The media is consistently filled with reports of high profile projects being delayed and exceeding the anticipated budget. So, why should the public sector suffer from such a recurring problem? The answer is not straightforward, but once understood can enable government bodies to improve their project delivery performance. This article considers some of the key reasons why Public Sector projects repeatedly make headlines for all the wrong reasons.
Project Complexity
A recurring feature of public sector projects is that they are complex undertakings. Often they are landmark developments, examples might be, British Library in the UK, Channel Tunnel, and Taiwan High Speed Rail.
What all these projects have in common is that they are large, complex undertakings, often in locations, which present challenges at both a practical and logistical level. More importantly in most cases, they are beset with political issues during the planning stages, which are never fully resolved and then continue during the construction period.
The complexity of these projects can be due to the ground conditions, aspirational targets, site location, or on-going activities / existing facilities. In many cases, the project has to contend with constraints and limitations, which would in a commercial setting, render the project unviable. These extreme situations often involve projects being carried out using untested technology or requiring innovative delivery techniques. All these issues mean the public sector often has to undertake projects, which no other entity would consider acceptable from a risk perspective.
Design Brief / Scope
Many of these projects are implemented for the public benefit with the overriding need to ensure all the requirements of competing stakeholders are satisfied. This desire to please everyone usually results in the project brief becoming confused and in some situations, a collection of conflicting directions. This lack of clarity is seen repeatedly as being a major source of conflict and delay, even on the smallest of construction undertakings. A critical success factor for all construction projects is ensuring there is clarity on what is to be delivered, without this, opportunities for claims and delays will increase.
Coupled with the lack of brief clarity, these projects also often experience changes in the client’s requirements during the construction period, resulting in variations to the design coupled with the associated time and cost impacts. Although all projects have variations, the frequency and scale of change found on these projects inevitably has a more significant impact on the original forecasts. The Scottish Parliament Building in the UK is a well-documented project where continual design requests were incorporated but at the expense of completion delays and cost overruns.
One aspect, which usually gets lost in the budget and delay headlines, is the origin of any change. It is a feature of all construction contracts, that once an instruction is issued the professional team (and to a lesser extent the contractor), are obliged to identify the potential impact involved. It is this communication process, which allows funders and decision makers to contemplate the consequences of their directions. This period of reflection can permit a reversal of the instruction in order to mitigate unwanted impacts. Equally, this process allows all parties to begin the process of setting expectations with all the other associated stakeholders (or the public at large). There should be no reason for a sudden announcement of a budget overrun or completion date delay, because construction projects of this scale rarely run at a speed where significant advance warning is not possible.
Failure to adhere to this core commercial management process is inexcusable, from a professional practice point of view, and a failure to communicate adequately this information to all interested parties (i.e. the public) usually results in finger pointing and “cover-up” accusations.
Political Interference
Linked to the above point is the issue of interference by many of the stakeholders or interested parties. It has long been a common practice in public funded projects for the true total cost and to some extent, duration of a major project to be selectively reported. This may be for budget approval purposes (i.e. securing adequate funding to start the project and then leave the funding agency with no option but to continue supporting the development) but is often due to concerns over the perception of what the total impact will have on a wider audience. It has been argued strongly that if confronted with the true total impact at the outset, many major public projects would never start. Whilst this may be true, the delay in reporting the inevitable usually has far more significant consequences. It is acknowledged that in some cases the true total impact is hard to establish (due to the inherent complexity of the undertaking), but in these instances it is even more important to identify the risk areas as well as taking active measures to reduce the unknowns.
Where projects are reported as being successfully completed on time and budget, when detailed investigation is carried out it is frequently discovered that the original baselines (against which this statement should be measured) have been periodically revised to accommodate changes in the project evolution. Therefore, although the ultimate outcome met the last forecast, this result could be significantly different to what was originally approved at the outset. This approach of presenting a project’s performance in the best possible light means the public are generally more receptive to the positive news of the project being completed and rarely investigate the details behind the headlines. Therefore, a progressive approach to updating the forecasts and conditioning the public to the eventual outcome is typically a more successful strategy.
Budget Planning / Reporting Process
As eluded to above, public expenditure is often woefully inadequate for the aspirations of commissioning departments. The need to appease voters and supporters (under a democratic system of governance) can, in many cases be a more pressing requirement than actually considering the economic viability or necessity of a project. This short-term view of major capital expenditure often places exceptional pressure on government budgets and with the recent decades of increasing fiscal constraint, governments have had to turn to more creative funding arrangements to satisfy the competing pressures, PFI / PPP funding schemes being two of the more well know and widely implemented methods.
In many cases, irrespective of the elaborate funding strategy adopted, the fundamental issue of budget planning has been divided into two classification categories. Firstly, the immediate need, which addresses the requirement of being seen by the public to be making progress on required / desired projects. Secondly, the ultimate cost, this is usually considered a problem for a subsequent generation / elected body, who typically take pleasure in blaming the excesses of the past for their current predicament. In both cases, the lack of ownership, short-termism, and public accountability (until after the event) are the root cause of many public project failures.
Departmental Accounting
One of the most common issues, which arise on public projects, is the disconnection between the capital investment team and the future owners / operators of the completed facility. A recent example is the London Olympic Stadium, where the legacy conversion (particularly of the spectator seating) to suit a football setting (for West Ham United FC) has proved to be exceptionally costly as well as resulting in significant increased operational costs. From the information released publically, it would appear in this particular example, that a cheaper initial solution was adopted without consideration being fully given to the future recurring operational costs and practical issues. This example highlights a clear disconnect between the initial design team and the operations team.
Under many public sector jurisdictions around the world, the capital and operational investment teams are separate, with isolated budgets and funding approval processes. This means that each division tends to work in isolation looking after their own interests. The result is decisions, which involve a longer-term view cannot be made because budgets are not transferable between the two investment teams. This short-sightedness compromises the overall project outcome.
It should be remembered that typically over 80% of the whole life expenditure on a facility comes after the initial capital investment. Therefore decisions made at the project outset (or design stage) will drive the success or failure in the future and result in financial implications which will last throughout the asset’s life.
Reduced Commercial Pressure
An aspect of public sector projects which is often overlooked, is the reduced (or lack of) commercial pressure being placed on the project owners and contractors. Although the money still has to be sourced and accounted for, there is a commonly held perception that public funding is endless. Even where there is a collaboration between the public and private sectors for a major scheme (as would be found in PPP or PFI arrangements) the government side is always seen as being the safety net or ultimate banker should there be a funding shortfall. This is perhaps driven in part by the sense that although the private sector adopts a more commercial approach to project delivery, the fundamental commercial basis of major public works, is different to a private sector development.
The results of many early PFI projects (UK healthcare for example) are testament to the fact that original operational forecasts were not realistic and further public expenditure / funding was required to support the continued viability of the project. In some extreme cases, the facility has had to be closed before it even opened. Such a lack of viability planning is inexcusable.
Another important factor affecting public sector projects is the typical lack of commercial consequences should a project be delivered late. In the private sector, a commercial building delivered behind programme will typically result in lost revenue and potentially tenant withdrawal. Public sector projects are generally developed for a public service which does not generate direct revenue (for example; a library, law court, or hospital). Equally, many of these projects are providing a new / enhanced public amenity (for example, road improvement work, or public park), again meaning there is no direct financial consequence attributable to the created asset.
A tangible issue resulting from this is that many public sector projects are unable to determine the financial impact (losses) of late completion and, where the contractor is deemed culpable for any delay, the assessment of the appropriate damages to be recovered. The lack of direct financial linkage to any public project delay or cost overrun reduces the perceived risk for the contractor (and sometimes consultant).
Conclusions
All of the above issues point towards a genuine dilemma for those involved in the delivery of major public works projects. On the one hand, these projects are demanded from the public, but on the other presenting, the true consequences involved can generate unwanted criticism. As long as delivery departments remain unwilling to present the full picture at the project outset or, as soon as it becomes apparent, there will continue to be well-publicised delivery failures.
However, there is very little excuse for any project stakeholder to be surprised by any impending delay or budget overrun if the project team are performing their job correctly. Should these stakeholders deem it inappropriate to publicise the latest situation that is their choice, but at all times the professional delivery team, including the contractor, must provide accurate and realistic information on the performance of the project. This advice and information can only be obtained through the careful tracking and monitoring of the project progress. Adherence to the contract’s procedural requirements (particularly in relation to the issuing of variations) is also another key measure, which should not be ignored.
Even on projects where the input and support from a professional consultant team is lacking, there are still a number of simple questions to be asked or, checks carried out, by funders / stakeholders to ensure they remain abreast of the actual project performance. A sample of these typical questions can be found in The Practical Guide to Project Monitoring, which also provides explanations and guidance on what issues to watch out for during the delivery of any project (whether public or private sector funded). Many central banks or financial regulatory bodies are now insisting that banks and other lending institutions implement these types of project reviews as a matter of minimum best practice for all construction development loans.
Therefore, irrespective of the regulatory requirements in the project location, remaining on top of a construction investment need not be an onerous task. Given the significant financial and associated impacts, any project failure / delay could generate, the conducting of a regular project health check should not be dismissed as being a wasted investment. These activities are quick and when performed correctly can provide early warning of potential risks, allowing mitigation measures to be taken.
Plateau Group 