No one likes to deliver bad news. This aversion is universal. However, when we are
developing projects, having information as early as possible is immensely helpful. When
potential bad news is identified with sufficient time, it is possible to take mitigation
measures or even solve the problem entirely.
An old boss of mine used to say that solving a problem only requires two conditions:
knowing that it exists and having the will to solve it. Clearly, if we are unaware of a
problem's existence, no matter how many resources we have at our disposal, we simply will
not be in a position to solve it.
This is why timely notification, or early warning, is fundamental. Unfortunately, in our market
and due to the distribution of responsibilities between the client and contractor, it is often
common for the party discovering a problem to remain silent. If the problem falls under their
responsibility, the silence often stems from a naive hope of finding a solution before the
other party becomes aware. If the problem is the responsibility of the other party, this
silence may reflect bad faith, hoping that the issue will be detected too late, causing the
other party to fail and potentially providing some advantage or "cover" for one’s own
shortcomings.
In either case, we find that a problem may have been identified, but there is no will to solve
it. This ultimately undermines the project, and a project failure is a failure for both the
contractor and the client.
In other articles, I have already mentioned the principle of partnership established between
the client and the contractor (https://delgadoconsultores.pe/index.php/en/articles/contracts-risks-and-collaboration). In reality, they are partners whose success is indubitably
linked to the success of the project . This also extends to other parties involved in the 1
contract or project, such as Project Management, Supervision, the Engineer, or any other
member of the project team, regardless of their title.
Of course, there is a cultural aspect at play here. Latin Americans (I will refrain from naming
countries to avoid sensitivities) tend to be more conflict-averse than Anglo-Saxons (let’s say
Northern Europeans). I’ve been told that in some Southeast Asian cultures, the aversion to
conflict is even greater than that of Latin Americans, but I cannot confirm this.
The core issue is that conflict itself is not negative. Early warning means addressing the
problem, and this is essential. This is why, for some years now, many contracts have
incorporated the obligation for contractors to report any situation that may negatively affect
their performance on the project. Of course, as we are talking about "traditional" contracts
developed by clients, the responsibility of reporting is generally placed entirely on the
contractor.
Standardized contracts such as FIDIC or NEC establish the obligation to issue early
warnings. In particular, NEC contracts stipulate that early warnings must be issued by both
parties when there are situations that may affect the contractor's costs or dates, whether
key dates (milestones) or the completion date.
This is critically important. Under NEC, the Project Manager (representing the client) is
required to maintain an early warning register and issue it for the first time within a week of
the contract’s start date. The NEC contractor, for their part, is obligated to contribute to the
register—which remains managed by the Project Manager—and if an unfortunate event
occurs that was known or should have been known to the contractor but was not warned
about, the impact evaluation is carried out considering what would have occurred had the
warning been given on time. In other words, the contractor is only recognized for the
residual effect after analyzing what could have been mitigated through preventive or
corrective actions by all parties.
Conversely, if the adverse event was known to the Project Manager and no warning was
issued, the client is required to recognize the impact on the contractor when the event
occurs.
In this way, the NEC contract mechanism encourages both parties to inform as soon as
they become aware of any potential event that could affect the project. Naturally, as we are
discussing risks, this refers to both threats and opportunities. Opportunities are positive-
risk events with potential beneficial impacts, and the early warning mechanism provides
incentives to take advantage of these opportunities.
For contractors, proposing ways to reduce costs or improve schedules opens the door to
sharing benefits with the client. This happens directly under some of the standard options in
NEC contracts.
For the client, it is evident that taking advantage of any opportunity to reduce costs or
improve schedules is a direct benefit for the owner.
Even when not using a standardized contract but rather a traditional one, early warning is a
good practice for all contractors. I have had personal experiences where, upon notifying the
client of an issue for which we were responsible (I should note here that I have mostly been
a contractor), the client agreed to extend the impacted date because it did not pose a real
problem for them. On another occasion, when my supplier of a large crane failed to meet
the equipment availability date for a critical lift, timely notification to the client allowed them
to inform us that they had a suitable crane available for the necessary dates at a very
reasonable rate. In summary, early warning led to solutions with little or no impact, and the
contractor-client relationship was strengthened.
I also recall a case where, after issuing an early warning to the representative of a major
client about an estimated four-week delay, I received the response: "I don’t care; you
cannot be late because I have my own delivery commitments." Of course, no one can work
miracles, and as the contractor’s operations manager, I responded that we would take all
viable measures and report weekly on how much of the original delay we were able to
recover.
And so we did. After about a month and a half, we managed to recover about two weeks of
the delay, meaning that the delivery impact would now be just two weeks instead of four. At
that point, I received a speakerphone call from my client’s senior management, which
included the representative I reported to weekly and other team members. The call was to
demand adherence to the original schedule since the delivery to their end user was
imminent.
I had to explain that we had notified them of the delay about a month and a half earlier, that
I personally reported weekly to their representative and team on the mitigation measures
and progress, and that we had already halved the impact.
The senior management of my client was momentarily silent and then began questioning
their own team about whether they had informed the end user in a timely manner. The
answer was no. From that moment, the pressure from the call shifted away from us as the
contractor and instead was directed—quite harshly—toward the client’s internal team.
The lesson is simple: when problems are notified in time, measures can be taken. But if
they are not notified and failure occurs, the impacts are greater, not only economically but—
most importantly—reputationally.
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