1. Optimistic Predictions (Unintentional – or Otherwise)
We all know that hindsight is 20/20, but project management is not a new discipline. Fact checking assumptions and numbers should be essential, and there are a number of techniques that can be used to flesh out the full project scope in the face of the usual types of unknowns. But these processes are not always followed, even on megaprojects.
Henrik Lando of Copenhagen Business School, for example, cites public sector projects that are started before the design has been completed as a major trouble signal.2
Optimistic – or completely invented – data can also be an issue.
Consultants for the Clem Jones (AKA Clem7) toll tunnel in Brisbane, Australia, made traffic predictions that proved to be 60% – 75% over the numbers needed to provide financial compensation for the project to investors in the public-private partnership. Allan Davies, of Pollard Davies Consulting, points out that traffic predictions were actually much higher than those for New York City’s Midtown Tunnel, even though NYC has four times Brisbane’s population.
So what happened? It turned out the numbers were a workback from the amount promised to investors. “Put simply, the traffic forecasts here were made to fit the financial models,” says Matt O’Sullivan in this article.
2. Lack of Consequences for Contractors Who Don’t Meet Commitments – or Who Intentionally Underbid
The consultants from the Clem7 disaster were paid hefty bonuses totalling about $50 million AUD. Effectively, they were rewarded for underbidding twice: once when they won the project, and a second time when they were paid the bonuses.
The problem is not unique to toll roads or public-private partnerships – intentional underbidding is used to secure contracts around the world in most delivery models.
In his article, Alan Davies says, “I know of cases involving consultants who advised losing bidders on major high-profile infrastructure projects. In a number of cases they were gob-smacked by the size of the bid tendered by the winner and not surprised when the winning tenderer subsequently experienced financial problems.”3
The authors of this article note that the Flyvbjerg report mentions this as well. “Flyvbjerg argues that project managers competing for funding massage the data until they come under the limit of what is deemed affordable; stating the real cost, he writes, would make a project unpalatable. From the outset, such projects are on a fast track to failure.”
Matt O’Sullivan, commenting on Clem7, said “governments, too, deserve to take much of the criticism for creating a model that enabled the group with the most optimistic forecasts to win the project bids.”4
3. Engaging in the “Break-Fix” Model of Project Management
The “break-fix model” (a term coined by Dr. Patrick O’Connell) refers to what Flyvbjerg describes as the main delivery method for megaprojects.
Flyvbjerg says, “…Megaproject planners and managers – and their organizations – do not know how to deliver successful megaprojects, or do not have the incentives to do so, and therefore such projects tend to “break” sooner or later, for instance when reality catches up with optimistic, or manipulated, estimates of schedule, costs, or benefits; and delays, cost overruns, etc. follow. Projects are then often paused and reorganized – sometimes also refinanced – in an attempt to “fix” problems and deliver some version of the initially planned project with a semblance of success.”
The process of bid shopping, or aggressively searching for contractors who will undercut other contractors quotes, is a smaller version of the break-fix model. Because a blind eye is turned to how the contractor achieves the lower price, the door is left open for substandard materials, methods, and results. When repairs to substandard work are required, costs are often increased due to the need for a second round of excavation, demolition, and/or reconstruction afterwards. This doesn’t include additional risks to worker and public safety caused by the substandard work.