Should Large Public Construction Projects Be Broken Up?

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Friday, December 11th, 2015
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There has been a tendency in Australia over recent years to fall into the trap of a boom/bust type cycle for public sector related building and civil engineering infrastructure projects.

In this cycle, governments splash out cash from higher tax receipts in good times but pull back when conditions are tough and finances stretched.

Under this phenomenon, a surplus of projects hits the books amid strong balance sheets during better times, which puts upward pressure on costs. This is followed by a shortage of work during lean periods which leads to redundancies. This in turn means resources are tight and skills in limited supply when the inevitable upturn comes again.

Such a cycle, engineering consulting lobby group Consult Australia argues, fails to deliver short-term stimulus when the sector needs it most. It also fails to supply public sector clients with the confidence that there will be the consistency of skill base needed to deliver optimal project outcomes on a consistent basis over the long term

These effects are being multiplied by the growing tendency of mega-projects to come onto the market. Indeed, even as governments have encouraged consultants and contractors to maintain strong work forces, a number have cut back investment on the type of smaller projects which enable smaller consultants to compete and therefore maintain a steady flow of work from which to support that workforce.

In a recent report, Consult argued that consideration should be given to the idea of breaking up or ‘disaggregating’ these mega-projects into smaller projects. Done in a considered manner on a case-by-case basis, this could not only help the sector maintain a consistent workforce and skill base, it could also facilitate greater levels of innovation through the encouragement of collaboration and shared learning amongst smaller teams.

Breaking up projects can also help avoid situations in which the bid costs for work become so large that consultants and contractors are encouraged to adopt a ‘win or die trying’ culture amongst major firms, Consult adds.

Stressing she was not trying to argue one way or the other for disaggregation per se, and that decisions regarding whether or not this should indeed take place for individual projects should be made on a case by case basis, Consult CEO Megan Motto said her organisation wants to open the door for debate and encourage greater consideration of the concept.

“One of the things for example that we see as benefits to small business (of disaggregation) would be to have greater opportunity to tender when there are more projects coming to market,” Motto said. “When you have the very large mega-projects, we often see a culture of it only being tendered by the very large firms, usually in a partnership arrangement with a consortium. Those firms tend to really feel like it’s an environment of win or die trying.

“What that does is it invests a huge amount of costs into the industry more broadly and of course that cost is then reinvigorated through the chain and passed back through to the consumer. The cost of ramping enormous teams up and ramping them back down if they don’t win a particular bid can be quite significant. Definitely, if there’s an opportunity for a more stable market, there is more opportunity for small business.”

Of course, smaller projects do have pitfalls. Breaking up larger projects could create coordination issues, for example, when solutions devised for individual projects failed to adequately consider the broader context of the bigger development, or when solutions devised under smaller parts of the project turn out not to work together as a whole. Larger projects can bring benefits in terms of scale and coordination. Moreover, Consult says, a number of factors should be considered when deciding whether or not projects should indeed be split up. These include:

  • the need to carefully evaluate the partitioning via discipline, scope or geography alongside timing, disciplines and outcomes sought, as well as interfaces and preferred delivery models
  • the review of delivery models with regard to value for money, risk minimisation and efficient delivery facilitation
  • interfaces between projects
  • the ability (or lack of ability) for participants to work collaboratively across project interfaces with other stakeholders in a complex delivery environment
  • the need to build in and encourage flexibility within projects and packages to enable the best possible management of risks and uncertainty
  • any risks associated with quality, cost and timing where projects are broken up.

Asked whether or not there were specific types of projects for which disaggregation was particularly advantageous or conversely not suitable, Motto said there was no single determining factor (including project size) and that all projects should be evaluated on the basis of their individual parameters.

“There will be projects where there are efficiencies in scale, and there will be other projects where the benefits of breaking a project up to develop more competition in the market to drive more depth of ideas and innovative results and outcomes,” she said.

“Those benefits (of maintaining the project as single a single large development) will potentially outweigh the costs involved in breaking projects up. It really does depend on the specifics of the circumstance, the context and the project.”

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