Scheduling requirements for industrial projects.
2017-07-07. Industrial projects labour frequently under cost pressure that is merely compounded by extremely tight schedules during realisation. Project scheduling must adhere to certain structures in order to ensure that progress remains transparent for the purchaser and contractor alike. This article investigates what these structures are, and why clear scheduling procedures to manage disturbances in construction processes need to be firmly anchored in the contracts.
Most project agreements for the design, procurement, delivery, assembly and commissioning of industrial systems and machines will include a rough schedule that defines key dates for the contractual parties as they move toward project completion. These rough deadlines are described as milestones in the project contract and are usually associated with contractual penalties or liquidated damages. It is standard industrial practice that the contractor is contractually obliged to flesh out this milestone schedule by adding the activities needed in the project (“tasks”) just a short time (between four and eight weeks) after the project contract comes into full force and to submit the documents to the purchaser for approval.
The purpose of this procedure is for the purchaser to acquire an impression of whether the contractor’s scheduling is realistic on the one hand, and on the other to check that the contractor has planned the sequence of work sensibly. Another intention is to ensure agreement between the contractual parties on the times by which the purchaser must have satisfied its contractually defined duties of cooperation in the project.
A schedule agreed in this way between the contractual parties is then known as a ‘baseline schedule’, which is added to the contractual purpose, namely the ‘contractually agreed construction work’. The contractor’s performance is measured against this schedule as the project progresses. The contractor is entitled to refer to this baseline schedule if the purchaser falls behind with its duty of cooperation in the project. It is essential that this kind of baseline schedule is sufficiently detailed, without becoming overly intricate (no ‘micro-project planning’“) and that the activities it contains are made logically coherent by the establishment of structural relationships (e.g. ‘end–start’, ‘start–start’, etc.).
Should disturbances be planned?
So far, so good. But a frequently observed practice in the hurly-burly of real-world industrial projects is that the actual process of updating the schedule as the work progresses lies somewhat neglected on the side lines. While the contractor will record the project’s monthly progress in the schedules and report the results to the purchaser, he will frequently neglect to include disturbances, changes and deviations – and their respective implications for the project itself (cause and effect) – in the updated project schedule and the contractually agreed construction work.
The US-American engineer Edward A. Murphy Jr once coined the pithy one-liner that “Every that can go wrong, will go wrong.” His quip went down in the annals of history as Murphy’s Law. But if a few things go wrong over the course of the project, and its completion takes place at a later date than contractually agreed between the parties, the purchaser will insist that the contractor pays a penalty or liquidated damages due to delayed fulfilment. This places the burden of proof on the contractor to demonstrate that responsibility for delayed fulfilment lies with the purchaser, and that the contractor is entitled to an extension in the construction period.
The ‘disruption-modified construction schedule’
The key in this regard is the ‘disruption-modified construction schedule’. A bit of a tongue twister, it is nevertheless an indispensable tool in the planning and tracking of industrial projects. A disruption-modified construction schedule is nothing other than a baseline schedule, updated by the contractor to account for all disturbed processes, changes, deviations and their implications that occurred over the course of a project. By their very definition, consequences that will extend the construction period required by the contractor must be added to the critical path of the PERT-chart contained in the baseline schedule. Contractors who are unable to furnish evidence will not have the right to claim an extension of time for completion. To satisfy the burden of proof, it is necessary that the contractual parties put their heads together on a regular basis over the course of the project to discuss how the consequences of disturbed processes, deviations and cbehanges will be overcome. In these cases it will be necessary for the contractual parties to agree on a new, disruption-modified construction schedule as soon as the original project timeline is disturbed for reasons that lie in the responsibility of the purchaser. However, the purchaser must on all accounts receive comprehensive information about the event (‘notice of obstruction’) before any changes can be made. Contractors who neglect to inform the purchaser (within a reasonable period of time) of a disruptive event in the project by submitting a notice of obstruction, may find that they have voided any right to claim an extension in construction time.
Once agreed between the contractual parties, the new, now disruption-modified construction schedule becomes an integral part of the contractually agreed construction services. The contractor will then be measured against this new (revised) baseline schedule as the project progresses, at least until a new disruption-modified construction schedule is agreed as the new baseline schedule between the contractual parties. The procedures applicable to the contractor’s claims to an extension of time for completion are defined differently in the variously applicable legislation and will not be dealt with in any detail here. But it is essential nonetheless that the requirements for the project contract, as defined in the applicable legislation, are meticulously reflected in the contractual clauses dealing with extensions of time for completon. The key aspects should be:
- the ability to adapt the construction time granted as the project progresses;
- to relieve the contractor from its obligation to adhere to project deadlines when prevented from doing so by circumstances that are beyond its control;
- to give the purchaser the right to demand indemnification or liquidated damages from the contractor in cases in which it culpably exceeds the contractually agreed construction time;
- to mutually oblige the contractual parties to address any disturbances in the project and their consequences in an amicable way.
Confident sketchiness – or better not?
The laissez-faire approach that many contractors – and even purchasers – take to planning and tracking schedules in industrial projects is simply astonishing. In many cases the contractor will initially prepare a project schedule, but will then neglect to update and revise it as the project progresses. Many purchasers will also refrain from demanding and checking the schedule on a regular basis. There are many reasons for this, most prominent among them the lack of time and scarce resources that the contractual parties assign to the project. But the consequence for both contractual parties is a significant uncertainty in how the schedule for the contractually agreed construction services should be appraised: “We’ve still got enough time in the project”, says the contractor, enthused by the confident belief that he is entitled to an extension of time for completion, because the “purchaser kept getting in the way of project fulfilment”. “When can we start production with your system?” asks the purchaser due to the inadequately updated schedules that the contractor had presented through rose-tinted spectacles in any case. Neither of these attitudes is particularly salubrious to fair collaboration within a project, assuming of course that mutual achievement of the defined goals is the actual purpose.
Uncertainty needs to be eliminated from project fulfilment. Besides the technical and commercial performances, the project contract must also include suitable instruments to plan and monitor the satisfaction of technical performance. If the performance periods allotted to the project are unknown due to inadequate planning and updating, it is inevitable that situations will arise in which “work expands so as to fill the time available for its completion”, as the British sociologist C. Northcote Parkinson once said.
You should do things better: “PARKINSON and MURPHY are alive and well – in your project” (unknown author). Use professional project scheduling and anticipatory contractual design to counter the imponderables of fulfilment in industrial projects.
(This briefing has been published in German magazine "ChemieTechnik" on 2017-06-21, Author: Juergen Hahn)