27 Jan Why Companies Rehire Low-Performing Contractors | Pensacola Bridge Project Disaster
Today’s topic comes from an article from Construction Dive titled Skanska requests an extra $50M for Pensacola bridge repairs, wins separate $81M Florida venture
$50M Change Order and a $81M New Project
Skanska has requested an extra $50 million [more than an 11% increase on a $430 million project] and an additional 245 days on its Pensacola Bay Bridge due to damage caused by Hurricane Sally in 2020. The damage to the bridge occurred when 27 of Skanska’s 55 barges broke loose, shutting it down until May 2021. Skanska reportedly first requested additional funds by email in July 2021.
The contractor is claiming that they adequately prepared the site but that the hurricane’s power was unforeseeable and extreme. On the other hand, in October 2020, the Florida DOT dispatched a letter to Skanska intending to seek reimbursement for misplaced toll income [caused by the closure, valuing at least $135 million, or 31% of the project budget]. Despite the conflicting views, the issue has not prevented the agency from being awarded an $81M contract for an Interstate 75 venture in Hillsborough County.
The Red Flag of Project Management Issues
Like many of the projects that make it to the news, there are disputes over who is at risk and who is at fault. The vendor believes they did all that they could, while the client appears to feel the damages were caused negligence. The responsible party is yet to be determined, but there is a problem with project planning, tracking, and reporting. A red flag indicating a problem is that the vendor is requesting additional funding in July for something that happened 10 months prior. On top of that, the increase funds do not make sense because in October the client was intending to blame and penalize the contractor for the issue. This type of confusion and its solution will not be address in this article as it is addressed in previous articles with similar cases including:
- Miami developer sues Moriarty for $3M on delayed Boston high-rise
- Tappan Zee Constructors sues New York State Thruway on $4B bridge project
A Procurement System that Ensures a Realistic Price and a Capable Vendor
The focus of this article is on the second problem involving procurement and past performance. How is it possible that Skanska could win another contract with the same client while Pensacola Bay Bridge issues are still pending? The state assured the public it was done legitimately through a fair process, but if done fairly, the question remains. How can the state award an $81M project to a vendor who has a potential $135M penalty that could have been caused by their negligence? The penalty is 67% more than the $81M project.
The question of who is to blame for the bridge’s damage may be relevant since:
- If done traditionally through a low-bid award, what is the point of competing vendors based on price when the price they submit may or may not be accurate? For instance, on the Pensacola bridge $135M was estimated in damages caused by closure and an additional $50M was requested to complete the bridge.
- How can the state know the vendor has the capability to perform their project when the increased costs and damages to the Pensacola Bay Bridge may have been caused by their negligence?
Potential Ways to Avoid and Solve this Problem
First, a better tracking system would solve both these problems. With a proper tracking system, it should be very clear who is at fault as soon as problems arise. In this case, the capability of the vendor would be immediately documented (see previous articles listed in the links above).
Second, a procurement process that identifies and utilizes an expert vendor would ensure a realistic price and capable vendor. A flaw with most procurement processes is that they are client-centric, meaning the process has the client telling the expert vendor what to do, and the focus is primarily on the lowest cost. Client-centric processes tend to not accurately compare vendor pricing and cause inflated costs to be given [to learn more about issues with a client centric approach see this article].
In a vendor-centric process, which allows clients to identify and utilize expertise to drive costs down, there are three main components:
- Let the vendor tell you what the solution is. If the client tells the vendor exactly how to do the project, they will normally attract non-expert vendors that need to be micromanaged. Expert vendors do not like to be told what to do, especially from those with less expertise than themselves. As the client is not the expert, the solutions they develop will be subpar to an expert vendor.
- Let the vendor prove their expertise with non-technical, project specific metrics. Traditional marketing lingo and relationship-building tactics may sound nice, but they do not indicate any level of capability of a vendor. The vendors should only be given credit for their performance on previous projects similar to the competing bid. For instance, if the client is renovating a bridge, the vendors should provide previous renovations for bridges they have done and their performance on those bridges. When proving performance with metrics it should not take more than two pages!
- Let the vendor prepare and present a plan for the entire project before being awarded the project. This plan should include a detailed schedule, milestone schedule, price breakout, performance metrics to track themselves, and expected deliverables of each stakeholder. Similar to proving their expertise, the plan should be simple and clear to a nonexpert. Only experts can do deliver a simple plan, if a vendor cannot do this, they are most likely not an expert.
A Process That Provides Accountability
The Best Value Approach (BVA) is a proven method to identify and utilize expert vendors. A prime component of the BVA is a project management process which includes a licensed procurement process and project tracking system. The BVA is proven on over 2,000 projects valuing at $6.6B over 30 years with 94% of project finishing on time and on budget. To learn more, see these links:
- Free membership for latest tips and news: https://pbsrg.com/membership/
- For latest books, events, and licensed partners: https://pbsrg.com/resources/
- Latest BVA journal publications: www.cibw117.org/
- Annual Best Value Conference in January: https://bestvalueconference.ksm-inc.com/
- Latest presentations and videos: https://www.youtube.com/channel/UCxBi26nXLDTqG4ZRV6p0iiQ
Procurement Tip: How to Spot an Expert
Procurement Tip: Let the vendor speak first