24
Planning and Programming Major Projects

Charles O'Neil and Rob Horne, Partner at Osborne Clarke, UK

24.1 The Foundations of Success

Surprisingly few people are really good at planning and programming major projects. It is a specialised skill and it is one of the most important professions in the development, construction, and engineering industries. It is the foundation of success for all property developments, traditional construction, D&C contracts, and Public Private Partnerships (PPPs).

Contractors, consultants, and their clients can choose from several proprietary planning and programming formats, or use these as the basis to develop their own internal ones. Commonly used formats include:

  • Gantt charts, commonly referred to as Bar Charts (see Figure 20.1)
  • S‐Curves, including Earned Value Analysis
  • Time location diagrams (also known as ‘Time Chainage’ and ‘Time Distance’ diagrams).

S‐Curves, Earned Value Analysis and Time Location Diagrams are explained in more detail in Section 24.2.

The key to good planning and programming is being able to keep your eye on the bigger picture. The starting point should be the Master Plan Summary sheet and this should have no more than 20 activities on it, with its own simple Critical Path line (it works well on a bar chart). It should literally be one sheet of paper, maximum A3 with sufficient notes and explanation of the activities (in a legible font size) that the overall nature and sequence of the works is obvious. The Master Plan Summary should not be just a group of rolled up activity bars that are drawn from the underlying detailed programme, but created independently as a ‘bigger picture’ senior management tool. It is a very important overview.

No matter how big a project is, when you really examine the bigger picture there will not be any more than approximately 20 main activities that are critical to the overall delivery programme. They may change during the duration of the project but the main critical activities will still be small in number. This is the sort of Master Plan Summary that senior management of clients and contractors want to look at, not several pages with 500 activities.

Behind each of the main activities there may be up to another 100 activities, which can be produced on back‐up sheets, again with their own critical path line. The Master Plan Summary and the multiple activity programmes are all produced on Bar Charts.

A common mistake made by some programmers is to produce all the activities for a project, several hundred of them, across a few A3 sheets, all beautifully in sequence and with coloured critical path lines all through them, but without a Summary sheet.

The problem with this is that:

When looking at a programme for a major project, with say a three to four year design and construction period, there are four things to immediately look for:

The following are a few practical tips for effective planning and programming:

24.2 Monitoring ‘Progress versus Programme’ and ‘Cost‐to‐Complete versus Budget’

24.2.1 S‐Curves and Their Significance

S‐Curves basically reflect common sense. The more effort you put into the planning and the preparation of the specifications and contractual documents upfront then the smoother will be your design and construction programme; with minimal issues, variation claims, delays, and cost problems. This applies to both clients and contractors.

S‐Curves therefore are the very antithesis of so‐called ‘fast track’ programmes, which in essence say ‘let's start building tomorrow and we'll sort out the design and specifications as we go, on the run’. Over the last few decades it is rare that ‘fast tracking’ has worked well on a major project, but there have been many disastrous attempts, a few of which have been highlighted in this book.

However, do not confuse ‘fast tracking’ with ‘high performance’ contracting. The latter is all about careful and detailed planning, programming, and risk management compressed into a much faster than normal delivery period and may involve 24/7 operations; but all still in line with the principles of a sensible S‐Curve.

Fast tracking on the other hand is just a ‘start early (and we should) finish early’ mentality without rigorous planning and programming and thorough consideration and challenge of all the risks and delivery issues. Invariably, the result is late completion and over budget.

With high performance contracts there will be a real reason for doing it this way and the costs will invariably be higher, but it is done with eyes open and with the implications known in advance, as with the following project.

Some years ago a starch factory blew up in Australia. It was a huge dust ignition explosion and it scattered parts of the factory over a wide area and destroyed much of it. At the time it was the only starch factory in the country and the owners had a virtual monopoly in the market; however another company had announced that they intended entering the market and had commenced planning their new factory.

The owners of the factory that blew up were determined to continue supplying their customers and immediately started flying in product from one of their overseas factories, obviously at huge cost.

The rebuild of the factory was project managed on a ‘high performance’ basis, with the project managers and subcontractors working hand‐in‐glove with the owners. It was a big task. The factory covered a whole city block and was six to eight levels high on average. It was in an inner city location so the façade had to be brick to comply with city planning and there were all sorts of other inner city location implications. The company wanted the latest technology and equipment, but the waiting list in Scandinavia was six months. They paid a premium to jump the queue and chartered Jumbos to fly it to Australia.

Two months was spent on the planning, design and authority approvals, working around the clock; with the demolition and early works happening simultaneously. The main construction started at the beginning of July and the new factory was commissioned and started production at the end of February, to everyone's amazement. It was the result of very detailed planning of every aspect.

In summary, an S‐Curve demonstrates that the success of the project will be in direct proportion to the amount of forward planning, but if you cut this short then the top of the curve will most likely flatten out and result in higher costs and a longer delivery time.

24.2.2 S‐Curves with Earned Value Analysis

It is common for S‐Curves to be adapted to include Earned Value Analysis, which is essentially a cost loaded programme that gives the programmer accurately updated cash‐flows with any changes to the works programme or costs. In addition to the vertical total costs that are shown, there can be horizontal cash flows aligned to the progressive programme that show costs‐to‐date and costs‐to‐complete versus budget, similar to what are often used with Gantt (Bar) charts. The information that can be shown on the S‐Curve includes:

  • Cost overruns or savings
  • Schedule (programme) slippage or gains
  • Time related cash flows – with these the most informative figures to include should be ‘costs‐to‐date’ and ‘costs to complete’ compared to a parallel line showing the original planned costs (budget) per month, which should never be changed.

Examples of S‐Curves with Earned Value Analysis can be readily found on the internet and a typical S‐Curve is shown in Figure 24.1.

A typical S-Curve with 7 open books lying on it labeled Project Agreement, Finance Agreement, Design Development, Construction, Fit-Out, Completion and Commissioning, and Services Contract and Operations.

Figure 24.1 A typical S‐Curve.

24.2.3 The Importance of S‐Curves to Property Developers and Their Lenders

The S‐Curve progress has vital importance to property developers who are using a high proportion of financing and also with PPPs where the financing can be as high as 90% of the total capital cost.

With all commercial projects the completion date is the trigger for the operating revenue flow and any delay can have serious consequences on the return on investment, let alone the further downside if the project runs over budget. The lenders watch this like a hawk obviously, because it does not take a very large over‐run in time and cost before a project can run into serious financial trouble.

The two main things to be watching are ‘progress versus programme’ and ‘cost‐to‐complete versus budget’ and these two areas can be quite accurately compared on a properly prepared S‐Curve. It is important not to confuse ‘cost‐to‐date’ with ‘cost‐to‐complete’, because ‘cost‐to‐date’ is only a component of ‘cost‐to‐complete’, which must take into account all potential additional costs that will be incurred in getting to practical completion, with the cost of additional time and ‘preliminaries’ being just as important as the direct construction costs.

Time location diagrams (alternatively ‘time chainage’ or ‘time distance’) are commonly used on linear projects, such as railways, roads, and tunnels, that usually require the excavation and movement of large quantities of earth and rock.

They are different from the traditional Gantt bar chart program and S‐Curves in that they provide a flow of visual data in terms of time and location on a two‐dimensional plan that acts as a visual connection between the project master plan and the project worksite itself. The diagram provides real‐time monitoring of ‘progress versus planned’ as the work teams and equipment move along the construction site. As an example, the diagram would show when the rock excavation is scheduled for the 6 km mark and the expected duration of the work. The diagrams can also include information on resources, quantities, and costs as well.

24.3 Extensions of Time, Concurrency and Associated Costs

This is one of the most complex areas in construction management. Claims for EOTs and costs arise in virtually all projects, certainly in all major projects, and commonly lead to disputes over how they are assessed. We will only give a brief summary of the overall picture because many books and papers have been and continue to be produced on this topic.

From a risk management point of view it is an extremely important topic in that both parties, the client and the contractor, are trying to protect themselves financially. The stakes are big, the assessments can be difficult, and the relevant terms of contract need to be clear and precise.

24.3.1 Guiding Principles for Delay, EOTs and Cost Reimbursement

  • The lump sum price and the completion date are fixed in the contract at the time of signing to protect the client and safeguard their investment against costs incurred through contractor delays and claims. Having done this it is then necessary for the client and their consultants, such as the architect and the project Engineer (independent supervisor), to undertake their administrative responsibilities and contractual obligations in a timely and efficient manner. If this is done and the contractor is late in delivery, then Liquidated Damages (LDs) and other such penalties as written into the Contract may be applied to the contractor. It is important to remember that LDs will be the client's only means of recovering time‐related losses. In order to be effective they must relate to a specific completion date (or one that is identifiable with certainty) and a specific amount of damages. The calculation of the amount of damages should, in the UK, be such as to protect a legitimate business interest without being extravagant, exorbitant, or unconscionable. 1 A reasonable shorthand in many jurisdictions around the world, though not entirely correct in the UK, is that LDs should represent a ‘genuine pre‐estimate of loss’.
  • On the other hand, the contractor is protected against LDs, penalties and costs arising out of client related delays by EOTs and related cost reimbursement. EOTs can result from any delay caused by third parties related to the client and not under the control of the contractor, such as directions issued by the architect and Engineer.
  • If there is ‘client‐caused’ delay, e.g. lack of instruction, and simultaneously a ‘contractor‐caused’ delay covering part or all of the same time period, e.g. lack of site labour, then under established international practice, the ‘client‐caused’ delay takes precedence over the ‘contractor‐caused’ delay and the contractor is entitled to the EOT, because based on the ‘prevention principle’ it would not have been possible for the contractor to finish any earlier and therefore he should not be penalised, and the client cannot profit (via the impositions of LDs) from its own wrong in causing the delay. The question of recoverability of cost during the period when both delay events are running is equally difficult with no set single position. However, best practice is probably that while the contractor recovers time they do not recover money. That way a jointly caused event (or a concurrent event) is as close to neutral between the parties as is possible in the circumstances.
  • In certain circumstances (and in some but not all jurisdictions 2 ) it may be reasonable to give a proportional EOT that reflects the amount of delay attributed to each party, but only in circumstances that are quite clear in measurable terms, with any doubt being in favour of the contractor. Equally, where contractor costs can be applied exclusively to one delay or another they generally should be, whether recoverable or not.
  • The Delay Event must be shown to have been on the Critical Path for an EOT to be granted, in other words it must have actually delayed the completion of the project. Delay off the critical path may give rise to recoverable cost but not time. If the specific works that initiate the EOT claim and the flow‐on sequence of works could still have been done without delaying the Completion Date (which includes previously approved EOTs) then no EOT or overall time related costs shall be applicable (disruption and other noncritical time related costs may still be recovered however).
  • Most contracts will require notice periods for (i) Notices to be given within a prescribed number of days of becoming aware of the delay event and (ii) the submission of substantiated claims within a prescribed number of days from the cessation of the delay or earlier, with regular updates until the delay has ended. Contractors must make themselves aware of these periods or suffer possible time‐barring of the claim.
  • The contractor has an obligation to mitigate delay, if at all possible, by reorganising the site activities in order to maintain the Contract programme, as adjusted for any EOTs already approved. In other words, the contractor must show that the Delay Event in question did indeed cause an extension to the Completion Date and there was no way this could be avoided. What is required by way of mitigation is complex, but suffice to say here it should always be considered and should not give rise to additional cost.
  • Where several Delay Events occur, the contractor is only entitled to the net extra time required to complete the construction. On this basis, several Delay Events may only result in one EOT being approved even though a similar amount of delay time may apply to all of them. In this situation only one lot of fixed site costs will also be approved, but specific costs related to individual delay events may be approved if the contractor can prove them. Looked at slightly differently, one is looking at ‘waves on the beach’; it is the ultimate end point overall that is important albeit there may be numerous ‘waves’ covering the same distance.
  • It is possible in some situations that the contractor will be granted an EOT but no costs, which will give them protection against potential LDs. This is commonly known as ‘time without money’. As noted above, this is common where there is concurrency of contractor and client delaying events.
  • The contractor must prove the specific losses claimed in relation to Delay Events and EOTs by providing in each case an itemised breakdown of costs, which is evaluated on a reasonable basis. The cause (delay) must be shown to link directly to the loss, commonly referred to as demonstrating causation or a causative link.
  • A contractor might assert that delayed payments have caused slow progress on site or an inability to place orders for long lead time materials and equipment, but such an assertion should be assessed by comparing payments‐to‐date with the value of works‐to‐date, including off‐site orders that have been placed.
  • The contractor may be entitled to separate compensation for delayed payments, such as interest or financing costs, if this is written into the Contract, but an EOT will not necessarily be appropriate unless the delay in payment is for an unreasonable amount of time and can be shown to have caused a delay to the overall programme, e.g. the delayed payment caused a delay in procurement. In such circumstances, the entire financial situation needs to be taken into account, including any advance payment, which should give the contractor positive cash flow. It is quite rare, but some contracts include an automatic EOT with Costs built into the Contract, which comes into play if the client misses the contractual payment deadline, such as 56 days after certification by the Engineer. This is a strong incentive to the client to make the payments on time.

24.4 Ownership of Float

‘ Ownership of float ’ is a notoriously difficult subject, not least because there are multiple different ways of ‘float’ being defined and appearing in a programme. Subject to the wording of the contract, the float could be owned by the employer or the contractor or indeed the project. Float is free time within a critically linked programme. It is a gap or buffer along the critical path from the start to the contractual completion. It could be inserted intentionally (in which case it could also be referred to as a risk allowance to try and ensure the contractor retains ownership of it), be a function of the critical connections within the programme (where activity C is driven by both activity A and B, activity A is planned to finish on day 20 whereas activity B finishes on day 15 giving 5 days float at the end of activity B or 5 days of risk allowance depending on how the contractor drew up the programme).

Schematic displaying a chart titled original project with columns for days 1-36. The column for 36 is labeled contractual completion date. Bars labeled activities A (11-20) and B (6-15) have arrows to activity C.
Schematic displaying a chart titled alternative programme with columns for days 1-37. The column for 36 is labeled contractual completion date. Bars labeled activities A (11-20) and B (6-20) have arrows to activity C.

Or float can be a consequence of progress (i.e. an activity being completed more slowly than planned. Taking the above example, if activity B were delayed by the contractor by five days it would it would become a joint driver with activity A. Where there was float in the programme the contractor delay uses it; where there is risk allowance again the contractor will use it to mitigate the delay to the project.

Schematic displaying a chart titled contractor delay with float, with columns for days 1-36. Bars labeled activities A (11-20) and B (6-20) have arrows to activity C. Activity B has a contractor delay from 16-20 days.
Schematic displaying a chart with columns for days 1-36. Bars labeled activities A (11-20) and B (6-20) have arrows to activity C. Activity B has a contractor delay with risk allowance from 16-20 days.

However, the difference between float and risk allowance is clear when there is an employer risk event. Where there is float there is no delay, the employer event using up the float. However, where there is a risk allowance, there is no float to use so the contractor will be entitled to an extension of time.

Gantt chart displaying Activity A from day 11 to 20, Activity B from 6 to 15, employer delay and period of float on Activity B from 16 to 20, Activity C from 21 to 30, terminal float from 31 to 35, and contractual completion date in day 36.
Gantt chart displaying Activity A from day 11 to 20, Activity B from 6 to 15, employer delay from 16 to 20, risk allowance from 21 to 25, Activity C from 26 to 35, terminal float from 3 to 34, and contractual completion date in day 41.

The float could be between activities (as in the examples given); within an activity (again probably better described as risk allowance); or at the end of the project where in effect the contractor is saying they intend to complete early (this is shown in the above examples as ‘terminal float’).

It is not uncommon in newer forms of contract for float to be assigned to one party or the other, but where it is assigned to the employer, in practice it will often simply be hidden by the contractor within activities to ensure they retain control of it. However, consequentially, the activity durations are not as certain as one cannot tell which, if any, contain risk allowances, giving a less genuine and clear programme and one which is harder to monitor progress against.

Where the contract is silent, it is most often understood that float is owned by the project, in other words, the first person to need it uses it; so if there is an employer delay of five days followed a week later by a contractor delay of five days and there was five days of float in the programme, the employer delay would not change the end date of the project whereas the contractor delay would, making the contractor liable for damages. If there had been a risk allowance rather than float the position would be reversed with the original employer delay changing the end date and giving the contractor some recovery whereas the contractor delay is absorbed through risk allowance and terminal float.

Gantt chart displaying Activity A from day 11 to 20, Activity B from 6 to 15, employer delay and period of float on Activity B from 16 to 20, contactor delay from 21 to 30, Activity C from 31 to 40, terminal float from 31 to 35, etc.
Gantt chart displaying Activity A from day 11 to 20, float on Activity A and risk allowance from 21 to 25, Activity B from 6 to 15, employer delay from 16 to 20, contactor delay from 26 to 35, Activity C from 36 to 45, etc.

It is always a worthwhile exercise, when reviewing a complex programme, to consider not just activities with zero float (that is those forming or attaching to the critical path) but also those close to critical, usually less than five days of float. This is because a critical path can jump quite quickly and understanding where all of the pockets of float are on a programme as a whole, not just the current critical path, is essential to effective management.

Notes