CONSTRUCTION SOLUTIONS
Critical thinking at the critical time.
TM
Summer 2010 ■ Issue 2
PERSPECTIVES ON… INFRASTRUCTURE Critical infrastructure systems - water, wastewater, power, transportation, and telecommunications – are vital to communities, cities and countries all over the world.
An important and continuing infrastructure challenge of the 21st century is to accommodate continuing growth, address outdated infrastructure systems and replace them with innovative green and sustainable solutions that will last the rest of this century and beyond. Many critical infrastructure systems are now well past their life expectancy in the U.S. Approaching new and replacement infrastructure requires fresh ideas related to creative financing of these projects, effective delivery frameworks and advanced technologies that will ensure a successful outcome and avoid service disruptions and higher operating and repair costs.
CONTENTS 2 Letter from Paul Ficca 2 FTI Global Infrastructure Team 3-4 Into the Fourth Dimension 5 R ebuilding America's Infrastructure 6-7 Lawyer Perspective: Beware Wild Promises! 7-8 A chieving Best-value Construction 9 From the EMEA Desk 10 F rom the Asia Desk 11 Upcoming Events 11 Focus Forward-Metals and Mining 11 Contact Information
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REBUILDING AMERICA'S CRUMBLING INFRASTRUCTURE: THE NEED FOR SWIFT ACTION BALANCED WITH TIGHT COST AND SCHEDULE CONTROL Michael Jorgenson, PMP, Managing Director FTI Construction Solutions - Dallas, Texas
“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” – John Adams Infrastructure which helped stimulate America’s economy in the past is now endangering us. Infrastructure has become a global imperative; the emerging economic powers like China and India are making infrastructure a national priority for economic growth. We cannot alter the fact that our aging infrastructure and underinvestment over the past 30 years has created significant challenges and issues jeopardizing our national prosperity. Sources such as Urban Land Institute’s 2009 Infrastructure Report and the American Society of Civil Engineers’ (ASCE) 2009 Infrastructure Report Card, present a full awakening to the major challenges of America’s deteriorating infrastructure and exponentially
growing price tag. Overall, ASCE has given America’s infrastructure a grade of “D” and it is getting worse. The bottom line of ASCE’s report is that the nation’s infrastructure is “…poorly maintained and unable to meet current and future demands, and in some cases unsafe.” Repair and upgrade programs are estimated by ASCE to cost almost $2.2 trillion over the next five years. Additionally, to deliver a new climatefriendly energy infrastructure, cost estimates are almost $2 trillion over the next 20 years. Such evidence is finally causing many to see this as the time to break the mold of our seemingly two forms of infrastructure mentality: complacency and panic. The U.S. is coasting on our prosperity from the major infrastructure investments of previous decades. We have become complacent; a national infrastructure plan has not been initiated in nearly 50 (Continued on page 5)
MARKETWATCH – Infrastructure: Construction of Big Projects Calms Critics [ http://ow.ly/1Q8OR ] – $170 bil. in Infrastructure Projects to Spur E. Asia Integration [ http://ow.ly/1Q8Rt ] – The Singapore Success Story [ http://ow.ly/1Q8XN ] – Strong is Steel for Saudi Arabia [ http://ow.ly/25gsl ] – Invest Like a Billionaire: Infrastructure Stimulus [ http://ow.ly/1Q96B ] – Global Infrastructure Q1 2010 Roundup [ http://ow.ly/1QcyT ] ►
CRITICAL THINKING AT THE CRITICAL TIME TM
CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
INTO THE FOURTH DIMENSION
LETTER FROM PAUL FICCA National Practice Leader
Anthony McHale FTI Construction Solutions - Rockville, Maryland
Dear Readers,
Paul Ficca Senior Managing Director FTI Construction Solutions paul.ficca@fticonsulting.com
Summer has officially arrived and with that comes our second issue of FTI Construction Solutions. In the Spring issue, we introduced you to both legal and construction professional perspectives on energy construction projects. Since the summer months are a particularly active period of highway and other forms of infrastructure construction, in this Summer issue of Construction Solutions, we invite the perspective of FTI’s construction professionals and some highly experienced international construction lawyers who possess deep experience with global infrastructure construction. In addition to these unique perspectives, you will also find a methodology overview of FTI’s 4D Modeling solutions for integration with BIM (Building Information Modeling). This technology is clearly improving the efficiency of project delivery.
The construction industry is undergoing a paradigm shift. Historically, the design for complex projects has been represented in two dimensions by plans and specifications. Design information for complex projects is now being provided in three dimensions through computer generated THE PRODUCT “smart models” IS A TRUE known VISUALIZATION throughout OF THE the industry as BIM models. PROJECT AT These three ANY POINT IN dimensional CONSTRUCTION (“3D”) computer models can be linked to the project’s construction schedule to create a visual simulation demonstrating the planned sequence of construction. Because of the introduction of time, often referred to as the fourth dimension, these construction simulations have become known as four dimensional (“4D”) models.
We live in an era of rapid change, mixed with unprecedented global mobility. Communities the world over seek sustainable infrastructure to accommodate burgeoning populations and increasing demand for accessible and functional infrastructure systems that are safe, effective and reliable. FTI has developed a highly focused specialization in the management, scheduling, risk assessment, and pre- and post-project evaluation of infrastructure construction projects. Our goal is to help companies in both public and private sectors mitigate risk and avoid unnecessary pitfalls. We invite you to review the infrastructure perspectives presented herein and hope that they will provide you with new insight into the successful planning and/or completion of any major infrastructure project that you endeavor. Should you wish to share your perspective with us, please contact us at: constructionsolutions@fticonsulting.com Our very best regards,
FTI GLOBAL INFRASTRUCTURE TEAM FTI has developed a highly focused specialization in the management, scheduling, risk assessment, and pre- and postproject evaluation of INFRASTRUCTURE construction projects for both public and private sectors. Our Infrastructure team of construction professionals has established a solid portfolio of experience in all areas of infrastructure construction, including: heavy civil transportation, highways and roads, bridges, light and heavy rail systems, tunnels, airports, reservoirs, locks, underground utilities, and water/wastewater treatment facilities. Some examples of this experience include: −− Productivity and risk assessments and evaluations for all trades, including earthwork, concrete, rebar, posttensioning, underground utilities and cable installation;
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−− Hands-on experience in highway, bridge, dam and tunnel construction; −− Forensic scheduling, cost audit and claims evaluation experience −− Specific knowledge of high-tech, post-tensioned and cast-in-place segmental and cable-stay bridges; −− Storage and conveyance of pre-cast segments; −− Step-by-step erection of balanced, cantilevered superstructures; −− Marine and land erection operations; −− Post-tensioning operations; −− Cofferdam construction.
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Building Information Modeling, or BIM, has become a common term in the construction industry. BIM refers to the process that replaces the two dimensional (“2D”) representations of the building design, commonly the plans and specifications, with a parametrically loaded 3D model detailing the project design. In its purest form the BIM model contains, among other things, all of the information necessary to construct the project, without the need to reference plans and specifications. The most recognizable product of the BIM process is the computer generated 3D model. On most projects the design process has not evolved to the point where a BIM model replaces the plans
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and specifications. Rather, the 3D model is a collaborative effort, generated in parallel to, or after the completion of, the design in 2D. In these cases the 3D model supplements the information contained in the 2D construction documents. In many projects the 3D model is generated by the trade contractors after the issuance of the construction documents in 2D. In these cases, the development of the 3D model assists in the coordination of complex project elements at a much higher level of
detail than was possible in the familiar 2D coordination drawing and overlay or “onion skin” process. This enhanced coordination allows for spatial conflicts that were previously identified in the field to be recognized and corrected during the development of the coordinated 3D model. The participants recognize certain priorities of installation during the
development of the coordinated 3D model. However, the BIM model, like its 2D predecessors, represents the completed project. So, the BIM model alone cannot communicate the intended construction sequence. Thus, it is necessary to add "time" as the fourth dimension of the modeling process. The most common form of 4D modeling links the 3D BIM to the project critical path method (“CPM”) construction schedule. Through this linking, the simulation can be manipulated to provide
a visual representation of the project model at any point during construction. The CPM schedule becomes the engine that drives the simulation, as the bars on the Gantt chart become visually associated with elements of the 3D model. Therein, the implied construction sequence can be communicated via a series of model snapshots, an exported animation or even a live computer (Continued on page 4)
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CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
CRITICAL THINKING AT THE CRITICAL TIME TM
INTO THE FOURTH DIMENSION
REBUILDING AMERICA'S INFRASTRUCTURE
(Continued from page 3)
(Continued from cover)
“walkthrough” of the construction project at any particular point in time. The concept of 4D modeling is not new. The industry has been producing computer generated animations representing the construction process for high profile projects for more than 20 years. However, these animations were scripted movies, not live connections between the 3D model and the construction schedule. They could only be edited through the computer animation package and were rarely detailed enough to facilitate construction planning in the field. The recent industry push toward BIM and associated software advances are now making 4D modeling accessible and affordable for the average construction project. Software packages such as Synchro allow the 3D model to be linked to the CPM construction schedule with relative ease. The product is a true visualization of the project at any point in construction. Through the software interface the model can be rotated, filtered or sectioned at the user’s discretion to focus on particular elements, project systems or sequences within the overall construction process. Because the model and the CPM schedule are linked, any of these simulations can be easily updated to incorporate changes to the project design or plan for construction. Many 4D tools also include the capability
to simultaneously view and compare 4D simulations of the same project generated at different points in time. This allows the project team to see graphical representations of actual construction progress against planned construction progress, or to explore the effects of prospective changes to the schedule. This technology also presents some very interesting opportunities to use 4D simulations as demonstrative exhibits in the dispute resolution process, wherein the impact of differences between the as-planned and as-built schedule can be demonstrated by graphically contrasting the status of the project at various points in time. Importantly, this will enable
jurors to more easily understand the importance of changes to the schedule. The construction industry is steadily moving into the fourth dimension. Two dimensional forms of communication are giving way to three dimensional models and visualizations. With BIM design, coordination and spatial conflicts are being solved in virtual space long before the problem occurs in the field. With projects being built virtually in 4D simulations, the CPM schedule is becoming the engine that drives these simulations. These technologies will continue to compel and propel the evolution of the construction industry. ■
Anthony McHale Director FTI Construction Solutions tony.mchale@fticonsulting.com
Mr. McHale is a skilled project manager with experience in many aspects of project development and construction. Tony assists project stakeholders during the planning, execution and post execution phases of complex construction projects. He specializes in the development, updating and maintenance of critical path method (CPM) schedules and 4D models for power generation facilities, manufacturing facilities, power transmission and infrastructure projects. He also has extensive experience in water purification and waste water construction and has assisted in the planning and execution of healthcare, institutional, pharmaceutical and industrial projects. His scheduling expertise includes permitting and pre-development, conceptual and detailed design, pre-construction/proposal, construction, commissioning and start-up. Mr. McHale is certified by the Association for the Advancement of Cost Engineering as a Planning and Scheduling Professional. He has also been qualified as a CPM scheduling expert, testifies in matters related to construction scheduling and delay, and frequently performs detailed schedule analyses addressing time impacts and acceleration. His forensic schedule analysis capabilities include the development of detailed as built schedules based on client data and/or discovery materials as well as the development of productivity and cost analyses to support requests for equitable adjustment and or litigation.
years. Unfortunately, awareness and action are frequently the result only after a disaster or major catastrophe. Additional funding needs to be targeted on averting future catastrophes before building new projects. The current financial crisis poses an ideal period for change in how we fund and deliver a structured infrastructure plan targeted on land use and housing policies integrated with transportation, energy and environmental programs. The successful end result will require a holistic, long-term infrastructure strategy with a national vision supported by regional implementation and restructured agencies to break down current silos. We must focus direct planning to global gateway cities which serve as critical economic arteries. We must reconfigure our suburbs creating more compact communities and change land use patterns. Ultimately, to be successful, private sector funding is required for public infrastructure with advancement of public/private partnerships. Investment in infrastructure has become a major global trend with large investment banks getting involved. Over seventy infrastructure funds have been started with over $150 billion raised during the past several years. Real Estate Investment Trust (REIT) asset classes offer another vehicle for future funding sources but further legislative fixes are required, in particular with respect to tax rules. We must take advantage of the billions
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of dollars of private investment funds seeking investment in U.S. infrastructure. Adopting the strategies of our global competitors, Congress is looking to establish an American Infrastructure Bank, called the “National Infrastructure Innovation and Finance Fund,” to leverage public and private investments and finance significant national and regional projects. President Obama has requested $4 billion to launch this Bank, less than the $60 billion over 10 years called for during his presidential campaign, and significantly less than the enormous amount ultimately required. Unfortunately, according to budget documents, the plan currently lacks sufficient “pay-as-you-go” rules. As public infrastructure funds are insufficient, we need a strategy that further shifts funding from taxpayers to users via a combination of innovative user fees (e.g., tolling schemes, congestion charging mechanisms and smart meters for electricity) and other revenue streams such as raising fuel taxes. Without these, we continue to burden our national debt. Additionally, our objectives must include adjusting people’s behaviors to achieve our climate change commitments and conservation objectives. The President and Congress should move quickly to implement a nonpartisan commission of experts to ensure effective decisions, prioritization and transparency in achieving a long-term strategy that supports our national economic growth. Once in place, we must expand and prudently select merit-based projects that have significantly greater benefit
than cost; projects meeting our long-term infrastructure objectives rather than the current broken system: a collection of ad-hoc projects lacking attention to a national network. The decisions and spending are big; the issues and risks are enormous; and as such they must be dealt with by a longterm infrastructure plan which rethinks our national and regional strategy, planning, prioritization and funding approach. ■ Michael Jorgenson, PMP Managing Director FTI Construction Solutions
michael.jorgenson@fticonsulting.com
Mr. Jorgenson is a Managing Director in the FTI Construction Solutions practice and has over 19 years of construction industry experience in planning, design, procurement and construction management of large complex construction projects across many industries. His major focus relates to capital program and construction advisory, business process improvement, construction project risk management, performance evaluation, cost and operational assessment and auditing, project control implementation and contract development and administration. In 2009, Mike was a key speaker at several conferences, co-presenting Urban Land Institute’s Infrastructure 2009 “Pivot Point” report. Prior to joining FTI, Mike served as Southwestern Regional Leader for the Construction and Real Estate Advisory Services practice for a “Big 4” accounting firm.
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CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
LAWYER PERSPECTIVE
INFRASTRUCTURE PROJECTS: BEWARE WILD PROMISES! Peter Fraser, QC, Atkin Chambers, London
Any party with the opportunity to bid, or even pre-qualify for, a large infrastructure project will be well aware of the two most important -- if not the only important – variables in which the Employer will be interested. However technical the specification, and however complicated the subject matter (and it can be taken as read for infrastructure projects that each is considerable), there are really only two matters that the Employer will concentrate upon – cost and time. The Employer’s concerns will not necessarily be in that order; it may be more interested in time, than cost. On either analysis, those two matters are likely to drive its decision making. However, although it is an invariable rule that any tenderer would, unless risking commercial suicide, analyse the costs component of any tender to the utmost detail, the same cannot always be said of time, or programme duration. In the “can do” business ethos, one attitude that is sometimes more prevalent than it ought to be, is that everything can be done quicker. How many times have transactions been programmed to complete within a couple of weeks of the deal being struck, when in fact almost everyone involved knows it will take days or weeks longer to do it properly? How many programmers have started from the project end-date, and worked backwards? A recent decision in the Technology and Construction Court provides a salutary lesson for the unwary, and is equally applicable to large infrastructure projects as it is to any tender process, including Information Technology. In BSkyB Ltd and
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Sky Ltd v EADS Ltd [2010] 5 BLR 267, the well-known TV companies BSkyB and Sky brought proceedings against EDS Ltd, an English company and its US parent EDS Corporation, for massive damages arising out of the engagement by BSkyB of EDS to design, construct and install new computerised software and hardware for Sky customer service centres in the UK. There are various methods whereby customers can communicate with Sky, including pressing buttons on the famous Digibox, and using the telephone. Apparently, writing letters is generally discouraged. However, the customer relationship management system (“CRM”) is obviously of huge importance to Sky and the developments in technology over the years rendered the existing systems obsolete such that they required replacement. After a detailed bid process, EDS were chosen by BSkyB to provide the new CRM. The project was far from a success. Instead of being completed and “going live” by March 2002, and costing Sky £47.6 million, eventually Sky took EDS off the project, and completed it without their input. The project was not completed until March 2006, and was activated on an incremental rather than “big bang” basis, and the final cost to Sky was £265 million. Additionally, Sky claimed that considerable damages (in excess of £700 million) were suffered as a result of the project. BSkyB and Sky brought proceedings against EDS. So far, so conventional, you may think. However, Sky in fact brought proceedings alleging fraudulent misrepresentation on the part of EDS, particularly in relation
to cost and time. The trial was something of a marathon. It occupied Ramsey J, the Judge in charge of the Technology and Construction Court, for the whole of the hearing from October 2007 to July 2008 and involved nine barristers, four of whom were Queen’s Counsel. The full judgment runs to some 2,350 paragraphs. Even then, some matters of quantum remained outstanding. The Judge found that EDS had carried out a proper estimate of the cost of completing the project, and there was no misrepresentation in that respect. EDS had reasonable grounds for holding out the opinion that they could and would deliver the project within the budget. However, the situation regarding time was remarkably different. The Defendants had represented that a proper analysis in respect of time had been performed, and that they could deliver the project within the timescales indicated in their response. In fact, there had been no attempt to consider the resources necessary and the relevant director had “approached the whole question of the time to achieve golive in a cavalier fashion...he was aware that no proper attempt had been made to assess whether go-live could be achieved in 9 months and complete delivery in 18 months. His approach was to ignore the need for analysis.” (paragraph 840) The definition of fraud is somewhat wider than most people might think. Fraud is proved when it is shown that a false representation has been made (1) knowingly; or (2) without belief in its truth; or (3) recklessly, careless whether it be true or false: Derry v. Peek (1889) 14 App Cas 337 per Lord Herschell. The third of those limbs is often overlooked. The last time that you were asked where you had put the car keys, did you blithely reply “hanging on the hook” or “in the drawer”, not really caring whether that were true or false? If so, you were making a fraudulent misrepresentation to the person who asked you the
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question. Making a statement, reckless as to whether it be true or false, is fraudulent. As the Judge put it later in the same passage, “I am driven to the conclusion that he proffered timescales which he thought were those which Sky desired, without having a reasonable basis for doing so and knowing that to be the position...I consider that he acted deliberately in putting forward the timescales knowing that he had no proper basis for those timescales. At the very least he was reckless, not caring whether what he said was right or wrong.” Accordingly, EDS were guilty of fraud and deceit, and the contractual cap on liability was of no effect. The case has attracted widespread interest, not least concerning the way that the relevant individual at EDS was caught out in cross-examination (see paragraphs 174 onwards) concerning his education, showing him to be a liar.
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may be, to believe that every resource can be engaged and all projects can be accomplished quicker, or everything can be done faster, there is a limit. At some point a representation as to time will cease to be merely optimistic, and become reckless as to truth. At that
point, the tenderer would be well advised to stop and reflect, at least for a moment. A wild promise may be all very well, in an attempt to win the bid. If it has to be substantiated in the cold light of day under critical analysis, it may lead to a dramatic sinking feeling. ■
LAWYER PROFILE Peter Fraser, QC Atkin Chambers London+44 (0) 207 404 0102 pfraser@atkinchambers.com
Peter Fraser specialises in domestic and international litigation and arbitration in the construction, civil engineering, transport, professional negligence and energy and utilities sectors. Throughout his career, he has handled many high profile cases representing governments, private employers, manufacturers, a huge number of contractors and their professional advisers all over the world. He is regularly instructed to advise upon and appear in various jurisdictions including the Commonwealth of the Bahamas, Bermuda, Hong Kong, mainland China, the Middle East including the Sultanate of Oman, California, various countries in Africa and Sweden. He has been called to the Bar of the Commonwealth of the Bahamas to conduct a case there in the Supreme Court. He is well versed in all forms of dispute resolution, acting regularly as arbitrator nominated or appointed by the parties in arbitrations. He also has considerable experience of adjudication, both acting for parties in adjudications, dealing with High Court enforcement and challenging proceedings connected with adjudication awards, and also sitting as an adjudicator.
However admirable in business terms it
BLUEPRINT FOR SUCCESS: ACHIEVING BEST-VALUE CONSTRUCTION Todd Mohr, Managing Director FTI Consulting Solutions - Denver, Colorado
In today’s economic environment of restrictive credit markets, companies are often challenged to find external capital. Organizations naturally aspire to generate additional funds from operations when their growth plans require renovation or expansion of their physical plant and other facilities. However, current economic conditions have moderated demand for most goods and services and companies realize that the corresponding decreases in corporate revenues may only spin off enough cash to cover extremely well-managed capital projects. These imperatives are forcing executives to carefully allocate scarce resources according to financial viability. It is really no surprise that competing pri-
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orities for internally generated funds have placed increased importance on capital program management to ensure that capital is efficiently spent and that companies are receiving the best value for their construction dollar. Many challenges exist for enterprises engaged in the process of delivering expansion and renovation projects. Typical risks or barriers to achieving best-value construction can include: −− Corporate governance and capital approval processes are not adequate, considering the strategic significance of the program and size of expenditure; −− Projected budgets and scope are inadequately defined, requiring procurement of additional funding; −− Ineffective scope and change management leading to “value
engineered” solutions can negatively impact future revenues as program elements are scaled back to stay within established budgets; −− Internal resources are insufficiently trained to ensure effective implementation; −− Increasing expectation of “Lean” and “Green” development processes in facility development is resulting in staff implementing project delivery methods that are unfamiliar to them; −− Organizations are lacking the structure or focus to optimize cycle time in delivery of new plant, facilities and ancillary spaces as required to establish competitive advantage in the marketplace; (Continued on page 8) [7]
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BLUEPRINT FOR SUCCESS
T he reality is that only three out of every five capital projects completed in the last decade successfully met financial and operational objectives. The remaining ventures exceeded budget (by an average of 15%) or failed to achieve the desired competitive advantage as a variety of forces delayed project delivery. At best, results were mixed as organizations frequently lost revenue opportunities and faced undesired cost escalation. T o confront the current perspectives and address the many challenges/risks, C-suite executives require responsive organizational structures, effective business processes, enabling technology, and clear, complete and concise information to proactively manage strategic construction investments. Maximizing ROI, ROA and cash flow depend on this. Performance excellence ensures that investments are a good cultural fit, meet company guidelines, enhance competitive advantage, and facilitate growth. Proactive management, armed with the right information and the proper tools for governance, FTI CONSULTING
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FROM THE EMEA DESK
(Continued from page 7)
−− Use of longstanding “partner” firms who often become less attentive to client financial and temporal goals and provide less cost transparency (familiarization and “comfort” may impair the project team’s objectivity and desire to validate a contractor’s true performance); −− Untimely decision-making, insufficient interaction of project stakeholders, and poorly managed construction schedules impact project completion dates, eroding the organization’s competitive advantage in the marketplace and resulting in lost revenue opportunities; −− Disruption to service delivery or postponement of product delivery to accommodate additional capital raise or construction delays can adversely affect professional reputation and public perception of competency.
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execution and stakeholder support are the ingredients necessary for success. T o develop a sustainable blueprint, major capital construction projects need to: −− Enhance revenues and optimize time of performance; −− Improve productivity and efficiency of critical business processes; −− Establish and maintain effective capital program controls – analytical tools, monitoring, documentation, and independent/ objective reporting systems; −− Mitigate governance, execution and stakeholder risk; and −− Stay out, or get out of trouble if things go awry. A ‘blueprint for success’ should include the design and implementation of rigorous yet straightforward management procedures, collaborative tools for use with project participants and stakeholders, and risk mitigation through effective controls for safety, cost, schedule, quality, compliance and governance objectives. At FTI these procedures, tools and controls are the key components of our Capital Program Advisory Services. In addition to our suite of Government Contract Solutions and Forensic and Litigation Construction Consulting, we have recognized the value of Capital Program Advisory Services for our clients, namely: −− Governance and Executive Reporting −− Capital Program and Project Risk Management −− Organizational Design and Assessments −− Business Process Improvement −− Policies and Procedures Development −− Project Diagnostic Reviews −− Project Management Oversight −− Contract Development Assistance & Risk Evaluation −− Negotiations Support −− Compliance Monitoring −− Regulatory Support −− Project Cost Audits −− Project Controls Implementation and Monitoring
−− Cost and Schedule Management and Control −− Change Order Review −− Cost Allocation and Segregation −− Turnarounds and Workouts The current business climate demands high performance from all capital program stakeholders. To sum it up, surprises, mistakes and/or reporting biases cast very real, and often negative, consequences on organizations and the participants responsible for project delivery. Successful major capital construction ultimately means overcoming the many risks and challenges, along with meeting program goals and financial objectives. ■
Todd Mohr Managing Director FTI Construction Solutions todd.mohr@fticonsulting.com
Mr. Mohr is a Managing Director of the FTI Construction Solutions practice and is based in Denver. Todd has over 23 years of construction industry experience in planning, design, procurement, construction, management and dispute resolution of large complex construction projects. He has created over $1 billion in value for clients through construction revenue growth, cost reductions, improved operational efficiency and risk mitigation. Mr. Mohr is responsible for managing and performing construction company/project restructuring and turnaround, project risk management, capital program/construction advisory, strategic planning, business process improvement, performance evaluation, construction cost assessment/auditing, project control (cost and schedule) implementation, contract management and dispute resolution. Prior to joining FTI, Mr. Mohr served as Western Regional Director for a nationally recognized professional services firm. He also served as a senior member of the Real Estate and Construction Services Practice for a “Big 4” accounting firm where he was responsible for introducing and implementing the Project Risk Management (PRM) and the Construction Advisory Services business lines. Todd has an M.B.A in Finance and International Business from the University of Denver and a B.S in Construction Management from Colorado State University.
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Geoff Brewer Head of Construction Solutions/EMEA geoff.brewer@fticonsulting.com
Another season is upon us and with it World Cup fever. With the Olympics on our horizon, we in the UK will be watching South Africa closely to see how its infrastructure copes with the demands of a World tournament. Our construction solutions workload in the infrastructure sector across the EMEA region is booming, with recent enquiries and appointments on major road, rail and airport projects. We are well positioned to offer valuable support in this sector, with an unrivalled capability as a consequence of our team having worked on some of the World’s most prestigious road, rail, airport and utilities projects. Infrastructure projects are a key ingredient to our business planning, being high value, complicated projects, riddled with risk and uncertainty. Ideally we like to work with clients to identify, manage and minimise the risk associated with such projects. It is however fair to say that the majority of our work tends to arrive in the form of a ‘distressed purchase’ when the risks manifest themselves into major problems and formal dispute resolution seems to provide the only means of recourse. This is something we are working hard to redress as we believe the maxim ‘prevention is better than cure’ is consistent with the delivery of any major infrastructure project. In a similar vein, we are often appointed as members of Dispute Boards set up to assist the early resolution of disputes through a project lifespan. The proliferation of DRB’s (Dispute Resolution Board’s) on major international infrastructure projects shows little sign of abatement and as funding organisations become more demanding their appearance on projects is ever more likely. The UK market is feeling the brunt of the recession and in addition to that uncertainty abounds as we grapple with a new coalition government and wait for imminent budget announcements confirming widespread public sector cuts. Infrastructure projects in the UK tend to be administered under the relatively new NEC contract (New Engineering Contract). The NEC has been around now for over a decade and its philosophy lends itself to non-confrontational contracting. However, it is a demanding contract to operate and administer and untrained or ill-equipped parties often fall foul of its onerous conditions. We are
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currently engaged as experts on two of the largest infrastructure disputes currently underway in the UK, both being large transport projects administered under NEC contracts. NEC is also the contract of choice for the London 2012 Olympics projects and again we watch and wait to see if the huge amount of infrastructure work required to deliver the Olympics are ultimately delivered without problems. The signs are good, but with a panel of Adjudicators at the ready, and with our team amongst those members on the adjudication panel, we will doubtless be amongst the first to find out if things do not go to plan. The NEC contract in itself warrants wider exposure and could offer lessons to other jurisdictions – a topic for another day perhaps. Statutory adjudication remains popular and is often the first and last port of call in terms of formal dispute resolution in the UK. As well as supporting our clients and their lawyers at adjudication, many of our team also act as Adjudicators, providing us with invaluable insight into the process. Demand for our service across Europe and into the Middle East shows little sign of abating and, whilst we remain busy in the UK at the moment, our EMEA workload has most definitely shifted focus to projects outside of the UK. As a consequence our teams are busy across a range of international appointments. We are particularly delighted to have recently received instructions to support a Governmental department to deal with a range of complex multi-million dollar construction claims across a variety of highways projects in the Middle East. Demand for international arbitration has risen sharply over the past year or so. The International Chamber of Commerce (ICC) in Paris reports demand having risen by 23% from 2008 to 2009, the American Arbitration Association (AAA) reports a 19% rise in the same period. In China CIETAC saw a 20% increase in appointments, Singapore (SIAC) saw a 61% increase and in London the London Court of International Arbitration witnessed a 27% increase. As a consequence our experts are engaged across a wide variety of appointments, with projects in places as diverse as Moscow, Oman, Dubai and Kazakhstan. All in all we in EMEA are finding ourselves in a fast moving market place, where the demand for our services changes constantly. We need to be flexible and mobile in body and in mind to ensure we meet our clients’ needs, wherever and whatever they may be. We believe we can and we are. ■
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CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
FROM THE ASIA DESK Steven A. Huyghe Head of Construction Solutions/Asia
−− The South Island and The Sha Tin to Central MTR lines −− A high‐speed underground express railway service between
steve.huyghe@fticonsulting.com
−− T he Hong Kong‐Zhuhai‐Macau Corridor, which includes the
The financial crisis of 2008 affected the construction industry worldwide. In Asia as elsewhere in the world, governments have been investing heavily in infrastructure construction as a way to stimulate their country’s economic recovery. In terms of sheer numbers, governments have pledged trillions for infrastructure projects. (CIBC World Markets estimates total infrastructure spending over the next 20 years at $35 trillion.) Infrastructure construction projects will be key to laying the foundations for new job opportunities, higher productivity and growth, in order to facilitate the mobility and flow of people, goods, funds and information between cities and countries. For its infrastructure investment, China stands poised to build a world-class infrastructure system for moving goods and people quickly, inexpensively and reliably across great distances in much the same way that the Eisenhower highway system did for the U.S. China’s railway construction is well under way, constructing intercity rail lines, a passenger rail line across the deserts of northwest China, interconnected freight rail lines in Shanxi province in northcentral China, and a high speed passenger rail line from Beijing to Guangzhou in southeastern China. The new high-speed rail route being constructed from Beijing to Shanghai cost approximately $23.5 billion (USD) and employed a staggering 110,000 laborers. In the last four years, China built as many miles of high-speed passenger rail lines as were constructed in Europe during the past two decades. Plans for China’s roads are ambitious, too. China’s Ministry of Transportation announced in 2009 that 186,000 miles of rural roads would be paved, repaved or improved in that year alone. Current plans call for a major highway system that will stretch 53,000 miles by 2020 (the U.S. has 47,000 miles of highways), driving demand for massive amounts of steel, cement and bulk transportation services. This boost in highway construction could mean a boost in China’s GDP as well, with the potential of linking prosperous coastal regions to each other, then linking those cities to its interior. Airports and mass-transit systems are also under way. China is planning 170 urban mass-transit systems by 2030 for over 100 cities that will have populations exceeding 1 million by then. Infrastructure investments and construction projects throughout Asia will bring forth benefits that exceed the benefits of infrastructure investment alone. Sound infrastructure can help enterprises lower production cost, enhance production efficiency and improve the investment and consumption environment, which in turn will attract more external investments; advance, upgrade and update local industry; and achieve sustainable economic development. Regionally, with our FTI offices in Hong Kong, Shanghai, and Singapore, we see a distinct commitment to progressive infrastructure projects. Hong Kong has had a strong history of infrastructure development since 1945 supporting its role as a global center of trade and commerce, and demonstrating how infrastructure projects can boost the economy and confidence. Infrastructure development continues to be one of the driving forces of Hong Kong's economy. The latest infrastructure boom in Hong Kong includes an array of major infrastructure projects, including: FTI CONSULTING
CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2
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UPCOMING EVENTS
Hong Kong, Shenzhen and Guangzhou
design and construction of a 9km dual‐three lane sea viaduct in Hong Kong waters, the reclamation of an island to house boundary crossing facilities, a 6km sub‐sea tunnel, along with another 10km of tunnels and grade roads −− T he redevelopment of Kai Tak including the construction of the new cruise Terminal, estimated at $100 billion (HK) −− T he development of a West Kowloon Cultural District to support local cultural and creative industries −− Plus plans to connect Hong Kong International Airport and Shenzhen Airport through a direct rail link. These projects and others will put significant technical and management demands on contractors, who will be selected for their solid experience, particular skills, safety record and joint venture alignment with local firms.
Aug 6-9, 2010 ABA Public Contracts Forum San Francisco, California Sept 2-3, 2010 Annual Fall Forum on the Construction Industry Miami Beach, Florida
CONTACT Oct 7-8, 2010 NAFUSA (National Association of Former US Attorneys) Annual Conference New York, New York
AMERICAS +1.206.689.4480 constructionsolutions@fticonsulting.com
Oct 12-13, 2010 MCAA BIM Conference Chicago, Illinois
EMEA +44 (0) 20 7389 3800 brewer@fticonsulting.com
Oct 7, 2010 Fourth Annual Women In Construction (WIC) Conference Washington, DC
ASIA +852.2501.5233 constructionsolutions@fticonsulting.com
FOCUS FORWARD – METALS AND MINING
In Shanghai, infrastructure projects have really taken off. Starting with the Shanghai World Expo currently in progress (May 1 – October 31, 2010), the city completed several projects that should improve the city's development as a tourist destination as well as add a lowcarbon dimension to the city's public transport infrastructure and the exhibition itself. The Expo projects included a brand new terminal 2 at Hongqiao Airport to bring much-needed capacity for the airlines serving Shanghai. The design of the new Shanghai terminal made functionality a top priority, linking all terminal buildings with metro and railway networks, and a new metro line connecting the airport to the city center. Starting July 1, the fast trains coming from Nanjing will also stop at the airport. Next year the fast trains coming from Beijing and, later, the high-speed Maglev service will also be connected to the airport. These measures will reduce private car usage and therefore carbon emissions. Another side of Shanghai's preparation for the Expo is an increase in the number of environmentally friendly energy projects in and around the city, as part of China's effort to use the Expo to promote an environmentally sustainable mode of living. “Better City, Better Life” is the slogan of the Expo, and one of the many ‘greening’ concerns of the organizers. Singapore has emerged from the recent recession in a strong position thanks to its excellent country structure and tendering process. In terms of construction project finance ratings, Singapore is third behind Hong Kong and Australia. The construction industry in Singapore showed strong growth in 2009 despite the general impact of the global recession in the region. Construction is expected to increase in value and be worth an estimated $14 billion (USD) by 2014. Infrastructure projects are primarily dominated by government initiatives in transportation and power plants. The government's commitment to transportation development in the form of the country's railways is expected to aid the feasibility of future infrastructure projects. The FTI Construction Solutions team in Asia is working with owners, global contractors and lawyers internationally to facilitate and assess the risks of new construction, provide comprehensive planning, monitor and evaluate work in progress, mitigate claims, and perform postconstruction review, analysis, litigation support and expert testimony, if required, all in our continuing effort to help our clients achieve value through sound construction guidance and service. ■ [ 10 ]
The next issue of FTI Construction Solutions will present special legal and practical points of view on planning and executing construction in the Metals and Mining sector. Topics will cover metals and mining ventures, from precious and base metals and semiprecious stones to industrial minerals and coal. We will also be providing some information on raising equity for exploration for the discovery of
new deposits,in addition to timely and effective advice and solutions related to contractual implications, exploration agreements, environmental permitting, compliance and due diligence…and more. Look for issue 3 this fall.
ANNOUNCEMENT
New Hires Expand FTI Construction Solutions Practice in Asia Steve Huyghe, Head of FTI Construction Solutions/Asia, announced the addition of Mr. Tsang Wong to the Hong Kong organization and Mr. David Wang to the practice in Shanghai. Tsang Wong, Director, brings a broad range of experience in engineering, construction management, construction consulting, dispute resolution and litigation support. Mr. Wong has represented the government of Hong Kong in supervising major infrastructure and underground construction projects. Tsang is a licensed Professional Engineer in California, USA. He holds a graduate degree in Structural Engineering from Stanford University and an undergraduate degree in Civil Engineering from the University of Hawaii at Manoa. He is fluent in English, Cantonese and Mandarin, and is proficient in written Chinese. David Wang joins Mark Smith in the Shanghai office of FTI Construction Solutions/Asia. Mr. Wang has directed teams to provide advisory services to clients on major capital development programs. David has managed multi-modal transportation projects including highway construction, freeway interchange construction, regional transportation management centers, transit-oriented property development, intelligent transportation system applications, BRT corridor construction and light rail planning. He has a B.S. in Civil Engineering from the Southern China Institute of Technology and an M.S. in Civil Engineering from the South Dakota School of Mines & Technology. Mr. Wang is a registered Professional Engineer (Civil) in California, USA and Class A & B General Contractor (inactive) also in California. David is fluent in English, Mandarin and Cantonese. Steve Huyghe commented, “Tsang and David bring the necessary level of actual construction skills and construction consulting experience to our team, as well as a local presence in the Hong Kong and Shanghai markets. It is my pleasure to welcome them to the FTI Construction Solutions practice here in Asia.”
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CONSTRUCTION SOLUTIONS SUMMER 2010 ■ ISSUE 2