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Construction Contract Administration & Common Occurrences of Maladministration

Best Practices: Five Lean Construction Principles that Deliver Value to Surety Projects

February 28, 2022

In the past 10 years, the construction industry has fully embraced the concept and practices of lean construction. Derived from many principles over time, such as the Japanese concept of Gemba Kaizen, lean construction embodies an approach to eliminating waste and creating a cohesion amongst all team members so projects can proceed as efficiently as possible.  

These objectives are made possible by several core tenets:  

  • participation by all stakeholders as early as possible 
  • a standardized process 
  • an inclusive approach where all stakeholders are encouraged to contribute ideas for improvement 

Additionally, an emphasis on safety is a critical factor that unifies all parties to create a culture that underpins the lean construction mindset. 

In this post, we examine the value of lean construction principles through the lens of the Surety and how these approaches can deliver value to surety projects.  

Lean Construction and the Surety Point of View  

When a surety intervenes in a project, it is generally due to scheduling and budgeting issues that were not recognized early enough to prevent them from becoming a problem. Lean construction techniques identify strategies specifically targeting these types of issues.  

Through the bonding process, a Surety will have a relationship with all parties (notably the General Contractor) from a project’s onset. By insisting upon project-specific requirements as stipulations for providing a bond, significant money can be saved. Proficiency and knowledge of the requirements set in order to provide the bond should equally apply to a Surety’s construction team in the event of a takeover so there is no lag time during potential periods of transition.  

Applying the best practices in lean construction around collaboration and clarity among all stakeholders from the outset reduces the potential of the Surety takeover in the first place. Should the worst occur, these practices can streamline the takeover process. Either way, the cost savings potential is compelling when one considers that time equals money in takeover scenarios.   

Five Lean Construction Approaches that Correlate Into Cost Savings for the Surety 

1. Measuring Value Beyond Cost 

A Surety needs to insist on sustainability studies and community-oriented social impact studies at the project’s onset. 

Projects fail, absorb significant cost overruns, or incur exorbitant operational expenses due to the antiquated mindset of viewing costs as simply materials and labor. Increasingly, broader factors such as these need to be included when creating a project budget:  

  • health and safety 
  • community social needs, and  
  • sustainability  

More and more, local and federal governments are mandating sustainability requirements that have significant impact on construction, such as the U.K.’s Sustainability Development Goals (SDGs).  

Construction and design teams need to be aware of requirements which not only could impact the direct costs but may have enormous impact on operational expenses. Companies and individuals alike are no longer going to accept projects that ignore values of the 21st century’s social economy which requires that issues of education, inequality and climate change are addressed.  

2. Payment Process and Cashflow 

If cashflow is uninterrupted, a Surety’s intervention becomes significantly less likely. Nothing stalls a project’s processes more than funding delays. Public Bank Accounts (PBAs) should be considered as a means for payment in projects which will create confidence in adequate funding.  

Additionally, as technology improves and review processes become more real-time, eliminating the practice of retention should be considered. Retention is already being eliminated in some states in the U.S. and is a trend that makes more sense if a project is married to improved technology requirements. Incorporating real-time progress tracking via improved tech creates a greater trust between parties, whereas practices of retention often sow mistrust and results in reduced productivity. This is magnified in competitive job markets, as is common today, where contractors are overextended and are forced to prioritize which projects to deploy their limited workforce. A project with a healthy cashflow will always receive the contractor’s highest attention. 

3. Database Development and Utilization 

Public databases allow companies to refer to common industry knowledge platforms and should be utilized and accessed as part of all project design meetings. Too often databases exist but are not referenced, particularly pertaining to sustainability. To continue to grow these databases, it should be standard practice to publish cost and performance data on publicly owned assets after handover.  

A Surety should use databases for their risk assessment at any project’s onset, and at critical evaluation milestone points. Several platforms in the U.S. provide this useful information, e.g., where The Value of Construction Put in Place Survey (VIP) provides monthly estimates of the total value of U.S. construction.  

4. Embracing Technology 

The U.S. has access to all emerging technologies, but standardization across sectors and regions is not common. Building Information Modeling (BIM), Virtual Information Modeling (VIM), Virtual Reality (VR), Artificial Intelligence (AI) and other technologies with the potential to create immense value for a relatively small upfront investment should be widely adopted. Use of BIM and augmented virtual reality can help clients and engineers catch issues before they become costly mistakes. Use of software platforms, cameras, and VR correlates to accurate site evaluations and yields accurate progress payments and cost-to-complete assessments.  

A Surety should insist upon use of such technologies as well as being well versed in their use themselves. Furthermore, the industry should prioritize R&D funding to continue to stay current.  

5. Widely Adopted Objectives and Standardization 

Before any project begins, The Surety, and all stakeholders, need to confirm overall objectives and be sure they align with projects of similar type and scope within the community. Standardizing projects across business sectors reduces inefficiencies and waste. Community goals might entail standards such as sustainability requirements and approved materials to be used, which would be critical if there was an interruption in the work that requires the Surety to step in. Such goals, and even requirements, are increasingly dictated by states and cities, e.g. the Hawaii Green Growth Standard

A Model that Eliminates Waste  

These five objectives make it clear that the goal of lean construction is to eliminate waste, resulting in efficient schedules and accurate budgets. Above all, a Surety will reduce its financial exposure and potential of intervention if all parties work together early and often, and it is important that construction projects stay current. Technology can lead the way, but only if it is used properly. The world is changing, and construction projects need to move in concert with modern values. Cost savings will certainly follow suit. 

To learn more about VERTEX’s Construction Management and Surety Services, or to speak with a Construction Expert, call 888.298.5162 or submit an inquiry.

Author: Michael Drotar

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