Early Warning Signs of Troubled Projects

All too often, construction projects are completed withlarge cost overruns, extended schedules, and seriousquality concerns. Having experience with numerousclaims and projects that have been prone to difficulties,

there are significant symptoms of “troubled” projects and key indi-cators available for use as early warning signs of “troubled” proj-ects. These indicators can help identify projects that are not run-ning smoothly or may be prone to future difficulties. Use of effec-tive project controls and general awareness of these early warningsigns can assist in the timely recognition of potential issuesimpacting the cost, schedule, and quality of the project. Throughearly identification of such issues, management strategies can bedeveloped to improve project conditions and potentially avoid dis-putes and costly litigation.

The following early warning signs or “red flags” are commonto construction projects.

• Delays and schedule change.• Design difficulties.• Payment irregularities.• Scope changes.• Unsatisfactory quality of work.• Slow completion of work.• Owner actions.• Performance of project personnel.• Lack of teamwork.• Disputes and claims.

Each of the above early warning signs will be addressed, andexamples will be provided of the common tools used to indicatepotential difficulties. Many forms of available project documenta-tion will be illustrated for their use in helping to recognize theearly symptoms of problems. Effective contract provisions will alsobe highlighted to demonstrate some the most beneficial ways tocontrol and document the underlying issues that cause difficultieson projects.

DELAYS AND SCHEDULE CHANGE

Schedule DevelopmentStarting with the initially developed schedule, the contrac-

tor’s plan is a direct reflection of the contractor’s understanding of

the project scope of work. The schedule must also represent theanticipated means and methods to be used in constructing theproject. Schedule reviews should be made for completeness, rea-sonableness of duration and logic, inclusion of contractual andother constraints, consistency with the contract requirements, andoverall compliance with the contract requirements. Dependingon the nature of the job, consideration also needs to be given toappropriate level of detail, resource planning, and crew sequenc-ing. Common contracting requirements include the submissionof the schedule in electronic format, required level of scheduledetail, and utilization of resources such as workforce and cost.Lack of a good initial schedule may raise concerns about the con-tractor’s plan and general understanding of the project.

Careful review of schedule updates can reveal significantchanges. Common types of schedule changes include revisions inlogic, duration, resources, addition and deletion of activities andconstraint changes. Commercially available software such asClaimdigger or Schedule Analyzer Pro can be used to produce acomputer-generated comparison of two different schedules. Manycontracts require monthly schedule updates that include a writtennarrative report and a specific listing of schedule changes. Thenature and magnitude of schedule change is an area of potentialconcern.

Progress MonitoringAs work on the project is performed, it is possible to track the

overall trending of progress. Typical comparisons are commonlymade to compare a schedule update with a baseline in order toidentify progress and slippage as well as change in float. Schedulestatus comparisons commonly reflect contractual dates such assubstantial and final completion dates, as well as other criticalmilestones such as structural completion, building enclosure, keytesting or system completions, and any intermediate occupancyrequirements.

Tracking of schedule progress over time is often overlooked inthe management of projects. Consideration should be given to theaccumulation of historical schedule information in order to mon-itor changes in schedule status and slippage of the project and spe-cific milestones within the project. One such method of graphi-cally trending the project’s schedule progress is represented in fig-ure 1 [1]. Use of this graphic will provide a simple visual trendingof the schedule progress and enable quick identification of sched-ule change or delay. This technique has also been successfully

2002 AACE International Transactions

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Early Warning Signs of Troubled Projects

Donald B. Giegerich, PE

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2002 AACE International TransactionsFigure 1 - Example of Milestone Progress Chart

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used to compare relative schedule status of multiple projects with-in a program.

Additionally, efforts need to be made to closely monitor criti-cal project resources such as labor. Data contained in daily fieldreports can be summarized and graphs can be produced to showactual crew size compared to planned levels. In a similar manner,critical deliveries of equipment and materials need to be closelytracked with data accumulated for comparison to the schedule.Efforts should be made to summarize and graphically portray thedata to provide a visual summary of performance. For example,the delivery of large bore pipe may be critical for a major processinstallation—resulting in a need to closely track the fabricationand delivery status of pipe spools, which can then be comparedagainst the schedule. Status of the piping work can then be updat-ed on a regular basis during a critical phase of work.

DESIGN DIFFICULTIES

Performance of the Architect/EngineerThe quality of the initial design as well as design support dur-

ing construction can play a vital role in the success of a project.With changing forms of contract delivery systems such asdesign/build and fast track construction, there is likely to be anincreased emphasis on the performance of the design profession-al. There is also a trend to shift some of the design responsibilityto the contractor using performance type specification and relateddesign criteria, thus forcing the contractor to undertake some ofthe design tasks. The overall quality of the design package canoften be determined in the bidding stage of a project—as reflect-ed in bid clarifications and contract addendum.

The project requirements for trade coordination need to beclosely monitored. Specifications often call for the general con-tractor to facilitate a formal coordination process, with differenttrades overlaying their installations on a composite drawing.Tracking of the coordination activities, by individual system orarea, will enable early detection of delays or breakdowns in thecoordination process. The lack of adequate coordination is oftenidentified in field conflicts between the trades.

Design Support During ConstructionThe architect/engineer normally has critical involvement

during the construction phase of a project. It is important to main-tain detailed logs to track the activity status of work, whichrequires approval, review comments and other forms of input.Commercially available software such as Expedition or PrologManager can be utilized to accumulate data related to the follow-ing types of design interface activities:

• Shop drawing submittals;• Coordination drawing submittals;• Requests for information; and• Change requests.

Information contained in the above logs or databases can besummarized in tabular report forms and sorted in various ways (bydays outstanding, by priority, by trade, etc.). Similarly, graphic

summaries can be produced like the illustration shown in figure2, which is a summary of a project’s requests for information high-lighting the periods and trending of response backlog and thearchitect/engineer’s response time. This form of graphic can bevery helpful in the evaluation of trending the design performanceon a project or within an individual discipline of work.

PAYMENT IRREGULARITIES

Contractor and Designer Pay RequestsInitial submittals should be prepared with adequate detail to

separate individual components of work, isolate major materialand equipment deliveries, and include breakdowns by work areato facilitate the payment application process. Review of a detailed,itemized pay request will enable a review for accuracy, checkingfor potential “front-end loading” and providing insurance of ade-quate reserves for deliverables such as as-built drawing, operatingmanuals, and testing activities. Having adequate detail will alsosimplify the payment review and approval process.

The monitoring of ongoing progress payments may detectirregularities in the contractor’s or designer’s pay applications.Examples of detected problems may include requests grosslyexceeding status, lack of supporting subcontractor documenta-tion, and insufficient waiver documentation.

Review of the overall rate of payments or cash flow can be aneffective tool of tracking overall progress. Figure 3 depicts a cashflow chart with cumulative payment requests. Using a cost-loadedschedule, this actual payment data can simply be comparedagainst a planned rate. Similar “progress curves” have been uti-lized to compare planned and actual percent completion basedon an established method of computing the completion percent-ages, commonly tied to labor activities.

Other Payment and Cash Flow ConcernsDuring the execution of the project, other activities can be

monitored to identify other signs of potential financial difficulties.The owner and others monitoring a project do not always readilydetect untimely payment to subcontractors, suppliers, and laborunions. Suppliers and labor union representatives may makeinquiries to the owner. Contractors and subcontractors needingincreased crew sizes may make continued refusals to add person-nel—thus raising concern regarding cash flow and profitability.Finally, the filing of mechanic’s liens, even on other projectsbeing handled by a contractor, will raise additional financial con-cern.

SCOPE CHANGES

Processing Scope ChangesThe overall tracking of the initiation, pricing, approval, and

release of change work can be monitored using a change log ordatabase. In many cases, contractors initiate a system of trackingpotential changes by separate documentation and cost segregationof the work related to an issue. Logs of the status of potential

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changes can be monitored by tracing communication with theowner, pricing submittal, approval, schedule impact, and changeorder status.

Methods to be utilized for pricing of change work are oftendictated by the contract. The owner can normally specify therequired level of details that is needed to support a change request—with an anticipated breakdown of labor, material, equipment,and subcontractor costs. Contractor resistance or refusal to pro-vide a reasonable level of detail and support documentation canraise concerns regarding the change pricing.

The overall process of pricing and implementing changesinto the scope of work needs to be closely monitored. Timelyincorporation of changes will require close subcontractor coordi-nation, distribution of revised working drawings, and schedulingof the work. Failure to disseminate required change informationto field and subcontractor personnel in a timely manner can resultin significant delays, inefficiencies, and potential rework. Also ofimportance is the need to incorporate changes into the projectschedule to accurately reflect the timing of such work and com-municate the plans of the change work to all affected trades.

Other Change ConsiderationsAwareness of the general handling of changes also needs to

focus on the tone and nature of correspondence and other com-munication related to the changes. A pricing submittal needs tobe closely reviewed for completeness, include the scheduleimpact or time extension request, as well as exclusions or excul-patory language—particularly related to indirect or consequential

costs. The “tone” of communications related to possible changeimpacts, notices of potential change or claims, and a contractor’sgeneral attitude regarding change pricing will often give a clearindication of potential downstream disputes or claims.

UNSATISFACTORY QUALITY OF WORK

Monitoring Quality of InstallationsInspection of completed installations commonly results in

the reporting of unacceptable work through the use of a noncom-pliance report. The tracking of information contained in thesereports is normally recorded in a database or spreadsheet for-mat—with data related to date issued, date resolved, tradeinvolved, and other pertinent information. Accumulation of thisdata can be summarized to show the cumulative backlog of unre-solved noncompliances as well as the average aging of issues (fromidentification to resolution). Figure 4 illustrates the graphic sum-mary of the status of a project’s noncompliance backlog. Periodsof slow progress in resolving noncompliance or the general lack ofattention to such matters can be demonstrated using this type ofgraph.

Disagreements over the interpretation of noncomplianceissues often result in contractor protests. In addition to the track-ing of such protests, efforts can be made to identify and quantifythe amount of rework that could result from such directed efforts.Contractors often prepare daily time and material sheets for this

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type of rework, and submit documentation to the owner for verifi-cation of time.

Difficulties Resolving DeficienciesFailure of the contractor to address noncompliance issues in

a timely manner may be a direct indication of a pending dispute.Rather than respond with a notice of dispute regarding a non-compliance, contractors often remain silent, and tend to ignoresuch problems, or attempt to pass on the problem to other sub-contractors and suppliers. noncompliance needs a timelyresponse, management attention, and timely resolution to avoidbeing a distraction to ongoing work.

A contractor’s refusal to perform corrective work will normal-ly draw immediate attention from the project team. Such actionsmay be reflective of the contractor’s uncooperative attitude, disre-gard for contract requirements, and lack of control of its laborforce and subcontractors. In some cases, a stop work order may beissued ordering the contractor to stop installations due to workbeing performed contrary to the contract requirements.

The lack of attention to resolving quality of work concernssuch as noncompliance issues may result in withholdings takenfrom a contractor’s pay request. In extreme situations, the contractconditions often allow for the issuance of a cure notice—giving acontractor a specified period of time to remedy a problem andthen allow the owner to subsequently correct if not adequatelyaddressed by the contractor. Many of these types of quality issuesresult in disputed claim items.

SLOW COMPLETION OF WORK

Closeout ProcessConstruction completion and the acceptance of the job need

to be consistent with a contractor’s planned work completion, test-ing and commissioning, and punch list activities. All too often,there are difficulties experienced resulting in delays and disputesarising from the slow resolution of such work. For each area or sys-tem included in a project, it is beneficial to have a tracking systemto monitor turnovers and the resolution of outstanding work. Suchtracking logs include individual components of inspection such asabove-ceiling inspections, test completions, initial punchlist, sub-mittal of required documentation (operating manuals, test results,warranties, as-built drawings), and final turnovers.

Implementation of an orderly commissioning process nor-mally includes a method of close monitoring of outstanding workitems and identification of items needing review from a technicalor design standpoint. Effective punchlist documents are formattedin a manner to allow a contractor to identify responsible subcon-tractor tasks and provide a means of communicating identifiedwork to construction forces.

Specific attention should be given to the processing of war-ranty documentation as required by the contract specifications,for items such as roofing and building equipment. Com-munication of expected submittal requirements is normally estab-lished well before closeout begins to allow for advance prepara-tion of documentation. Many projects experience difficulties dur-ing the final stages due to untimely submittal of testing results and

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lagging disputes over the interpretation of punch list work. Thecloseout process needs to be closely monitored to ensure that anorderly turnover is accomplished.

Documentation of Work StatusAs completion tasks are finished, field records can be used to

document and track the status of completed and open work tasks.Standardized forms are commonly used for the documentation ofinspections, noncompliance, punch lists, testing, and turnovers.Use of consistent forms will simplify the documentation processand allow for easier status tracking.

It is also important to establish clearly defined contractrequirements. Review and approval of schedules should addressthe detailed closeout requirements. Completion activities con-tained in schedules need to be consistent with the contractual def-initions of substantial and final completion, with a clear under-standing of what exceptions will be allowed for a project.

OWNER ACTIONS

Changes in Work ScopeThe timing and magnitude of owner-initiated changes in

work scope can have a major impact on the project cost andschedule. As distinguished from changes resulting from designerrors and omissions, an owner may introduce changes that needto follow a prescribed change order process. Close monitoring ofthe change process will facilitate the timely submittal andapproval of change requests. Tracking logs and meeting minutescan be established to monitor the change order status andreviewed on a frequent basis. Such reviews will identify priorityaction items and the party responsible for the assigned tasks.

Depending on the specific contract requirements, ownersoften have certain duties and responsibilities. Owner actions relat-ed to obtaining permits, providing of owner-furnished equipment,changing of turnover priorities, providing site access, inspectionsand approvals of work can directly influence the overall scheduleand work efficiency. Close tracking of the status of owner respon-sibilities can be monitored to ensure that critical issues areaddressed in a timely fashion.

Owner ApprovalsA key component of owner involvement in the construction

process involves approvals. Contract provisions normally defineauthorization responsibilities. The timing of owner approvals isvital to ensure the timely processing of payment requests, approvalof change requests, and acceptance of work. It is suggested thatthe approval processes be carefully reviewed at the start of a proj-ect to provide a clear understanding of project requirements aswell as the duties and expectations of the parties involved.

Certain project controls can be used in the tracking of ownerapproval activities, such as change order logs and paymentrequests. With proper documentation and standard approvalforms, the approval process can be streamlined to minimizepotential processing delays.

PERFORMANCE OF PROJECT PERSONNEL

Work PerformanceMonitoring of individual and crew work performance can

assist in the identification of areas of work encountering difficul-ties and potential labor inefficiencies. Construction accountingsystems are commonly capable of producing labor productivityreports, assuming quantity data are recorded. Graphic trending ofproductivity rates over time within different types of work activi-ties, work areas, and time periods can provide an extremely help-ful tool to monitor work performance.

There are a series of less tangible issues that also need to bemonitored related to personnel matters. The longevity of the workforce and management should be reviewed periodically to identi-fy unusual levels of turnover. The handling of personnel can alsobe evaluated related to hiring and termination practices as well asrecognition and incentives for high levels of performance andsafety. Much can be learned about a project reflected in the gen-eral morale, personal attitude, and pride in workmanship taken bythe labor force.

Management InvolvementThe quality and level of management involvement in a proj-

ect can have a direct impact on a project. Many contracts nowallow the owner to have approval responsibility for proposedchanges in key personnel positions. Management staffing plansshould be clearly understood and communicated to the ownerprior to the start of a project. Handling of proposed personnelchanges needs to be carefully reviewed by both contractor andowner management.

Partnering has been successfully used on many constructionprojects. Direct management involvement and commitment toparticipate in a partnering process has been demonstrated as avital component of a program’s success. Similarly, continuedmanagement involvement is also vital to ensure that a project isbeing properly executed. Lack of management attention to a proj-ect will normally raise serious concerns to an owner.

LACK OF TEAMWORK

Duties and Responsibilities of Team MembersIndividuals assigned to a given construction project normally

have specific defined responsibilities. Cooperation between teammembers will assist in the effective management of schedule, cost,and quality on a project. Depending on the team organization, ablending of field staff, project management, and office personnelis commonly needed to develop a strong and successful team. Thelack of good cooperation and clear communication between teammembers can result in difficulties executing the project and ful-filling individual job responsibilities.

Clarity in the designation of leadership roles is vital to thesuccess of a team operation. Successful execution of a construc-tion project requires advance planning, establishing goals andresponsibilities, and monitoring the team’s performance. Effectiveteamwork will need both leadership and strong team interaction,

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commonly handled through regular project meetings andaccountability for specific work tasks and resolution of problems.

Communication Effective communication will normally improve through

proper leadership, training of personnel, and use of project man-agement tools. Beyond the regular project meetings, the teamshould strive to share project data with the clear identification ofpriorities and problems—using some form of exception reportingthat summarizes critical items needing attention. Project websitesare now being used to allow team members access to many of theschedule, cost and quality records, and tracking devices used on aproject. Progress reports, meeting minutes, and priority work listsare effective documents used to communicate between teammembers, assuming such documents are issued at an appropriatefrequency and distributed in a timely manner.

DISPUTES AND CLAIMS

Early Recognition of DisputesCorrespondence and other forms of communication need to

be monitored for detection of changes in the “tone” of the dia-logue between team members. Forceful letters misrepresentingproject facts, use of exculpatory language in agreements, andunreasonably and overly aggressive change requests can be areflection of a contractor’s unreasonable conduct. In many cases,such conduct is an early indication of pending claims.

Another direct indication of potential disputes or pendingdefault consideration would be the filing of subcontractor andsupplier claim notices and liens. Contractor financial difficultiesare often first detected through the lack of subcontractor and sup-plier payments and lower tier disputes.

Resolving Disputes and ClaimsActions taken by the contractor and other parties involved

with a project to resolve disputes will provide an early indicationof potential downstream claims. Conduct of the team memberscan be readily recognized as reasonable and professional versusunreasonable and antagonistic. During the prequalification andbidding phase of projects, many owners screen potential contrac-tors and design professionals—requiring the identification of priorlitigation as part of its qualification submittal. Industry reputationsare reflective of a company’s prior conduct and approaches takento resolve disputes without formal litigation.

The formal filing of a claim will unfortunately be the last andmost direct indication of a troubled project. Many contracts nowpermit the use of mediation and other forms of alternate disputeresolution as a means of resolving conflicts. Early communicationof pending disputes, sharing of associated justification and docu-mentation, and the team’s willingness to work together in address-ing issues can foster early resolution of disputes.

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INDUSTRY SURVEY

Survey of Industry GroupsSeveral informal surveys have been conducted over the past

three years to obtain feedback on the perceived ranking of the topsymptoms of troubled projects. For the ten symptoms identifiedabove, figure 5 summarizes the survey results to date.

Based on the survey results, design received the highest over-all ranking as a key indicator and received a ranking of 100. Therehas been a strong consensus that the performance of design func-tions, particularly during the construction phase of a project, hasa great influence in the avoidance of problems.

Change, delay, and owner actions were the next three high-ranking indicators, with relative rankings between 63 and 71. Theeffect of change and owner actions is often directly tied to majordelays on a project. All three indicators can be readily monitored,and surveys indicate that all three factors weigh heavily in theearly detection of problems on construction projects.

Quality, work completion, personnel, and teamwork allranked significantly lower in priority, but were closely ranked withscores between 34 and 43. All of these factors were viewed as hav-ing some benefit as early indicators, but much less significant thanthe four factors described above.

Last, disputes and claims were the lowest ranked factor, dueprimarily to the nature of the timing of dispute notices and claimfilings. Once a project has encountered significant claims, it ismost likely too late to mitigate those problems. As such, this factorreceived a much lower overall ranking.

CONCLUSIONS

Identification TechniquesIdentification of the symptoms of troubled projects requires

the use of detailed project documentation and effective use ofproject control tools. Use of proper project control techniques canprovide a means of analyzing issues that have a strong influenceon the cost, schedule, and quality of a project. Effective use ofproject controls can be utilized to accumulate project data thatcan then be summarized in different reporting formats for projectmanagement use. Trending of the results of project data on a reg-ular and consistent basis is vital to provide an early indication ofpatterns of irregularity or deviation from plan. The results of peri-odic project reviews and trending analysis need to be effectivelycommunicated to the team members and management usingexception reports, simplified graphics, and summaries of criticalinformation.

Key Indicators of Troubled ProjectsThere are a broad range of early warning signs that can be uti-

lized to assist in the identification of projects that are having diffi-culty and those projects that are likely to have disputes and claims.The results of recent surveys, discussed above, have confirmedthat the process of managing change is often a key factor in thesuccess of a project. There are four specific indicators that com-monly appear in troubled projects—related to the control of

design changes, owner actions, schedule change and delays, andmanagement of design functions. All of these factors are impor-tant to the success of a project.

Monitoring the progress and status of a project requires bal-anced attention to cost, schedule, and quality issues. One of thegoals of effective project management should be to provide ameans of early recognition of significant deviations from plan. Forexample, are there labor categories with serious variances in laborproductivity rates or have the projected schedule milestonesslipped significantly from the baseline schedule? Careful moni-toring of the project schedule is also vital in providing early indi-cations of potential delays and disruption. A review of key cost,schedule, and quality issues to identify variances is needed tomeasure the performance and success of a project.

Strategies to Overcome ProblemsEarly detection of potential project difficulties is vital to iden-

tify sources of problems that could lead to cost overruns, delays,and quality concerns. Once identified, problems can be addressedin detail to analyze the underlying cause of the problem.Strategies can then be developed to improve the project perform-ance to overcome difficulties and minimize the impact that issuesmay have on the project. For example, if a project team encoun-ters slow design response time with extreme difficulties withdesign details related to field conditions, it may be important toimprove the response time to design questions by having a designrepresentative on the jobsite to provide adequate and timelyresponses.

Conducting periodic reviews of project performancecan improve the overall effectiveness of a project—assuming that problems are clearly identified andstrategies developed to overcome those difficulties.

Trending will help identify problems, but management needs totake initiatives to address and improve underlying difficulties.Once problems are successfully addressed, there should be areduced occurrence of disputes and claims.

REFERENCES

1. Giegerich, Donald, and R. Schlunt. Progress ScheduleTracking System. PMI Transactions. 1994.

Donald B. Giegerich, PERegional Manager, URS Construction Services Division

URS Corporation120 N. LaSalle, Suite 2150

Chicago, IL 60602-2415Phone: 312-263-6843

E-mail: [email protected]

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Documents

Early Warning Signs of Troubled Projects