October 27, 2008
The Road to AEC Project Execution Success
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Susan Smith - Managing Editor

by Susan Smith - Managing Editor
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Industry News

The Road to AEC Project Execution Success

By Susan Smith

Architecture, engineering and construction (AEC) projects have been under the microscope in recent years, charged with responsibility for declining productivity in the capital asset industry. Many efforts have been made to find out why this is the case, and many software solutions have been developed with the aim of solving the problem, if not in whole, in part.

A recent study conducted by Bruce Jenkins of Spar Point Research, funded by software company Newforma, Inc., entitled “Mitigating Risk in AEC Project Execution: Perspectives from Principals, Counsel and Insurers,” took a fresh look at the industry from three stakeholder viewpoints.

The study takes into account risk sources for A/E firms, the search for solutions in the form of business practices and supporting technologies, and possible avenues to mitigating risk. Spar Point interviewed five principals of leading A/E firms, three prominent legal professionals who are closely involved with the AEC industry and three insurance professionals that specialize in A/E risk management.

Fear of liability and strong aversion to risk exposure were cited as the primary cause of the industry’s declining productivity. Lack of communication between different parties involved in projects has been ensured by the compartmentalizing of responsibility. The maintenance of business processes and project execution processes that further isolation between the different parties has become the norm as it allows each party to shift accountability to others in the asset-creation value chain. This situation, in which fear is wagging the dog’s tail, so to speak, has characterized the industry and fragmented the value chain, which in turn causes more things to go wrong in the end.

The research in this study suggests that a greater exposure to liability could in fact reduce the likelihood and severity of problems on projects. Many industry professionals are looking at a move away from the old practices of avoiding liability and shifting risk, to ways of controlling risk. This involves consciously increasing risk exposure in order to control risk and see where problems arise.

Building information modeling (BIM), business best practices and project execution processes are all suggested as ways to better coordinate projects and information to achieve better risk control. So much comes down to the human factor, and forming a new, healthy relationship model. What was discovered is that firms that were most successful at avoiding errors and omissions, with fewer claims and risk issues, had a corporate approach and culture that valued “training and sensitizing” their employees to identifying risk and then staying on task with a process – rapid detection of a project going off track, and quick and targeted response to remedy the situation. In a nutshell –
project execution.

Tools such as BIM address project execution, but what was found in this study is uncertainty as to whether project execution can be addressed by digital technologies, while at the same time, respondents shared a strong sense of the need for these solutions and have definite ideas about what they should be able to accomplish.

When asked the question for the study, Does reduced exposure create greater risk? These were some of the respondents’ replies:

“Uncertainty is a big risk factor,” said Jim Jacobi, PE, senior principal and CIO, Walter P. Moore & Associates, Inc. “In traditional execution process, so much coordination needs to happen among different organizations and different disciplines in a project – and the techniques we use to produce work product are not well suited to that coordination. So as a design progresses into the field, you find things overlooked, misinterpreted, etc. and that leads to claim, or worse. So one big source of risk is rooted in the fact that we have such a drawing-centric approach to design, and there is not enough time to expend the effort needed for every party in a project to become fully
immersed in the design. That is much bigger than the risk of doing something wrong within a discipline – making errors or having problems with your own work product.”

“Incentives for conflict, not cooperation, are built into the process, and wrongly so. My drive is to change that for the industry…Ironically, our risk management model that makes fingerpointing more attractive than problem-solving is the biggest source of risk today,” said Tom Owens, principal & general counsel, NBBJ.

Litigation is what A/E firms fear, and yet some participants say that very few conflicts make their way to the courtroom. But where do these conflicts arise?

From Chris Noble, partner, Noble & Wickersham LLP, “Sixty-six percent of claims against architecture firms come from their own clients. The majority of the others come from people who know them well – contractors.”

Greg Bundschuh, J.D., Ames & Gough in Atlanta said that the most prevalent claims his firm encounters from AEC projects are as follows: 1. Owner allegations of cost overrun attributable to design. 2. Design professional’s failure to communicate with owner re design, budget expectations. He added that he feels that BIM and other better automated tools will make it easier for AEC firms and clients to resolve their differences or avoid their having conflicts in the first place.

According to Barry LePatner, partner, Barry B. LePatner & Associates, LLP, architects have been put in the third tier of project execution. Because of this, “they (architects) get sucked into assuming risk they would not face if they were more direct participants.” He suggests that construction managers have urged owners to let them begin the project four months before the drawings are complete, because in their view, the drawings will catch up. But LePatner attests that from an A/E standpoint, this is a disaster. “It ensures a change-order mentality on the project, which is premised not on seeing the drawings complete to price the job, but on errors and omissions.”

Insurance companies across the board believe that a proactive involvement of all parties is necessary at the contract stage.

“One of the issues we still have is untenable contracts,” said Albert J. Rabasca, director of industry relations, XL Design Professional, XL Specialty Insurance Company. “After all these years that we [in the insurance industry] have been espousing contractual responsibility, to this day we still need to talk about it, because often we find the contract simply wasn’t looked at carefully. A/Es are agreeing to things they probably know they shouldn’t be.”

Why and how can A/E firms prevent the claims of their own clients and those of contractors?

In a separate interview, Chris Noble responded, “The design and construction process is very complex, the project participants are numerous and self-interested, and the results as measured by every standard (cost, time, quality) are imperfect. Owners are stretching their resources to build the buildings cheaper and faster, with high expectations and very small contingencies. Many contractors have small profit margins, and seek to pass on to others the risks that are often shifted to them by aggressive owners. In this context, there is little room for errors and omissions, but the likelihood of such errors and omissions happening is extremely high. The result is claims. Risk
management strategies for designers include (1) be more efficient and organized in receiving, analyzing, processing, and generating information about project design and construction requirements, (2) negotiate fees that will support the level of project management and related effort that is required to accomplish (1) above, (3) establish and maintain good and productive relationships with other project participants, and (4) perform services under contracts that are reasonably protective of the designer's interests.”

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