WIG AS is a major real estate company in Norway. The property portfolio primarily consists of office buildings in the major cities, but in recent years, the company has also erected new apartment buildings. Over the past year, the company has been working on plans for a new apartment building in Bergen. Håkon Steen has been involved in the work from the very beginning, initially as an assistant project manager and for the last two months as project manager.
He was appointed as the project manager after the previous project manager was dismissed due to allegations of bribery related to contracts in previous projects. This created a fair amount of internal turmoil. Initially, Håkon was unsure whether he wanted to take on the role of project manager. Several colleagues advised him to reject the offer, but positive feedback from the management and promises of good career opportunities within the company convinced him to accept the position after all.
The plot where the apartment building is to be erected is located on a decommissioned shipyard in the city. The building is planned to house 50 apartments, including 10 luxury apartments at the top of the building. Håkon Steen, in collaboration with the company management, has decided that the construction work will be divided into 15 small contracts and 1 large contract (75 percent of the total construction costs). All the small contracts go to local construction companies. The large contract, which includes groundwork, shell and cladding, went to the Oslo-based construction company, Godtbygg AS.
What kind of contracting model has Håkon Steen chosen for the implementation of this project?
Based on the description in the case, Håkon Steen has chosen a contracting model with divided contracts. The construction work for the planned apartment building in Bergen is distributed into 15 small contracts and 1 large contract.
This approach reflects some principles of divided contracts, where construction work is divided into separate parts or contracts performed by different contractors. We can assume that Håkon Steen has chosen to use local construction and civil engineering firms for the smaller contracts, thereby involving local actors in the project. The large contract, encompassing key construction activities, is given to the construction company Godtbygg AS. It’s worth noting that the case does not mention the use of multiple contracting models or a combination of different approaches. Based on the given information, the primary focus is on divided contracts in the project.
In this project, the project work is split among 16 suppliers. Discuss the challenges this creates for both WIG AS as the builder and for the suppliers.
Split project work among 16 suppliers can create various challenges for both the builder, WIG AS, and for the suppliers in a project like this. Here are some of the potential challenges that may arise:
- Coordination and Communication: When the project work is divided among multiple suppliers, it can be difficult to maintain effective coordination and communication between them. This can lead to misunderstandings, delays and quality issues. The builder, WIG AS, has to be responsible for ensuring all suppliers cooperate and communicate well with each other.
- Interface Issues: When different suppliers are responsible for different parts of the project, there can be challenges at the interface between their works. For instance, there might need to be a seamless transition between the groundwork and the shell construction. If the suppliers do not coordinate and cooperate properly, there can be issues that can impact the project’s progress and quality.
- Contract Management: With 16 suppliers involved, it can be challenging for the builder to manage all the contracts and ensure they are executed according to the agreed terms. The builder needs to follow up on the contractual obligations of each supplier, including deadlines, quality standards and financial terms. Poor contract management can lead to delays, disputes, and financial losses.
- Quality Control: With many different suppliers involved, it can be challenging to maintain a uniform quality standard throughout the project. The builder has to implement a thorough quality control system to ensure all suppliers meet the necessary standards and specifications. This may require regular inspection, testing and follow-up on the quality of work being performed.
- Monitoring of Progress and Finances: When work is divided among many suppliers, it can be challenging to monitor the project’s overall progress and finances. The builder needs to have effective systems in place to track and report on progress and costs from each supplier. This can help identify any discrepancies or delays in time, so necessary actions can be taken.
For the suppliers, the following challenges can also arise:
- Competition and Cooperation: When there are many suppliers involved, the competition can be intense. Suppliers must be able to stand out and deliver their work competitively. At the same time, there may be a need for cooperation and coordination with other suppliers to ensure seamless integration of different work areas.
- Coordination with the Builder and Other Suppliers: The suppliers must be able to collaborate and coordinate their work with the builder and other suppliers. This may require regular meetings, information exchange and adjustments to other suppliers’ deadlines and requirements.
- Uncertainty Management: The suppliers must be aware of the uncertainties associated with their own work and how it affects the project as a whole. They need to implement measures to manage and reduce risk, for example through planning, quality control and effective communication with the builder.
- Financial Management: The suppliers must have good financial management to ensure that their part of the project is within budgetary constraints and cost estimates. They need to handle payment deadlines, billing and any changes or additions to the contract in a professional and economically viable manner.
It is important that the builder and suppliers establish effective communication channels, clear contract terms, careful planning and close follow-up of the project. Regular monitoring, collaboration and coordination can help minimize potential issues and ensure successful project execution.
This case is taken from the book “Prosjektledelse – fra initiering til gevinstrealisering” – 2016, 4. Edition, by Jan Terje Karlsen.
