Why Project Oversight Matters
Although project oversight starts with contractor selection, the success of major projects is not just a matter of selecting the best contractor. It is also imperative to create an oversight program that effectively represents the owner's interests through real-time, non-intrusive, and independent confirmation of project performance in the areas of safety, compliance, stewardship, and prudency.
Owners and contractors can reasonably have different interests and incentives with respect to scope, risk, execution, conflicts, etc. Therefore, an owner cannot just pick the best contractor and sit back and drink "Pina Coladas" until informed of the project’s completion. Some level of oversight is needed. This is especially true when making a capital investment into a project that is critical to the business' future success or survival. A well-executed project oversight program maintains a healthy tension between the diverging interests of owners and contractors, while respecting the fact that the contractor has the right to complete the work free from undue interference.
Early identification of sub-standard contractor performance can save millions. On the other hand, overly intrusive oversight of contractors can also cost millions and result in avoidable change orders and work delays. It can lead to an unhealthy and adversarial relationship with the contractor, punctuated by avoidable disputes or litigation. It can also lead to "oversight project paralysis", wherein progress grinds to a halt as workers seek to avoid the consequences of aggressive oversight or resist making decisions for fear of being second-guessed.
In general, the contracted entity's project management team is responsible and accountable to deliver on the project scope as agreed under the conditions of the contract. As such the project management team has decision-rights and governance over the management of the project and execution of the work. A project oversight team that does not respect the project management team's decision-rights or attempts to share or usurp them, is fatally flawed. The role of project oversight is primarily one of detection and intervention when one of the following conditions are met:
- The condition is unsafe.
- The condition is noncompliant with the contract or applicable laws, statues, rules, or permits, etc.
- The condition demonstrates a lack of stewardship of funds or other assets of the owner.
- The condition is imprudent under the principle of the Reasonable and Prudent Operator.
Therefore, a quality owner-oversight program requires the adoption of these six essential principles:
- Promote trust and preserve credibility when performing owner-oversight from contract inception through all the PMBOK project management knowledge areas and process groups.
- Assemble oversight professionals with the right competency and temperament.
- Establish a culture within the owner-oversight organization that respects the contractor's leadership role and avoids usurpation.
- Avoid undue interference by ensuring comments regarding contractor performance are right, reasonable and relevant.
- Encourage contractor self-governance and problem identification.
- Respect the contractor's right to have an unfettered project execution. Limit intervention, intrusiveness, and interference to that necessary to perform effective oversight and to protect the owner's legitimate interests.
In the example below, the success of the project was not guaranteed by the selection of a “good” contractor. Project oversight starts with contractor selection, but it is equally imperative to create an oversight program that effectively represents the owner’s interests through real-time, non-intrusive, and independent assessment of contractor performance.
|Oversight Insight: Project Success?
Photo of the cooling towers and nuclear reactor containment building at Plant Vogtle Nuclear Power Plant in Waynesboro, Georgia. Westinghouse Electric Co., the U.S. nuclear unit of Toshiba Corp., Japan, filed for bankruptcy protection on March 29, 2017. Source: AP Photo/John Bazemore.
|In March 2017, Westinghouse Electric Company filed for bankruptcy due to a colossal project failure. Westinghouse commissioned the construction of two nuclear power plants in South Carolina and Georgia that were billions of dollars over budget and at least three years behind schedule.
“The cause of this latest problem seems to have nothing to do with nuclear power and everything to do with incompetent business practices, particularly Toshiba’s construction contractor,” Forbes magazine journalist James Conca reported in the article “Westinghouse Bankruptcy Shakes the Nuclear World.”
Westinghouse selected the Shaw Group to spearhead construction. The Shaw Group had never built a nuclear plant and had limited nuclear capability. As the project fell behind, the leadership at the Shaw Group was able to sell the company to Chicago Bridge & Iron Company for an overpriced $3.3 billion. Project success?
While the Shaw Group was able to unload its liabilities, Westinghouse bore the consequences of the project failure and bankruptcy. Although there were multiple factors that led to the failure, this example is illustrative of two things. One, the implementation of a strong owner-oversight program staffed by well-trained oversight professionals could have saved Westinghouse time and money. Two, a project can be both a success for the contractor and a failure for the owner.
Below is the logo for OversightAdvantage.com, which represents our overall approach to project oversight. As our logo suggests, project oversight combines the precision of a magnifying glass with the power of a telescope. To stay on target during major projects, a successful owner needs to invest in a program that will inspect project details with clarity, expertise, and a competitive edge, while maintaining a comprehensive “big picture” scope to identify risks.
When done correctly, quality project oversight is an investment that pays for itself while maintaining healthy, productive business relationships for future projects—a net positive benefit to the owner and the contractor.