Temporary Suspension of Construction Projects Temporary Suspension of Construction Projects Francisco Carlos Matienzo1 1Associate Professor, Dept of Civil Engineering, Instituto Tecnológico y de Estud[.]
Construction Research Congress 2016 2149 Temporary Suspension of Construction Projects Francisco Carlos Matienzo1 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved Associate Professor, Dept of Civil Engineering, Instituto Tecnológico y de Estudios Superiores de Monterrey, Monterrey NL, Mexico 64849 E-mail: carlosmatienzo@itesm.mx Abstract Construction projects are sometimes temporarily suspended due to economic, political, and/or social problems that affect their development This situation usually creates budget increases due to poor planning and an accelerated decision making process This study proposes that in order to have adequate temporary suspension, it is necessary to plan three stages in detail: the slowdown, the conservation, and the resumption of the project The objective of this study is the analysis of this process and the creation a guide that would allow a successful temporary project suspension An industrial project at a cost of approximately $ 300,000,000 US dollars that had to be suspended temporarily when wearing the 70% advance was studied The suspension was caused by the owner’s financial problems Each of the three stages was analyzed and the effects on scope, time, cost, quality, human resources, risks, communications, and procurement were reviewed Experts from the owner organization participated in this study, analyzed the process following the slowdown and conservation, and recommended a restarting process At the end of the process, a guide was structured which shows the activities and recommendations to be undertaken in each of the three stages In conclusion, it can be mentioned that it is important to consider many factors associated with the suppliers, contractors, designers, owner staff, budgets, and cash flow in order to guarantee a successful project INTRODUCTION In the Construction Industry, projects are canceled or suffer changes in the scope to reduce the budget by limiting the requirements to be met There were some cases where the construction’s suspension was imminent, so a temporary halt of the construction work was necessary For the suspension of projects in phases where significant investment has occurred, project managers who are facing this situation have to devise plans that suit the situation These plans come unexpectedly, so proper planning is difficult, resulting in a lower probability of a successful project Once the suspension is to be performed, the lack of proper planning could cause considerable damage to the assets of the project, resulting in higher costs and delay times in completion In popular planning literature, project suspension is not common, so a basis for planning and execution is required for those who are in that situation © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2150 OBJECTIVE The objective of this paper is to develop a general guide for the suspension of industrial construction projects To achieve this, it was necessary to: Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved 1) use a Project Management Framework as basis to order the model The framework used was the Project Management Book of Knowledge (PMBOK, 2006); 2) collect information from a real project suspension; 3) make recommendations based on the analysis of the information available and the decisions made process; 4) develop a model guide METHODOLOGY The document and the model are based on common practices of project management with a specialized approach to the suspension A study of a real case— which was conducted together with expert advice on the matter—could be completed as presented in this document The suspension was divided into three stages, each one considered as a new project Slowdown Stage Project Management Conservation Phase Project Suspension Guideline Re-start Project Figure Methodology for preparing the Project Suspension Guideline The analysis of each stage was developed by interviews and meetings with experts that participated in the real project During the analysis, emphasis was placed in the description of the process and detection of factors that affect the process In the following sections, these factors are presented In this paper’s final section, some segments of a general guide developed based in the analysis of this real case are presented The guide is divided in two parts: 1) a mental map that gives support to the decision making process and 2) a check list of situations that have to be analyzed in a project suspension TEMPORARY SUSPENSION OF PROJECTS For purposes of this paper, we discuss a partial or total stoppage of the construction work of a project for an indefinite period of time The suspension can occur at various stages of the project, even when basic engineering and the purchase of certain equipment and construction has already started The suspension of a project can be generated due to various factors, such as: a) an unexpected drop in the market, b) lack of capital, c) economic crisis, d) suspension caused by government regulations, and e) change in scope The literature on suspension of projects is scarce, which made it necessary to adapt information delays and similar cases to this type of scenario Y Kim (Kim, 2005) uses a method for analyzing delays in construction © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2151 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved The method is called DAMDUS and involves making a small analysis of delay stages by using small delays to generate the overall delay of the activity This method, like others named in his publication, can be used to estimate changes of schedules and costs when you finish the suspension of the project and start the reactivation PROJECT DESCRIPTION During the preparation of this study, a processing plant project with a period of suspension was taken into account This project’s suspension was due to a recent economic crisis that resulted in a reduction in the market to which the processing plant is engaged, and so had to be suspended Suspension was the most likely choice of all the proposed alternatives, and restarting when the time was ideal for the company was considered This processing plant was suspended when it was 70% complete The budget for this project was nearly $ 400,000,000 US dollars, with an estimated construction time of 32 months Project management was handled by the company that owned the project, and used builders to perform the vast majority of jobs ORIGINAL PROJECT Before beginning the project it was an owner need to produce a greater amount of construction material that the company produces, so an investment study to get a project application with several alternatives to choose the solution that best suited the owner of the project Starting from this statement of the need for a structured work, necessary to comply fully with the activities breakdown (WBS) was established Within the scope it plans to build offices, interior roads, railroads, drainage facilities and everything for the correct manufacture of the final product DECISION-MAKING PROCESS In the case of unexpected events happening during project implementation that prevent its full realization, it is appropriate to develop an analysis of alternatives that best fit the stage the project is in A new feasibility study to make the right decision is necessary It is important to note that suspension is not the only or necessarily the best alternative The time allotted to decision making is important, because if the decision took months to complete, the project would continue its original course and cash flow would be greater In the studied case, the owner spent a period of seven months from the consideration of alternatives to the suspension decision and the slowdown of the project Expenditures used in this period of time are not recoverable; machinery and equipment acquired will be stored if an alternative is not found (e.g using them in another processing plant, although this implies a risk of damage to the equipment) In the discussed case, it was decided to lower cash flow during the period of analysis The main alternatives considered were: to continue with the original project, to develop a lower cash flow, to build a part of the project in order to develop an almost finished product that could be used in other processing plants by the same company, or to build the final stage of the process and to continue developing the rest of the project according to the available cash flow The alternative used in this case is the suspension of the project, which has its technical and economic implications Economically, the main advantages are that the owner will have more capital when © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2152 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved works are suspended and he/she will not have to start other works on which he/she might have to incur in payment commitments The main disadvantage is cost increases in materials, equipment, and construction which may result in having to restart the project Extra costs shall be considered, such as re-negotiations, security, cleaning, security lighting, mobilization of equipment, etc Technically, the deterioration and loss of equipment are possible The risks of suspension are claims for breach of contract, non-availability of contractors, possibility of flooding, damaged relationships between suppliers and contractors, among others Cancellation and suspension of a project are two totally different concepts When referring to the cancellation of a project, we are assured that it will be abandoned and will not be reactivated in the future (i.e the project will not be finalized) Instead, a suspension contemplates the continuation of the project when the situation warrants In contemplating the possibility of a suspension, a budget that includes a time period that spans from the beginning of deceleration to the stage of conservation of assets must be considered, which will be reviewed in the next sections The budget must carefully analyze all alternatives Once the decision to suspend the project is taken, it is necessary to move to the slowdown stage as soon as possible The objective is to suspend work expenditures and prepare to stop work, therefore attacking the weak points arising in this period in order to maintain the best possible conditions in the acquired assets (i.e machinery, equipment, materials and civil works) PROJECT SLOWDOWN Slowdown has the function of reducing the expenses of the project until reaching zero, except for indirect costs (i.e salaries, travel expenses, office expenses); this reduction is required to prepare the project for the conservation phase The suspension of a project can occur during various stages Depending on the situation in which the project is located, the decisions to be taken will be different In projects where there are no large amounts of supplies and purchased equipment, it is not necessary to consider storage or maintenance—unlike advanced projects where maintenance along with asset security is paramount Before beginning suspension, one should consider the impact that it will have on the community where the project is being implemented Suspension can affect the local economy by the movements of trade, rental housing, services, contract workers, and all supports provided around the project To begin the slowdown, it is necessary to conduct a review of the current status, such as checking the behavior of cash flow, the work’s progress at the time of suspension, the status of building permits, possible environmental impacts, staff contracts, purchase orders, and all acquisitions These are all part of the first steps to ensure a constant information update Given the information available, a partial closure book must be created, like closing a book project considering that the project has not delivered As we begin planning for the suspension of a project, the project must be considered as a new project with its own objectives, budget time, and a different scope A consideration of a new draft should define an overall suspension strategy, coordinating engineering teams, supplies and administration, all while taking into account the implications these changes could generate and how to communicate the © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2153 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved suspension status to the staff, suppliers and contractors, and government reports It is essential to effectively manage communication in order to not create negative reactions that may affect the project Although slowdown is part of a new project, changes to the original scope of the recovery stage should be considered During suspension, there may be situations such as technological changes, new products, improved processes, and fluctuations in the market which could lead to changes within reach With the new defined scope, you can generate a slowdown master plan, in which the activities incorporated are reviewed in order to decide which should be suspended immediately, which should continue for a defined period, and which must end The tasks to be completed are those that can generate loss of material and/or equipment, those that can cause an accident, and those that avoid future risks and help the project’s conservation There are activities that should end for reasons other than those mentioned above To avoid losses and wear material, machinery, and equipment, it is important to create a storage plan If you not have storage facilities, you can use any facility that have storage features and are not operating, as well as adapting existing buildings to complete this function The cash flow reductions will arise out of purchase order cancellations, negotiations with contractors and suppliers, changes in scope (if they are really necessary), among others Cancellations of contractors’ work can be made by creating new contracts, in which the activity is separated in order to estimate the amount payable Unit prices of incomplete activity should be negotiated even if it does not completely comply with the established concept That is, the installation of a computer can be separated into supply enabled and installed, paying only what has been done It should give more emphasis to the advancement of work to have better data and to calculate payments due properly This section must recognize that changing contracts can mitigate cost overruns, fines, or cancellations Since the implementation of the project is stopped, reducing staff down to counting only those needed for the next stage of the conservation project is a priority In developing the slowdown plan, one must redo the project organization chart To avoid overruns and increases in the runtime, it is important to consider the risks in logistics equipment, monitoring all equipment that is bound to the plant’s manufacturing, and storing equipment and material found on the ground so that they are not accessible to people without authorization or that the weather cannot damage them Generating storage is useful for better conservation Efficient storage should have reduced security risks Other potential risks at this stage are cancellation penalties, restlessness of the town, flooding, etc Procurement managers must be extremely careful at the start of the slowdown They are a major part of the decrease in expenditures (i.e cancelling purchase orders or negotiating a delay of the order, and negotiations with contractors) Although it is not used at this stage, procurement personnel must request manual equipment maintenance providers The process of conservation activities is necessary in order to preserve the assets in the best condition possible until the project can be finished or close to completion Before starting full conservation, deceleration and expenditures not covered in the plan suspension must end © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2154 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved Detailed engineering can be completed when starting the suspension End engineering is recommended because it represents a small percentage of the total project cost and remarkably helps the quality assurance engineering A priority before advancing to the next stage is to ensure the closing of contracts of suspended activities, as well as negotiating and formalizing the closure in a document In Table 1, other factors to be considered during the slowdown phase are shown Table Other Factors to consider during slowdown phase Negotiating with suppliers about a complete cancellation, with or without penalty or partial purchase To begin negotiating a purchase order given The bargaining variables are: the possibility of deferred payment (with or without financing), storage (supplier could store without or with an additional cost) and a review of guarantees (if they begin to use a computer or from the time it is shipped or stored with as a possibility of extended warranty provider) Have the equipment stored with the provider, you should consider how to act in case of an accident on the supplier's warehouse (who absorbs the costs, the possibility of buying insurance, etc.) The project WBS for suspension consists essentially of indirect costs: payroll, travel expenses, office expenses, maintenance, warehouse management, and security It is essential to solve situations that create insecurity All warehouse structure can work if it fits properly Install cameras and light fixtures in areas where equipment is stored The facility covers parks helps generate more storage space In the definition of storage, you should accommodate similar objects close to each other to facilitate maintenance To close contracts; if necessary, to formulate new ones Define the work done, economic status, bonds, trade unions, social security, etc within contracts Do not leave uncovered civil works The rods must be treated to prevent rust The formwork can be lost if not given adequate treatment CONSERVATION STAGE The conservation planning starts from the slowdown of the project Construction personnel, procurement, storage and/or engineering: in the beginning, the activities undertaken in conjunction with all stakeholders are defined The correct scheduling of conservation activities should be considered as a priority in order to have the updated list of assets information that are on the ground Considering this stage as a new project, one should establish a descriptive scope Within the envisaged scope, one should include descriptive information and initial planning of the reset, in order to be prepared in case of an unexpected restart; in this manner, no additional time is wasted on planning During this stage, activities outside conservation, activities from the original project can be run When this happens, it is important to recognize the distinction between the two The implementation of these activities occur for various reasons such as the need to end a project due to safety concerns, to avoid loss of material and/or equipment, avoid contracts penalties, etc The conservation master plan has a greater degree of uncertainty compared with common projects One can consider that duration can increase or decrease, depending on the reset analysis and the decision that best suits the project owner Within the master plan, a calendar of activities for the maintenance and preservation of assets, performed in conjunction with suppliers, and technical experts of each material and equipment is considered The original project’s advancement at this stage will be zero or minimum This is caused by having little or no activity in the © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2155 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved original design process to avoid further expenses During the early stages of conservation, the movement and storage of goods will probably be the biggest cost These activities will be temporary Once the logistics of machinery, equipment, and materials is completed, security and maintenance costs will consume the largest share of the budget In stabilization, the cash flow should be similar in each period, with only minor alterations If we want to preserve the quality of the original project, it is important to preserve the integrity of the goods that make up the work, ensuring safety and reducing the potential damage they may experience When their integrity at the time of reset is ensured, the risks of failure are lower As mentioned above, it is advisable to end engineering design If this process is not completed during the slowdown, continue the process during the storage stage The project’s data must be constantly updated to be a primary basis for conservation (i.e you must know the assets) and reactivation The information in both the plant’s facilities as well as in headquarters must be identical and, if not, it should be corrected After the accelerated downsizing, stabilization occurs As the deferral progresses, the staff assigned to conservation can be reduced by showing fewer conservation activities The conservation staff should have, as in all stages, effective communication during storage At this stage, communication with suppliers and machinery and equipment technicians should be effective; both should report all performed maintenance activities They must correctly establish the role of each person, ensuring individual staff understanding The main risk to be considered include damage to assets Anything that may affect the civil works should be mitigated Adequate security planning and maintenance helps reduce potential damage and material, equipment, and machinery theft If possible, purchase safety equipment and install cameras in the storages Another significant risk is the deterioration that could be caused by nature Storm drains are needed to prevent flooding and damage to property Risk analysis at this stage should not necessarily be considered a game of contingency as promoted by the PMI, but also to identify, prevent, and correct risks The negotiations with thirds should be handled delicately in order to not damage the working relationships, considering that a project is successful when you can generate a long-term relationship (Chamoun, 2002) All equipment suppliers must be contacted and informed of the situation, as well as given an estimated time of suspension, in order to receive instructions for continued disuse The need for materials for maintenance, storage, and preservation will generate new orders not covered It is advisable to consult suppliers for each material used, and even more so for long periods of storage One should find a way to get rid of materials that can be easily damaged or deteriorated Some options include transferring materials to other plants owned by the same company Sales to third parties is a feasible alternative and may request involve asking for assistance in order to find customers Reduction prevents deterioration, damage, failure, and generates reductions and maintenance costs in the event of sale In this manner, the project generates income For proper maintenance, it is necessary to have each team present manuals and update them whenever possible Technicians and specialists visits from each vendor is important for proper conservation Failing to perform maintenance staff, © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2156 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved contractors define develop this activity For each maintenance performed, a checklist is developed and sent to the appropriate vendor In the case of equipment failure, corrective actions from suppliers must be requested The negotiation of guarantees should be performed The next table presents other factors to be considered during this phase Table Other factors to be considered during conservation Having only necessary expenses Generating maintenance programs by area, equipment, activity, frequency, etc Perform special maintenance if the duration of the deferral is long term (see providers for such maintenance) Define maintenance contractors During storage, the staff can continue to be reduced; the management staff is not necessary and most staff could be used for monitoring construction and continuing operations We recommend placing the material and equipment on sleepers and beams to avoid contact with the ground Use of plastic for the protection of property tarps Conduct periodic fumigations Consider the rearrangement of warehouses for easy maintenance Prepare the storm drains in areas of risk Maintenance includes civil works; waterproofing, carefully placed formwork and steel reinforcement Updating conservation manuals Send checklists and monthly reports of the equipment suppliers Negotiate the guarantees Correct any discrepancies in the information of storage and constantly update Having a plan of inventory control Browse the Catalog of concepts for reactivation and be prepared for the case of an immediate restart Perform feasibility studies for reactivation REACTIVATION OR RESTART PHASE During the study of this project, reactivation did not occur Based on expert opinion, a number of factors should be taken into consideration when reactivation occurs (Table 3) Table Factor to consider during reactivation phase It can be considered as a new project and not a continuation, if this would benefit administration The restart has two general steps: planning and data collection and enforcement The information should be updated and make sure to begin activities as soon as possible We check for new technology and, if so, apply it to the project if feasible Consider the price changes in the material, equipment, machinery and labor Perform a new WBS for the missing activities Consider planning time for recovery, even if it has been recommended for the conservation plan Incomplete activities should have a good definition for a better estimate of time and cost The delay of reactivation in higher costs for reactivation (inflation) and higher maintenance costs Do not start the reactivation only to finish the project, perform a feasibility study Review of the status of civil work, mainly from the materials exposed The lack of proper planning for reactivation and poor maintenance are translated into large cost and time deviations Analyzing potential risks and opportunities that may arise Address the relationship with suppliers Consider the possibility of arming certain equipment in the plant having to be stored there, as were predetermined arm in a specific workshop Recruitment of different contractors for the original works (best prices, lack of availability, better quality , etc.) Ensure inventory with contractors and complete revision of the catalog of concepts Minimize the poor performance by restarting work © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2157 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved GU UIDE FOR PROJECT P SUSPENSION In the previous seections, the characteristtics, analysiis, considerrations, and doccumentation of a suspen nded constru uction projeect were beeen shown T This section presents a guid de to integraate more rellevant inform mation in tw wo different ways, as a men ntal map and as a check klist Concep pt maps are graphical toools used forr organizing and d representin ng knowledg ge As Novaak and Cañaas (2008) reeport, there are several ben nefits to thiis, including g a higher percentage of understtanding andd retention Con ncept maps are useful to ools for learn ning and teaaching In thhis section, a conceptual map p was impllemented fo or each stag ge of a proj oject’s suspeension (i.e slowdown, preservation an nd reactivatio on) Each co oncept map cconsists of thhe relation bbetween the main stage co onsiderationss and strateegies for beetter manageement In F Figure 2, a seg gment of the mental map p of the slowd down phase is shown Figure 2 Slowdown n Conceptuaal Map segm ment Another usefull guide reprresentation is i a checkliist, in whicch most of tthe general actiivities needeed for a project’s suspen nsion are divvided into thhe three stagges A small section of the conservation c phase check klist is preseented in Tablle Table Conservatio C n Phase - C Check list segment Define activitiees during conserrvation Identiify activities belonging to the orriginal project Perform th he scope statemeent Maintenaance Plan (equip pment, materials and civil workss) Update info ormation constanntly Conservation organization cchart To esstablish the role of each stakehollder properly Rissk Analysis Planning mitigation m of potential risks (thefft, damage, floodds) © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2158 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved CONCLUSIONS AND FUTURE RESEARCH Projects suffering from a temporary suspension process should correct their administration practices in order to complete the project with a higher probability of success Without proper administration, the possibility of extra expenses and budget increases to complete the project are higher The overrides are due to: (1) Possible damage to assets in projects of industrial character, which represent a large percentage of the total cost; (2) Lack of planning and control during the suspension, which translates to loss of time and/or money To properly administer a project’s suspension, one should implement the project management literature presented in this study through a case study analysis Throughout the suspension process, it is important to minimize the impact incurred by the owner company as well as the community in which it runs One must delicately deal with having to lay off personnel and dealing with third parties; communication takes on an important role in this stage In a proposed suspension, one should be careful not to rush into anything Conducting feasibility studies helps correct decisions for when one has to both stop and restart a project For each important decision, one needs to take time in order to make the correct decision However, it is not advisable to take excessive periods of time, as these can translate into extra expenses A suspension’s behavior has peculiar characteristics The term conservation is similar to process operation activities in that they are carried out repetitively to keep assets in good condition After conservation occurs and recovery begins, similar behavior is set to staffs’ progress of work at a normal project, although on a smaller scale, to have a distribution bell staff and an S curve in advancing work Finally, the suspension’s administration can be considered an investment for a project to ensure compliance of reach at the lowest possible cost In regards to the continuation of this research, it is relevant to propose improvements to the model presented based on research conducted by the CII and the PMI For example, one could incorporate adjustments based on one of the best practices of CII that corresponds to the topic of change management © ASCE Construction Research Congress 2016 Construction Research Congress 2016 2159 Downloaded from ascelibrary.org by University Of Wisconsin-Milwaukee on 08/19/16 Copyright ASCE For personal use only; all rights reserved REFERENCES Chamoun, Y (2002) Administración Profesional de Proyectos La Ga México: McGraw-Hill Interamericana Gido, J y Clements, J (2007) Administración Exitosa de Proyectos México: Cengage Learning Gutierrez, M (2008) Aplicación del Desglose Estructurado de Trabajo (WBS) a Desarrollos Habitacionales Master Thesis, ITESM, Monterrey, México Kim, Y., Kim, K y Shin, D (2005) Delay Analysis Method Using Delay Section Journal of Construction Engineering and Management, 131(11), 1155-1164 Medina, R (2010) Guía para la suspensión temporal de proyectos constructivos de carácter industrial Master Thesis, ITESM, Monterrey, México Novak, J y Cañas, A (2008) The Theory Underlying Concept Maps and How to Construct and Use Them Florida Institute for Human and Machine Cognition Oberlender, G (2000) Project Management for Engineering and Construction Estados Unidos: McGraw-Hill Higher Education Project Management Institute (2008) A Guide to the Project Management Body of Knowledge Project Management Institute (2006) Practice Standard for Work Breakdown Structures © ASCE Construction Research Congress 2016