Ensure your project’s success by improving and implementing Project Controls, Governance and Capability

Introduction:

Projects regardless of their type, industry and nature have failed for as long as humans have been trying to deliver projects on time.Until the current changes in Corporate Law, failure whilst not exactly tolerated did not cause too much concern at board level in past years. Now failures must be accounted for and the accounts need to show just what impact to either the bottom line or the shareholders funds that such project failure causes. The shareholders of major corporate who fail to deliver a forecasted profit are on the warpath.

Basically, failures are no longer easy to hide, and the legal profession will wax fat upon the litigation that surely and indeed is already occurring. However, it is not the board of directors who are issuing the writs, it is the shareholders, who are now starting to hold the board liable for the failure.

The statutory provision mandating continuous disclosure by listed companies was introduced on 5 September 1994 to support Australian Stock Exchange (ASX) listing rule 3.1. Statutory enforcement of this provision by the Australian Securities and Investments Commission (ASIC) remained dormant for many years with only limited application of the sanctions that followed the introduction of the Corporations Act 2001 (Cth) and further amended legislation in 2004. However, heightened activity by ASIC in 2006 was hoped as evidence that the regulator and the Courts would enforce the full range of penalties and remedies, from criminal proceedings to civil liability. Since then several cases were before the Courts because of legal action by the regulator and also by discontented company shareholders.

This paper notes recent enforcement activity and the increasing litigation by shareholders against a listed company for a failure of relevant disclosure may provide an alternative to enforcement of continuous disclosure by ASIC and that the protection afforded to the Board and Directors is to have a proper understanding of Project Governance and Project Controls

In July 2014 there were five major multi-million-dollar class actions before the courts as a direct result of Boards not having obeyed the Corporate Law of “Continuous Financial Disclosure” The existing statutory requirement for disclosure is defined in Section 674 of the Corporations Act 2001 (an extract of this section is shown in Appendix 1). In many cases these companies believe that they have control systems in place or as often the case ignores what the Project Cost Controls systems are telling them (Given that they have Project Control systems in place) and thus imperil the board in being fined for such failures or even worse suffer a jail term.

In the 2018 tight credit environment, cash-hungry complex capital infrastructure and defence projects are coming under even greater scrutiny by the Auditor-General and demands for transparency will escalate. The Federal, State Government, and other Project owners need to know that their projects will deliver.

Poorly run projects can be hidden behind soft budgets and schedules. Conflicts between functions can drive self-serving decisions to meet budget or schedule at the expense of the long-term viability of the assets being built. And well-run projects may be unfairly criticised for spending early or over-running when such actions may secure long-term value. It is essential that from before the first day of a project starting that a proper Peer review of the project is carried out, to ensure there are no hidden mousetraps.

So, what really happens on projects? And how can governance be improved? We believe more attention is needed between the major review points and below the programme and Project Steering Groups to link governance with the reality of projects and facilitate timely, well informed decisions.

It is unfortunate that a schedule management process which is apparently is now no longer in favour is prior to submitting the tender bid schedule, that a peer review is carried out. It appears that the cost of providing a peer review to ensure that all the project requirements have been met and can be delivered for the bid price is seen to be not of value. Rather the contractor has no compunction in spending multiple times the cost of the peer review on lawyers in either defending the delays in project delivery or seeking extensions of times with compensable costs. They will not spend $30,000.00 to avoid $1,000,000.00 or more for the inevitable legal battle.

Governance in this environment requires real understanding of the motivations and pressures of all the significant stakeholders. Personal objectives and priorities can override corporate objectives, and this impacts a project outcome.

Governance requires an active, independent and sceptical mindset that anticipates the consequences of conflicts and behavioural dilemmas throughout the lifecycle of project delivery - it is not just about compliance.

Failure to implement a professional Project Controls system is an additional disaster of good Corporate Governance.

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