Part 2 - Challenges, the Laws of Physics, Project/Construction Management and Reality

 

Risk Allocations

Having a car insurance policy transfers cost liabilities for an accident from a driver to an insurance company.  But it does not eliminate all risk and responsibility for the driver to properly operate, control and maintain the vehicle, and to comply with traffic laws and regulations.

Having a medical insurance policy transfers cost liabilities from the insured to an insurance company.   But it does not eliminate all risk and responsibility for the insured individual to maintain personal health, practice healthy behaviors, protect from contagious diseases and to recognize potential problems from a family history.

When an Owner hires a Construction Manager (CM) , construction contractor or consulting Engineer Of Record (EOR), the liabilities for cost, schedule, scope and quality are shared.   While the risk allocation may change between participants, the Owner retains the risk and responsibility for assuring the product delivered is the product in the contract and in documentation for government funding grants or for commercial loan agreements.

Recently, a CM was surprised to learn that he was responsible for construction risk, and then indicated that something must be wrong because the risk should be with the contractor or the EOR.    Unfortunately, this thinking is a common belief of several CMs, and it could not be farther from the truth.

Ideally, the project plan includes a risk management plan, a risk register, and a risk reserve as part of the budget contingency.   Ultimately, the project and the Owner’s project leader always owns the risk and the risk is managed by an assigned project participant.   Mitigation and response strategies may transfer work scope, and associated risks, to another entity by creating consultant service contracts and contractor construction contracts.

Typically, a CM is contracted by the Owner’s project leader to provide services on the project.    In this case the project retains the risk associated with managing the performance and deliverables from construction contractor but responsibility and accountability is transferred to the CM.  As a result, the CM provides the management expertise and services for managing the contractor’s work in conformance with the construction contract and performance metrics in the CM’s service contract.   

Similarly, a construction contractor is contracted by the Owner’s project leader to provide supervision, labor, equipment, tools and materials to build, fabricate or manufacture a project deliverable.  All associated risks are retained by the project but the mitigation and response to cost and schedule impacts from risks are transferred to the contractor.   If a CM is managing the contractor, the risks may be shared to ensure that project deliverables conform to the construction contract.

Reality

Insurance policies only address a small portion of all the risk events with potential to impact project cost and contractors’ contractual obligations.

The majority of project risks must be managed by the CM in accordance with the Owner’s risk management policy and the project risk management plan.   CM manages and assesses performance for safety, quality, and means and methods of the construction contractor to meet the contract, and for integration with other project work.  Field changes and direction from the CM to contractor changes the allocation of risks.