFF IN DIFFERENT DIRECTIONS, THE PROJECT EXPERIENCES SUCCESSES OFF-SET BY FAILURES.

The charter defines the business case for the project, and contains key information such as the project objectives, scope, and key people and teams that will be working on the project. A high-level schedule with key milestones is usually included as well.

Additional elements frequently included in the Charter:

? A Governance Model. It informs the team about key stakeholders and who and how financial and resource allocation decisions will be made as the project moves forward.

? Roles & Responsibilities. Key roles, responsibilities, and accountabilities are over-viewed. They must be updated at key transition points as the project progresses.

? Interface Management. This process formally tracks information exchanged between owner and contractor counterparts and is essential for effective project execution.

Effective project management has been described as the art of managing the tradeoff ’s and compromises that must be made to keep things moving toward a successful conclusion. To maintain alignment across the project, team members need to understand the five project drivers and how each one can impact their work priorities at any given time in the project life-cycle. WHEN TEAMS MAINTAIN ALIGNMENT WITH OVERALL PROJECT DRIVERS, PROJECT SUCCESS CAN BE ACHIEVED.

STEP #3: PROJECT KICK-OFF SESSION

Holding a full-team Kick-Off Session is a good way to begin to align the full project team at both the Relationship and Task Levels.

BEST PRACTICE:

The initial owner/contractor alignment session should provide opportunities for team members to get to know each other’s interests and professional backgrounds, as well as to have some fun together. The second purpose of the event is for project leaders to present and review the Project Charter and encourage people to ask questions and request further clarification about any issues on their minds about project.

A successful project launch begins the process of defining the owner/contractor relationship at both the project leadership level and the functional/discipline levels. Neglecting to pay adequate attention to establishing strong alignment at this time can set the stage for communication breakdowns, unclear priorities or interpersonal conflict down the road.

TWO TOOLS THAT HELP PROJECT TEAMS MAINTAIN ALIGNMENT:

A.- ESTABLISH COMMON MEETING & COMMUNICATION PROTOCOLS THAT SUPPORT MANAGING SCHEDULES, MEETING DEADLINES, KEEPING THE TEAM CURRENT ABOUT PROJECT PROGRESS:

? Regular and predictable communication should be established for specific focus items and audiences such as technical reviews, project status updates, schedule alignments, stewardship meetings, and team development initiatives.

? Meeting protocols should include the purpose of the meeting or communication, expected outcomes, attendees including SME’s, and meeting time-frames (start/stop).

? Meeting management guidelines and best practices for face-to-face and virtual meetings should be standardized and circulated across the project.

B.- MEASURE & REPORT THE STATE OF TEAM ALIGNMENT ON A REGULAR BASIS

? There are 8 dimensions for measuring team alignment:

1. Clarity of Focus & Direction

2. Ability to Deal with Conflict

3. Individual Commitment to the Team

4. Quality of Team Decision-Making

5. Quality of Team Communication

6. Structure & Support

7. Clarity of Roles & Responsibilities

8. Team Well-Being (SEE PROJECT TEAM ALIGNMENT CHART BELOW)

? Survey results are typically reported for the total project team and broken out by sub-teams

? Sub-teams meet to review their results, celebrate their strengths, and identify actions to address high priority improvement needs.

STRATEGY #2 Increase Communication Transparency Between Owners and Contractors

The concept of transparency has frequently been associated with the social responsibility and regulatory compliance. In the project environment, it can be argued that increased transparency in the communication between owners and contractors has become a strategic imperative for achieving predictable outcomes on projects.

TRANSPARENCY IS DEFINED AS “COMMUNICATING IN WAYS THAT MAKE IT EASY FOR OTHERS TO KNOW WHAT YOU’RE THINKING AND/ OR WHAT ACTIONS YOU’VE TAKEN OR PLAN TO TAKE, AND WHY.”

? On projects, communication transparency means that as a team performs its work in one part of the project, members also consider what other teams may need to know that they know, and then share it to improve overall project performance.

? The good news is that on projects where transparency is practiced by owner and contractors, tangible benefits are being produced including: FASTER PROBLEM SOLVING, HIGHER QUALITY SOLUTIONS FOR DIFFICULT PROBLEMS, INCREASED TRUST

Ground Rules for Transparent Communication & Productive Meetings

HERE’S WHAT TRANSPARENT COMMUNICATION LOOKS LIKE WHEN SENIOR LEADERS IN THE OWNER AND CONTRACTOR ORGANIZATIONS COMMIT TO IT:

? Project leaders have full access to the information they need to make decisions in the best interests of the project.

? Leaders make their intentions and actions visible

? “Bad news” is shared early, followed by joint problem-solving eff orts.

? Leaders agree to disagree without rancor or retaliation.

? Mistakes are acknowledged, and the lessons learned shared.

? Leaders agree not to criticize each other outside of their meetings.

AT THE FUNCTIONAL AND DISCIPLINE TEAM LEVELS, THE SAME GENERAL PRINCIPALS APPLY:

1. Be willing to engage in honest and open communication.

2. Share what you know when it could help another team or team member.

3. Raise “red flags” and difficult issues when the project will benefit from it.

4. Admit mistakes openly and what has been learned from them.

5. Find ways to help others be successful.

The more knowledge team members have about the status of the project, the easier it is to make good decisions… if transparency is lacking, problems can easily lurk beneath the surface. There are three reasons why increased transparency is still a tough sell in some parts of the industry:

1.- “SILOED” THINKING: Technical teams have a long history of working in highly focused, self-contained work units, and identifying closely with their own technical specialty or function.

2.- DISCONNECTED DECISION-MAKING: The absence of robust communication channels across the project organization can set up a situation where one team may have no idea what the potential impact of a decision they’re making will be on another team – until it’s too late! The associated costs may be sizeable and completely avoidable

3.- A LOW PRIORITY PUT ON COLLABORATION & JOINT PROBLEM-SOLVING: A strong message must be sent from the top and reinforced again at all team levels that collaborative problem-solving and problem-prevention is everyone’s job: “We’re all in this together!”

How Transparent Communication Makes Project Outcomes More Predictable

1.      IT IMPROVES THE CLARITY OF GOALS & PRIORITIES: In a project committed to transparent communication, leaders share current information about the relative priorities between schedule, cost, and quality at different times in the project life cycle. Then priorities are established, and decisions made that ensure that everyone is pulling in the same direction.

2.      SYNCHRONIZED THINKING & ACTIONS ARE PRODUCED: When the context for decision-making is commonly understood, owners, engineers, contractors and suppliers up and down the chain of command are making decisions based on the same criteria.

3.      COST MANAGEMENT IMPROVES: Recent research indicates that up to a 50% reduction in re-work is possible when the pool of information available to decision-makers expands, and there’s a strong commitment to “no surprises”.

STRATEGY #3 Establish a Trust-Based Project Culture

Five Things You Need to Know About Trust:

1. TRUST has been found to influence virtually every aspect of project management. In

the owner/contractor relationship it’s essential for project success,

2. IT’S HARD TO ESTABLISH AND MAINTAIN TRUST ON PROJECTS BECAUSE:

? Projects are fast-paced and relatively short

? Projects bring people together from different organizations and cultures who may

never have worked together before and may never again.

? Projects are primarily populated with people who have a low preference for “soft skills and social niceties”.

3. TWO WAYS LOW TRUST NEGATIVELY IMPACTS PROJECT PERFORMANCE:

? Interpersonal conflicts develop that often linger unresolved and can eventually cause split alliances within teams or between teams.

? Communication breakdowns can occur causing deadlines to be missed, schedule delays, and/or re-work.

4. LAYING THE FOUNDATION FOR A TRUST-BASED RELATIONSHIP BETWEEN OWNERS AND CONTRACTORS IS AN ESSENTIAL STEP IN ACHIEVING PREDICTABLE OUTCOMES.

Trust can best be measured on four dimensions.

a.- COMPETENCE: Does the individual or team have the skills, abilities, knowledge, and experience to deliver what’s required?

b.- COMMITMENT: Willingness to do whatever it takes to complete a task or achieve an objective. Strong work ethic and focus on getting the job done right.

c.- COMMUNICATION: The content and delivery of messages is clear and timely, with information delivered in the correct format to meet the receiver’s needs.

d.- COLLABORATION: Individuals and teams work supportively with each other. They’re open to other’s ideas and feedback and look for win/win solutions to problems.

CONTRACTOR’S FEEDBACK: COMMUNICATION

A useful tool for measuring and reporting trust levels between project owners and contractors is The Team Trust Index

BEST PRACTICE: Results are reviewed in a joint meeting with the participating owner and contractor teams. Specific issues/behaviors that contributed to each team’s self-ratings - and the ratings given to the other team – are discussed in detail. A plan forward is agreed to: 1.) reinforce identified strengths of the combined team, 2.) close current gaps, and 3.) focus on actions that will strengthen trust in all four dimensions.

5. LOW TRUST ALWAYS ESCALATES PROJECT COSTS.

When trust is low in a company or relationship, it places a hidden “tax” on every transaction, every communication, every interaction, every strategy, and every decision > bringing speed down and sending costs up.

TELL-TALE SYMPTOMS OF LOW TRUST ON TEAMS:

a)      DELAYS IN DECISION-MAKING: “Data wars”; reduced risk-taking; lowered commitment to implementation

b)     UNDERCOMMUNICATION: Withholding information, going around others, failing to get clarification about assignments and/or agreements during meetings.

c)      CONFLICT AVOIDANCE: The “real” issues doesn’t get surfaced. In addition, people often try to avoid arguments by informing each other of things at the last minute when it’s too late to make changes.

d)     PEOPLE ARGUE FROM EXTREME POSITIONS: They use lots of “absolutes” with each other – “You always...”, “You never...”

e)     PEOPLE JUMP TO CONCLUSIONS: They don’t test their assumptions for correctness or validity. They don’t examine or share their stories to get the truth.

SOLUTION:

Make skill development training in and coaching in conflict management available to project managers and team leaders. A significant skill gap in this area exists across all industry sectors – fossil fuels, renewables, and power, according to a 2017 study conducted by the Center for Creative Leadership. (The Leadership Challenge in the Energy Sector: What’s missing when it comes to leadership talent?)

The Five Value-Adding Business Benefits of High Trust on Projects:

1. CLIENT RELATIONSHIPS ARE MORE OPEN AND MORE POSITIVE.

2. TIME TO MARKET IS ACCELERATED.

3. RISK PREMIUMS IN CONTRACTING ARE REDUCED.

4. TOTAL PROJECT COSTS ARE REDUCED.

5. MORE EFFECTIVE COMMUNICATION OCCURS ACROSS THE PROJECT.

6. IMPROVED RESILIENCY IN RESPONDING TO UNFORESEEN CHALLENGES AND SET-BACKS.

At its simplest, Trust is a catalyst for a project to be more-focused, more efficient, and nimbler.

TAKEAWAYS, MANAGING COSTS AND MAKING PROJECTS MORE PREDICTABLE

Managing costs and making projects outcomes more predictable are a strong focus in the energy industry today, and in many others.

Without intending to diminish the importance of technical experience and technical skills, this paper has suggested that “transactional skills” – leading, coaching, establishing trust, communicating transparently and resolving conflict – when they are skillfully applied, significantly impact project success.

Therefore, we recommend the following steps to fully leverage those resources:

1. Include planning and budgeting for human capital development in the early stages of project planning.

2. Conduct owner/contractor relationship building prior to or during project kick-off. Agree to review commitments and the state-of- the- relationship on a quarterly basis - even if there are no apparent “problems”.

3. Develop a Maintenance Plan that ensures that the project’s human capital resources remain up and running and properly functioning throughout the project life cycle, e.g.

? Provide leader and team coaching on an as-needed basis.

? Support Team Building Sessions for individual teams and/or cross-functional and cross-discipline teams

? Provide opportunities for skill-building in the leadership, teaming and transactional skills noted above

? Conduct periodic “Pulse Surveys” to:

- Ensuring the project team stays aligned to the ebb and fl ow of the critical objectives across the project life-cycle

- Keeping leadership in touch with the challenges and successes individual teams and team members are experiencing

- Best Practice: Include contractors in pulse surveys as well as members of the owner team for a full project team perspective.