Capex optimization has the single largest influence on investor returns and is often the biggest variable. Contracting strategy for choosing the appropriate execution method is key. Whether cost plus, cost reimbursable, alliance contract, or fixed price, design build, or turnkey EPC, Pegasus-Global has experience advising and supporting clients across the entire spectrum. From contract formation and contract negotiation to contract risk reviews, Pegasus-Global helps put in place well-structured contracts that minimize schedule, cost, and execution risk for the project and reduce the potential for dispute between the owner and contractor.
Organizations managing a single megaproject or multiple projects of varied sizes need a strong program management office and robust processes for appropriate governance, transparency, reporting, and accountability. Having the right program management processes enables effective management of scope, cost, schedule, and change during execution of projects. Pegasus-Global has helped many clients with our extensive experience of how to successfully deliver a project, as well as our knowledge of how failures manifest, and our ability to establish or review program management functions and/or processes for owners as well as contractors.
Bankability of projects and advising clients on how to best meet project lender and investor requirements for nonrecourse project finance or for regulatory approval of regulated projects is a key strength of Pegasus-Global. We have real world experience in helping clients bring projects to financial close, with deep expertise in addressing lender, investor and regulators’ project risk assessments, budgets, and providing clients with support in technical and commercial reviews as well as interaction with lenders, regulators, and other key stakeholders.
Projects and programs face numerous challenges throughout their lifecycle that test the resiliency of the team and their supporting processes that can place the project on a path to success or potential failure if issues are not recognized and addressed in a timely manner. Having periodic and independent assessments to review the status of a project, program, or organization is a valuable management tool. Pegasus-Global is extremely experienced in providing assessments from readiness reviews before a project starts, to audit and prudence reviews during or after a project, as well serving as an independent monitor for multiple key stakeholders.
Changes and challenges are an inherent part of large projects. Dealing with change often results in different interpretations of contracts and disagreements on impacts and responsibilities. Pegasus-Global has extensive experience advising clients on how to resolve such situations, from claims and change order strategy from both the contractor’s and owner’s perspective. Pegasus-Global also has extensive experience in supporting clients in dispute resolution, be it settlement negotiations, arbitration, or litigation.
When preparing for a construction dispute, counsel always attempts to retain the best experts for their case. Both counsel and expert need to have the confidence that their presentation of the fats and analysis will win the case. However, do you ever ask yourself if your expert’s report has clearly laid out and addressed all of the areas/issues to be evaluated or if it’s opinions and conclusions are clear, conclusive, and compelling? Does the expert report contain any “holes” in the analysis, or are there sufficient supporting documents to back-up the factual basis of the expert’s analysis?
Pegasus-Global knows from experience that when one becomes so immersed within the same case for a long time period, or has read a particular report several times, it becomes difficult to see things that someone else who has no involvement with the case nor has ever read a report or testimony might see, especially if they are a trained expert in those subjects. It is not unusual for anyone to firmly believe that they have the best set of facts, the best expert, the best report and testimony and that it is hard to believe that there could be a different opinion or point of view. It is often heard from counsel, “I only wish i knew what the other side is going to do with this.”
Pegasus-Global offers advisory services that include “Testing Expert EvidenceSM,” where our experts will work with counsel to review and critically analyze nearly complete expert report(s) and/or testimony to ensure the evidence is sound and compellingly told. This gives counsel the benefit of getting to see what the opposition would do with the expert evidence before the expert report and/or testimony is completed.
Construction disputes are a fact of life on megaprojects. They cost time and money while diverting resources from the project itself. When disputes arise, they need to be managed the same way a project would be managed—with a strategy, budget, schedule, and milestones to track progress against estimated cost and schedule. Pegasus-Global has key personnel who have been actively involved in arbitration and mediation for more than 40 years, having previously served as testifying expert witnesses in international arbitrations regarding construction disputes on some of the world’s largest projects. We use that experience both to assist clients in the ADR process and to serve as arbitrators and mediators. Based on the extensive experience our personnel have had in the ADR and litigation arena, we can assist counsel in identifying and assisting in the selection of outside counsel, arbitrators, and expert witnesses that are best equipped to handle your specific needs.
Situation: The developer of a multi-billion-dollar pipeline project has discovered numerous quality problems with materials provided by a key supplier. Knowing that the material integrity problems could lead to future ruptures, environmental damage, and lawsuits, the company confronts management of the supplier firm. They deny there are any quality problems.
Service: Pegasus-Global reviews all available documentation about the dispute, provides guidance on strengths and weaknesses of the issues at hand, and recommends alternative dispute resolution. Our consultants then develop strategies for managing that ADR process.
Results: The dispute is resolved in three weeks, rather than anywhere from three months to three years, had the parties taken a more litigious path. A timeframe for the supply of new materials is agreed upon, and construction is able to resume much sooner. Cost savings are commensurate with the time savings.
Performance and prudence audits and assessments are essential to the successful execution of large, complex construction projects because they support accountability; they also may be required by finance or regulatory stakeholders. Without audits and assessments, major project participants can be effectively working in the dark. Ideally, such evaluations should be both prospective—to minimize potential schedule and financial impacts—and retrospective. Performance and prudence audits and assessments may assess corporate policies, procedures, and/or processes. They may be limited to a single project management function or may be applied to the full spectrum of project management functions.
Situation: A regulated utility is in year two of what was expected to be a three-year construction project for a large power plant. A number of unexpected developments have led to cost overruns and schedule impacts. The client requires an assessment of project controls, reviewing what has happened and why, as well as a prudence audit of decisions to date to enable more reliable forward planning and a successful regulatory prudence evaluation.
Service: Pegasus-Global determines that a project controls assessment of cost, schedule, and risk management is needed. We assemble those project controls standards that are most applicable to the organization’s profile of capital projects to set the generally accepted standards for project controls procedures, processes, and practices to determine whether the organization’s project controls functions meet those comparative standards. The evaluation then extends to a prudence review of the decisions made on the project, including the decision-making process and structure to determine if such decisions were reasonable and prudent based on what was known at the time to support good project governance.
Results: Pegasus-Global identifies potential gaps in how project controls were implemented on the project. We then provide the client with recommendations for improvement, including an understanding of the strengths and potential weaknesses of all project controls, for example where and why cost overruns or schedule delays occurred as well as more realistic projections for remaining project costs. This can be presented as an internal report, outlining findings and recommendations, including an implementation plan, or it can take the form of testimony in support of a regulatory proceeding. The end result places the client in a position for successful project execution.
Regulatory bodies often provide final approval before execution of megaprojects. They also may determine how much of the project costs the owner can recover. Pegasus-Global consultants have decades of varied experience with regulatory proceedings in multiple jurisdictions. They leverage that experience to help clients take a proactive approach to their regulatory strategy. In addition, Pegasus-Global has experience in the role of an independent monitor, providing an objective assessment of ongoing projects and reporting its findings to the owner, regulatory body, and other key stakeholders such as rate counsel and commission staff.
Situation: A regulated utility has determined that it needs to build a 1,100-plus-megawatt nuclear plant to replace several older coal-fired plants that are being retired. In evaluating management decisions during the course of a megaproject like this, and the cost implications of those decisions, regulators must consider the conditions and circumstances that were known, or reasonably should have been known, when the decision was made in order to determine the prudency of such decisions.
Service: Pegasus-Global is engaged to provide a management performance and prudence review in support of the utility’s case before the public utilities commission. Such a review evaluates potential issues surrounding the project’s development and execution, such as circumstances leading to a schedule delay and management’s response to that delay. It includes a readiness review opining on whether or not the right people, processes, and procedures are in place for execution.
Results: With a readiness review, the utility is able to make a strong case for being in a position to execute its new capital project successfully. The prudence review looks at the actual decisions, the processes behind such decisions, and their corresponding results to provide the client with an independent assessment of its prudency in managing and executing the project.
Not surprisingly, risk management is a major component of megaprojects. Pegasus-Global founder, the late Dr. Kris R. Nielsen, was a pioneer in changing how the construction industry looked at risk and received ASCE’s highest award, the Outstanding Project and Leaders (OPAL) Award, for his contributions to risk management. This award recognized decades of work in assessing cost and performance through sophisticated computer modeling that drove to the essence of whether risk was justified and was being appropriately managed in terms of eventual cost. This concept of risk management expanded to include top-down risk assessments that spanned a project lifetime and were capable of changing with the progress of a project.
Today, we continue to help clients improve their ability to manage risks by helping them recognize potential gaps, risks, interpretations, and expectations of their engineering, procurement, and construction (EPC) contracts. When it comes to project execution, the contract too often becomes an afterthought—management and the EPC contractor may gradually develop different interpretations of the contract. Then, when a dispute arises, the parties may find themselves caught flatfooted. To resolve such situations, we use our global expertise and experience on other projects of a similar nature, plus knowledge of other contractual provisions on industry EPC contracts, to assist clients in establishing the framework to improve form contracts and monitor already executed contracts.
Situation: An owner is preparing to hire an EPC contractor to complete a natural gas combined cycle facility. The winning bidder in the RFP process is a contractor that has not previously done work for this owner. The owner’s executive management team has requested that the terms and conditions of the contract be fully reviewed and understood in order to limit the owner’s risk exposure to the extent possible.
Service: Pegasus-Global uses its decades of experience in reviewing and assessing EPC contracts to examine whether this EPC contract includes appropriate provisions typically seen in similar contracts. In addition to identifying potential risk exposure to the client, Pegasus-Global identifies standard provisions that either are non-existent in the current contract or are vague and open to misinterpretation. We also make recommendations to modify future contracts and suggest appropriate methods to manage identified risks in existing contracts.
Results: The client has a functional form contract that puts it in the best position to execute projects by minimizing potential risk exposure and recognizing potential risks. This allows management to actively monitor risks throughout execution of the contract.
Because they are inherently complex and require long timeframes, constant change is a key attribute of megaprojects. Consequently, management and control approaches, processes, procedures, and systems all must be flexible and adaptable. Management must be able to refocus repeatedly. Pegasus-Global provides clients with management tools that enable that necessary flexibility while ensuring final project success.
Situation: A public transportation authority has begun construction on a large multi-use bridge that must be completed in three years to meet a government mandate for funding agreements. Though this organization has overseen numerous road improvement projects before, none were bridges of this size and complexity. As project milestones slip and relations with contractors fray, management realizes that past project management strategies are not working for this megaproject.
Service: Our decades of experience in construction and operations have proven that customized solutions are the only effective ones for megaprojects, which must be executed in a dynamic environment. In this case, after assessing the project scope and participants—as well as the social, cultural, and political context—we provide management with a detailed set of findings and recommendations designed to improve planning and execution, get the project back on track, and rebuild frayed relationships with the contractor.
Results: When faced with inevitable changes to everything from available skilled labor, to weather delays, to supplier bankruptcy, management has a strategy that enables everyone to pivot in the same direction and adapt to changing project conditions.
Every project executed by at least two parties (e.g. owner and contractor) utilizes the contract as a means in which risk is transferred (or shared) between the parties. Some of the key provisions that guide the risk allocation in a contract include guarantees, indemnities, liability limitations, scheduling, force majeure, delay/disruption, bonding, changes, termination/suspension, and dispute resolution. Within megaprojects specifically, because of the uncertainty and dynamic environments in which they are executed, issues arising during execution are essentially a given and will inherently present contractual challenges. By conducting a thorough contract risk review prior to execution of the contract, the owner can ensure that the contracting strategy is appropriate and that the contract is structured suitably to avoid increasing the risk exposure.
Pegasus-Global uses its decades of experience in reviewing and assessing contracts to examine whether the contract includes appropriate provisions and risk allocation typically seen within the industry. In addition to identifying potential risk exposure to the client, Pegasus-Global identifies standard provisions that either are non-existent in the current contract or are vague and open to misinterpretation. We also make recommendations to modify future contracts and suggest appropriate methods to manage identified risks in existing contracts.
Readiness reviews independently evaluate the structure, policies, procedures, processes, organization, and other similar project aspects prior to project execution. Typically, the project management plan and/or project execution plan, cost estimate, schedule, risk assessment, and organizational capacity and capability are primary areas of focus for a readiness review.
This review supports establishing good governance on the project, particularly though ensuring:
- An effective organization is in place, with the right knowledge and expertise and divisions of responsibility required for the project;
- The policies, procedures, and processes match the organization’s and project’s objectives to guide and monitor the performance of the work;
- The scope, cost estimate, schedule, and risk assessment are aligned so that the organization has a clear view on what is being delivered, what it is expected to cost, how long it is expected to take, and what the risks are for delivering the project.
As a result of conducting a readiness review, the organization embarking on the project gains confidence that it is prepared to execute the project and avoids unnecessary issues by correcting specific items identified in the readiness review prior to execution, minimizing impacts to cost and schedule.
Once a project is underway, the timing and volume of information generated by the project can make it challenging for project stakeholders to ascertain a view as to the project’s true status. Additionally, biases by the reporting entities may present a view of the project that is disconnected from the actual status (e.g. downplaying schedule slippages, overstating ability to meet budget, ignoring emergent risks, etc.). Utilizing an independent monitor provides decision makers and other key stakeholders with an objective and truly independent view of the project’s status, thus allowing those parties to make informed decisions, such as implementing corrective actions where needed to improve the likelihood of delivering a successful project. It also provides a method for these stakeholders to have their questions on the project addressed in a timely manner and receive detailed information on specific issues as requested that might not be available through traditional reporting mechanisms.
At certain milestones during execution and/or after a project is in-service a retrospective review and assessment is needed for any number of reasons – regulatory requirements, preparing for claims, or simply just evaluating performance to date in order to identify lessons learned and implement corrective measures midway through a megaproject. Such megaproject assessments may include a review of the underlying corporate policies, procedures, and/or processes that govern the project; they also can be applied to the full spectrum of project management functions or tailored to examine specific functions as requested. These megaproject assessments are tailor made to match the client’s specific needs, whether that be for an owner, financier, investment firm, and/or contractor, and can be done at any stage of the project’s execution. The evaluation also includes a prudence review of the decisions made on the project, including the decision-making process and structure to determine if the key decisions made on the project were reasonable and prudent based on what was known at the time to support good project governance.
We have been retained many times to assess the prudence of company actions in execution of megaprojects, both during the execution and after completion. Such assessments were performed to determine the cause of cost increases and schedule extensions and assist clients in preparing for regulatory proceedings or other legal action regarding the management of energy and infrastructure construction projects and in testifying in such proceedings. One of the benefits to our approach is we work directly with the client to customize the right method and level of engagement needed to meet their needs.