Christchurch has just concluded a public consultation exercise on whether or not to press ahead with the construction of its new ‘multi-purpose arena’ (or stadium) for a sum of $683M.
The ‘final cost’ is contentious. It’s original budget was $473m,which rose to $533M and now, based upon a ‘fixed price design and build contract’, a further $150m is needed, taking it to its current level.
It is this ‘budget blow out’ to borrow the journalistic term being used, that has prompted the consultation.
That process attracted 106,000 responses, with a 77% majority in favour of the additional expenditure.
That the stadium should have been built and constructed, really no later than 2015, in a pre-covid world is now a moot matter of record and the 23% who wish to see it either cancelled or deferred, have argued their case around this even though that ship has sailed, the stadium is figuratively empty and Elvis, if he were ever thus present, has left the building.
We are, where we are.
The question is, what does Christchurch do about it?
Brave leadership has been called for, bold decision making is apparently required but what no one seem to have considered is how the bloody thing should have been procured as a project in the first place.
By way of context, the council in its wisdom has sought a fixed price design and build contract from a consortium led by Besix, a construction company of Belgian origin with a strong history of major projects in the middle east, notably Dubai in the UAE.
Having politely requested that the contractor price now, fit-out items such as taps, tiles, carpets, vinyl, paint etc. that will be procured in 2026 when the stadium is close to completion, the company has done so, and not unreasonably passed the risk of the uncertainty of that prospective purchase to the client.
The client didn’t like it.
So they’ve asked the public what they think.
What isn’t being asked and is really the nub o the issue is, how do you procure a project of this size and length with any degree of cost certainty?
The answer is, you don’t.
The fixed price aspiration is fallacious; the price is only fixed if the design remains unchanged and there’s frankly, bugger all chance of that happening. That means the $150m of additional cost is only the starting point and a project that if it goes ahead will be under more scrutiny than a corona virus in a lab, will see the merest increase cause outrage amongst probably not only the 23% of nays, but within the ranks of the 77% of yeas as well.
So, what’s the answer?
Well, firstly, it’s carrot not stick. Risk transfer and theoretical cost certainty by way of D&B comes at price, usually an unpalatable one. So let’s dump that idea.
There are differing ways to skin this particular cat and the following is only mine.
- Collaboration; a team ethos is required, not unlike an alliance. A formal project structure comprise (SPV) of the differing participants, each co-located and effectively seconded to the SPV.
- Working within a common data environment, or collaboration tool, with a co-ordinated design under pinned by a LOD 4 BIM environment
- Risk should be analysed (qualitatively and quantitatively) and shared.
- The design should be 100% complete before pricing.
- Design change should be minimised
- Pricing should be at present value levels with an agreed provision to cater for escalation
- Advance purchase of materials, or possibly client supplied materials and plant
- Encourage and reward innovation, and value engineer in the truest sense of the term, not just shave cost!
- Use of either partnering type contract, alliance – type terms and conditions or the Engineering and Construction Contract; however it looks it should cover the NEC principles of mutual trust and co-operation, fairness, freedom from tendered rate for variations, pro active risk management and flexibility.
- A decision making (or ratifying) body such as a steering group that must maintain currency with the contract.
- Adjudication as the initial form of dispute resolution, (quick and oftentimes dirty).
I’m not arguing that this will negate cost increases during the project’s life or guarantee timely completion. That is in all honesty unlikely for complex projects such as these.
What adherence to these (or similar) principles will do, is at least enable efficient management of the project.
They will keep both programme and cost, current, as long as matters such as variations are processed efficiently, and decisions are made in a timely manner.
Does that look like success for most clients?
Perhaps, perhaps not, but the alternative of seeking a fixed price based upon full risk transfer, is rarely palatable.