Introduction
Project delivery is becoming more important to organisations, to retain their revenue, competitive effectiveness and provide effective cost management. Project delays or even worse failure, can cause loss of revenue, image and competitiveness. Published industry figures, reveal that there are numerous projects that are delayed or have failed. A recent survey cited two thirds of companies with project overruns of between £8m to £133m (Goodwin, 2002). In today's economic climate, organisations are facing increased challenges, such as tighter budgets, reduced head count, wanting more for less, and competitive pressures.
Increasingly organisations are undertaking turnkey projects involving one or more suppliers. Turnkey projects can be defined as ‘projects which the supplier sells a whole and working entity to the customer. He takes total responsibility of all phases from planning to building in some cases starting up in the host country, although it may use sub-contractors or part suppliers' (Sandhu & Carlsson, 2000).
Turnkey projects are perceived to place the burden of work and risk with the supplier, with minimal risk to the client. They are viewed as being cheaper, require no in-house systems development, are low risk, and the responsibility is seen to lie almost entirely with the vendor. As the in-house building of IT or engineering becomes increasingly rare, the management of vendors is now becoming a major part of a project manager's responsibility.
Turnkey projects add a new dimension of complexity and risk to successful project delivery, as there are more parties involved (Exhibit 1). When multiple global companies are involved, addressing project essentials, project planning, developing timeframes and estimating costs before project execution is critical.
Exhibit 1 Complexity & Risk Categorisation Model
Most contracts have penalty clauses, which are increasingly bi-lateral. However, it can be costly, difficult and lengthy trying to recover costs with potential disputes as it has to be ascertained whether or not the client did anything to hinder the vendor, or vice versa. It is also common practice to have a clause which allows the client company to claim for only direct costs not loss of revenue.
This paper will illustrate, through two case studies, what can go wrong with turnkey projects, the common issues and impacts, lessons learnt and the steps that should be taken based on best practice, to avoid future pitfalls.
Case Study Details
The following case studies illustrate the issues faced by the client and suppliers. Case Study A, in particular, demonstrates what happens when a supplier fails to deliver. Both cases involved multi million dollar contract and significant management escalations during the course of project execution.
Case Study A involved the upgrading of a strategic cable system across twelve, geographically challenging countries, to provide increased capacity and resiliency. A European supplier was awarded the contract. Responsibilities included: delivering the implementation (software and equipment), testing the system and training. The project was to be delivered in nine months. The client responsibilities were upgrade of the installation sites, organising the client resources, signing off and reviewing the factory acceptance tests and all other quality sign -offs. The issues and impacts on the project are outlined in Exhibit 2.
Case Study B involved the consolidation of fourteen Internet service providers, from different countries, into one service provider. The aim of the project was to standardise the varying level of services and service levels to customers. The contract was awarded to an off shore global supplier. Responsibilities included: implementation of the software, migration of data and testing the system with minimum disruption to customers. The project was scheduled to take seven months. The issues and impacts on the project are outlines in Exhibit 3.
Issues with each Case Study and the Consequences and Impacts to the Projects follow.
Exhibit 2 Case Study A
Case Study A Outcome: Despite incentives by the client to the supplier, and the supplier project team changed out at the request of the client after five months, the project could not regain the time lost in the early months of the project. The project took two and a half years to complete. The client lost over $7m in revenue, company image was tarnished, and there were custom and lawsuit threats from existing customers. Dependant projects on the upgrade were delayed, causing client further financial loss as penalties were incurred with other suppliers for non-delivery.
Exhibit 3 Case Study B
Case Study B Outcome: There was a severe delay to the project of one year. Technical problems with the migration caused mass disruption to e-mail systems of customers, resulting in the company having to give their customers a months' free service to mitigate the bad publicity. The client suffered loss of customers, loss of revenue and penalties incurred by the client to the supplier, for late delivery of key milestones. The project budget was significantly overrun due to the delays and ‘hidden costs’ of travel.
Summary of Lessons learnt and key areas to be addressed
Client
- RFP must have clearly defined scope, not one based on assumptions.
- Key stakeholders need to be involved at the right level at the right time
- Dependencies, priorities, total costs, including all pre planning scope costs, need to be scoped at an early stage
Project Management
- Project management delivery requirements, for example project management dedication on the supplier side, were not considered by those negotiating the contract.
- Project managers both on the client and vendor side, were brought into the process too late. This resulted in lack of accountability, unidentified scope increased costs and unrealistic milestones.
- Delays to project delivery were incurred while the project managers tried to understand how the project was to be delivered.
- Project Plan: the lack of early planning and detail added to delays on the project, as the full scope and interdependencies were discovered after the contract was signed.
- Planning was conducted at the point when project execution was commencing.
- Two or more project plans were in existence - one for the supplier and one for the client. The client relied on the suppliers project plan, which did not include client activities and deliverables.
- Client did not know the full risks to the project, as they had not requested them from the supplier and vice versa.
- Supplier Project Management skills and application of abilities were not assessed with the exception of reviewing submitted CV's. No assessment was made as to how the supplier project manager would handle conflicts, problem solving and communication.
- Partnership: the client and vendor project teams did not act as one team with the same objectives, but as two independent teams.
Request for Proposal (RFP):
- RFP focused primarily on the technical specification and legal requirements.
- RFP did not address project management execution requirements.
- No specific project requirements meant that this area was not an aspect of the evaluation matrix, nor incorporated into the contract, in particular the Statement of Work.
- Project plans from suppliers, contained no specific requirements from the client, leading to variable submissions and no basis for comparisons.
Statement of Work (SOW)
- SOW omitted detailed requirements for project delivery, the focus on technical specification.
- There were ‘hidden’ and uncontrolled project costs, such as travel for the suppliers' teams' holidays, weekend returns which impacted project costs.
- SOW milestones frequently not realistic.
- Responsibility Assignment Matrix, too general without each activity and requirement fully defined.
- Processes: supplier processes were not questioned, resulting in delays during project execution.
Partnerships
- A ‘them and us’ relationship between the client and supplier, caused delays on projects when resolving problems.
- Late involvement of the project teams meant no time to bring the teams together as one team.
- Accountability/Ownership, was not fully defined or understood by the client, leading to management issues and delays as the plan and deliverables were not managed throughout the project.
Cultural Differences
- Additional complexity increased with suppliers from different continents and countries. Failure of the supplier to understand the geographical logistics and local visa requirements, had serious repercussions for the delivery of the project.
- Language, holidays, and problem solving approaches incurred delays on projects.
- Problem solving approaches can increase the amount of time and support a clients project manager and team will need to devote to resolving issues with the supplier.
How to avoid the pitfalls
The Guide to the Project Management Body of Knowledge (2000) (PMBOK®)divides the Procurement process into six stages: procurement planning, solicitation planning, solicitation, source selection, contract administration, close out. The main outputs of these stages are: procurement management plan, RFP, SOW, Evaluation, supplier selected and the contract.
Based on the PMBOK® process, lessons learnt and turnkey projects that have worked well, (best practice) the following key enablers were identified as requirements for success:
- Client recognition of the responsibility that it has to drive and own delivery
- Project management involvement from the beginning of the process
- Clear scope definition by the client as to what it requires the supplier to deliver
- Project management involvement at the beginning of the process
- RFP to include specific project execution requirements, for evaluation and for contractual price comparison
- Superior project management skills by both the client and the supplier, and an assessment of the supplier project managers soft skill ability
- Supplier/client project teams working as a partnership one team, with an integrated one project plan owned by the client
It will be too late if these factors are not addressed by the time contract administration commences. To incorporate these project enablers into the process, they were broken down into stages. Each stage was developed to focus on project delivery during the procurement process and to act as a check point as well as producing deliverables. Exhibit 4 illustrates the stages and high level outputs.
Exhibit 4 Summary of Requirements, Stages and Outputs
This process resulted in improved project delivery on other turnkey projects, with the following benefits to the client and supplier:
- The client has clearly defined project requirements, has the right stakeholders involved, and are working as one team before they approach the suppliers
- Focuses on project delivery in RFP and SOW, in addition to the technical specification and legal requirements, which raises suppliers project management requirements, and delivers improved quality of project delivery to defined stated cost
- Client and supplier acting as one team with one project plan, one set of objectives and a supportive culture for project delivery
- The supplier knows that the client can deliver
Exhibit 5 details the stages, purpose of each stage, the inputs and outputs and where it reduces risk.
Exhibit 5
Conclusion
Project management trends are moving from triple constraints of a project to a focus on customer satisfaction. It is critical that the client understands that a turnkey project requires as much detail and planning as an in-house project, if not more and addresses the potential risks in the early stages of the project processes. To only address physical outputs, such as the RFP and SOW alone, will not create a platform for success. The wider people issues must be addressed to ensure that there is one team collectively working together with the same objectives. Once planned and the contract signed, the actual project work becomes one of managing the in house deliverables, and the supplier contract, leading to a successful partnership and improved delivery.