Commentary about the underperformance of some of our mega projects, rarely gets it right. As a consequence, few lessons are ever learnt. It is an indictment of Australia's construction sector that we seem to repeat the same mistakes over and over again. This does little to advance Australia's project delivery reputation.
Cost over-runs associated with three of our most recent mega projects highlight this trend. Costs ballooned from a total combined initial budget of around $47B, to some $85B! – representing a cost blowout of almost 100%!
This type of performance needs serious intervention by government, industry and project owners. I will briefly outline, against areas of accountability, what I believe to be the main contributing factors and suggest some remedies to eliminate this unacceptable situation.
The cyclical nature of mega projects causes contractors to scale up and down. This makes any long term investments in people and technology impractical. Skills, competencies and processes remain suppressed as a result.
This cyclical nature can influence project owners to adopt opportunistic tactics to secure services. Contractors needing to fill their order books accept higher risk profiles in the process.
This high risk scenario gets worse when executive performance metrics drive the wrong behaviors.
The Australian political setting inhibits any advancement of the required structural reforms. The main reasons are the disproportionate union influence and short parliamentary terms. Such a setting makes any meaningful and sustainable workplace reform difficult if not impossible.
All this means is that we end up with expedient labour agreements with a short term horizon. This impacts the long term sustainability of productivity improvement gains and wages growth. As a consequence, we end up with a ‘ratchet effect’ for mega projects that follow.
The dismantling of the Australian Building & Construction Commission is a case in point.
Furthermore, government approvals bureaucracy and ‘red tape’ does not help the delivery process. It additionally enables minority interests to delay, frustrate or block significant developments. This also dampens the appetite of project debt or equity backers.
The project specific contributing factors following all have equal ranking in my opinion.
Mega projects often have revenues, complexity and risk profiles greater than the contracting entity itself. Yet the task of running such undertakings often goes to individuals who lack the ‘right stuff’. Like any successful enterprise, a successful construction project needs a strong culture. A strong project manager must be like a strong CEO in this regard.
The notion that a large infrastructure project is led by a high achieving engineer is wrong. It would be better to entrust a high achieving leader who is also an engineer, to head the project delivery. Average leaders equate to average teams, so the situation only gets worse. The following quite often then occurs:
- no effective systems, tools and controls put in place and working from day one;
- an ineffective and unbalanced organisational architecture;
- a lack of a real risk management culture;
- no governance framework that includes robust reporting, a project board, internal and external auditing;
- a lack of multicultural sensitivity (mega projects are multinational); and
- health safety and environmental programs that revolve around compliance rather than being inspired by values.
Contractors and project owners must pick the very best to run their projects and protect their balance sheets.
Fair contract structures
Project owners should not delude themselves. At no stage of an economic cycle are onerous and punitive contracts a strategic option. Contractors should not ever think that they can dodge the bullet. Contractors board of directors must establish acceptable risk hurdles and then ensure compliance, to stop kamikaze behaviours in their executive ranks.
The practice of back-to-back onerous contract terms to subcontractors and suppliers has got to stop. This should not count as a risk mitigation strategy for contractors who have taken on crazy terms.
Finally, a dispute board approach to managing contract expectations should become the norm. This approach been successful on large projects around the world. We should adopt it as a matter of course.
Adopting the appropriate delivery model
The contractual layers between the project owner and the workforce should be minimised. This makes for a more responsive and agile project.
Engineering and procurement must be integrated into the project delivery team. This is the best way of achieving timely and efficient design and better coordination.
There is no such thing as ‘one size fits all’ in project delivery. Each delivery model must be specific to the project and its context.
Accurate definition and realistic settings
The full scope of the project must be well defined and connected to the projects time and cost settings:
- consulting engineers and designers must become more accountable for their feasibility estimates;
- owners to be more rigorous with their reviews and project due diligence;
- contractors to apply best practice when preparing estimates and project schedules; and
- an ECI process should be adopted to add rigor to the settings.
The above are all basic from any stand point, yet our mega projects still under perform in a spectacular way. The worst part of it all is that the root causes of the time and cost blow outs are generally the same.
Dario Amara is the Managing Director of Draco, a specialist construction project management company based in Perth, Western Australia.
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