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July 21, 2008

ENGCOMP offers services to Defence Construction Canada

Originally published in The StarPhoenix newspaper, written by Hannah Scissons (used with permission from The StarPhoenix)

A Prairie engineering firm is getting its feet wet in the Pacific. Engcomp, a Saskatoon company only four years old, found a new match for its services after officials with Defence Construction Canada (DCC) heard a conference presentation by Engcomp president Jason Mewis.

Jason Mewis

Engcomp president Jason Mewis at the company's office (photo by Greg Pender, The StarPhoenix)

He described the method of risk analysis his company has been developing for use in project planning -- to account for unforeseen or unpredictable factors that affect budgeting -- and the federal government employees were keen to hear more.

Instead of a 'best guess,' Mewis conducts a method of statistical modelling using Monte Carlo simulation...

They had one project in particular causing them a lot of headaches, largely because their budgeting methods had been insufficient to account for the rapidly escalating costs of labour and materials in the last decade.

The fleet maintenance facility at CFB Esquimalt, on Vancouver Island, is in the midst of a renovation project where its many smaller buildings are being consolidated and upgraded in one large facility.

The Department of National Defence originally approved a budget of $91.8 million for the project, but that was in 1995, and by the time the project went for tender and offers came back more than five years later, costs had increased so much on the booming West Coast that the initial budget was inadequate.

"The bulk of the construction work was designed and tendered in the peak of the escalating construction industry here, the results of that being that when we finally did go to tender with the big package, it came in far in excess of what the budget had allowed for," said project manager John Laverdiere.

New approvals were needed for a new budget, and by the time that process was complete, costs had escalated again beyond what the government had budgeted for.

So when the DCC officials heard Mewis describe his company's method of risk analysis two years ago, it led to further meetings and ultimately a project where Engcomp came in and helped DCC create a budget that would hopefully be more accurate.

"Before they would just use a subjective guess in how to account for the unknowns," said Mewis.

"There's risks involved in doing that because you may not have a good enough understanding of where you are with the project at that time and you may under-budget yourself."

Instead of a 'best guess,' Mewis conducts a method of statistical modelling using Monte Carlo simulation, which uses repeated random sampling to simulate complex systems -- in this case the construction project.

The budget that Engcomp helped DCC develop and get approved was for Phase 4 of the ongoing project. DCC liked it enough that it is going to use it again for Phase 5 and it has been talking about standardizing the process for use in other government departments, said Mewis.

It's a method that's being used extensively in the financial, insurance and information technology industries already, he said.

"But in capital construction projects, it doesn't seem to be very widely used yet, and it's starting to come around as being more the norm."

At the time Mewis was brought in, DCC had been focusing on trying to get better contracts, where it could legally hold contractors to fixed-price bids and come in under budget that way.

Mewis made the case that it's much more important to have an accurate budget.

"The reality is that most times when you end up going over-budget, it's not because a contractor hasn't done something right or has deceived you -- it's because you haven't planned well enough," he said.

In this case, Engcomp's risk analysis generated a budget for the construction project that included a much larger contingency fund for escalating costs and risk factors -- things such as environmental cleanup fees, labour unrest and bad weather.

"Is it more accurate? We hope it is," said Laverdiere. "It does give us more flexibility to absorb the impact of these risk factors should they occur."

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