Mega projects cost overrun: a vicious techno-political cycle

by Dr. Chandana Jayalath

The topicality of cost overrun has been accentuated moreover by the political allegations against the previous regime than by strict evaluation from an apolitical point of view.

A gamut of technical, economic and political reasons may together matter for cost overrun in any typical construction project, particularly when they are large and complex.

The first and foremost reason behind cost overrun is the inaccuracy of cost estimates. Forecasting project cost is a critical management function in tracking and controlling the cost of construction projects. Advising the owners or managers of possible higher costs at the beginning must be accompanied with the associated economic, technical and locational limitations.

A cost plan should carry several options of making changes where possible and maintaining budgets. Unfortunately, this aspect of early cost advice in the establishment of ball park figures has been a neglected skill.

Plan

Further, the designs that form the basis of the project may not be realistic where a combination of specified features is difficult to achieve or that drawings show an incorrect arrangement.

Executing a project with no exact need laid down in precise terms will either end up with extra costs or cause problems that can only be resolved later at additional cost.

Planning is the next in line where the project should progress according to a plan that assigns durations to project tasks. If the projected durations are too short due to the will of politicians, then the project may take longer than anticipated and cause cost overruns.

Monitoring project tasks on the critical path, which is the task sequence from project start to finish that takes the longest to complete, helps reduce delays.

Project tasks off the critical path have slack times, or free times between tasks, that can be used to compensate for delays.

Changes in the scope of supply within a project also cause cost overruns. These changes generally result from new needs that the owners fix for quality, performance and workmanship that may not work at all.

It is important that the owners understand that additional needs result in higher costs, whether it is classified as improvements or otherwise.

Since the blue print to achieving good technical input to project execution are usually mapped out on the basis of project designs, a design with errors practically means wrong or insufficient representation of project deliverables.

This will lead to wrong application of techniques in achieving results. As the actual execution phase of the project will reveal the errors and attempts to correct it will lead to delay and cost overrun.

Design errors could also crop up if project estimations are done on the basis of designs having errors of omission thereby leading to extra work and change of order.

Claims

Similarly, designs that are done without extensive investigation of site could entail potential errors.

Claims are the other side of the same coin. In foreign funded projects, claims specialists having a proper quantity surveying and contract administration background are mobilised on the projects even before construction commences.

Their sole task would sometimes be to locate loopholes in the documentation and look for lapses in the process of contract administration.

This 'loophole engineering' facilitates 'juicy' claims and more particularly, problems arise when the provision for claim is abused, for example by allegedly tendering at low prices to profit out of others' mistakes.

The political-economic explanations see cost overrun as the result of strategic manipulation of scope or budgets by trying to do what politicians desire. Historically, political explanations for cost overrun have been most dominant in Sri Lanka.

Grounded in social psychology, this way of looking at cost overrun is apparently because politically ruined organisations become entrapped in a particular course of action, thereby throwing good money after bad to make the venture succeed.

Bribes

Defying conventional rationality behind subjective expected utility theory, termed 'sunk cost fallacy' where politicians attempt to justify increased investment in a decision, based on the cumulative earlier investment, despite new evidence suggesting that the cost, starting today, of continuing the decision outweighs the expected benefit.

The sentiment underlying this fallacy can best be described as 'throwing good money after bad' such as in gambling.

From high ranking officials diverting funds, a known fact is that corruption takes place in contracting firms offering bribes for new jobs and technical officers approving bills on a commission.

On one side, this results in technically poor products, leading to cracks, undulations and slips in road projects for example. While corruption is very difficult to trace mainly because the parties only deal with hard cash, it becomes a 'technical' cancer not easily detectable when it is connected with the supply and demand side of the construction means, processes and procedures.

Variation

For example, a bidder may have bribed the project owner's representative to persuade him to award the contract to the bidder.

The two parties may also have agreed that the cost of the bribe would not be included in the tender price, but would be fraudulently included in the cost claimed for a large variation during execution of the project.

A contractor may bribe the project owner's representative to persuade him to issue an unnecessary variation which materially increases the contractor's scope of work and which has an inflated price.

A contractor may bribe the engineer to persuade him to issue an extension of time to the contractor, which is not contractually due.

A contractor may bribe the project owner's quantity surveyor to persuade him to approve the interim bills with exaggerated figures. A contractor may bribe the project owner's works inspector to persuade him to approve defective or non-existent work.

Vicious cycle

Conversely, contractors may agree with contract administrators to account for off-site materials which are not properly designated for the project.

They may also offer bribes to facilitate approval of claims for additional money or time where such claims are not properly justified showing causes and effects.

These activities generate a vicious cycle of cost overruns.

Achieving error-free design entails good communication with the entire design team and integrating a design process that is properly planned, giving enough time for corrections, extensive investigation and reviews.

Similarly, effective project planning and a controlling and monitoring mechanism should be set up to enhance project cost performance throughout the project life cycle.

Value management could be applied to obtain the best cost effective design options. To achieve proper control for change of scope, it is important to first identify the fact that change is inevitable and desirable for the completion of the works and could equally be beneficial to the success of the entire project.

In nutshell, cost overrun essentially warrants some kind of whistle-blowing by disclosing correct information to the appropriate regulators, police or the media about malpractices. Whistle-blowing is a selfless act any citizen in the best interests of the public.