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Week of 29 January 2024: Dishonest Dealings in Capital Projects

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I promised you this column last week.

Everyone in a capital project is under pressure. The mill team is under pressure to bring the project in on budget (remember how you kept shaving the budget to get the project through the board of directors?). The suppliers are under pressure to win the project at the highest possible profit for them, and will promise the moon, if they don't have to put it in writing.

And this is all good, for it gives an old guy like me a steady income as an expert witness in project lawsuits. The grayer and thinner my hair has gotten, the more I can charge.

When I think back over the last half century, it would be hard to choose sides, mill or supplier, when it comes to who performed in the most dishonest way, all because they were attempting to make their budget. Read our book, "Pulp Rats," for further insights.

In a mill where I worked decades ago, it was embarrassing how we got out of paying the suppliers for work done out of scope and for which we never paid. It was a variation on this sentence, "You need to help us out on this one so that you stay on the bid list for the next project." Ever used that one? Did you remember it for longer than it took you to get it out of your mouth? I would like to think I used it only when I was given a direct order to do so, for I knew it was a lie.

How bad can this be? I saw a construction contractor give up a half million dollars in extras on a project that was only a million and a half to start with. During the entire time I was on that site, they were never there or even invited to bid again.

Suppliers, your turn. Suppliers somewhat have the advantage in the negotiating game, for they do this every day. It is sort of like buying an automobile. You buy one every few years, the auto salesperson sells five or ten a month if they are good. You don't stand a chance as a purchaser.

One of the most insidious things suppliers have been doing in the last decade or so is planning on paying liquidated damages from the beginning. They have figured out that paying liquidated damages is more economical than designing to the mill's specifications. Mills, dig into this one and make sure you get what you need up front.

Suppliers have all sorts of other tricks, too.

The biggest lie is told by project facilitators who get everyone in the room and have a team building exercise. This is not a team; everyone has their own agenda. The mill is trying to build at the highest specifications at the lowest possible costs. The suppliers are trying to make the most money while avoiding being sued. No team here, every party has a different agenda. What a joke.

Be safe and we will talk next week.



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