Making Profits on Alternative Delivery Mega-Projects (A Process)
By Michael Shapiro, PE, Owner of Michael S. Shapiro Consulting LLC
Alternative Delivery (AD) Mega-Projects are extraordinarily complex and require an intense amount of positioning, organization, planning, teaming, risk management and execution of business development and team strategies to win. They also require the operational skills, processes and expertise to successfully put in a winning bid, execute the project once you win, make a profit and successfully develop client and stakeholder relationships.
In the last 29 years, I have worked on 43 AD projects with a total construction value of $29B in which nine have been P3 projects valued at $11.0B. I have led 25 AD proposal efforts worth $16.3B and won 25% of these efforts. I also acted as Principal-in-Charge, Project Director, Executive Design Director, Deputy Director and COO on 23 AD projects valued at $14.9B. Although not every project was profitable and one project wound up with a major claim, the experience gained through my 29-year AD journey has made me a sought-after expert. I have worked for owners, contractors, lead designers and with Construction and Transportation Solutions, a consortium of MWDBE firms. Except for the one project that wound up with a major claim, profitability was in a range of 10-19% EBIT on those 22 AD projects.
Through this experience, Mr. Shapiro has found that a systematic approach to business development by identifying your targets early and dedicating the necessary time and resources early and throughout the process can ensure greater success. Also focusing on the execution of the project during the proposal efforts has taken much of the guess work out during the proposal phase as you move through development of your schedule and pricing, negotiations and execution of the work.
I covered in my Article No. 4, on 10-05-22, “How to Improve Your Win Rate on Alternative Delivery Mega-Projects”. I have also covered in my Article No. 3, on 8-23-22, “Alternative Delivery Mega-Project Start Up Check Lists and Plans” how to improve your chance for success and with their use. Both articles are vital in preparing your team for winning and profitability. However, I will try not to repeat what I had covered in detail in these previous articles.
Assumptions
This article explains the approach and concentrates on profitability in preparing and executing these complex projects. I have assumed that you have positioned your team and have gained insight into the client’s hot buttons, major stakeholders, major influencers on the project and community and political engagement during your Pre-RFQ efforts. That you have also learned about the technical challenges and technical aspects of the project. I have assumed that you have assembled the talents of most of your team as you have submitted an SOQ, and either been shortlisted or have been prequalified to receive and submit a proposal in response to an RFP. I have assumed that during the Pre-RFQ and SOQ efforts, at some point you have brought in Subject Matter Experts (SME), in all facets of the project, to look at the major risks, prepared a risk register and identified potential Alternative Technical Concepts (ATCs). If this project is a P3, you have discussed financial strategies. That you have prepared a Go/No go form and an internal risk analysis with your team and are therefore approved and ready to submit a proposal.
Position your team for success and profitability at the start of your proposal efforts
Develop a Proposal Work Plan that includes a detailed scope of work, budget and schedule for all of the items of work and effort as outlined and required in the RFP, but also includes what is required during this phase to position your team for economic success. The Proposal Manager and proposed Project Manager must work together through this effort to develop an outline. The outline shall include all disciplines, major contractors or subcontractors, consultants, SMEs, to cover the entire effort including SWOT, win themes, writing, graphics, production, contractual, technical, design, construction, estimating, project controls, financing, scheduling, environmental, permitting, community engagement, political engagement, facilitation, development of ATCs and financial strategies, risk analysis and assessment, value engineering, life-cycle costs, safety, quality, bidding, interviews, etc. Your job is to not miss out on anything and gather your team to validate the outline.
Along with your Proposal Work Plan use of a 30/60/120 Day Startup and Plan to make sure that you haven’t missed anything for your startup activities. This will assist with your bidding, including timing.
Make sure you build in a QA/QC process for your proposal efforts. I can’t stress enough the importance of this.
Once you have developed your outline, gather your team, go through the outline and determine any gaps or overlaps. Make assignments to develop a detailed scope work for each item. Review, approve or modify the detailed scopes of work, as appropriate. Put together your estimating budget based on the T&Cs of your teaming agreements and ask your leads, major contractors, subcontractors, consultants and SMEs to develop an hour and fee estimate using your template. Review and approve everyone’s estimates and put this into a single estimate. Develop a schedule for the proposal considering each activity in your outline. Make sure that you include all your Task Group activities, points for collaboration, key meetings, including one-on-one meetings with the owner and any hold points. Finish developing the Proposal Work Plan and disseminate it to the team as appropriate and meet with your team, so everyone is on the same page.
Monitoring Proposal Progress
Resource load your proposal schedule and develop a cashflow curve. Progress your physical progress (percent complete) for all the proposal schedule activities with your team on a by-weekly basis. Have your project controls group track all expenditures and labor and plot earned value versus spent and make the Proposal Manager aware all the critical KPIs on a bi-weekly basis. Manage the proposal efforts like you manage your projects. Don’t allow slippage in the schedule and stay on top of all activities. I recommend having a weekly contractual meeting along with a coordination meeting with all your Task Group leads. Keep a log of everything contractual that is going on including proposed due dates and progress. This will give you a systematic approach to track everything.
Value engineering, ATCs, Life-Cycle-Cost, Risk Assessment and Financial strategies
Move forward the work that you have done before your proposal efforts. I recommend bringing in a certified value engineering (VE) specialist and a facilitator that can assist you with structuring this effort. This is an effort where you can literally win the project by developing true value into the effort for both you and the owner. I have attended many VE workshops at the beginning of projects (at a 10% level of effort) that have allowed us to look at the owner’s goals and their initial work, validate it and develop scenarios with our SMEs to redefine major elements of the project while considering where the owner is in their environmental process. These efforts can also allow us to bring resiliency, sustainability, life-cycle-cost, risk assessment, phasing, constructability and financial strategy analysis into the process at the most cost-effective time. A VE effort can be done in less than a week’s time and can provide guidance to the team, including a strategy to win.
Once the VE effort has been completed, it can set the stage for the major ATCs, life-cycle-cost, risk assessment, phasing, constructability and financial strategy efforts that need to take place. It allows us to take a larger picture and to focus on that. Make sure this effort is fully documented.
Development of our Execution Strategy, Estimating, Bidding and Schedule
I have put these items into a collaborative bucket. To get us to the correct number for our bid we must also have a detailed approach for our execution strategy which includes our schedule. Develop your execution strategy and approach. Develop a detailed outline that includes your organizational structure/Org Chart and reporting. Include your internal organization, joint venture partners, major contractors and subcontractors, lead designer and their team, consultants, vendors and any key contributors on the project. Don’t forget anyone, since you will use this Org Chart as a check list for your pricing. Update your 30/60/120 Day Startup and Plan and include all the resources required for these activities. Develop a strategy with your team, including your executive team, to determine where the resources will be coming from. If you have to go beyond your existing resources develop a strategy and cost for obtaining these resources and a tentative staffing plan over time. Have all members of your team go through this exercise. Include all costs for recruiting, relocations and travel.
In your execution strategy include production, contractual, technical, design, construction, estimating, project controls, financing, scheduling, environmental, permitting, community engagement, political engagement, public involvement, facilitation, execution of ATCs and financial strategies, risk analysis and assessment, value engineering, life-cycle costs, safety, quality, bidding, meetings, BIM, revenue service and testing, and project closeout activities, etc. Don’t leave anything out. Use other successful similar mega-projects that you have executed for the same owner and review all of the activities that you had during that project and the strategy used. Make assignments to your leads or other resources to assist you with this effort. Accounting for everything is the key to success.
Have your estimators and schedulers work with your Task Groups during the proposal efforts to work to provide their input and validation into their work and decision-making processes. This will also allow your estimators and schedulers to get up to speed on the facets of the project, included phasing. If you decide to use BIM during the proposal efforts, work closely with your BIM Manager and the team to set up procedures and the framework for BIM so that it can be used to assist in constructability reviews, estimating and scheduling, ATC evaluations and can be used to proceed once you have won the project. Start your estimating and scheduling for the project as soon as practicable.
All items should be estimated and bid. Don’t be lazy and just throw in contingency for things. Items within the risk register should have a mitigation strategy and a part of the estimate. Use a Monte Carlo analysis as a part of your risk analysis. Develop a contingency plan and strategy that is consistent with the risk assessment and Monte Carlo analysis. Develop a bidding strategy with your team. This should include any MWDBE and SVOD requirements from the owner. This needs to be considered way before you make the selections for your teaming partners, major contractors, subcontractors, consultants, etc. Set the estimating and bidding schedule that gives your team enough time to go through the estimate with your joint venture partners and executive teams. Just the review process and finalizing these can take two to three weeks and more if there are several holes that need to be filled. Work closely with the chief estimator to ensure that the process is well defined and scheduled into the calendar, especially for the executives.
Also give yourself enough time for changes in strategy made during the final bidding process so that these can be incorporated in the final technical proposal to the owner and to any of the required escrow documents.
Project Execution
The documents developed during the proposal efforts should be moved forward and used to forward your efforts during the execution. This should include your execution strategy, 30/60/120 Day Startup and Plan (see the attached 30/60/120 Day Startup Check List), Org Chart, Staffing plan, Recruiting plan, Technical Proposal, MWDBE and SVOD plan, risk register and assessment, Monte Carlo analysis, Financial plan, VE analysis and workshop, procedures and the framework for BIM, approved ATCs and execution plan, final bid, project schedule, escrow documents, final agreements, etc. Progress the above and develop a Project Work Plan that incorporates the above documents. Have a startup meeting with your key staff to review the Project Work Plan and to go through the roles and responsibilities. Get their input and buy in. Update the Project Work Plan during the execution of the project.
#AlternativeDeliveryMegaProjects #ProposalManagement #ProjectManagement #ProjectExecution
