Challenges Of The Activity-Based Agreement

In the world of construction and engineering we find increasing focus on the measurement of contract deliverables through the construction schedule, (refer to NEC ECC Option A). Project Teams increasingly rely on accurate updated schedules to ensure that that the projects remain on target, the aim of course being either sectional or mechanical completion and final project completion. The obvious advantage of a program or activity-based agreement is a simplified payment process, but has a significant effect on the contractors cashflow, directly affecting the timing and payment amount. The contractor also bares the risk to a large extent for carrying out the work at the agreed rates.

Activity based Schedules that rely on Precedence networking are intelligent living documents when managed well. They absorb information on site progress and generate a host of reports from resource utilisation per period to forecasts and reports on the progress status and cause of delay reports, the list is endless. Program reports are great at time-based reporting but have some limitations in terms of value reporting. If the client measures performance and subsequent payment in terms of the construction program progress, the focus is on production. The Contractor all too often will focus on progress and the cost and revenue from the contractor’s perspective becomes a result of the schedule instead of being viewed on an equal footing alongside the program.

On its own the estimate will become the basis of Value measurement in terms of an agreement between the client and the contractor, the Schedule or works program similarly will form the basis of the time related measurement as agreed. If the agreement states that the client will assess the contractor’s performance and progress in terms of the schedule, it becomes critical that the contractor develop a sustainable method of combining the time and value measurement in order to keep track of not only his performance, but his cost and revenue. Traditionally trying to maintain a working relationship between these two streams of information is a constant struggle. At a high level it is certainly possible but with a multitude of ever-changing variables on a construction site, it would be highly improbable that one could very accurately record data and work it into a report format while the value and time related process measurement run individually. Think of variation orders or compensation events, delays, inclement weather claims, possible production changes due to social distancing etc. How often has the value of a change been claimed for, but the time implication forgotten and vice versa.

When the construction schedule is married to the estimate and later progressed alongside the valuation measurement, the resulting time and value-based reporting possibility is far greater than any one of the processes in its singularity, not to mention the increased accuracy of the reports. Imagine the power of not only a remaining value forecast based on the current progressed schedule, but a quantity remaining forecast, a revenue forecast or the ability to forecast a cost change.

Many times, the agreement applies time bars or limits to the submission of an early warning notice of a possible compensation event as well as the formal notice and application for such a compensation in terms of Time and/or Value. Having an integrated program & estimate allows one to measure the change against the time and value baseline providing a concurrent substantiating proof of the change. The key of course being quick and accurate compensation submissions and substantiating reports.

Candy Estimating and Post tender project control software provides a single platform from where the estimate can be linked to the program and carried on through to progress- and variation claims providing the substance for accurate forecasts and cost reporting. The software allows for change management in terms of resource costs as well as production calculations. A Software solution well adapted to the ever-changing construction environment.