Construction Contract Management Systems Review

As part of an Australian Computer Society River City Labs programme, we conducted a short survey to assess the adoption of contract management systems in the construction industry.

Whilst the responses are insufficient to draw any definitive conclusions, they are instructive regarding the adoption of IT services and products for managing construction contracts and the immediate challenges.

As the industry struggles to provide a reliable service to its clients, and how improvements might be made, there is clearly a disinclination towards benchmarking or open discussion as to what systems are in use, what is working, and where changes might be made to improve our performance.

A recent academic paper (Stevens)1 supports the view that the industry’s ad-hoc, informal production control methods are not fit for purpose in the fast-developing world of business process automation and AI capability.

Ambivalence is particularly evident among specialist and trade contractors, subcontractors, and suppliers, who together influence at least 70% of construction outcomes. Fully engaging this cohort is a challenge that must be faced.  The best-placed group to facilitate, encourage and force change is the coordinating contractors, who must take the lead in developing and ensuring collaborative contract management processes through the project supply network. (Note: I adopt the term "supply network" in preference to "supply chain" to demonstrate that a construction project is a complex network of communications and related interactions, rather than a series of vertically integrated separate contractual chains)

Key Takeaways

Coordinating Contractors

70% of respondents are using online, first-generation document management systems (PIM systems), some with a combination of spreadsheets.2

Oracle Aconex tops the list of online systems in use, with Civil-Pro favoured by civil engineering contractors.

Of those respondents, 75% believe their current system fulfils their needs, with 25% suggesting improvements in pre-construction procurement integration.

Given that systems in use tend to be uni-directional, it is a concern that respondents are not considering more bi-directional capability for faster, more accurate information flows.  These responses indicate that coordinating contractors are still locked in to top-down management.

50% of respondents use a combination of email or an online system for billing clients, and 50% use an online system for managing payment claims from subcontractors.

A similar “straw poll” conducted during a webinar hosted by Autodesk, a worldwide CAD and cloud system provider (The Autodesk Poll), was more pessimistic, with up to 45% of participants using manual systems, spreadsheets and standalone systems for estimating, tendering and job costing.  This group noted that there was very little integration between systems.

Large construction projects are up to 80% over budget, according to McKinsey. In fact, 9 out of 10 construction projects experience cost overruns, according to the International Journal of Innovation, Management and Technology.

These statistics are reinforced in the many research papers published by Bent Flyvbjerg, chairman of Oxford Global Projects, and his colleagues at the Saïd Business School, University of Oxford.

Workflow Integration

Most respondents declined to answer how long is spent on subcontract payments each month, other than one, who responded with, one week per month spent on managing subcontract payment.  In my experience, this would not be unusual.

Since payment is a major consumer of contract management time, it is encouraging to see more efficient systems beginning to be adopted.

Even so, current systems essentially replicate paper processes and accounting practices.  They struggle to fully comply with Australian security of payment legislation.  Re-thinking payment is an area ripe with potential for across-the-board productivity gains.

Specialist and Trade Contractors

The survey was circulated to major subcontractor associations.  One subcontract group refused to participate on the grounds that their members were satisfied with existing systems, and were concerned that we might steal their ideas.  They declined to disclose the systems referred to.

The poor response from subcontractors indicates to us that, as a group, they are ambivalent about IT adoption, or prefer to continue with a fearful, siloed approach to contract management.

Given the varied quality of subcontract contract administration, it leads me to conclude that coordinating contractors will continue to develop and control management and communication systems.  There may be no disadvantage in this, given coordinating contractors should have a strong interest in a consistent approach to data, and provided they have the trust of specialist and trade contractors and near real-time access to the flow of accurate project critical data.

Communication & Workflow Integration

Communication between clients, contractors, consultants, subcontractors and suppliers remains slow and ad-hoc, with 40% responding that communications include a combination of email, PIM system, email and file sharing, generic file sharing platforms (Sharepoint, Dropbox) and phone.

Comment: Construction relies on the collaboration of dozens of people in a distributed workforce, and between different businesses.  Collaboration delivers reliable, consistent results, but it relies on fast, open, trusting actionable communication.

It is essential for reliable, repeatable performance to implement known and new frictionless contract management processes, where PROCESS does not impede PROGRESS.

We are far from this condition at present.

These conclusions are reinforced in the Autodesk poll, revealing that real-time visibility, inaccurate forecasting, disconnected tools and workflows are the major financial challenges for most respondents.

Financial Challenges

Program Management

15% of respondents use either PrimaVera or MS Project for programming.  The same group marks progress weekly,  and update their program (for extensions of time) monthly.  This cohort also uses the main construction program for assessing and granting subcontract extensions of time.

15% require subcontractors to prepare separate subcontract programs.

Comment: In my experience, even on very large complex projects, construction programs are not properly updated or maintained on a regular basis, and there is no control or oversight of subcontractors' programs. Inevitably, it leads to crisis management.

There is no indication that construction programs are utilised for any other purpose, including analysing and awarding extensions of time, or payment.

Comment: There is no indication of how or whether there is any integration between subcontract and project construction programs.  This is a serious breakdown in critical data integration and communication that must be resolved.

Lack of workflow integration has a significant impact on the financial and program reliability of projects.

Process and Procedures

15% of respondents report that they have printed contract management procedures, and conduct one-to-one contract management training.

Otherwise, companies rely on contract managers experience and knowledge, or reliance that they will follow and comply with online PIM processes.

There is no indication that modern procedures development and management processes are being adopted by the industry.

Australia is known for adopting “Hero Project Management” where decisions on process, and site management are left to site project managers.

There are concerns with these ad-hoc approaches to contract administration training and administration, including:

• There can be no consistency in a business without proven, repeatable, auditable contract management processes.

• It is difficult to recruit and induct new entrants into contract management roles.  Since it is commonly known that adding new resources is critical, companies need to address more consistent, repeatable, reliable approaches to establishing and auditing contract management procedures.

It is particularly relevant to construction, where staff are often recruited on a project basis.  Inducting even experienced staff without readily available company procedures, results in inconsistent results between projects.

By its nature, construction works with a highly distributed workforce.

Defined, agreed contract management procedures for all stakeholders (clients, consultants, coordinating contractors and subcontractors), together with rules-based transparent financial and time control data is essential to success.

Seamless, two way, near real-time communications and communications will be essential to producing more consistent reliable results.

From experience we know that site-based contract managers often do not meet critical minimum standards of competence in project control.  Defaults can not be monitored and managed without known, repeatable, reliable process and competent specialist program managers.

Conclusion

In order to make significant inroads into improving reliability of outcomes and productivity gains in construction contract management, the industry has a long road ahead.

Key areas for improvement are:

• Prioritising selecting consultants, coordinating contractors, trade contractors on demonstrated capability, systems, resources and experience;

• Prioritising full-service design and management services;

• Developing construction contracts that prioritise progress over process;

• Moving towards open, collaborative, near real-time communication systems and system integrations;

• Moving away from a “Hero” contract management culture, towards reliable repeatable systems and processes;

• Recruiting and training qualified, competent contract management staff;

• Employing sufficient contract management resources who are specialist in their areas of expertise.

Footnotes:

1 “The Great Misalignment in Construction Contracting: Best Practices and Software” Stevens, Wei Zhou, Ogunbayo)

2 “First Generation” systems in use examined have mostly been in the market since the early to mid 1990’s.  Whilst the GUI’s are upgraded, and a variety of systems integrated with API’s, there appears to be little innovation in the field.