Three Big Reasons for Mega-Projects’ Blown Budgets

Re: Mega-project Management, President’s Notebook, January 2004 PEGG.

APEGGA President Mike Smyth, P.Eng., makes a compelling case for the next phase of Alberta oilsands development. The proper development of the oilsands is crucial to Alberta and Canada.

And yes, future prosperity depends on the success of such large scale developments.

On these points I agree with Mr. Smyth fully. I also agree with him that mega-projects have had a terrible financial record in the past. Too many mega-projects went south when it came to cost or schedule overruns.

Mr. Smyth puts the cost and schedule overrun blame on bad productivity. His solution is better construction management and perhaps following the advice of some owners to switch to a lump sum contracting strategy.

But there is more to it than that. Let me list a few main points that come to mind.

Mainly, mega-projects come with a set of strings attached as a return for regulatory giveaways, tax relief or royalty holidays. These strings almost hog-tie the project and produce disincentive for the contractors to be competitive.

Next in line are ill-defined project scope. Mega-projects inevitably attract too many last-minute additions, growing wish lists, and endless research topics, causing unintended delays.

Lastly, our never-ending zeal to compress project schedules to be competitive actually causes bad productivity. Haste really does make waste.

The pendulum swings every eight to 10 years regarding the contracting strategy. In one cycle, lump-sum turnkey is de rigueur; in the next, cost reimbursable becomes fashionable.

In the last couple of years, many major U.S. contractors came out openly against bidding on lump sum projects. They’d had to take big losses due to cost escalation, mainly caused by ill-defined scopes and ill-written contracts.

On the other hand, owners routinely conduct detailed audits of subcontractors to find out cost escalations in a cost reimbursable project after the fact.

The bottom line is that contracting strategy is not a panacea. There has to be a happy medium found.

We must also pay attention to what is happening in demographics. What I call "grey heads" are disappearing from conference rooms and offices at an alarming rate.

The decimation that took place in the oil industry in the 1980s is showing its effect now, as those few who survived the ’80s are now retired or retiring, with minimum numbers of others to take their place. Problems become more acute with the lack of personnel who understand the risks and have the proper experience.

There are also legal aspects of a project. They occupy more prominence
these days and are bound to keep increasing. Engineers are not always equipped to understand and deal with legal issues.

Stronger legal basis is not detrimental to progress, but consistently the legal avenues are being used to shed and transfer risks by owners. At the least, engineers should understand that.

The solutions will only come from cooperation among the stakeholders. They need each other, and their risks and rewards among must be balanced.

Owners must find the fine balance between project financials, schedules and local content versus risks. Define projects up front, plan the work and execute the plan.

Contractors must understand that their future livelihood depends on producing results and achieving milestones in their current projects. They must deliver what was promised and never promise what they can not deliver.

What APEGGA members can do is become keenly aware of these aspects. They need to understand that some risks can be mitigated, others must be shared. And there are some risks that must be assumed by someone in the end.
Rewards must be proportional to the risks assumed.

Alp Kocaman, P. Eng.
Houston, Tex.

More About Ranks

Re: Photo Mix-Up, Readers’ Forum, Febuary 2004.

Lt.-Col. (Retired) Keith J. Rieder, P.Eng., commented on the rank of Brig.-Gen. Jerry Silva in the January PEGG photograph. He said in part that "the gentleman wearing the four stripes is a colonel, not a general."

Brig.-Gen. Jerry Silva is a retired general who happens to be the current Colonel Commandant of the Canadian Military Engineers. This position is an appointment, not a rank. For official military engineering occurences he wears a colonel's uniform, not his general's uniform.

Major (Retired) Tame London, P.Eng.
Vancouver, B.C.

Climate Change Science Actually Is Important

Re: Climate Change is a Risk Factor APEGGA Pros Must Consider, The PEGG, March 2004.

Joel Nodelman, P.Eng., goes to some length to tell us that he does not take a position on the controversial issue of climate change. He suggests that one should move away from the politics, such as those that undermine the conclusions of the International Panel on Climate Change or those that attack those scientists who oppose the IPCC.

He further assures us that he is not a climate expert and would not presume that engineers and geoscientists can function in the specialized area of climate science.

However, the essence of Mr. Nodelman’s position, it appears, is acceptance that greenhouse gas emissions are associated with climate change and the stakeholders, government and everyone else must best get on with coping with the situation.

I’m sure Environment Minister David Anderson and the IPCC would be delighted with his statement: “Climate change is one of the most pervasive influences on our society that we are likely to face in the next century.” The implication from this and the rest of the article is that climate change is due to greenhouse gas emissions.

I acknowledge that companies must react to regulations and possible penalties imposed by governments as best they can – even if those regulations are misguided and counterproductive – in order to save their firm and their shareholders from loss. However, this does not absolve organizations from becoming knowledgeable on matters affecting them and making their voice known.

Therefore, engineers and geoscientists should become informed on the science of climate change. As one who was involved in assessing risks of oil or gas ventures and the decision to drill costly wells, it was incumbent on me to bring as much science as practical to bear on that decision. This applies to engineers and geoscientists: much of the science on climate change is not, to use the hackneyed expression, rocket science.

There is, however, a major difficulty for all citizens to gain a balanced, unbiased understanding of the science of climate change. This is touched on by Mr. Nodelman in his description of the contesting views on the merits of the work by IPCC.

Environment Canada has spent millions presenting the part of the IPCC that focused on CO2 as a cause of climate change. Yet there are many qualified climate scientists telling us that there are other causes.

The truth is that, although climate change has been (and is) recognized as a certainty, the cause of that change remains scientifically unproven.

The issue of climate change and its possible economic consequences is huge for all Canadians. One writer did the math and determined that even if every plane, train and automobile in Canada were parked forever, we would still miss our Kyoto target.

There has been some mention that the federal government would place an emission cap on carbon of $15 per tonne. Who pays if those emission costs exceed that cap? Then we find that Husky will receive a federal grant of $7.8 million for an ethanol plant.

The list goes on and on.

These examples and the fact that the federal government is budgeting in terms of multi-billions of dollars over the next three years should concentrate our minds and have us ask , “How valid is the focus solely on emissions of CO2 as cause of climate change?”

We must remove the question of the cause of climate change from the political arena until such time as a proper hearing on the subject has been held. This has never been done in Canada. In order to support the policy-making process of government and for the public at large to have confidence in that process, it is essential that only highly qualified, climate scientists be requested to testify before an independent, non-governmental, judicial-type panel.

This is an opportunity for the professionals and their organizations that are regarded by the public and politicians as having integrity to add their voice to this request.

Some may consider that it is too late, that decisions have already been made. However, we have many years ahead on the proposed Kyoto timetable.

Moreover, it is never too late to become as knowledgeable as we possibly can be on a question of this magnitude – the effects of which could have an impact on all Canadians for a long time.

David Barss, P.Geol.

Use M.I.T. Category

Re: Inclusivity

I felt that your coverage was too defensive on the APEGGA management position of the new categories. Inclusivity can be accomplished readily with an existing APEGGA process - it is called the Member-In-Training category.

Simply review each candidate and assess for M.I.T. on the basis of requiring one to four years of Canadian experience for full acceptance.

Registered, Provisional etc. all lead to confusion as to who is or is not permitted to practice engineering in Alberta. The new categories in themselves also seem to discriminate and identify immigrant candidates, perhaps forever.

I would not vote for these new categories.

T.P. O'Neill, P.Eng.
Sherwood Park

Defeating Professionalism

I’m not amused with Council’s inclusivity proposal. As ill-informed as I may be, one interpretation of the proposal is that it defeats the purpose of professionalism and everything that comes with it. Instead of being inclusive, it only alienates current members whom only learned the grand scheme of things from the APRIL ISSUE of The PEGG.

If APEGGA includes two more categories in the membership, with the likelihood that its people will be cheaper to hire than the professional members, then engineers and geoscientists, already under-valued by themselves and society as market-driven commodities, will likely be worth less than ever.

Eventually, the bottom line wins and work that is being done by professional members will be displaced to the provisional and registered members. Existing professional members, meanwhile, will likely be on the streets, looking for work.

My comments are only hypothetical. But please educate me if you must. Is there no mechanism in place to stop this madness?

Let’s say we apply Boolean logic to the general public, and they will interpret provisional and, especially, registered members as follows: He or she is a member of APEGGA. Then he or she is a licensed professional. Then he or she can do the work.

Or can he or she? Is he or she a real engineer, geologist or geophysicist or what?

Help me. Apparently, I’m confused.

Nattalia Lea, P.Eng.

Grassroots Input Needed

I should hope that the Pandora’s box named “Inclusivity” has not yet been opened too far. This concept has not been given true and meticulous thought by the grassroots of APEGGA. Those in the inner circle of the Association, with their agendas and perspectives, may have convinced themselves of one direction on the issue and be pushing hard for acceptance. Many rank-and-file professionals, however, are not prepared to accept this, at least not yet – and some not at all.

I urge caution, as a minimum, since this is a significant step in the Association’s history and for the professions as a whole.

The possibility exists that the Alberta Advantage could also be tarnished by a perception of lax standards and mediocrity. One untimely catastrophe is all it would take to scare investment from Alberta. Individually, we could see a number of significant personal repercussions that have not been considered at this time. Foreign assignments, registration in other jurisdictions and who knows what else – more thought is needed.

How can APEGGA possibly accept “immigrants to Alberta who graduated from a university that is not on the list of universities deemed to be equivalent to a Canadian university,” as the Association has said. I have worked internationally and seen that some universities offer PhDs to individuals that I would not want to paint a bridge for me, far less design it. If a university is not on the list, it is not on the list for a reason.

“People who have a science degree or something similar and apply that knowledge in a profession that looks much like engineering” should start their own association. Ours is an association for engineers, geologists and geophysicists. Don’t call an apple an orange.

If what someone does crosses the line between “looking” much like engineering to “being” engineering, then APEGGA must step in and stop the practice.

APEGGA concluded that “it is better to have people who are practicing our professions licensed and subject to our high standards than to have them practicing with no licence at all.” That sounds like either a cop-out or empire-building.

APEGGA says that the public will not necessarily know the difference between a professional and a registered EGG. This is a strong argument against inclusivity.

If APEGGA exists to protect the public, then is APEGGA going to be liable when its apparently indistinguishable designations subject the public to varying standards of qualification? Would Albertans like a veterinarian to be allowed to do surgery on humans?

I do not think that all of the membership has been offered adequate information to assess the potential effects such a change may have. Since these effects may be significant, APEGGA must seek conclusive agreement from at least 75 per cent (if not more) of the members before an irreversible move is made.

A few hundred, at most, members able to attend a meeting in Edmonton, who possibly have been lobbied by one group with a particular viewpoint, should not get to speak for the entire membership – or the public for that matter.

I concur with Horace R. Gopeesingh, P.Eng., (Current Requirements Should Be Maintained, Member Says, Readers’ Forum, March 2004) and am inclined to review the value of my APEGGA membership. Many other members may choose title changes to avoid the domain of APEGGA’s inner circle and their perceived fiefdom.

I would hope that the Alberta Government, Legislative Assembly and Cabinet do some independent due diligence on inclusivity and not let the “fox redesign the hen house” – and then whitewash it.

Richard D. A. Pike, P.Eng.

What About Our Right to Practice?

On occasion over the last 20 years, I have asked APEGGA about what it does for its members. I have never received the courtesy of an answer, except once about protecting the public, which of course did not answer my question.

I know what you do not do. You do not stand up for your members’ rights to practice and you do not stand against those who do our work when they have no business doing it.

Now I see that you are working for the rights of others, through inclusivity, instead of insisting that real engineers, geologists or geophysicists do the work. I have witnessed mathematicians and chemists working as reservoir engineers; there are biologists doing the work that environmental engineers should be doing.
Who really speaks for us? It is not APEGGA.

I sense a lack of fire in the belly for the professions by the very people who claim to be working for us. APEGGA is doing us all a disservice by considering the inclusivity of people who are not educationally qualified EGGs. These people should go back to school and earn their degrees, just as we did.

I do not mind giving foreign professionals a chance at becoming members; I do not like seeing a fellow engineer (or medical doctor) driving a taxi cab. But I do not support the stance to allow others who are not qualified into the fold. Enough is enough.

You seem to merely brush over the concern about lowering standards. Of course the standards are lowered. These people are not engineers, geologists or geophysicists. End of story.

You talk about protecting the public. APEGGA likes to throw that one out every time Council wants to push something forward. I think you fall down on that job since you do not insist that licensed and recognized engineers, geologists or geophysicists do the work in the first place.

Qualified people are the ones who should be doing the work; that is the way to protect the public.

I disagree with inclusivity of non-engineers, non-geologists, and non-geophysicists. Your current members add value to society. Are we, however, getting value for being members of APEGGA?

Joanny Liu, P.Eng.

Don’t Fear Change

Having come from Vancouver, B.C., I've seen the changes made there on issues such as these over the two decades I lived there. APEGGA now seems to be surpassing APEGBC, and finds itself at the forefront of change. I personally view this as a positive route for APEGGA to take.

This is strange in a business community that refuses to change its outlook. I've been here for four years now and employers just won't grant me any meaningful employment.

I am a liberal thinker in a sea of very, very conservative engineers here in Alberta. They are still basing their hiring on whether or not they "like" you at an interview. It's still a popularity contest. They view employee engineers solely as "labour costs" and certainly won't help pay anything towards having these employees upgrade their skills at night school (or weekend training courses).

I'm sure these professional engineers don't care for inclusivity, because they will view getting others within APEGGA as the first step on a slippery slope to allowing anyone with a one-year diploma (certified technician) to be eventually thinking they can practice alongside engineering grads, with or without experience.

As the world famous psychologist Dr. Wayne Dyer, has said on PBS TV stations on occasion, "Those who are afraid of change are the first and most vocal people to object to change.”

Raymond A. Keith, P. Eng.

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