Industry Insight No. 14: Stakeholders— managing the challenges and opportunities
This article was first published by Lexis®PSL on 13 February 2017.
Construction analysis: Sarah Schütte of Schutte Consulting Limited explores the role of stakeholders on construction and engineering projects, and the challenges and opportunities they present. As part of this she explains why it is important for the lawyers involved to identify who the stakeholders are, and how to do this.
What is a stakeholder?
All projects need support, whether internal or external. Support comes in many forms, including financial, legal, ethical, regulatory and strategic.
The term 'stakeholder' commonly covers anyone who is not directly involved in delivering the project, but who has an 'interest' in its success. An 'interest' is defined widely, and includes legal, beneficial, equitable (ie trust), financial and statutory/regulatory. It also includes those within the business who should be consulted at various points in time during the project.
Why do projects need stakeholders?
Projects are, by definition, temporary and (should) have a specific purpose, or outcome. Projects are not 'business as usual'—they have a beginning and an end. Differing groups are involved in realising the project (ie making it happen), and it is useful to classify them like this:
direct: project delivery team
◦ internal (sometimes called 'project sponsors')
What kinds of projects require stakeholder involvement?
The type and variety of projects is as varied as you can imagine, and all sectors of the industry, public and private, are covered. Almost all projects these days have stakeholders to a varying degree, depending on several factors:
whether internal or external
whether the delivery arm is public or private
whether funding is required
extent of statutory/regulatory reach
Can you give examples of projects which you have worked on involving stakeholders?
Here is a small sample:
Office development financed through a traditional funding model (eg bank loan or facility lending)
Consortium of organisations pooling their expertise to spread risk in relation to a complex piece of infrastructure
NewCo (SPV) incorporated for the purposes of jurisdictional compliance for a project to be delivered outside of the UK
Corporate JV created to manage and deliver outsourced services to a local authority
Shareholders in a limited company reviewing legal advice and deciding whether to refer a dispute to adjudication
Local community consultation on the closure of library services
A board of trustees regulating charity activities
A retail public limited company, whose board includes nonexecutive directors, debating strategy on opening/ closing stores
A board of governors overseeing school spend
Fit-out consultation with proposed key tenants by the owner of a new shopping centre
Environment Agency consultation/approval for a new wastewater plant
Office of Rail Regulator signing off on new rail technology
As a lawyer why should I try to identify the stakeholders in a project, and how would I do this?
Whether you are an in-house lawyer or a private practice adviser, it is essential for you to identify stakeholders to any project you are involved in. Such information is contextual to the project, and informs as to the project drivers, pressure points, consultation/approval milestones etc. Doing so will provide you with relevant information about 'interests' at your fingertips, and enable you to advise your client fully.
Stakeholders should have clearly defined roles and responsibilities in order that everyone understands what their involvement should be. This might include:
milestones at which they should be consulted
any approval/sign off to a course of action
extent of 'powers' to impose or influence
It can be difficult to identify 'interests' accurately. In my experience, the interests are often unclear, or perhaps it is more accurate to say that it is often assumed that interests are something which they may not be upon closer inspection. Sometimes this comes from stakeholders themselves, particularly internal ones. But, if stakeholders don’t understand their interests, then the project will undoubtedly suffer. So how to identify?
Legal/beneficial — contract (property ownership, party wall, tenancy etc)
Statutory interest — these emanate from legislation so should be fairly easy to identify
Financial interest — laid down in contract (eg lending facility or terms of grant)
Trustee interests— laid down in trust documentation
Internal stakeholders — much more difficult. The project sponsorship piece should be led from the top, as part of corporate strategy. Documenting the business case and project strategy is recommended so internal teams’ remits are clear.
As much as anything, dealing with stakeholders is about appropriate communication, and consultation planning, so that deadlines are not missed, and so that people are given sufficient time to read papers, and comment.
Lawyers are in a good position, as a business neutral concerned with compliance and governance, to be in the driving seat of ensuring that stakeholders are appropriately involved and at the right times.
Lawyers are also good at asking questions. You should ask for details of stakeholder role and responsibility, if it is not offered up clearly.
In my experience, a roundtable workshop provides a useful forum for discussing, and clarifying, stakeholder interests.
As a lawyer in-house, I lost count of the times I was asked to 'just review quickly, and sign at the bottom'. This is frustrating, and it puts everyone under stress and risks things being missed as a result of a lack of thinking time. That is not to say that every minutiae should be debated — that is unrealistic, and projects won’t progress efficiently. It can be a difficult balance, and that is why I advocate the importance of early investment in contracting strategy and project planning before the real deadlines are lined up. Too often, however, this stage is rushed or missed out completely, and this stores up problems for project delivery before it has even started.
As a project manager I have to deal with other teams in the same organisation and they seem to be hindering my every move. What should I do?
This is a common complaint. Project managers have many responsibilities and one of them is to manage expectations. Getting internal stakeholders 'on your side', ie understanding their interests, is the key to success. The more you can anticipate what their pressure points are going to be, the more likely you are to instil confidence and credibility with them.
For example, you can do this by reporting to finance well before year end as to the current status of employerrisk events (eg ‘compensation events’ under NEC3) notified, and what the consequences of each are likely to be in terms of programme, project budget, contingency and cashflow.
Remembering that stakeholders may not have experience in the technicalities or type of project will help too. This means it is important for project managers to invest time in educating stakeholders and keeping them up to date with progress. For example, many of my clients right now have stakeholders interested in their NEC3 contracts, and so we are promoting workshops.
Can a project management office (PMO) help?
Absolutely, yes. The PMO's role is to oversee projects and manage stakeholders at a strategic level. This can help to take the heat out of issues on the ground at project level, which the project manager should manage. A PMO should have a direct link to the leadership team: research from the Project Management Institute shows that in mature organisations the head of the PMO sits on the board and thus can report directly and thus has more influence more quickly. For more on this, see my article on the future of project management (Part 1) July 2016 .
I’m a stakeholder: what should I do?
Here is my fivepoint checklist:
Know the source of your powers — statute, trust or organisational
Understand the core project deliverables — budget, time and output
Note the key areas in which pressure points may arise: project milestones, financial year ends, project monitoring or quality assurance (QA) dates, internal audit dates and disclosure dates for insurance renewal
Check if the project concerns 'construction operations' or whether the contract provides for adjudication — if so, be aware that disputed issues, if not resolved, could be referred to adjudication for a swift decision, which binds the disputing parties. You may be called on (depending on your interest) to participate in discussions about whether to take that step or how to respond to an adjudication brought by the other side
Know when to step in — this comes with experience and with full understanding of your remit
How does the international nature of the construction industry impact in this area?
Organisations in the construction sector operate in a global market, which is very competitive and, to some extent, fragile. Consortia are common, and while they can spread risk in projects which are delivered out of the UK, the contracting arrangements need to be properly drafted and formalised. Stakeholders can experience more difficulty given the additional complexity of working outside the UK.
New sources of financing
Non-traditional sources of funding may mean multiple sources of funding. More stakeholders mean more scrutiny, and, to some extent, more pressure to perform, including the need to have available live data. Data must be reliable (see my article on the use of software October 2016. Accordingly, lawyers and project managers must be on the ball. In my experience, a chart of interests will help both to map out and understand this type of stakeholders.
Impact of Brexit: What does the future hold for stakeholders?
Stakeholders remain essential to enable all projects to get off the ground. This is not likely to change. In fact, the UK is likely to need more stakeholders post-Brexit to effect mega and major projects, because the opportunities and sources of funding afforded by the EU single market are likely to be reduced. The origin of 'new' stakeholders into the market is already apparent in the likes of Hinckley Point C Nuclear Power. It’s going to be a brave new world, and an interesting one.