Delivering successful megaprojects: Top ten tips

Megaprojects, and Gigaprojects (typically encompassing a number of megaprojects), are high profile, enormous in scale and ambitious in terms of design, schedule and logistics. There are a number of these projects under construction today around the world, particularly in the Middle East. 

At the same time, the global value of construction disputes continues to rise. In the Middle East region alone, the average value of a construction dispute runs to tens of millions of dollars. 

In our Delivering Megaprojects webinar series, we explored the technical, legal and practical challenges involved in the setup strategy for Megaprojects, the execution of Megaprojects and managing Megaproject disputes. 

Our discussions revealed that paying attention to mindset in each of these stages can be the recipe for a successful Megaproject which yields collaborative behaviours which, if properly managed, minimise cost and budget overruns.

Setup strategy

Megaprojects are high-profile, complex, large-scale operations that usually take many years to complete. These projects typically cost at least USD $1 billion and are often government funded and subject to publicity and scrutiny from Day 1, due to the potential impact on millions of people, the wider economy and the geographical transformation. There is often an early public statement made about the project’s budget and schedule aspirations. In this context a Project Execution Plan (PEP) or implementation plan that details the steps to accomplishing completion of the project is critically important.

The PEP or implementation plan must:

• define the project goals, 
• define outcomes and deliverables, 
• assess potential risks, 
• set tasks and due dates, 
• assign the team member roles and responsibilities. 

The more effort that goes into the strategic planning stage, the more effective and less problematic subsequent stages are likely to be.  

Good project planning is the art of striking a balance between the ‘golden triangle’ of time, cost and quality although parties need to be realistic. Nobody should expect all three factors will achieve maximum potential all the time. 

Our experience is that commonly project costs are underestimated, or schedules are overambitious. For this reason recent market testing, procurement strategies and risk allocation with sufficient provisional allowances and contingencies should all be considered.  

Speed is often a priority in Megaproject delivery and in those cases management contracting is a procurement model that enables an early start on site before completion of the design. The separation of the Megaproject into works packages is often a necessity given the size and scale of the projects. Ultimately though, the procurement route should be selected only after obtaining an in-depth understanding of the specific needs of both the client and the project. 

Unexpected problems arise on construction projects all the time. Properly drafted and negotiated contracts are a must because they contain agreed procedures for dealing with the unexpected. Parties should take legal advice from the applicable jurisdiction especially if they are unfamiliar with it. In civil law jurisdictions if there is a conflict between the contract and a mandatory rule of law this can cause problems in contract administration and potentially lead to disputes. 

Project execution

Once contracts are signed, the hard work of project execution begins. This is often seen as the ‘honeymoon period’ when contracts are finally signed and both parties want to do their best, establish positive relationships and set the tone for delivery of the project. 

But it is a very risky time because it is when the planning meets reality—which can result in some of the most challenging times in a project. 

Rather than put the contract away and forget about it, this is exactly the time where parties should clearly understand the contract they have signed and agreed. Contracts often contain intricate and complex mechanisms that will operate when certain risks arise. It is essential that both sides understand these mechanisms to protect themselves and perform the project well.

Common problems that arise at this early stage include:

• faults with tender designs becoming apparent,
• the schedule becoming unrealistic or unworkable,
• unexpected conditions are discovered on site. 

These issues are all catered for in construction contracts, but the ‘honeymoon period’ feeling means parties may resist issuing contractual notices for fear of ‘rocking the boat’ or upsetting the client—even though that is precisely what they should be doing because it was agreed in the contract.

Megaprojects that make a successful start to the execution phase are often those where the contract terms are tracked into deliverables and monitored regularly by the entire team, including designers and contractors but also legal and contract professionals. 

An integrated team approach is likely to catch unexpected problems before they develop into issues that may threaten progress of the project. In our experience, sometimes unexpected issues arise which are then not handled at the time, instead becoming stored as claims until the end of a project at which point they form the basis of a commercial negotiation over the final contract price or, worst case, result in formal dispute resolution. This is not always workable and is certainly not optimal when trying to deliver a Megaproject. Parties should be prepared to consider what interim methods of relief may be available so as not to risk delay to progress. 

Delaying addressing these issues can prejudice the rights of the parties under their contract, for example if a timely claim notice and/or substantiation is not provided.  

Managing disputes 

There are various reasons why disputes might arise on Megaprojects, but much of the time disputes can be traced back to the way in which the project was set up and executed. Disputes tend to result when the plan for the project is incompatible with the reality of the execution. 

For high-profile Megaprojects, an expensive dispute is the last thing anyone wants. Often the resulting dispute(s) can become as famous as the project itself (at least among the industry and legal community). How parties effectively avoid and manage disputes is most important.

While construction disputes may have several different contributing factors, ultimately they are caused by people. This is because at some point one party will choose to be in a dispute, much as they may claim to have been forced into it or had no other choice. There is always a moment that causes a party to formally contest a dispute, whether exercising rights to refer to arbitration or litigate in a national court, which results from an individual decision. People are also essential in avoiding disputes if they have a mindset predisposed towards dispute avoidance rather than conflict. 

The complexity and innovation involved in Megaprojects is also a key aspect of disputes. Megaprojects are ‘one of a kind’ so involve new technologies or unprecedented scales, which lead to unforeseen challenges. Addressing these issues through careful planning, clear communication and robust contract management can help to mitigate or avoid disputes. 

If a Megaproject dispute arises, evidence is key because ultimately it wins cases. The party that has more and better quality records substantially increases its chances of successfully prosecuting or defending a claim. Wherever possible parties should document in real time the events that occur on the project, the causes and consequences. These records can be invaluable. The project record on a Megaproject can be vast, however, so getting down to a reasonable and digestible set of documents for the case can be very difficult and requires good project controls. 

In Megaproject disputes the gathering of fact witness and expert evidence can also be key. 

In relation to fact witnesses, parties must bear in mind the limits of human memory—asking a witness to recall events that may have happened many years ago in detail can be a challenge. Often good contemporaneous records are required to help a witness remember key events. 

Selecting and managing what can be large expert teams giving expert testimony is of utmost importance. A Megaproject dispute is likely to require expert evidence in relation to delay, quantum and at least one technical discipline, probably more. The experts need to have the information required to reach their opinions and discharge their duty to the tribunal. Again, this requires good contemporaneous records. 

Before even thinking about bringing a Megaproject dispute, a party of course must carefully assess whether an arbitral award will be enforceable against the counterparty and what other performance securities and forms of interim relief may be available. 

Our top ten tips for successful megaprojects 

1. Define and understand the project risks, objectives and priorities.
2. Make the Project Execution Plan (PEP) an actionable roadmap for the project.
3. Tailor the procurement model to the priorities of the client and the project. 
4. Use a properly lawyered and compiled contract suitable for the applicable law. 
5. Do not treat the start of the project as a honeymoon. 
6. Always communicate clearly and regularly with all stakeholders.
7. Keep the team together throughout – designers, contractors, legal and contract professionals.
8. Foster a collaborative culture and recognise that varying levels of client maturity will require tailored structures, approaches and processes.
9. Implement good document controls – collect, store and organise project documents and records.
10. Number #1 Tip: Put the project first. Parties should treat the project as an investment in which they all have a stake. This mindset fosters collaborative rather than adversarial relationships and steers parties towards pragmatism and solutions rather than entrenchment and disputes. 

This article was produced following the series of webinars, “Delivering Megaprojects”, presented by Gleeds and Freeths. It is the work product of Chris Soffe, John Refaat and Galal Hany (Gleeds), Alex Johnson (Freeths) and guest speakers Virginia Borkoski (Hatch) and Meagan Bachman (Crowell).