Jeff HunterCapital Projects Manager| Champagne and Aishihik First NationsTown Of Plympton-Wyoming, Ontario, Canada
The First Nations Government I work for received significant federal funding for the development of 20 residential housing units on a city lot in a new residential subdivision.
The PM (myself) and our team were politically pushed to work with one particular contractor whom we entered into a pre-construction agreement for Construction Management Services until we were able to nail down a stipulated sum contract.
Attempts at reaching stipulated sum were futile, so I shifted the goal to a cost plus with a Guaranteed Maximum Price and a bonus of 25 cents on the dollar for costs savings the contractor was able to achieve under the Guaranteed Maximum Price.
In all, my final offer to them was a cost+ 12.5% with a GMP set so high they would really have to foul things up to reach it. So they were guaranteed 12.5% OH&P, plus I estimated approximately $100k in bonus for coming in under the GMP.
The contractor turned down my offer and has walked away from the project. We have subtrades lined up through the prior CM, but no GC to replace the CM who walked away.
My background is in larger provincial and federal government roles, and have never before sole-sourced a project of this size, and have always been protected by bid bonds, formal tenders and formal awards, etc. I'm at a loss as to where to go from here. Do I try to find a new CM/GC? What if I lose another month to negotiations that fail? Do we act as the GC ourselves and coordinate subtrades?
Given that you and the team were required to use this particular contractor, I'd go back to the key stakeholders that drove that decision to explore options.
Both the option of sourcing a new GC or acting as the overall GC will present risks to hitting your timelines so this feels like a case where a decision tree approach might help but you'd need to get the right people involved to populate it.
Have you also tried to find out why the original incumbent walked away? If nothing else, this might yield some valuable lessons for your leadership team in the future...
Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
Hi Jeff,
interesting and challenging situation you have here.
There are short term decisions, and also longterm learning.
I see a schedule problem, a risk problem and probably a capability problem on your side. Maybe you have more. You have listed options and probably can assess each of them regarding your problems.
You apparently wanted to limit your risks with your offer but the GC was not willing to do so. Do you know why? What are their targets? If you negotiate, keep away emotions, know common ground and balance your and their targets. Always look for win win.
What comes to my mind:
Are you capable, skill wise, capacity wise, to act as GC yourselves?
What deadlines do you really have (not the self-imposed)?
What alternative GC candidates are there, maybe from out of area and maybe just as a negotiation asset.
What reserves are you planning for, have you thought about additional funding sources?
I am not in construction. I have done my share of negotiations. Wish you well.
Dear Jeff,
My recommendation is to implement an agile approach for project management and contract drafting. An agile approach will accelerate the contracting process and ensure the quality of the outputs for guarantee outcomes according to the shareholders' expectations.
It enables you to control the project restrictions, and leverage the risk of the projects, sharing risk instead of transferring all risk to constructors, seeking just compliance. Implement a collaboration relationship approach, building teams by discipline between owner and constructor, developing a scope and adaptive planning, defining priorities. This means you must be willing to trade off governance and scope of work to comply with budget and time restrictions.
So, it is required a multidisciplinary owner construction management team, building team with their contractor´s counterpart, to ensure fast decision-making, for seeking solutions jointly rather than monitoring contractor compliance.
Define the work breakdown structure (WBS) to ensure early and often increment deliverables, allowing feedback loops to learn and adjust, trading off scope when been required to comply with the project restrictions. Also, it helps ensure quality and forecast price by each house, which would facilitate the negotiation and compensation in case applicable. It uses the WBS to design the contractor’s organization by each specialist to define the sub-trades. The more sub-traders the greater coordination will be required for interfaces management, increasing the overhead cost. Tray to select contractors using an approach for installation and supply. It is an advantage because reduce the delivery risks and guarantee better material prices. Besides, it facilitates negotiation in case of trading off scope by type of finish material.
Finally, I recommend making a meeting with your already registered contractors to show the vision of the project, aligning expectations and define jointly the type of collaboration relationship required and the best commercial conditions to accomplish the objectives of the project. I highly recommend a contract model by the unit price of completed and approved deliverables.
A teamwork approach at this point is vital, where risk is shared.
Finally, I would evaluate building first a house with an agile strategy, measure results, learn, adapt and plan the rest of the residents, establishing the required teams according to the restrictions that the project allows. Saving Changes...
