BUSINESS: Working Internationally Lessons Learned
Working in foreign markets requires a firm to make a number of decisions before they decide how -- and if -- they should proceed on a project. Three of the most important areas to look at are the scop...
Working in foreign markets requires a firm to make a number of decisions before they decide how — and if — they should proceed on a project. Three of the most important areas to look at are the scope of services you will provide, the contractual arrangement you will make, and a variety of local situations. Even after you have addressed such questions you may still encounter difficulties, but the risks will almost certainly be mitigated.
By way of background, Yolles is a consulting structural and faade engineering firm with offices in Toronto, London, U.K. and Singapore. We also have a number of Alliance Partners located in several other major centres around the world. The firm was founded in 1952 and employs 210 staff in our three offices. We have been involved in some of Canada’s most prominent buildings constructed over the last 50 years. These include First Canadian Place, the Air Canada Centre, BCE Place and the Pearson airport expansion all in Toronto, as well as tall buildings in Vancouver and Calgary.
Internationally, during the past 20 years, we have worked on many well-known large building projects in over 15 countries. We have helped design projects such as the World Financial Center in New York, Canary Wharf in London, Canadian embassies in Washington, Tokyo and Beijing, and hotels, resorts and office complexes in China, the Middle East, the United States, Mexico, Germany and the United Kingdom.
Extent of services to be provided
Regardless of the discipline or service a firm provides, it must decide if it is going to provide full services, partial services, or what we call strategic services, for any project.
Full services provide a level of service similar to a complete project in Canada. In our business, this would include design, the preparation of construction documents, the review of shop drawings, and site review services.
Partial services could entail, for instance, working to the end of the design development, and then handing over the work to either a sub-contracted or arm’s length design or construction firm.
Strategic services include specialized services such as peer review, development consultancy, value engineering, and risk assessment. These services are generally smaller in scope, but they rely heavily on senior personnel.
Full service: not the way to go
Whether we are simply working with, or contracted with, a local consultant, we generally prefer not to provide full services on international projects that are in markets outside our main office locations. Time and again in such situations we have experienced a variety of problems beyond our control on issues associated with working drawings, detailing and contract administration. There are several real and clear reasons for these problems:
There is an established design community in every market. Unless one brings expertise that is unavailable locally, one will always be perceived as a threat, taking work from the local community.
Customs and practices vary in every community. Ignorance of the local practices leads to misunderstanding and will create complications.
Communication skills become critical during the latter stages of a project, particularly during construction. Co-operation among different parties is best achieved by those who have longstanding working relationships.
Local staff will inevitably be required, but employing quality staff on a short-term basis is difficult.
Company standards are not universally accepted, even if one believes they are superior to local standards.
Fees associated with detailed work and site activities are rarely sufficient. Exposure to overruns is common.
Partial and strategic services
Partial and strategic services, on the other hand, are very compatible with international work, as they avoid many of the pitfalls of full service. Advantages are:
The experience of the international firm is used for the most critical stages of a project, namely the concept and design development phases, where most of the consultant’s expertise is valued.
Local consultants involved can gain expertise and receive local recognition, while remaining in control of the detailed design and construction phases.
The liability of the international firm is significantly reduced.
Profitability on this front-end work is usually higher and more easily controlled.
Large numbers of local or transplanted staff are not required.
The client receives the expertise he requires, at a competitive, blended fee and with the involvement of the local community.
In these scenarios, the client may still hire the international consultant to provide additional services or oversee the ongoing work, but for the consultant the risks of full services are still reduced.
Regardless of the extent of services to be provided, the responsibility of the international consultant must be clearly stated and agreed to by all at the start of any project. The extent of responsibility will dictate the required staffing, the fee, the arrangement with local consultants and the required expertise.
Our experience has shown that in most cases it is far more desirable to reduce the scope and related risks, than to undertake full responsibility for a major project.
The contractual arrangement on a project relates to, and is as important as, determining the extent of services. Yolles has been involved in the following three types of contractual arrangements on international projects.
acting independently (possibly with a portion of non-contracted local assistance)
in joint venture
acting as the prime consultant with a local sub-consultant (or the reverse arrangement in some cases).
We have used all three arrangements when providing full services. However, when providing only partial and strategic services we have normally acted independently, since we find it presents least risk.
Joint ventures are a common contractual arrangement that can be organized in any one of three ways:
(a) staff from both firms working as one firm
(b) the work is split into specific physical sections
(c) the work is split into specific tasks within the same physical sections.
We have found the most successful way of working in a joint venture is in scenario (b), where the work is clearly delineated between the two firms. Even though both firms will still work together and agree on major common administration and technical issues, each firm can control the management and staffing of the project individually.
We have found that dividing the work as in scenarios (a) and (c) is normally too much to expect from two firms who have not worked together previously. Unless this is to be an ongoing relationship, the logistics, cultures and overall odds of this arrangement working smoothly are, in our opinion, low.
Culture is a unique attribute of every firm. Joint ventures are similar to arranged marriages, where two different companies are asked to work together under tight time frames and stressful circumstances without a courting period. It is the role of the firm principals to ensure that the cultures of each firm are clearly understood and addressed.
We strongly recommend a thorough interview process to sample the local consultant community before selecting a local firm to work with. Only with this informed selection process will one start to appreciate the unique nuances of a particular region and its firms to identify the best arrangement for a project.
It goes without saying that a local consultant must be compatible with the international consultant if a joint venture is to be successful. Selecting a joint venture partner or sub-consultant is one of the most important tasks for an international consultant on a foreign project. If the ideal firm is not available, serious consideration should be given to reducing the scope or liability of the international consultant in ways noted above. One can be virtually guaranteed that a poor joint venture partner will hurt both consultants and the project in one form or another.
Acting as prime consultant
An arrangement with Y
olles as prime consultant has worked well in the past, provided we establish one significant and overriding point early in the process. It is imperative that we respect and consult the local sub-consultant from day one. They must be made to feel part of the team, and must be adequately compensated to ensure that their contributions are timely and productive. If one does not establish this relationship at the start of the project, the prime consultant may be exposed to any number of unforeseen and unmanageable situations.
In a few cases, we have become involved with a local consultant where they act as the prime consultant and we are retained as the sub-consultant. The scope of our work has been generally the same as when we act as the prime consultant; however, our overall responsibilities are significantly reduced. Unfortunately, in these cases our input is often ignored and our contribution downplayed. As a result, the client does not have the anticipated benefits from the joint venture.
The main advantage of acting as prime consultant is that one can retain control of a contractual arrangement. With control, however, one also attracts more risk. It is, therefore, important that one balances the amount of control with the level of risk one is prepared to take.
In conclusion, select a scope of work and arrangement that works best with the local consultant with whom you wish to work. Never force an arrangement with a local consultant that has to fit into a predefined contractual arrangement and fixed scope of work.
“Local issues” are the most varied and challenging aspect of working internationally. Regardless of how many places one works around the world, each location brings with it different situations requiring special care and understanding.
Codes and language
No matter where we have worked, unless the country has advanced technical standards (such as in Western Europe), American, Canadian or British codes have been universally accepted. Since we work in the U.S. and have a British office, we are quite comfortable using all three codes. Where possible, we try to use only one of these three codes, and avoid mixing them with any local codes that may exist. This approach is not possible, however, where local codes do not adequately address significant topics such as earthquake or wind forces, foreign materials or serviceability issues.
A larger problem exists in developed countries where local codes exist, but which in our opinion are outdated, incorrect or do not adequately address recent technical developments. Unfortunately, experience has shown that it is often more expeditious to adhere to requirements of inadequate codes than to try to have an innovative alternative solution accepted. The time and effort to prove a different method is often wasted.
Many of our projects are large and sophisticated by international standards, and entail detailed analysis and complex designs. In these cases, and depending on the local approval process, we hold early discussions with the approving authorities on the codes that will be used to complete the design. This technique has proven very helpful to minimize the potential delays once a project is underway.
Language is an issue that all firms have to face when working in a foreign country. If English is not commonly used, we will not take on a significant assignment unless we have associated with a local consultant who can also communicate well in English. Experience has taught us that our difficulty or inability to communicate is directly related to our ability to successfully solve significant problems that arise on a project. In other words, do not undertake an expanded scope of work where you do not have excellent communication skills in the local language.
Language also has a significant influence on issues such as the contract, the services to be provided and the selection of the local consultant. It is imperative to clearly identify the language the various deliverables will be prepared in.
Approvals can be one of the most critical aspects of working in a foreign country with respect to meeting the project schedule. There are a wide variety of approval and checking systems found around the world. These vary from virtually no requirements (either in licensing or checking) in parts of the Middle East and Asia, to local licensing requirements in the U.S., to no licensing requirements but full checking in the U.K. and Germany. In short, it is critical that consultants have a clear understanding of the local licensing and approvals process before determining the extent of services and the contractual arrangement of their engagement.
In general, the greater the degree of checking that is undertaken in a location, the greater should be the involvement of a local consultant. Experience has shown that a local consultant has the connections and experience to obtain the required approvals quickly. Without this local input, it is often possible for the approvals to be significantly delayed, even if the submitted documents appear to conform to local requirements.
In less developed countries, the definition of what is required can also vary greatly depending on who one speaks with. More often than not, the requirement depends more on the parties involved than on any official definition. During the interview process, make sure you discuss the local approval process, as this will have a direct impact on the client’s design and construction schedule.
In Mexico, the U.K., and even more so in Germany, the checking engineer has a major responsibility for checking a large part of the calculations and drawings. In North America, the approvals authority checks very little if any of the work, with the responsibility placed solely on the firm and signing professional.
In the Middle East and Asia, often the international team only prepares a design development set of documents that is handed over to a contractor to complete the design and to obtain the necessary approvals. In these cases, the international consultant has little input or responsibility for the approvals.
Definition of local services
The scope of services one performs also varies greatly around the world, especially when it comes to site related work. In general, the role of the consultant on site is significantly reduced from the standard in Canada. In the U.S., inspection and testing companies greatly augment the on-site role of the base building consultant. In Mexico and Germany on-site work is done by an independent consultant associated with the checking engineer.
It is important to obtain a clear understanding of the definition of local services as this can significantly affect both the fee, manpower requirements, and schedule.
When dealing with an international client, they often request a mix of services that blends their norm and the local standards. While this blended scope may mean providing more services than are normally required, it gives the client an important level of comfort.
The international definition of services also varies greatly, and can create tremendous difficulties if they are not clearly outlined at the start of a project.
Once a general understanding on the scope of work is reached, it should be broken down into as many individual stages as possible.
This approach has two advantages:
An approval can be obtained for each section. If problems arise, these can be easier overcome than if you find a serious problem at the end of a major section of work.
A payment schedule can be tied to the work sections. It will ensure better control of invoicing and payments than the usual international standard that requires payment only on completion of the entire scope of work.
The extent of documentation required for approvals, tendering and construction is one of the most difficult issues to assess in international work. Documentation has a direct impact on the fee and design schedule, and can often have ramifications for cost control and project risk.
Each region has a completely different philosophy depending on the sophistication of the
local design and construction community. Going too far in documentation can be a waste of time and money, while not going far enough can affect the project’s costs and schedule.
A method we have used to make sure that all parties agree with the level of documentation is to present a sample set of documents when negotiating the fee, and when discussing the tender process with the potential contractors.
A set of design development documents that would be used for tendering and construction in the Middle East could constitute a fee equal to 50-60% of the total fee. In North America, design development would constitute, at most, 25% of the total fee, a significant difference in scope. Final coordination and detailing is also often considered part of the scope of work, while in other regions the contractor or his consultants complete this portion of the work. Clearly, the level of documentation must be well defined and incorporated into the contract.
The issue of contracts, fees and currencies when dealing in international markets could easily be the topic of a separate article. So many different conditions and situations can arise that it is difficult to summarize only a few recommendations of value. Based on our experience, however, we recommend the following simple rules:
Always have a contract in place, and try to have simple arbitration clauses included that can be enforced. Without these clauses, one has little leverage when dealing with problems in many foreign countries.
Always have a “pens down” policy in the contract that allows you to halt work if you have not been paid within the required period.
Always have your fee quoted in Canadian or U.S. dollars if you can. Do not play the foreign currency market.
Make sure you have a “cash-on-delivery (COD)” arrangement for documents. Again, leverage is minimal, if non-existent, once documents have been delivered.
Do not accept fees below what one considers reasonable. The work will always be more than you bargained for, and going into a project with reduced fees will almost certainly result in problems. If low fees must be accepted, reduce the scope, as this is often a poorly defined topic in any case.
Obtain more than one quote if working with local consultants. They will often quote higher than normal fees to North American firms.
Try to contract with a party in a developed country regardless of the location of the project. It will be easier to obtain payment if a problem arises.
Understanding local practice
Understanding local practice is critical to the success of a project. As stated above, even though a particular design or process may make sense in one location, it may be a poor solution for the local culture. We always recommend that a firm undertake a “swat team” approach in a local market when working there for the first time. This approach should include at least a few days of interviews with local knowledgeable parties, and visits to many similar projects. With this information in hand, the consultant should sit down with the client and design team, and agree collectively on the best strategy.
While methods that do not meet with local practice can be used, they should only be adopted once one has gained a thorough understanding of their implications for the project. Educating local participants, or inviting them to visit other locations where these practices have been successfully undertaken, has proven invaluable in the past.
In conclusion, having patience, and carefully considering the issues outlined above, consulting engineers can find working internationally to be rewarding, exciting and profitable — in fact, it can be the experience of a lifetime.CCE
Andrew Bergmann, P.Eng. is president of Yolles Group.