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13.10.15

Mega-project fiascos – are they avoidable?

Source: PSE - Oct/Nov 2015

Louise HartLouise Hart, author of ‘Procuring Successful Mega-Projects’ and a former project director for the establishment of major transport infrastructure contracts in Sydney and London, explains that the all-too-common descent of mega-projects into chaos and litigation can be prevented by making a better job of the procurement phase.

Remember the InterCity West Coast passenger train franchising fiasco in 2012? The UK government announced it was about to award a £5.5bn contract, only to have the project descend into a welter of litigation and public inquiries even before the contract could be signed. What about the 2004 $1.8bn Canadian helicopter contract, described by their foreign minister as ‘the worst procurement in the history of Canada’, and currently running a decade behind schedule? Or the headlines SNCF had to endure in 2014 when its €15bn procurement delivered new trains too wide to fit alongside many of the French regional platforms?

There have been numerous public inquiries into such debacles over the years. While the specifics of failure are always slightly different, inquiry after inquiry finds the damaging and costly failures of major government projects can be traced back to the procurement phase.

Standard contracts will not cut the mustard

A lot has been done in recent years to raise standards in government procurement generally, but systems and procedures that work for small-scale contracts do not transition well into the mega-project environment. A standard form contract will not survive the bidding and negotiating process for a project worth billions. A standard form evaluation spreadsheet will not deal adequately with the complex trade-offs between financial, commercial, engineering and operational concerns for the delivery of infrastructure that takes years to build and will be in use under the contract for decades.

Current efforts to improve Civil Service project management skills are a step in the right direction, but it needs to be recognised that establishing a contract for someone else to deliver a project is qualitatively different from managing the delivery of a project. Deliver a bridge or a submarine and there are objective tests that can be independently certified to determine whether your project has been properly done. Deliver a contract to build a bridge or a submarine and – well, how long is a piece of string? And who makes the call?

In theory, for a mega-project, the call is made at Cabinet level. Government agencies do not have unfettered authority to enter into multi-billion pound contracts. Inevitably, Cabinet ministers do not have the bandwidth to do much more than consider recommendations. The power to make the call effectively sits with the senior person at the agency who puts together the package of recommendations to Cabinet.

Or does it? All too often the senior person nominally responsible also has a director-level day job. Decisions get pushed further down and responsibility dissipates. An inquiry into the InterCity West Coast franchising fiasco found there was no-one in the Department for Transport working full-time on the project who was higher than Pay Band 7 – a level not even classified as senior staff.

c. Roger Marks

Above: A Virgin train on the West Coast Main Line

Mega-projects need directors who can bridge the public and private sectors

Finding the right project director is not easy. If you look in the private sector, you find people who have probably never even heard of the tort of misfeasance in public office, never suffered the machinations involved in securing a place on the Cabinet agenda, never been subject to the administrative contortions required to circumvent a public sector hiring freeze, never had to seek legal advice to discover who has the authority to make an apparently simple decision. If you look in the public sector, you find people who have never bid on a contract, never made a pricing decision that could bankrupt their company, never had to agree the allocation of profit and risk among a disparate consortium, never tried to game an incentive, never claimed for a variation.

The government needs project directors who can bridge the two worlds. No single individual will ever have all the necessary skills and experience, so the government needs to expand and develop the expertise of the people it employs and recruits. It needs to allow the project director to build an adequate supporting team with both public and private sector backgrounds and it needs to support the project director with an effective governance framework that helps rather than hinders decision-making.

This kind of investment in people and teams will cost a few million, but when the project budget is measured in billions, there is no excuse for not making that investment. The cost of not doing it has been measured in public inquiries around the world.

(Top image: Boston's 'Big Dig' to divert its traffic flows was one of the costliest mega-project fiascos ever)

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