Project management and international construction contract: an investigation into issues and challenges in indonesia




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Project management and international construction contract: an investigation into issues and challenges in indonesia




    Aries Firman

    Graduate School of Business

    Curtin University of Technology

    aries.firman@postgrad.curtin.edu.au





Project Management and International Construction Contract:

An Investigation into Issues and Challenges in Indonesia


Abstract




The focus of this study was project management in Indonesia. The context was the events following in the 1997 financial crises and the subsequent ‘aid- with- constraints’ requirements set by various aid agencies. A constructivist ontology, interpretive epistemology and qualitative methodology were adopted.


Using the constructivist paradigm, two major emerging constructs appeared from the respondents. The findings lead to the suggestion that modifications are needed to enhance the existing triple constraints in project management: time, quality and cost. The model of P & LESS was derived from the respondents. This embeds the elements of people (namely leadership, ethics, and social status) with the time, quality and cost schema of project management


Preliminary findings have shown that there are significant gaps between the ideal relationships described in the literatures as opposed to practices in the real world of project implementation. This research challenges the quantitative, technical, outcome-based approach as unitary in nature. It suggests that the importance of various aspects of people should also be taken into serious consideration in the evolution of project management, not only as a technical tool but more importantly as a field of knowledge required to solve organizational problems.


Key words: people, relationships, project management


  1. Introduction


Indonesia is turning a corner, from crisis management towards growth. For the first time, after the 1997 crises, Indonesia is able to focus on longer term development policies (World Bank, 2004). Reversing the trend of deteriorating infrastructure is one of the top priorities. It is obvious however that the government’s budget is simply insufficient to manage such large investment in infrastructure projects and international collaboration is required. Most international infrastructure projects use the standard contract conditions prepared by FIDIC (Federation International Des Ingenieurs-Conseils). This is the International Federation of Consulting Engineers and is based in Lausanne, Switzerland (Bunni, 1997). The application of the FIDIC standard in Indonesia has been supported by many multilateral financing agencies such as the World Bank and the Asian Development Bank for projects that are financed by them. During the impressive economic growth of 7 to 8% annually prior to the crisis in 1997 (OECF, 1999) and even nowadays, the projects continue to use FIDIC as the standard contract.


Project management has a tradition of considering success through the lens of three substantive mechanisms: time, quality and cost. Also, traditionally, project management in the west is characterized by objective rationales and methods. These are typically quantitative, technical and outcome based. However, Indonesian culture typically expresses itself in a relational way. Cultural processes, relationships and personal interactions are important key organizing principles for Indonesian people. This study places the rational and objective outcome-based nature of project management alongside the relational interpersonal needs of Indonesian culture. The focus of this research was to investigate the issues and challenges in Indonesia where a standard international contract was applied in the infrastructure sector and was implemented in a context of varying perceptions of project management principles. As a part of the study, the roles of perceived leadership within and between the stakeholders were examined.


2. Literature review


The problem is, as claimed by Frame (2002), that the cycle of traditional project management has been broken by the increasing pressures of operating within relational cultures. Frame noted that most energy is directed toward satisfying the famous triple constraints of time, budget, and specifications. Success and failure are typically assessed against meeting schedules, budgets, and specifications, not against achieving full customer satisfaction. In the current literature, many publications show the interests of researchers as well as professionals in the field of project management. For example, Söderlund (2004) stated that project management has long been considered as an academic field for planning-oriented techniques and, in many respects, an application of engineering science and optimization theory. The basic rationale underlying many of the texts and articles published in the journals, such as the Project Management Journals, is the adoption of project management as “a method” for solving complex organizational problems.


Managerial understanding of the requirements of effective project execution is vital for avoiding costly mistakes in organisational restructuring and to prepare project teams for the new complexities (Berggren et al., 2001). They found that for clients, such as privatised utilities, it was important to evaluate consultants from a broad perspective. Technical competence and a track record in contract enforcement were important, but so was the ability to build a cooperative project environment.


The attempt to present a general view of the role of the parties’ representatives in dispute would not be complete without mentioning the difficult role of the consulting engineers (Genton & Schwab, 2000). They stated that this profession has greatly changed in the last decade. The consulting engineer used to be in charge of the planning then of the supervision of the works and administration of the contract. Finally, in the case of disputes, he acted as quasi-arbitrator. Gradually, his previously independent role has become increasingly influenced by the employer and his independence has been rightly questioned.


Turner and Simister (2001) argued that the purpose of a project contract was to create a cooperative project organisation in which all participants, clients and contractors were motivated to achieve common objectives with goals aligned. Their research confirmed modern practice and showed that the selection of contract type was related to uncertainty in the project deliverables and uncertainty on the process of their delivery. Based on this, they stated that if one viewed the purpose of a contract as being to create a project organisation based on a system of cooperation not conflict then the need for goal alignment was more significant.


Reform packages promoted by the World Bank and other bilateral and multilateral financing agencies for low- and middle-income countries often include “contracting out” and other options of private participation in the provision of basic public services (Baquero, 2005). Those reforms were based on the notion that, aside from the positive impact of the private provision of services on government budgets, the private sector was usually better resourced to provide a variety of those services. Also, the role of governments should be limited to facilitating and regulating private-sector activities. Even though the costs to the governments were reduced under many of those contracts, there was no indication that the intended contract outcomes were being achieved.


As argued by Kendra & Taplin (2004), due to the different subcultures and cultural values that exist between organizational levels, it is important that the organization recognizes these differing values and work towards the development of a shared set of values about project management with which to build a strong project management culture. The authors also stated that in the absence of these shared values, the organization continues to struggle with the adoption process due to cultural differences that exist between project managers, team members, stakeholders, and executive leaders, and the resulting misalignment of project management values. In this particular study, a similar situation happened between project stakeholders as a result of their different values and perceptions.


3. Research method


Qualitative research has a broad range of applications. All qualitative studies assume that respondents uniquely construct personal realities. This study places the rational and objective outcome-based nature of project management alongside the relational interpersonal needs of Indonesian culture. A conceptual model integrates time, quality and cost with people in construction of meaning. The study recognizes three major stakeholder groups: owners, designers and contractors.


The focus of this research is to investigate the issues and challenges in Indonesia when a standard international construction contract is applied in the infrastructure sector. The different perceptions of project management principles have also been studied. As a part of the study, the roles of perceived leadership within and between the stakeholders have also been determined. Initially, owners, designers and contractors were targeted. Use of the theoretical sampling process determined the need to target a second set of respondents. Within the above context, this research examines the following research questions:


  1. How does each stakeholder group member (owners, designers and contractors) perceive project management principles and international construction contract in terms of: time, quality and cost?

  2. How does each stakeholder group member perceive the other stakeholders’ view on: time, quality, and cost?

  3. What are the leadership assumptions within and between the stakeholders?


This research follows constructivist ontology, an interpretive epistemology and a qualitative methodology. This study recognizes project management as an activity encompassing social as well as technical undertaking. Sociological theory has been used to focus the research on respondents’ experiences. This study is about social relationships within the project management context. There are several perspectives, or lenses through which the research could be viewed. These include ethnography, a deep almost anthropological approach, usually conducted within one or few organizations, ethno-methodology which investigates talk-in-interaction and symbolic interactionism which focuses on the meaning of symbolic behaviors viewed ( Denzin & Lincoln, 2000).


Phenomenology was chosen because it is the accounts of the actual experience of the respondents relating to time, cost and quality that are being explored. This perspective is interested in the respondents’ experiences in the “life world” of the international construction contract setting. In general, phenomenology never developed a set of dogmas or settled into a system (Moran, 2000). In this research, people involved in the infrastructure projects become the main focus. Based on the idea that people personally construct their own reality, the constructivist ontology has been used. The aim is to study a social setting and the multiple meanings of the respondents (Whiteley, 2002).


3.1. Sampling


Initially, it was anticipated that owners, designers, and contractors would be targeted with purposive sample. Going into the study, it was anticipated that around 25 to 30 individuals would become part of the research. Theoretical sampling methods were used to guide recruitment of respondent for the study. This was successfully achieved and 13 owners, seven designers and seven contractors were involved in the study, giving a total of 27 respondents representing three different stakeholder groups.


Further diversity within the sample was ensured as they came from the public sector, state-owned enterprises and private sector. Some were local people, others were expatriates. The study utilized in-depth interviewing to allow the respondents to express their perceptions with regard to the value of time, quality and cost using their own words. A second set of data was collected from three individuals representing the government, industry and university. These experts were chosen because of their familiarity with the project management environment in Indonesia


3.2. Data Analysis


Initial analysis was undertaken by developing concept maps based on the data. The data confirmed the relevance of the value of time, quality and cost as well as leadership. This stage was followed by constant comparisons in order to allow the emergence of categories. Category headings were tentative because the constant comparison process may cause them to be expanded, contracted, combined or separated according to the emerging data. As this is happening, concepts are identified and subjected to theoretical sensitivity to match findings with appropriate theory. Constant comparison of category to data continued until core concepts emerged. These included the concepts of ethics and social status. According to Whiteley (2000) one of the reasons that grounded theory has changed the face of constructivist and interpretive research is that it has a robust set of systematic procedures. These emphasized the grounded theory principles of emergence and theory generation


4. Findings


The findings begin with the model of the project management concept illustrated in figure 1.

Cost




People





Time Quality


Figure 1: The Four Variables of Project Success (Adapted from Kliem, 1997)


The results from the content analysis are grouped into the following main categories:


  • the value of time

  • the value of quality

  • the value of cost

  • the international construction contract (FIDIC); and

  • leadership


Findings were gathered on aspects related to the three main categories described above with particular attention paid to the concept of people and their relationship with the time, quality and cost elements of project management. In addition, findings on the aspects of international construction contract and leadership were also collected.


The terminology used in this chapter reflects the content analysis as shown in figure 2.


Codes

Pieces/meaning

Sub category

Elements of category

Category

Value of time, quality and cost

Concepts

Theories from categories



Figure 2: Terminology in content analysis


Each category carries several sub categories with codes which developed during data analysis. The data within the different codes from owners, designers and contractors were then compared in several comparison tables. From this table, a gap analysis was conducted to investigate similarities and differences between the codes of each stakeholder group. Identification of gaps led to the creation of a model showing the relationship between the stakeholders for each of those specific categories above. As a result, a matrix of gaps has been produced, with each model showing the connection of the three stakeholder group members in term of their perceptions of time, quality and cost.


Similarly, models showing the connection between the stakeholder groups were also established for the issue of international construction contract as well as leadership. It should be noted that in addition to categories as originally expected in the research design, there were two emerging issues of significant importance: ethics and social status. Categories reflected the research questions: e.g. people in relation to time, quality and cost. The next level, that of respondents’ theories was labeled subcategory.


An ideal model of structural relationships between owners (O), designers (D), and contractors (C) should look something like thick line triangle as shown in figure 3. This would recognize the interdependent nature of the three groups though this research showed that nobody can deny the existence of different values and perceptions between stakeholder groups.


O O O


Time Quality Cost





D C D C D C


Figure 3: Ideal model of structural relationships


Due to the lack of qualitative research in this field, it was assumed that the owners, designers and contractors have somewhat equal relationships amongst themselves. As these findings develop, this assumption can not be supported. The devices used in the models include: ------------ (dotted line) showing very weak relationship, _____________ (thin line) showing not too weak, not too strong and ▬▬ (thick line) showing very strong relationship. In addition, the relationships between the three stakeholder groups are illustrated in triangles with each group in one corner.


4.1. Matrix of gap analysis



Model

Owner(0)

Designer(D)

Contractors(C)



O




Time

D C


3

“Time is of their concern because if it can be faster, they can get good names in front of their superior”



6

“What they sell is man their man- hours. So their perspective is totally different”



3

“Contractors tend to complete the works at the earliest time. In term of time, contractors will strive for being on time”


O


Quality

D C


7

“Speaking about quality, generally we are the same. In fact, the consultants should defend the owner’s interest”



7

“So, they use specialists based on previous projects for their convenience in term of quality”




5

“The contractors tend to be a sort of brokerage as they are not so stringent in controlling the quality.



O




Cost

D C


4

“In term of cost, as they have already the approved state budget then they do not have so much concern to reduce it”



10

“They do not have so much concern for the study about how much should the optimum cost be”




11

“In term of cost, they do not have so much concern because individually there is no contribution from those officers”


Figure 4: Total number of gaps and major quotations from the respondents


Interestingly, the thick connections exist in different places as seen on Figure 4 with three different models. This shows how the perceptions of owners, designers, and contractors are only closely related in one specific issue between two stakeholder groups as far as time, quality and cost are concerned. Moreover, it also means that in each issue there is only one thick connection instead of other possibilities to have two or three thick connections between the stakeholder groups. The latter could be considered as an ideal situation where all stakeholders at project level have thick connections in perceiving one of the issues for the benefit of all parties concerned. It should also be in line with other research findings that the general opinion about partnering is all parties benefit to varying degrees from its use (Black et al, 2000). In addition, organizational structure is a strong vehicle for institutionalization because it provides a framework that shapes and is shaped by the characteristics and commitments of people as they develop their relationships (Whiteley & McCabe, 2001).


4.2. The leadership model


The perceptions about leadership among the three stakeholder groups are somewhat different. ‘People’ as one of the aspects in project management was raised by the respondents only when its relation to leadership emerged. In this model shown in figure 5, both designers and contractors share more aspects of leadership than they do with the owner.


O


Leadership





D C


Figure 5: Leadership model for the project stakeholders


Ng et al (2002) claimed that as the clients are in the position of the head facilitator of the partnering arrangement, they must take a leadership role, and ensure that they are fully committed and prepared to compromise in the project partnering arrangement. This research found, however, that the owner’s project managers in Indonesia were reluctant to accept the reduction of their leadership role. In the past, their role covered all sorts of authorities in the project, from technical, administration, finance and so forth. With this role, the position of consultants in the project is based on the so called ‘assist concept’, whereby the owner’s project managers become the sole decision maker assisted by the consultants.


Unfortunately, with the introduction of ‘task concept’ – whereby the consultants are also in charge for the whole tasks- resistance from owner’s project manager started to emerge. Such a strong position of the owner’s project manager to hold the leadership role also relates to the culture specific of Indonesia. The paternalistic view is one of the cultural aspects of most Indonesian. According to Drake (1989) the government with its overregulation and bureaucracy seems more concerned with measurable, tangible results than with the process of development and changes in orientations and attitudes. Interestingly, this sort of situation exists also in other projects outside Asia, for instance in Australia, where Ng et al (2002) conducted their research. They found out that the unwillingness of the client to fully commit to the partnering agreement was the main reason for ineffective project partnering. There is a need for the public clients to adapt more administrative procedures in order to improve contractors’ willingness to commit to project partnering arrangements.


4.3. Matrix of gap analysis in the context of FIDIC


Model

Owner(0)

Designer(D)

Contractors(C)



O




Time



D C


Delay

“For owners, they must be careful for delay in payment as contractors can seriously appear it as a problem”


Delay

“The owner must avoid their delays like in the local contracts because there could be claims for such delays”


Strict

“FIDIC states that in the case of delay in payment, then Owner will get penalty. Quality and time are so strict in FIDIC”


O




Quality


D C


Quality control

“If there is a clause in FIDIC about quality we then issue guidelines about quality assurance and control”




High quality

“We see FIDIC is more focused on quality in order to keep it in a good project. In term of quality, they feel it as being quite high standard”



Strict/stringent

“FIDIC is quite strict and have no tolerance for quality. In facing such situation, it depends on contractor’

s approach as long as quality is not at risk”


O




Cost


D C



Change order


Escalation


Cost control





Change order


-


-





-


Claim


-




Figure 6: Models, codes in each stakeholder group and quotations about FIDIC


With regard to FIDIC application in Indonesia, it is quite surprising that the structural relationships differ as opposed to those previously set out in figure 4. The above figure 6 illustrates new models of structural relationships as they emerged from the data analysis. The matrix has shown that the stronger connections exist between owners and designers. These cover two of the three main issues; namely, time and cost. This relates to the fact that in FIDIC, designer (or engineer as per the definition in FIDIC) means the person appointed by the employer to act as the engineer for the purposes of the contract (FIDIC, 1992). It should be noted, however, that in terms of quality, there is no evidence that both the owners and designers shared their perceptions pertaining to FIDIC. With this situation, the models above have shown that the application of FIDIC in Indonesia entails a closer relationship between owners and designers, with contractors somewhat alone. However, the independent role of consultants is increasingly influenced by employers (Genton and Schwab, 2002).


4.4. Key emergent findings


Aside from those findings described above as directed by the research objectives, the content analysis also raises two key emergent findings flowing from the respondents. In short, there are two key emergent findings from the content analysis as they were not originally anticipated. First, ethics was raised by several members of each stakeholder group either by making reference to their own internal practices or by pointing at practices of member of the other groups. The second emergent finding concerns with social status between different stakeholder groups.


5. Discussion


5.1. Modification of the triple constraints in project management


The concept of people at center of project management was introduced by Kliem et al (1997) in relation to the traditional principles of triple constraint: time, quality and cost. With this in mind, obviously the triple constraint appeared as a given starting point without any consideration about people’s originated constraints. Yet, the literature does not discuss how people perceive project constraints from their own constructs. Therefore, this research seeks to establish reality “out there” by protocols designed to minimize researcher influence by aiming at “objectivity” and “neutrality” (Whiteley, 2005) as part of the grounded theory method. In the absence of those “realities” scholars could hardly determine project constraints that fully represent the perspectives of project people. As a confirmatory signal that the focal concepts of people and leadership were important, the experts share the view about people’s role in project management. They also make statements that the cultural issues are related to leadership as well as the two emerging issues of ethics and social status. Therefore, the literature concerning the role of people in project management is somewhat challenged by the data.


This study supports the argument of Belout (1998), that relatively little attention has been paid to the human resources factor. The author suggested that researchers should attempt to retest the conclusion of Pinto and Prescott (1988) to corroborate the non impact of the personnel factor on project success. Chapter 4 of this paper has shown that gaps exist in perceptions amongst project stakeholders concerning the value of time, quality and cost. It should be noted, however, that those perceptions are somewhat shared between the stakeholders though specific issues might be raised by one group but not by the others. From this research concerning people as the focus of project management in Indonesia, the triple constraints are unlikely to be perceived similar to the original concept invented in the west. Modifications are, therefore, inevitable for the particular case of projects in Indonesia or other locations where the perception of project people requires special attention.


The first modification relates to leadership that should be added to the elements of constraint. Project manager, as the center of leadership, in Indonesia tend to become the most crucial constraint especially when an international construction contract rules the project. In such a case, the requirements attributed to a project manager could not sufficiently be fulfilled with skills, competencies or other technical based experience. Additionally, the project manager must also be able to deal with other stakeholder groups from different cultural setting who may perceive the values of time, quality and cost in different ways. As a leader, the project manager must tackle people not only from his or her group of origin but also from other groups. In other words, leadership becomes an extremely critical constraint particularly when gaps exist as a result of structural relationship between project stakeholders. Secondly, ethics emerged as an additional constraint for the implementation of project management in Indonesia. The intensity of the statement from the respondents concerning unethical issues practiced by all stakeholders entails further consideration on how it affects project performance.


Lastly but not least, the emerging issues in this research suggested the inclusion of social status as part of the project constraints. This is in line with Van Niel’s argument (1979) that a growing number of Indonesians found positions with the government and came to be placed in positions which accorded them a higher status in the eyes of the people. This research also argues that there is a strong relationship between ethics and social status in the context of project management application in Indonesia. As respondents stated, for various reasons, some people conducted unethical practices in order to maintain their social status or to heighten their status.


With those insights in hand, the research argues that current literatures about People as the center of project management would now also include Leadership, Ethics and Social Status as its integral part. Consequently, P&LESS (People, Leadership, Ethics, and Social Status) should not be separated from the traditional triple project constraints of Time, Quality and Cost. People need to remain as the centre of project management principles though people’s perspectives should also be taken into account in addition to the technical perspectives. This research can, therefore, suggest that project management should now look at the project constraints from a new perspective as shown in figure 7. It gathers all crucial insights expressed by the respondents, followed by data analysis and research findings


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