Co-operation versus Competition Policy in Project Due Diligence
Risk! Engineers Talk Governance Podcast
Season 8, Episode 8
In this episode of Risk! Engineers Talk Governance, due diligence engineers Richard Robinson and Gaye Francis discuss co-operation versus competition policy in project due diligence.
Drawing on the postgraduate course they teach at Swinburne University, they explain why projects so often go wrong; that being the objective was never clearly articulated, or foreseeable problems were never built into it. They look at how trust, transparency and having the right people in the room let clients and contractors share risk instead of fighting over it, and what is lost when corporate memory walks out the door.
If you’d like us to cover a specific topic or have any feedback we’d love to hear from you.
Head to our store for the Project Due Diligence booklets they discuss in this episode..
Timestamps
00:35 – Co-operation versus competition in projects
00:53 – Swinburne project due diligence course
01:16 – Why projects go wrong
03:58 – Trust as the basis of co-operation
05:07 – Right people in the room
06:00 – Trust-based builder example
09:45 – Corporate memory loss
11:30 – Transparency and shared protection
12:51 – Criticality and control: designing out risk
Episode transcript
Megan (Producer) (00:00):
Welcome to Risk! Engineers Talk Governance. In this episode, due diligence engineers Richard Robinson and Gaye Francis discuss: Co-operation versus Competition Policy in Project Due Diligence.
(00:14):
We hope you enjoyed the discussion. If you do, please support our work by giving us a rating and subscribing on your favourite podcast platform. And if you'd like more information on R2A, our newsletter and resources, or have any feedback or topic ideas, head to the website: www.r2a.com.au.
Gaye Francis (00:35):
Hi Richard. Welcome to another podcast session.
Richard Robinson (00:37):
Hi Gaye. It's good to be here again.
Gaye Francis (00:38):
It is good to be here. Today we're going to talk about co-operation versus competition policy, and I guess we've touched on it in a number of ways through different podcasts over the very many seasons now that we've done, but we wanted to just focus on that today.
Richard Robinson (00:53):
Part of the reason for that was we give an annual blast, it seems now, to a postgraduate class with Swinburne (University) on project due diligence and safety due diligence. So we're looking at this particularly from the point of view of project due diligence because we're just revising it to do it again.
Gaye Francis (01:07):
Yeah. So the post-grad course at Swinburne is Risk Management in Projects and Engineering Industry. So that's where it sort of comes from.
Richard Robinson (01:16):
Yeah. Now part of the reason for this is, and this is just a continual frustration we have, we call ourselves due diligence engineers and what happens a lot is that we get invited to investigate a project that hasn't gone so well somewhere down the duration of the project. Now obviously we're not particularly allowed to talk about these things. If any of you ever bought any of our books, you'll see in the project (books), you'll see there's an example there of E-class tram procurement where we got in early and it all went right the first time and the government was so pleased they let us publish. But that doesn't happen very often. Usually we get invited after it's not going so well.
Gaye Francis (01:50):
To bring it back under control.
Richard Robinson (01:53):
And if it's sort of a five-year project and it's in the fourth year, that's usually not a...
Gaye Francis (01:59):
It's very hard to achieve the things that it's tried to achieve. But I think what we did for Swinburne, it really made us sit down and articulate particularly what we think goes wrong in projects.
Richard Robinson (02:11):
That's right. And there are a whole lot of little subsets, but in the end, the key thing is that people haven't actually articulated precisely what it is they're trying to achieve and they've taken into account the things that might reasonably foreseeably go wrong and included that in some way in that articulation. And so when something starts to go wrong, obviously the contract is sort of bleeding somewhere and they sort of say, well, we can't take this, we just simply can't afford it. And so where somebody thought they had a fixed price contract with a fixed term and all these other good things, it's just not going to happen like that. Now, I mean, it does depend on the scale of the job obviously. And the bigger the job, the more likely you'd think that somebody work harder to get the specification right, which is not always true.
Gaye Francis (02:53):
No, that's not always true. And I think the specification being right, we understand projects change, projects evolve, projects scope changes, whether they're cut or extended. But what they often don't do is go back and look at what the project was trying to achieve in the first place and whether that is still relevant or not.
Richard Robinson (03:15):
Well, again, we are not going to talk too much about the ones that went badly because we're not allowed to. I mean, we've got one big one which is still cabinet and confidence, which we won't talk about for another 20 years or so. <laughs> But remember I did the Eildon dam cost plan one as a part of a ministerial panel and things like that. So there's some things you can sort of talk about, but even then what you learn, you sometimes don't quite understand. I mean, I think I've told you a couple of times, the most significant thing I discovered out of that Eildon dam was that the minister's never ever wrong when you're on a ministerial panel, which might be self-evident, but until you're on one. You don't sometimes quite understand that in a political sense.
Gaye Francis (03:58):
So just bringing it back to that co-operation versus competition policy, and we've sort of seen it in projects, it's the co-operation requires a trust element.
Richard Robinson (04:08):
And that's what the basis of civilization. We had the conversation earlier. I mean, the whole point about a society with the rule of law is that we all agree to go along with the rule of law. That's the point. So if you happen to go to a tribunal or a court, even if you don't like the outcome, we all sort of say, well, that's our system and we are all willing to be there and we're all willing to abide by the result. If you're not willing to do that on a co-operative basis, the system can't work. So the idea you're going to have competing courts, for example, is a bit of a nonsense intellectually.
Gaye Francis (04:35):
So if we bring that back to projects, you've really got to have all your stakeholders clearly defined and they all have to be on board and almost singing the same tune, so to speak, that they're all working towards a particular outcome.
Richard Robinson (04:50):
Yes. Now we've observed where it comes unstuck is there was something unforeseen, which it's a bit of a frustration. I mean, we watch some projects in Victoria where we had nothing to do with, and you're just reading the press report, you're thinking...
Gaye Francis (05:04):
How could you miss that credible threat?
Richard Robinson (05:07):
But that's like, I remember reading, remember putting insulation in the roof and they put metal foil and some young guys stapled through into the 240 volt cables in the roof and it killed them. And we had a Royal Commission into that. Now I remember scanning the... They had done a due diligence or a risk review of the process and what was going to be done, but it had been organised by lawyers. And I don't think the lawyers... They're not trained in physics and the idea that you could staple into the 240 volt and that would be a danger...
Gaye Francis (05:40):
Hadn't even cross their mind.
Richard Robinson (05:42):
So a process had occurred, which would normally follow what we would say, but if you don't have the right people in the room, you're not going to get a competent answer.
Gaye Francis (05:49):
That's why we say it's all about making sure the key stakeholders are there and they're the people that...
Richard Robinson (05:55):
Know what they're talking about.
Gaye Francis (05:56):
Yeah, live and die by the results, isn't it, of the project.
Richard Robinson (06:00):
Yeah. Now this actually goes a little bit further because when you look at the scale of things, I mean, we deal with projects typically from about $10m up to about $3b. When you're dealing with small scale projects, you don't have the time. I mean, I was just discussing beforehand, I've renovated three houses my time is one of the advantages of being older or something like that. And they weren't new houses, they were old houses that were being fixed. And every occasion I had to engage a builder to do things. And typically it's a two person team, either a father and son or some interesting combination. And the way I've always done it, and this is the alternative way to do it, and there's something in here that I haven't quite worked out what goes missing, but you pick somebody whom you trust because you know them.
(06:46):
In one case, for example, they worked at my brother-in-law's house and he said, "Oh, these guys are terrific." And you trust them as builders. And what I've tended to do is say, look, treat it like this job like it's your own house. It's an existing house. When you touch an existing house, what it's supposed to be like and what's actually there are two different things. So I remember we changed out a window and the last time we did it and there was no lantel and the carpenter was looking at this, how could anyone put a window without having a lantel above it? So we had to go and check a couple other windows and make a couple other changes. But the way I've always done it is say find somebody you trust and you get them to give you an estimate for what they believe based on what they can see to be the case.
(07:30):
And then you say, treat it like if it was your job. And if you find something that isn't quite right and it's going to need something else, tell me immediately. But it's a trust thing. It's not a hard contract which says you must deliver this and it doesn't matter how many problems you find, because if you start doing that, they've got to start building contingencies. And if they truly don't know what it is, they're going to build in a monster the contingency and either say, you give us the money...
Gaye Francis (07:52):
Or we're not going to start it. Or alternatively, they do start it and other places are cut.
Richard Robinson (07:59):
Well, or alternatively, which is what we've seen with a lot of contracts, we've had the distinct feeling that some contractors go into a fairly large contract going with a low price to get the work on the basis that they're going to get extras and they're going to work this contract and make money. Now, if you want to have an expensive contract, do that.
Gaye Francis (08:19):
That's the way to do it. And the difficulty is once you've started a project and you're so far in, you've really got no choice but to keep paying to have it finished.
Richard Robinson (08:29):
And if you want to talk about disasters, never happened to me, but I know people who happened to renovating houses. They've gone with one contractor, had a fight, fired the contractor and tried to get another contractor. Do you know how few contractors want to pick up another contractor's bad job? They are really unhappy. And if you thought that project was going to be completed in any kind of timeframe that the original people starting the job though would be, it's never going to happen.
Gaye Francis (08:56):
No. Well, it's sometimes where we get called in, isn't it, to sort of pick up where some people have missed out on.
Richard Robinson (09:03):
You might recall, and we perhaps won't talk about it, but the trainings are, we won't talk about the actual circumstances, but I found it particularly interesting because you've watched large corporations work and the contract had gone bad. And so what happened is they fired the current project manager and they made the contractor finish it off on a cost basis, so no profit to them. But by firing the project manager, they sort of induced a form of corporate memory and you restart the project with a bunch of new people who then restate what it is and go through the proper process again. But this idea that you sort of induce corporate memory loss in order to actually fix the problem and you hope it's going to come in on time and budget.
Gaye Francis (09:45):
But we're also talking that that also has an opposite effect sometimes because we're saying a lot of projects don't have that corporate memory anymore.
Richard Robinson (09:56):
Well, that's the other thing.
Gaye Francis (09:57):
People are staying in jobs a lot shorter time period and moving along and moving along different projects, but they're not bringing that knowledge that they had to those things. So some of these things that we do talk about these project showstoppers that are rare, that might only happen in one in 20 projects, one in 50 projects, people aren't remembering those things. And so they're just being left off the list.
Richard Robinson (10:21):
Well, that's sort of a frustration to you and I. I remember that last job we did in New Zealand.
Gaye Francis (10:25):
Is that because we're getting old, Richard?
Richard Robinson (10:28):
Partly, but we've done a lot of work for that organisation over the years for the lawyers and we knew their business quite well. And the next job we got, it wasn't because any of the people we'd worked for previously recommended us is because some young guy was sort of searching the internet for somebody who might be able to do this and we came up. And so when we rolled up into Wellington to do the task, we already had them solved pretty much because we already knew.
Gaye Francis (10:52):
We do. We had four reports in hand and this is how your network works and oh, you guys don't really need a briefing, do you?
Richard Robinson (11:00):
But it was sort of strange. They all seem to be a stunned that this little mob from Melbourne knew about their quite substantial business. And we said, we've done a lot of stuff for you before and that corporate memory had just gone.
Gaye Francis (11:11):
Yeah. And I think that's where the difficulty for organisations and projects are. People are moving on very, very quickly often before bad things go wrong or bad things happen and it's just not being recalled.
Richard Robinson (11:24):
Is that your nice way of saying you've seen some project managers go from disaster to disaster? <laughs>
Gaye Francis (11:30):
Do not put words in my mouth, Richard. I said nothing of the sort. So bringing that back, co-operation and competition policy, they're both required, but they have to meet in the middle. And I think it has to be the transparency between the two that really enables you to bring the project together and to deliver it.
Richard Robinson (11:53):
And that creates the trust that you've got it. I mean, we keep talking about the roads projects we've done and we got the right people in both the contractor and the client generally. And you make sure everybody understands what both parties are trying to achieve and what both parties think can go wrong. And both parties make sure that both parties are protected in the event that those things happen. And in that case, everyone's looking at each other saying...
Gaye Francis (12:16):
What else could we do?
Richard Robinson (12:18):
And we trust each other. We're not trying to set each other up. We both wish to succeed.
Gaye Francis (12:21):
I think you made another really important point there. It's that people think about these things quite early in the game, but they're constantly reviewed as well. So we've talked about safety and design a number of times during our podcast, and that's where you can make, if we go back to the criticality and control premise of what our podcast is this season, if you get it upfront, you can look at the critical elements. You can often design some of them out.
Richard Robinson (12:51):
Correct.
Gaye Francis (12:51):
And it just makes the pain go away a lot easier. If you do this sort of process, and as you said, you are three years into a five-year project, the control aspects gets really, really difficult.
Richard Robinson (13:04):
But that's the whole point of the exercise, and that's why the risk management standard is causing so much trouble. It keeps talking about hazard and risk. A bad thing could happen, but it's so unlikely. We're not going to worry about it. Whereas the criticality control says, well, we recognise there's a credible possibility. Let's make sure it doesn't happen.
Gaye Francis (13:21):
So I think on that note, we might leave it there today. Thanks for joining us, Richard, and we'll see everyone next time.
Richard Robinson (13:28):
Thanks, Gaye.