Download Knowledge Mgmt may2001 talk

Knowlege,
expertise &
contract failures
Athol Yates , Senior Policy Analyst
Institution of Engineers, Australia
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Content of this presentation
• What went wrong?
• Examples of a lack of expertise
• Lessons learned
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What went wrong?
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•
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Canberra Hospital implosion
HMAS Westralia ship fire
Collins class submarine
Amphibious transport ship project
ACT Bruce Stadium redevelopment
IT Outsourcing Initiative
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Royal Canberra Hospital Implosion
• A 1kg fragment
of steel killed a
spectator who
was 430 metres
away among the
watching crowd
of over 30,000.
 The Explosives sub-contractor has been charged with
manslaughter by gross negligence.
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HMAS Westralia
• 1998: Fire in the main machinery space. 4 dead.
• The fire was caused by diesel spraying from a burst fuel
hose. The original rigid hose was replaced with a flexible one.
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Collins class
submarine
contract
• $5 billion project to
build 6 submarines.
• Project cost blowout
and time overruns.
• Myriad of design deficiencies include engine noise,
propellers, periscopes and combat systems.
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Amphibious transport ship project
• Convert 2 old US ships into amphibious transport ships
• Original budget $125 million
• Final cost $400 million
• Nearly 3 year project time blowout
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ACT Bruce Stadium redevelopment
• 1996 total cost of $27 million
of which $12 million to come
from taxpayers
• Auditor-General found it
would cost taxpayers $45
million
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The IT
Initiative
IT Outsourcing Initiative
• $5 billion program to transfer IT work to the private
sector from 100 Commonwealth agencies
• Debate over level of savings
• Initiative was behind schedule and over budget in its
management
• Risk management inadequacies
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Are competent people employed?
2 skills required
•contract management expertise
•subject matter expertise
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“None of those persons possessed any knowledge or
experience in the implosion technique and [they] were
unqualified to prepare a true risk assessment of the
demolition. The so-called risk assessment plan was a
failure.”
ACT Coroner, Hospital Implosion, 1999
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“Key personnel within the RAN, and more particularly
ADI Limited, were not adequately trained or qualified for
the responsibilities placed on them.”
Naval Board of Inquiry into the fire
in HMAS Westralia, 1999
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“The Committee understands from Navy personnel that
more extensive submariner assignment to the project at
the specification and procurement stage might have
prevented some of the submarines' problems.”
Parliamentary inquiry into the
submarine project, 1999
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“there was insufficient appropriately experienced
Defence staff in the shipyard or the project office to
coordinate and control repair .”
Report on the
Amphibious Transport Ship Project, 1999
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“not allocating sufficient appropriately qualified staff to
the redevelopment was a contributing factor to the
difficulties encountered during the redevelopment.”
Auditor General’s
Report into Bruce Stadium
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“reduced in-house staff numbers to manage the
contracts create an increased risk to the
Commonwealth.”
ANAO Audit of the
Defence Estate Organisation, 2000
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“there have been concerns that some agencies lacked
sufficient in-house expertise to manage transitional
arrangements”
Humphry Report, 2001
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Cost of uninformed buyers
Issue
Government- Contracts
lacked adequate input of
technical expertise
Industry - Charge a risk
premium if the government
appeared to not be an
informed buyer
Average risk premium
charged
engineers
IT
26%
24%
64%
42%
17%
21%
IEAust, 2000, 2001
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Lessons learned
Lesson 1: Be an informed buyer
• Contracting expertise
• Subject matter expertise
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Lesson: Be an informed buyer (cont)
1 Examine the good or service to be procured to
determine the level of technical expertise required to be
an informed buyer.
2 Evaluate the relevant existing level of in-house and
external technical expertise available.
3 Undertake a cost benefit analysis of in-house versus
contracted-in expertise at each stage of the contracting
process.
4 Obtain and where appropriate, retain the expertise.
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Conclusions
Questioning of accepted management
wisdom
 Generalists managing technical activities
 Specialist numbers being reduced due to
arbitrary benchmarking
 Reliance on contractor's quality assurance
rather than supervision
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Lesson 1: Have effective risk policies, risk
management and competent people
Contract managers had carried out initial monitoring
visits to CWCs but then limited monitoring to ad hoc
visits to some CWCs and desk based monitoring.
However none of the offices visited had completed a
formal round of monitoring since the commencement of
the CWC contracts.
ANAO report into Work for the Dole Program
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Lesson 1: Have effective risk policies, risk
management and competent people
“the main reason citied for the lack of monitoring activity
is that contract managers have not had time”.
This led to the obvious ANAO statement that it “is
concerned that the department is exposing itself to
considerable risks by not monitoring the progress of
CWCs”.
ANAO report into Work for the Dole Program
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Lesson 2: Undertake comprehensive
competency assessment of contractors
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Lesson 2: Undertake comprehensive
competency assessment of contractors
To minimise the risks to public safety in future public
works projects "any claims made by the tendering body
as to their ability to meet any special requirements must
be independently and objectively checked before the
letting of the contract".
ACT Coroner, Hospital Implosion, 1999
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Lesson 2: Undertake comprehensive
competency assessment of contractors
“Defence should ensure that the prime contractor and
the subcontractors have the technical, financial and
managerial expertise to carry out the project and to
respond to likely risks.”
Report to the Minister for Defence on the
Collins Class Submarine, 1999
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Lesson 3: Follow proven engineering,
contracting & safety processes
Proven processes are invariably developed after years
of experience and improvement.
Bypassing them or rationalising them by eliminating
cross-checking and supervision to save time and money
can have exactly the opposite effect.
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Lesson 3: Follow proven engineering,
contracting & safety processes
ACT WorkCover did not follow established safety
processes. It failed to:
• ensure that the explosive workplan required by the
Demolition Code of Practice was met,
• scrutinise departures from the original demolition
workplan,
• issues appropriate prohibition notices in accordance with
the OH&S Act to ensure the methodology was safe.
ACT Coroner, Hospital Implosion, 1999
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Lesson 3: Follow proven engineering,
contracting & safety processes
The decision to replace rigid fuel lines with flexible hoses
should have been processed through the Navy's change
process and approved by Lloyds Register. However "both
processes were bypassed, largely as a result of ignorance
and incompetence".
"The formal RAN configuration change process is
circumvented at times, generally by well intentioned
personnel, and this can have a severe impact on safety.”
Naval Board of Inquiry into the fire
into HMAS Westralia, 1999
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Conclusions
Contract risk is increasing
• Projects are becoming more complex.
• Projects are involving more partners.
• Contracts are becoming larger and therefore the
penalty for failure is becoming more significant.
• Risk management is being used as the basis for
engineering design rather than risk avoidance through
over-design.
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Conclusions
Contract
failures indicate
management
practices are
inadequate
+
Risk
management is
becoming more
important
=
Greater attention needs to
given to risk management
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Risk Management &
IT Outsourcing
• "this review has identified significant risks in the
transition and implementation process of
outsourcing",
• "some risk areas have not been as anticipated or
actively managed as they would have been had there
been more buy-in to the process by agencies", and
• "priority has been given to executing outsourced
contracts without adequate regard to the highly
sensitive risks".
Humphry Review
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AS/NZS 4360
Risk Management
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Step 1: Establish the context
Policy objectives which lacked indicators were
•"leveraging access to private sector technology
and know how" and
•"improved potential for staff career development
in an environment where IT&T is the core
business
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Step 2: Assess Risks
Materialised risks:
• lack of senior management buy-in which "is by far the
most significant risk factor for implementation
management", and
• there was "no general acceptance that smaller
agencies will have their service requirements adequately
attended to in the context of a larger group or cluster
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Step 3: Implement treatments
Humphry treatments include:
• reducing the power of the Executive Agency,
encouraging buy-in by giving power to agency heads,
•allowing agencies to utilize the most efficient form of
outsourcing and
•by putting outsourcing outcomes in the employment
contracts of agency heads.
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Step 4: Monitoring & Review
Program unchanged until 2001.
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