What every Project Manager knows that you do not know: Time and Cost Overrun or Effective Planning and Scheduling?

By Ivan Hinkson FCIOB, FRICS, PMP, CCC

A Caribbean Construction Project Management Group – CCPMG White Paper –

Time and cost overrun is a major construction project management challenge, which has competency questions for the credibility and accountability of project managers and project sponsors in the current global environment.

The challenge is that can planning and scheduling be used to leverage project management and effectively monitor, evaluate and control the concerns and issues of time and cost overrun?

Available construction project management case studies, lessons learned, close-out reports and generally recognized best practices support the view that effective planning and scheduling have and can efficiently address the concerns and issues of time and cost overrun. But what really is time and cost overrun in the context of construction project management?

Definitions of cost overrun range from project cost in excess of estimated cost, to an excess of actual cost over budget. A considerable amount of confusion exists in defining cost overrun as cost escalation, cost increase and/ or as budget overrun. However it must be recognized that cost increase and budget overrun may not necessarily result in cost overrun, particularly if cost escalation and contingency plans are included as inputs of the budget.

In the determination of a construction project budget, it may be useful to recognize that there are fundamental differences between an estimate and a budget. Furthermore, the estimate, like the budget, has a cost value as well as a time (duration) relationship in the costing process. Overestimation or underestimation of the time value relative to the project estimate and/or budget can lead to another area of confusion in rationalizing the concept of time and cost overrun.

Time and cost overrun have further interpretation complications when project budget is sanctioned and project scope is not clearly defined at the project initiation stage. Furthermore at the project execution stage available research document the results that time and cost overrun trends are usually evident at 15% to 20% of project actual duration and not necessarily near to, or at the project due date.

The first step or foundation of highly effective planning and scheduling of construction projects is Knowledge Management, which ensures that the intellectual capacities of an organization are structured, shared, maintained and utilized within an appropriate knowledge base.

A highlight of the use of a construction knowledge base and six other steps for addressing time and cost overrun concerns and issues are progressively elaborated on in the Project Management Institute Southern Caribbean 5^th International Conference Presentation “7 Steps to Highly Effective Planning and Scheduling of Construction Projects”, (http:// www.pmiscc.org/Pdf/Conference% 20Presentations/Ivan%20 Hinkson%20-%20Steps%20 to%20Highly%20Effective%20 Planning%20and%20Scheduling% 20of%20Construction%20 Projects.pdf).

Ivan Hinkson is a Certified Project Manager and Certified Cost Consultant with twenty four years’ post graduate experience and acknowledged competency, as a Project Manager, Contracts Manager, Project Control Manager and Lead on Design/ Built, Construction Management, Contract Management and Engineering, Procurement and Construction (EPC) projects in Trinidad and Tobago.

The Independence and Impartiality of an Arbitrator

Ian Rollit  Bsc., FRICS, FCIOB, MCIArb

Arbitrator, Ajudicator, Mediator & Chartered Project Management Surveyor

Introduction

An arbitration agreement is a contractual clause evidencing agreement or a separate agreement to refer future disputes to arbitration. Arbitration clauses in contracts are phrased in a variety of ways so that the tribunal may have jurisdiction over: “all claims”; “all disputes”; “all differences”. The contractual nature of arbitration requires the consent of both parties to have the dispute settled by arbitration. The arbitration tribunal’s jurisdiction is based solely on the agreement between the parties to submit their existing or future disputes to arbitration. The arbitration agreement is the foundation stone of the arbitration. Its award will have the same finality and binding effect as a judgment. The composition of the tribunal must meet the same standards and characteristics of any fair trial.

The duty of disclosure is the antidote to allegations of impartiality and independence. The Arbitrator must disclose any interest and various laws and arbitration rules provide for this. The timing of disclosure should be before accepting the appointment or as soon as the Arbitrator becomes aware of a possible disqualifying event during the arbitration proceedings.

A definition of both impartiality and independence is critical in understanding the importance of same as it pertains to the Arbitrator.

Impartiality

An Arbitrator is impartial when he neither favours nor is predisposed as to the question in dispute towards one party. Such predisposition exists when the Arbitrator has already expressed a concrete opinion on the legal questions(s) or acted as a counsel for a party in the matter (1).

The impartiality of Arbitrators is essential for the arbitration process. There was no specific statement to this effect prior to the 1996 English Arbitration Act. The 1950 Act did contain various provisions to secure impartiality.

The 1996 English Arbitration Act goes further and confers upon the Arbitrators to “act fairly and impartially as between the parties.”

Section 33 of the English Arbitration Act gives specific instances of what is meant by fair treatment:

Each party should be given a “reasonable” opportunity of putting his case and dealing with that of his opponent, and Suitable procedures should be adopted by the tribunal that avoid unnecessary delay and expense, so as to provide a “fair” means for resolving the particular dispute.

Section 33 effectively requires the tribunal to act in accordance with natural justice and broadly reflects the Model Law Article 18 – Equal treatment of parties which states that “the parties shall be treated with equality and each party shall be given an opportunity of presenting his case”.

Impartiality impacts in three ways:

1. It is necessary to avoid the situation in which an Arbitrator who may not be impartial, by virtue of a personal interest in the outcome or by virtue of relationship with one of the parties is permitted to take up his appointment;

2. The situation may arise after the Arbitrator has taken up his appointment that an Arbitrator puts himself, or is otherwise put, in a position where his personal interest conflicts with his duty to act impartially and

3. The Arbitrator may, in his actual conduct of the proceedings, fail to act in an impartial manner.

The list of issues gives rise to a breach by the Arbitrator of his general duty under section 33(1) (a) of the Arbitration Act 1996 to act fairly and impartially: the Arbitrator in such a case is liable to be removed and if the award has been made it is open to challenge on the ground of serious irregularity. Impartiality requires that an Arbitrator is unbiased and does not favour one party and is not predisposed as to the dispute.

UNCITRAL Model Law

Procedure is contained in Article 12 – Grounds for Challenge and Article 13 – Challenge Procedure. The main issues are as follows:

1. Where an Arbitrator is approached in connection with his possible appointments he must disclose any circumstances likely to rise to justifiable doubts as to his impartiality. Once appointed he is under a continuing duty to this effect under Article 12(1).

2. A party who wishes to exercise his right to challenge an Arbitrator must within 15 days of becoming aware of the appointment or of the circumstances on which a challenge might be founded, send a written statement to the Arbitrators setting out his complaint .The challenged Arbitrator may then withdraw, and he must do so if the other party agrees with the challenge. If the Arbitrator continues, the validity of the challenge is to be considered by the Arbitrators themselves Article 13 (1).

3. If the challenge is not successful, the objecting party may apply to the curial courts within 30 days; pending such an appeal, the Arbitrators are free to continue with the arbitration Article 13 (2).

The procedure is subject to an overriding waiver provision, which prevents a party from exercising his right to challenge an Arbitrator if he participated in the appointment, unless the basis for his challenge did not become apparent until a later date Article 12(2).

The legal standard for impartiality of persons with judicial or quasi-judicial functions has been given detailed consideration by the courts in relation to judges .The leading authority is the ruling in the Court of Appeal Locabail (UK) Ltd v Bayfield Properties Ltd. The Locabail decision made it clear that that identical principle apply both to judicial appointments and to Arbitrators. In AT & T v Saudi Cable Corporation, it was confirmed that there was no basis for lowering the standard of impartiality to Arbitrators than to judges.

Independence

Independence requires that there should be no actual or past dependent relationship between the parties and the Arbitrators. Model law permits intervention where the Arbitrators are not impartial or independent. The Model Law provides for full disclosure.

The absence of an independent Arbitrator might well be contrary to the guarantee of independence in Article 6 of the European Convention of Human Rights since the Act goes to great lengths to secure impartiality.

The distinction between independence and impartiality was emphasized by the Court of Appeal in AT &T Corporation v Saudi Cable Co.

Nationality

Article 11 of the UNCITRAL Model Law states “No person shall be precluded by reasons of his nationality from acting as an Arbitrator.” It is commonplace and stated in most arbitration rules that a sole Arbitrator or a chairman should be of a different nationality than either party. ICSID Convention dictates that the majority of the Arbitrators must be of a different nationality than the parties.

Duty of Disclosure

Arbitrators are generally under a duty to disclose to all parties all facts which may be relevant. This ensures compliance with requirements of independence and impartiality. Each Arbitrator is under an obligation to ensure a valid and fair resolution of a given dispute.

IBA Rules of Ethics for International Arbitrators provides that a prospective Arbitrator discloses past and present business relationship, social relationships, previous relationship with any fellow Arbitrator prior knowledge of the dispute and commitments which may affect his availability to perform his duties as Arbitrator. The ICC Statement of Independence requires Arbitrators to declare their willingness to act as an Arbitrator.

Conclusion

In R v. Gough it was held by Lord Goff of the House of Lords that ‘the test should be the same in all cases of apparent bias, whether concerned with justices or members of other inferior tribunals or with jurors or with Arbitrators and that test was ‘… whether here was a real danger of bias on the part of the relevant member of the tribunal in the sense that he might be unfairly regard (or have unfairly regarded) with favour or disfavour, the case of a party to the issue under consideration by him.’

An Arbitrator may be removed by the Court where circumstances give rise to justifiable doubts as to impartiality. (Article 12 of the Model law).

Earlier Law of the Courts had always stated that “justice should not only be done, but should manifestly and undoubtedly be seen to be done.” Courts have taken the view to intervene when;

1. The Arbitrator has some connection with one or other of the parties to the arbitration proceedings.

2. The Arbitrator has some interest in the outcome of the proceedings;

3. The Arbitrator’s conduct prior to or during the proceedings demonstrates that his mind is made up.

In Taylor v. Lawrence the Court of Appeal concluded (at paragraph 60) that the appropriate test for potential bias was the test in Re Medicaments (No.2) as modified by Lord Hope of Craighead in Porter v. Magill:

“The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility that the tribunal was biased.”

There is a close relationship between the concept of independence and that of impartiality. In Findlay v United Kingdom 244, paragraph 73, the European Court said:

The Court recalls that in order to establish whether a tribunal can be considered as ‘independent’, regard must be had inter alia to the manner of appointment of its members and their term of office, the existence of guarantees against outside pressures and the question whether the body presents an appearance of independence.

As to the question of ‘impartiality’, there are two aspects to this requirement. First, the tribunal must be subjectively free from personal prejudice or bias. Secondly, it must also be impartial from an objective viewpoint, that is, it must offer sufficient guarantees to exclude any legitimate doubt in this respect. The concepts of independence and objective impartiality are closely linked…”

In both cases the concept requires not only that the tribunal must be truly independent and free from actual bias, proof of which is likely to be very difficult, but also that it must not appear in the objective sense to lack these essential qualities.

The nationality of the sole Arbitrator or Chairman of a tribunal is not good grounds for setting aside the award if the Arbitrator has disclosed at all times all facts which are relevant. Additionally if the party fully participated in the arbitration he will be estopped from claiming that nationality of the Arbitrator was a factor in his decision making.

Ian has 30 years’ experience as a Surveyor and Project Manager on a wide range of projects in Building and Civil Engineering. His experience in the commercial and contractual aspects of construction management has been acquired by working directly for a developer, as a consultant for large international companies and contracting organizations on major tourism projects. Ian has worked extensively throughout England, the Caribbean and South America. He has been involved in all aspects of projects, including costs estimates, contractor and sub-contractor selection, design management, preparation of contract documents, contract administration and the formulation and settlement of claims, drafting of pleadings and litigation support in litigation, advocacy in arbitration proceedings and is experienced in negotiation, conciliation, mediation, adjudication, arbitration and litigation. He is also a member of CCD’s Editorial Board. He can be contacted via email: [email protected].

Why engage a project manager? A client’s perspective

Mithra V Rampersad, MBA B.Eng C.Eng. MICE R.Eng. DipLaw Dip.F.M.

Abstract: The use of project management as a tool for execution is quickly becoming globally accepted across many industries. While being increasingly accepted within the local and regional context, there is still a tendency for clients to adopt the traditional hands-on role for the execution of their projects in lieu of the engagement of a specialized project manager. This article seeks to highlight the various factors influencing the need for project management services.

Project management has been gaining momentum in Trinidad and Tobago over the past 15 – 20 years having been adopted by some client organisations (both private and public sector) in the execution of their projects. It is considered that signals of this gain include:

• Buy-in by client organisations – evidenced by recent advertisements for project management services.
• Post-academic qualifications sought by potential employers now include the PMP (Project Management Professional) designation.
• Increased professional support by organizations such as the PMI (Project Management Institute) and its local chapter the PMISCC (Project Management Institute Southern Caribbean Chapter).
• Recognition as a specialist field –verified by new academic programmes being offered at both the Diploma and Masters levels.
• Availability of a number of (international) standard conditions of engagement for the appointment of project managers.

The typical local or regional client organization therefore has a relatively robust infrastructure upon which to base a decision on the engagement of a project manager and does not necessarily have to start afresh on any such initiative. Influencing Factors In the development of capital projects, the client typically has three fundamental choices to make:

• Should the management of the project be vested with existing operational staff?
• Should a new manager or team be employed formally and specifically by the organisation?
• Should external project management expertise be procured under a service agreement? All three approaches have features that define their advantages and disadvantages. On the client’s side, this decision is primarily influenced by:
• The complexity of the project
• The availability of in-house resources
• The expertise of in-house resources
• The size and duration of the project
• Economic, risk management and feasibility drivers.
• Client organization’s history of executing similar projects

Naturally, within any organisation, some, if not all, of these factors will exist to varying degrees, and therefore the rationale for procurement of project management services will be informed by the degree of confidence which the client has in these factors.

Notably, the client’s assessment on the availability of resources should not be limited to staffing only, as successful project management is also based on the efficient use of physical, financial, time and informational resources. A typical client organisation will possess all of these in some form.

Project Parameters & Resources
Naturally, the more complex a project is by definition, the more likely it is that the client will require project management services. The choice then redounds to the source of the expertise – a previous history of similar projects executed within the client organization would have led to an accumulation of in-house expertise which can then be built upon. This then follows the model of internal project management.

If the project is one where the client organization has had no similar experience, then a case is made for adoption of externally procured project management services.

It should be noted that in theory, internal and external project management define opposite ends of the spectrum within project management procurement. In practice, most projects are executed within these boundaries, i.e. a suitable mix of both in-house and externally sourced resources.

Risk Management
The second consideration that the client organisation should address is risk mitigation.The chosen approach should be tailored to suit the risk appetite of the organisation.

Robust risk assessment and management techniques will satisfy the triad of economic, technical and financial outcomes. Typical avenues available to the client are scenario modeling, contingency planning, and risk allocation. The simple exercise of procuring external project management serves to manage risk by adoption of the risk transfer principle.

A contingent risk factor associated with the appointment of external resources is the issue of corporate confidentiality. Despite client confidentiality arrangements, the possibility exists that competitive business projects in the development stage may be compromised. Economic choices made by the client should consider two levels of comparison:

• Whether the cost of using internal resources exceed the cost of external resources.
• Whether the secondment costs of internal resources to the project team outweighs the opportunity cost of the productivity of those resources in their substantive positions.

In this respect, a full and objective cost-benefit analysis should be carried out, preferably using life-cycle costing techniques.

Further Steps
The client’s objectives will be the ultimate drivers for any project. Therefore, the method of project procurement and execution should be aligned as closely as possible to these objectives.

Engagement of a project manager is a critical step towards project success and it is argued that in making this decision, the client must carefully consider all factors that influence the judgment.

It should be equally appreciated that each project undertaken is different in both scope and approach. Hence, the adoption of one model on one project may not be appropriate for another, regardless of the similarities.

Where the client organisation forecasts an orientation towards several project developments, consideration should be given to the establishment of an in-house project division. Conversely, where projects are sporadic and intermittent, a more appropriate approach may be the procurement of external project management services.

There are many arguments for and against the appointment of a Project Manager. However it is clear that the opportunities to be derived far exceed the economic benefits of utilizing ‘in – house’ resources. Additionally, the risks associated with large projects can affect the overall performance of the organization.

Guyana’s PMI Chapter

GEORGETOWN, Guyana- The Board of the PMISCC formally inaugurated its Guyana Committee which will be the focus group for Project Management in that country. The mandate of the Committee is to create awareness of the profession, create a professional network of PMPs (Project Management Professional), promote educational programmes in project management and develop the PMP credential. The Committee used the opportunity to host a Project Management Conference as part of its official kick-off. The venue was Le Meridien Pegasus and the theme was “Project Management: Methods and Practices for Sustaining Business and Development”. There were 115 professionals representing public and private sectors as well as Donor Funded Agencies in attendance. The discussion areas presented were Bid Preparation, Project Leadership, Improving IT Project Management for Regional Transformation, Cash Flow Management for Construction Projects and Recognizing the Need for Project Management in Guyana.

The President of the PMISCC, Mr. Michael Charles, kicked-off the proceedings and the keynote address was given by the Honorable Minister Jennifer Webster of the Ministry of Finance who pledged her support for this initiative and hailed project management as an important mechanism which can promote and sustain Guyana’s economic, social and infrastructural development. She further encouraged the private sector to pick up the mantle of project management as this can lead to their entry into regional and global markets. She closed by calling for private and public sector partnerships to capitalize on Guyana’s human resource capability

The PMI Southern Caribbean Chapter (PMI SCC) is the leading non-profit advocacy organization
and professional network for the project management profession in our region and is a chartered component of the Project Management Institute (PMI). There are currently over 550 members representing the construction, contracting, engineering, consulting and various other industries. 60% of our members are PMI credential holders. PMI is the global membership association for the project management profession with more than 269,000 members in over 171 countries and 251 Chapters around the world. PMI sets professional standards, conducts research, provides access to information and resources and empowers practitioners to become catalysts for organizational transformation