Background Information

The Construction Owners Association of Alberta (COAA) is committed to examining the issues facing the Alberta construction industry today and delivering practical solutions to safety, workforce and project challenges that can be implemented by all construction stakeholders. One of these issues is cost overruns on large oil and gas construction projects. It is not uncommon for large construction projects to experience cost overruns of up to 100% of the original cost estimate. While these projects are normally successful from an operational standpoint the cost overruns are a cause for concern.

COAA commissioned a study to investigate productivity deviations in heavy industrial construction projects (Strategic Services Division, Alberta Human Resources and Employment 2004). The study found that projects up to $300 million were considered relatively easy to manage and for that reason large projects will be defined as greater than $300 million. While there is no reason to believe this model would not work on smaller projects the recommendations are directed at large projects.

There is no single cause for cost overruns on large oil and gas construction projects. The Construction Industry Institute have identified many reasons for cost overruns including but not limited to; front end planning, design, procurement, start-up and operations, human resource issues, organization, project processes, and project controls. A study conducted for the Alberta government by McTague & Jergeas (2002) also found that cost overruns on large construction projects were the result of many factors.

COAA members have identified insufficient planning as a possible contributing factor to cost overruns. In an internal study of a large construction project, crews were observed and the time spent actually building was only 37%. The remaining time was spent waiting for materials and equipment, traveling to the area, taking early breaks, and planning how to do the work. When crews do not have all the necessary tools, equipment, materials, labour, drawings and information, then the productivity will suffer. This is a systems problem and not a labour issue.

On a typical large oil and gas construction project, 40% of the total cost is normally due to direct and indirect labour. A COAA focus group reviewed the productivity losses due to wait time, travel time, early break time, and planning time and estimated that up to 25% of the lost time could be recovered through more detailed execution planning.