Transitioning Constructed Products from Projects to Owner's Operations
Categories:
Contract Completion
Categories: Contract Completion
| Projects and imbedded contracts are executed by companies to maintain and/or expand the assets needed to operate, sustain and expand in accordance with business plans. Transitioning project products to operation of the business requires long term planning and execution equal to management of projects, which are considered temporary. Most Contract Forms do not formally describe the transition process from Seller/Contractor to Buyer/Owner, including the periodic inspection and maintenance of the contract product. This process is usually left to the Buyer and Seller project teams to establish a process within the contract requirements. The transition needs to be managed by the project team to assure the Owner’s preparation for operation of the contract product. In general, Sellers remain responsible for protecting, maintaining and repairing contract products until the Buyer takes possession and uses a portion or all portions of the product. Under the traditional contract form, the transition from Seller to Owner occurs at a point in the contract when the product meets the contract requirements and is suitable for use with only minor work and punchlist to be completed. Some custom contracts may specify that the Seller remains entirely responsible for the product, even the portions used by the Owner, until completion of all work and acceptance by the Buyer. Unless the contract product is totally new to the Owner's business, the operation, maintenance and repair of the contract product is already known by the Owner. Together with the manufactures' recommended list of spare parts and consumables, the Owner will review its experiential data on the needed parts and life cycles to best maintain its business objectives. This will enable the Owner to establish the procurement information, inventory levels, and purchase quantities to assure availability of parts to support operations of the business. For contract products that are new to the Owner’s business, the Buyer will need to have the Seller provide comprehensive training manuals and conduct classroom and field training. The Buyer will arrange training with the Owner based on availability of persons that will be responsible for operation, maintenance and repair of the products. Additionally, the Owner will integrate the training into their in-house training for new hire employees. Many contracts may require that the Buyer/Seller video tape the training sessions and submit the videos as part of deliverables to satisfy final contract completion. Spare parts are not normally part of contract deliverables. However for new products, the Owner will not have an inventory of parts, and the parts may long purchase lead times. As a result, Buyer specifications for new products may require the Seller to provide spare parts as a deliverable to support the Owner use of the product until internal inventory can be acquired under operations. Contracts with warranty provisions specify the start and period of the warranty provided by the Seller. Warranty provided under the contract typically becomes effective after the Owner begins using the product for business operation. In most cases the Seller’s and manufacturers’ warranty will continue for a period after the final completion and closeout of the contract by the Buyer. This means the Owner will need to manage the remaining period of warranty after the contract is closed with the Seller. As a result, before the contract is closed, the Buyer will need to obtain assurance/security from the Seller that persons and resources will be available and responsible through the end of the warranty period as specified in the contract. The Owner will need to review and implement the process and documents in the Seller’s Warranty Plan, which will include statement of warranty, contacts, notices and other documents to support the process. Contract Forms can vary and may be customized by the Buyer based on local preference, new initiatives, and the type and method of contract delivery, such as Design-Bid-Build and Design-Build. As a result, it will be up to the Buyer's project team to make adjustments and create a project management plan that details the transition process to the Owner. In order to avoid the shock of transitioning at the end of the contract/project, Buyers need to engage and influence Owner's to: - Review all shop drawings and material submittals, and deliverables for O&M Manuals and As-Built Drawing Packages. This assures the Owner has all the information needed to plan for the business to operate, maintain and repair of the product. - Participate in start-up and testing. This assures that the Owner witnesses the product operation and verifies the product meets the contract and that the product is working as expected. - Attend contractor/manufacturer training on systems. This assures the Owner's designated personnel are ready to use the product and are prepared for the maintenance and repair of the product. - Evaluate contractor/manufacturer warranty, spare parts and consumable items for operations. This assures the Owner's readies internal processes for asset management, procurement, and staffing levels. TIP: Buyer must implement continuous outreach with the Owner to convey confidence that the product meets requirements, and that the product is compatible with business operations. TIP: Buyer must assure Owner's assigned personnel remain consistent or that a qualified designee is available throughout the contract, including during the processes for submittal reviews, progress inspections, final inspections for acceptance, and warranty period. TIP: Owner must recognize the ultimate responsibility for meeting deadlines, handling aggressive workloads to meet the contract schedule milestones, and for completing due diligence in monitoring the Seller's work. TIP: If the project/contract is part of an expansion of the business, the Owner will execute parallel plans for hiring and qualifying employees, adjusting labor agreements and service contracts and for purchasing resources – material, tools, equipment, and vehicles, needed for the project products. Related Article: What are the Requirements for Seller Turnover of Contract Products to the Buyer? |
Value of Knowledge Management and Contract Deliverables
| Recently I was asked to estimate the cost of the various deliverables that are contractually required from Sellers to Buyers. The estimate included the Seller’s material cost, software cost, labor and administrative effort to prepare, publish and deliver multiple copies of knowledge deliverables, labor for knowledge transfer services, and administrative costs for post contract liabilities. The knowledge deliverables consisted of As-Built drawings and Operation and Maintenance Manuals. The knowledge transfer services consisted of training and organized handover of project records. The post-contract liabilities consisted of Warranty services. From previous contract experience in the rail transit domain, the contract deliverables are usually covered in the Buyer/Seller agreement and the value is covered by the retainage withheld by the Buyer from the Seller’s approved progress payments. The retainage is typically 5% and it’s released from the Buyer to the Seller at the completion of Final Payment, which is dependent on the Seller meeting the contract requirements. What the preliminary estimate showed was the cost to produce the end-of-contract deliverables expected by the Buyer from the Seller was within the 5% retainage amount. As a result, the historical use of 5% retainage in contract payment transactions provided high confidence that the Seller would fulfill the requirements or in theory, risk the Buyer using the retainage to fund another professional service contract for completing the deliverables. After further review, the estimate did not though, account for the value of the knowledge and services to the Buyer’s operation. Most of the end-of-contract deliverables will outlast the initial Buyer’s use and continue to provide knowledge for the operation and maintenance of the contract product. For contract producing sophisticated systems or cutting edge technology and services, the value to the operations may be far more that the 5% retainage. Long after the Seller’s contract is closed out, the knowledge created will help the Buyer in training new employees on operating the system, conducting preventive, predictive and routine maintenance and in coordinating as-built conditions for future projects. As a result, the Buyer will need to secure the knowledge for safe storage and quick retrieval and provide all resources needed for an operational asset. In order to assure the continued value of the end-of-contract deliverables, the Buyer will need to protect these legacy documents and establish knowledge management processes and resources. Deliverables such as As-Built drawings, O&M Manuals and training lesson plans and materials will continue to provide the Buyer with critical knowledge to share with employees for years to come while the product continues through its use-life cycle. What was once a paper exchange is now being replaced by paperless alternatives that are environmentally conscientious and take up less space and cost less. Digital libraries on off-properties are replacing storage and retrieval of paper documents. However, this transition is not yet complete and many companies still require a combination of paper and digital copies of project and contract documents. Like the intangible value of a Warranty, the value of the knowledge from the end-of-contract is hard to quantify. And its true value will only be appreciated when needed and usually at an inconvenient time. But the qualitative value to a typical railroad organization includes:
TIP: Most projects funded by the US government are required to retain project records for a defined period, and thereafter can determine the disposition of the records, including disposal. Buyer’s should have a plan for selecting the records and the medium for longer term storage and retrieval of project knowledge. TIP: Buyer’s should review contract requirements to assess if the paper focused deliverables are more cost effective than a digital approach for the scope of the project. For smaller, lower budget projects, paper may still be the best medium for contract deliverables. For larger, high budget projects, digital software and licenses may be a more effective solution, which can be accessed and searched by the Buyer from any computer location 24 X 7. Feedback to Comments A. On estimated cost: The evaluation of estimated cost for deliverables was favorable because it was a Design-Build contract, where the value of the design allowed for a buffer. The estimate relative to a fixed bid/lump sum may require the Buyer consider a large retainage percentage to cover expectations on a contract with systems. The estimated value does not include the spare parts, which would be itemized separately in the bid price of the contract. B. The closest rail transit projects consider knowledge management is as-built deliverables and O&M Manuals. Historically, rail transit projects deal with paper and hammers. As system projects increase the volume of paper, Buyer’s in the rail transit domain will need to consider management and sharing knowledge via electronic/digital medium. C. On IT initiatives for KM: Historically commuter railroads with budgets that are funded by the government, which off-set actual operating expenses to fare revenue ratio, tend to lag with leading edge IT practices in other industries. However, as the volume of paper increases with the size and complexity of mega projects, it will be inevitable for railroads to consider paperless approaches. While limiting paper, the are still projects that will require paper copies and software hard drives on-site for immediate use in recovery and restoring operations. |
Good practices for Commissioning Acceptance and Maintenance Plans (CAMP)?
| Until recently, Commissioning, Acceptance and Maintenance Plan (CAMP) deliverables on major projects were delegated to the contractor for determining format, content, level of detail and the submittal date. Typically, the compilation of the associated deliverables was part of final acceptance of contract products by the Buyer and achieving the performance milestone by Seller for contract completion. At contract completion, the withheld retainage by the Buyer, which can be 5% deducted from all Seller’s progress payments through 100% earned contract value, becomes part of the contract closeout. As a result, contractors typically leave the CAMP deliverables until the end of the contract. Contract closeout means the Buyer’s Project Manager (PM) can close the remaining administrative office, package the files for storage, and be reassigned to other projects on a full-time basis. For the Seller’s PM, it means all financial reimbursement obligations are complete and they can close files and financial bookings, and reassign any remaining staff to other contracts. However, there are numerous Lessons on contracts from closeout experiences that reflect poor quality and incomplete CAMP deliverables. The situation is compounded by the urgency of the Buyer’s PM to closeout the contract and of the Seller’s PM to collect all retainage due from the already approved payments. At this time on the contract lifecycle, CAMP deliverables can easily become secondary, as both PM’s are usually focused on closeout and moving on to new projects or contracts. In order to mitigate the risk of poor quality and incomplete CAMP deliverables on rail transit projects, a major United States (USA) commuter railroad updated its requirements for consultant design contracts and contractor construction contracts. The scope of work for design contracts specify that a CAMP Matrix be developed and submitted with each level of deliverables. The Division 1 Specifications for the construction contracts specify the CAMP as a deliverable with scope, product and execution requirements that include the CAMP Matrix – developed by the design consultant. The CAMP Matrix includes the major systems constructed, and for deliverables, such as Training, Operation and Maintenance Manuals, Spare Parts, Software, Software Licenses, Warranty, and As-built drawings, which are itemized in the Divisions 2-16 Specifications of the construction contract. Some Mega projects also include deliverables for BIM/GIS, Asset Management and service contract agreements. As the Matrix progresses from the design contract and into the construction contract, more detailed descriptions of the components /systems of the constructed product are incorporated. This creates better understanding of the CAMP deliverables. Since implementing in the late 2000’s, the USA commuter railroad has collected Lessons Learned on CAMP requirements, which are used during the development of new projects and contracts. Enhancing the contracts was proven to enable Buyer’s PMs to better manage the Seller’s PMs and realize higher quality and comprehensive CAMP deliverables that met the real expectations of the Owner’s operating departments. The CAMP Matrix makes it clearer to both PM’s on the scope of deliverables and it provides the foundation for expanding the use into alternate delivery contracts such as Design Build (DB). Thanks to designing CAMP into the deliverables, the Seller for DBB contract has well defined requirements and deliverables scope for CAMP. In DB contract, the Seller will develop the CAMP scope during the design phase and compile the source documents from construction contract submittals from the DB prime and all its subcontractors and vendors/suppliers. Due to the size of scope and contract values on mega projects, the planned intermediate use of contract products for operational use ahead of the contract completion/final acceptance milestone is a practical necessity. In the current rail transit environment in USA, the project leadership commitments to funding partners, stakeholders, politicians and influencers create urgency to place products in-service for Ribbon Cutting ceremonies and press conferences. As a result, Owner’s assume responsibility for maintenance well ahead on the scheduled contract or project completion. This requires that the usual end-of-contract CAMP activities become incremental and intermediate, and the project team needs to adjust project management staffing by Buyers and Sellers to expedite CAMP deliverables. Good Practices for CAMP
Topics for Further Consideration at Closeout:
TIP: CAMP deliverables should be tailored to the Owner’s expectations and to SAMPLES of CAMP documents accepted to the Owner on previous contracts. TIP: CAMP deliverables should utilize as many of the documents reviewed during construction contract Submittals, which typically include detailed instructions for start-up, operation and maintenance as well as a list of recommended consumable parts, replacement spare parts, inspections, warranty and trouble shooting information. TIP: Owner/Buyer should compile a set of SAMPLE documents – proven acceptable to Owner POCs, that can be used by Buyer/Seller PMs to create and distribute CAMP deliverables. TIP: Buyer’s CAMP Manager should have access to information across various functional silos of the project management organization and data management system software, including design (CAMP development), construction (CAMP implementation and training records), quality (Product/system tests, inspections and various reports) and commercial (Contract changes, requests for acceptance, payment for spare parts, and requests for release of retainage). TIP: Since final acceptance of products initiates the start of the Seller’s warranty period, Seller’s PM, Buyer PM’s and Owner should create a post contract completion team to monitor the warranty lifecycle, which may occur while construction is on-going and extend after contract completion is achieved. TIP: Since receipt of spare parts is in the CAMP scope, Buyer’s and Seller’s PMs need to establish a formal process and documentation to manage the transfer of spare parts to support the incremental final acceptance of contract products. TIP: Typical projects start with a Kick-Off Meeting, the completion of CAMP including the warranty period one-year after contract final completion, should be finalized by a Closeout Meeting between the Owner, Buyer’s PM and Seller’s PM. As may be required, Owner’s final evaluation of Seller’s performance should record and assessment for CAMP and Warranty. TIP: Mega projects always start with a ground breaking ceremony where top officials from the Owner, Buyer’s PM team, Seller, Funding Partners, politicians and other influencers are smiling and holding shovels. The CAMP deliverables and the completion of warranty – one year after full contract completion should be equally ceremonial, such as a press conference with similes, hand-shakes and words of satisfaction between the Owner, Buyer’s PM and Seller’s PM. As may be required, Owner’s final evaluation of Seller’s performance should record and assessment for CAMP and Warranty. |
