Why megaprojects are hard to deliver – and how to solve the procurement dilemma

Construction and infrastructure is a major component of the Australian economy but we’re not doing it well. According to a report from The Grattan Institute (The rise of megaprojects: Counting the costs, November 2020), Australia’s transport infrastructure is more expensive than the global average. It also found that one in four big projects end up costing more than expected.

The report said that governments pay too much because they don’t drive a hard enough bargain on contracts, and that there’s a culture of governments ‘caving in’ to contractor demands after the agreements are signed, with the result that there are cost overruns.

Some of the issues that lead to poor outcomes include a long-term acceptance of poor industry profitability, as well as low accuracy in estimates and schedules. In addition, there is a model of contracting that places a large proportion of risk on the contractor, whereby the lowest cost and shortest timeframe bid wins.

For project managers, the reality is that it’s the planning, rather than the execution, that is to blame for the majority of poor project outcomes.

What’s needed is a model where risk is shared between all parties. This will lead to better results, a more cost-conscious approach, and projects that come in on-budget and on-time.

Finding the root cause of procurement woes

A report from McKinsey (Beating the low-productivity trap: How to transform construction operations, July 2016), found there are several key reasons for procurement woes, and the associated hit that construction companies take to their efficiency and therefore their bottom lines.

One of the main reasons for these problems is that there are shortfalls in accountability, which drives consistent failures to deliver projects on-time and on-budget. Organisational structures are often unclear, and no-one is taking overall responsibility for results.

The report also found that there’s widespread “reinventing the wheel” and that companies often run business units and megaprojects without consistent performance management.

Finally, there’s a failure to adopt new technology, and extensive use of unsophisticated small contractors, who are also unwilling to embrace the latest technologies.

So what’s the answer? The first is to articulate a clear set of values and targets. Many engineering and project companies find it hard to estimate baselines, and that makes it hard to develop accurate plans. It’s critical to have a culture of measurement and precision.

The second step is to embrace new technology and create an integrated data system. A company needs to have a single database that shows the most important project metrics. These include construction progress and real unit costs. At the moment, most departments have their own databases, and this is a practice that has to end.

The third step is to build a development program for project managers. This will promote excellence and encourage constant practice improvements. To achieve this, companies should design career plans for project managers. Even relatively small companies can do this through mentorship, well-designed performance evaluations and feedback mechanisms.

Finally, construction companies need to adopt standardised systems and practices. To reduce procurement costs and execution times, companies should seek to ensure that all projects maximise the use of the best features from earlier projects.

A technological approach

The technology needed for shared risk and better project outcomes exists today. It’s not science fiction stuff and it is readily available.

This tech uses machine learning, which captures past project data to highlight patterns in projects that will assist in decision-making. Along with machine learning, the use of augmented and artificial intelligence can also help with decision-making. It provides acknowledgement of agreed risks and provides greater accountability for decisions and shared risk.

Scheduling software is also of importance, so that project managers are on the same page with owners, contractors and other stakeholders. Finally, ‘digital twinning,’ which is the creation of a digital model of the project, not only lets project managers see budgets and schedules, but also lets them manipulate those variables to see alternative outcomes.

Digital twinning also considers the use case for the construction and can project how the construction will fit into its environment and its envisaged use in the community.

Companies need an end-to-end approach that’s both cultural and operational. Those companies that do this will place themselves in a winning position and cost overruns and poor project management practices can be mitigated.