5 Common Causes of Construction Project Failures & How to Address Them, By Kieran O'Connor, Vice President, Beacon Consulting Group, Inc.
When a construction project runs into serious trouble, Surety companies are often called upon to step in. As a construction consulting firm specializing in turning around troubled projects on behalf of Surety companies and project owners, we’ve seen firsthand the most common reasons why projects fail and, more importantly, how to get them back on track. Below, are five common root causes of construction project failures and some strategies to address them.
1. Poor Project Planning & Scheduling
A project’s success starts with a good plan. When initial planning is inadequate—whether due to unrealistic timelines, insufficient resources, improper sequencing of tasks, underestimation of key parts of project, or failure to account for potential risks—the project is at risk from the beginning.
Solution: All successful projects start with a clear, realistic plan that accounts for possible delays and challenges. To achieve this, an experienced construction project management team should be involved from the start, working closely with all stakeholders. Next, the team must make sure that everyone involved understands their roles and deadlines to keep the project on track. Thus, clear communication and well-planned project meetings are critical. To keep things on track, use proven scheduling methods and project management software. It is the role of the project management team to closely track progress and make any necessary adjustments along the way to keep things moving forward.
2. Financial Mismanagement & Cash Flow Problems
Many projects fail because contractors underestimate costs or mismanage project finances. Delays in payments, cost overruns, or lack of financial oversight can halt construction and put project owners, Surety companies, and other stakeholders at risk.
Solution: The bid review process is a good time to determine if a particular contractor is underestimating the work or perhaps lacks experience with related projects. Evaluating the financial health and technical capabilities of key players involved in a project is a multi-part process. Due diligence may include reviewing a company's financial documents (submitted as part of an RFP process or as part of their Surety bond application), contacting references for related projects, and first-hand interviews with the company's project management team.
A key benefit of Surety bonds is the pre-qualification process contractors must undergo when applying for a bond. Before issuing bonding capacity, a Surety must carefully evaluate the contractor’s financial stability, credentials, and track record. Once a project is initiated, project managers must ensure that contractors are submitting detailed cost tracking reports in a timely manner. It's also important to ensure that payment schedules are aligned appropriately with project milestones.
3. Inadequate Subcontractor Performance & Management
Subcontractors often play a critical role in successfully completing a project. However, when subcontractors are not properly vetted, lack the necessary resources, or fail to meet contractual obligations, the entire project suffers.
Solution: Prequalify subcontractors thoroughly before hiring. Establish clear performance benchmarks and accountability measures, including proactive monitoring and regular performance evaluations. Depending upon the project owner, the scale of a project, and importance of the subcontractor's role in the overall scope of work, it may be necessary to require that key subcontractors obtain "performance bonds" before starting work. Sometimes it's appropriate to verify a subcontractor's bonding capacity during the bidding or bid review process. This entails getting a letter from a Surety company to verify a particular subcontractor's “proof of bonding capacity."
4. Contractual Disputes & Scope Creep
Ambiguous contract terms, poorly defined scopes of work, or frequent change orders can lead to disputes, delays, and escalating costs. Scope creep—when additional work is introduced without proper approval—can significantly derail a project.
Solution: Develop clear, comprehensive contracts with detailed scopes of work. Use a formalized change order process to evaluate and approve modifications, ensuring all stakeholders are aligned before proceeding with changes.
5. Ineffective Communication & Coordination
Lack of clear communication among project stakeholders can result in misunderstandings, unnecessary delays, and even the need to re-do work that does not meet contractual specifications.
Solution: Establish a centralized communication plan (and system) where project updates, documentation, and decisions are shared in real-time. Conduct regular status meetings to ensure alignment among all parties and quickly resolve any emerging issues. A good communications plan ensures that all stakeholders involved in the project (including owners, construction managers, contractors, subcontractors, and Surety companies) have access to timely and accurate information about the project's progress and financial status.
Conclusion
For Surety companies and project owners navigating troubled construction projects, identifying these common failure points early can make all the difference. By addressing issues related to planning, financial management, subcontractor oversight, contractual clarity, and communication, construction projects can be stabilized and successfully completed.
As experienced construction consultants and project management experts, Beacon Consulting Group specializes in helping Surety companies, project owners, financial institutions, and other project stakeholders to assess risks, develop recovery strategies, and ensure projects move forward efficiently—thereby protecting our clients' financial interests every step of the way.
About Kieran O'Connor:
Kieran O’Connor is a vital member of Beacon's Construction Consulting team. In 2021, he was promoted to Vice President, Southeast U.S., and now leads construction consulting, construction project management, and surety claims consulting teams from Beacon’s Florida office. In this role, Kieran provides strategic leadership and expert guidance for the region, ensuring that Beacon's clients receive top-tier consulting services. As a key member of Beacon's leadership team, Kieran also travels across the U.S. to consult on, support, and manage a wide range of projects.
With extensive hands-on experience in Surety Consulting and Construction Project Management, Kieran is known for his meticulous attention to detail and unwavering commitment to excellence. His expertise spans a wide range of consulting areas, making him a trusted resource for Beacon’s clients.
Kieran holds a B.E. in Civil Engineering, earned his Project Management Professional (PMP) certification from the Project Management Institute (PMI), and has complemented his formal education with years of practical experience in construction management and consulting. His construction project management portfolio includes extensive experience working on a diverse range of projects, including university buildings and facilities, military bases, public schools, residential developments and apartment complexes, large government facilities, bridges, municipal buildings, public housing, skyscrapers, warehouses, and other commercial buildings, roadways, and marine construction, along with specialized surety consulting contracts.
Kieran plays a lead role in all of the following areas:
- Assisting Contractors and Sureties with complex bond default cases
- Managing cost-to-complete analyses
- Reviewing / analyzing payment bond claims
- Preparing project-completion bid packages
- Managing construction defect consulting assignments
