Research Study prepared for the Business Council of Australia
Delivering Large Scale Capital Projects
in the Infrastructure Sector – A Baseline
of Performance in Australia
2 November 2011
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Contents
Executive Summary ................................................................................................................................ 1
Introduction ............................................................................................................................................. 3
Scope ............................................................................................................................................... 3
Methodology ..................................................................................................................................... 4
Australia’s Infrastructure Landscape .................................................................................................... 5
Existing Studies ...................................................................................................................................... 7
Assessing Project Performance .......................................................................................................... 11
Quantitative Assessment ................................................................................................................ 12
Qualitative Assessment .................................................................................................................. 12
Major Project Delivery in Australia ...................................................................................................... 13
Partially Completed Major Projects................................................................................................. 15
Project Delivery: Australia vs. International ....................................................................................... 17
Project Case Studies ............................................................................................................................ 20
Transport ........................................................................................................................................ 20
Water .............................................................................................................................................. 21
ICT
.............................................................................................................................................. 25
Discussion ............................................................................................................................................. 26
Drivers of Successful Projects ........................................................................................................ 26
Difficulties in Major Project Delivery ............................................................................................... 27
Key Threats to the Delivery of Australia’s Infrastructure ................................................................. 30
Procurement Methods .................................................................................................................... 32
Conclusions .......................................................................................................................................... 37
References............................................................................................................................................. 38
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
List of Appendices
Appendix 1: List of Australian Infrastructure Projects Investigated
List of Figures
Figure 1: Methodology adopted for this study
Figure 2: Anticipated cost estimation accuracy during the project lifecycle (adapted from DTF, 2008)
Figure 3: Drivers of project delivery
Figure 4: Cost movement for various delivery methods
List of Figures
Table 1: Literature review of existing studies relating to project delivery
Table 2: Mean ratios for infrastructure projects assessed
Table 3: Project cost estimation accuracy by investment stage (DTF, 2008)
Table 4: Inaccuracy of transportation project cost estimates by type of project (Flyvbjerg, 2009)
Table 5: Cost overrun comparisons – Australia vs. International
Table 6: Examples of poorly delivered international ICT projects (Flyvbjerg & Budzier, 2011)
Table 7: Scope for Improvement report series – key findings (Blake Dawson, 2006, 2008, 2011)
Table 8: Normalised cost and time results from Melbourne University benchmarking study (Duffield et al, 2008)
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Executive Summary
The rate of productivity growth is slowing in Australia partly due to inadequate development in infrastructure
networks. Fortunately, research identifies that growth in infrastructure investment continues. However, the
manner in which these infrastructure developments are planned and delivered creates efficiency problems for
the delivery of large scale capital projects.
This research completed in this study aims to provide a baseline of performance in the delivery of large scale
infrastructure projects in Australia. The methodology adopted throughout this research sought to address both
quantitative and qualitative aspects in project performance.
The criteria set to investigate Australian projects included:
•
Infrastructure sectors: Road, rail, port, airport, water, information and communication technology
(ICT);
•
Timing: Completed within the last 10 years; and
•
Size: approximately $500 million capital cost or greater.
The research yielded a list of 27 projects, of which 23 provided suitable data for further analysis. These 23
projects were quantitatively assessed against initial forecast completion timeframes and publicly announced
costs. These parameters were selected to establish ratios to illustrate the effectiveness of project delivery.
The ratios for these Australian projects were, where applicable, then compared against international
benchmarks.
A sample size of 23 projects in number is limited in the extent upon which statistical accuracy can be
determined. Hampering this study further is that the available sample size within each sector is even lower.
The results and conclusions drawn from this investigation can therefore only be regarded as indicative.
The publicly available data for the 23 assessed projects was found to be extremely limited. The information
sourced indicated that Australia’s performance for both cost and time variance fell on average within ±10% to
±20%.
Several case studies of Australian infrastructure projects were also investigated from a qualitative perspective.
This was done to identify key productivity factors impacting upon the performance outcomes for these projects.
Finally, a broader literature review of project delivery was conducted to identify previous research into project
delivery. This drew upon Evans & Peck own expert views as to the key threats facing Australia in delivering
major infrastructure projects.
It was found that the available literature regarding international project delivery regarding cost and time
performance is extremely limited. The most comprehensive available research information for comparison
purposes was found only for road and rail projects and this was further limited to cost escalation only. The
comparison did however indicate that Australian road and rail projects performed better than international
projects with respect to cost variance.
Four major Australian infrastructure projects currently under construction were also reviewed: the National
Broadband Network, Airport Link (QLD), Victorian Desalination Plant, and Oakajee Port and Rail (WA). All four
projects are unprecedented in scale and their efficient delivery is proving to be a challenge, with cost and time
overruns likely.
Several Australian major projects are also presented and have been reviewed from a qualitative perspective to
provide comment on key productivity factors. The case studies indicate that productivity is affected by three
key factors resources, pre-planning, and quality of design.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
The literature researched as part of this study identified high-level drivers of successful projects and the
difficulties faced in delivering major projects.
Building on this previous research, five key threats were
identified for the delivery of Australia’s infrastructure; skill shortages, rising construction costs, the complexity
of the planning and development process, the lack of a strategic roll-out of projects from a planned portfolio,
and the uncertainty of funding.
Previous studies have shown that procurement methods affect the delivery of projects due to the differing
characteristics of each method. Studies suggest that PPP project procurement can have a real advantage in
terms of cost effective and timely delivery when taking into consideration project timing, funding, and resource
availability.
SUMMARY OF KEY FINDINGS
Key Finding 1
The lack of transparent project cost and time data significantly hampers any ability to establish
clear and definable statistical analysis.
The establishment of relevant and comparable benchmarks is therefore limited.
Key Finding 2
The increasing scale and complexity of major projects is impeding their efficient and effective
delivery.
Australia is increasingly undertaking projects of unprecedented scale that are proving challenging
in their effective and efficient delivery.
Key Finding 3
Australian road and rail projects appear to be delivered with lower cost escalation than
international road and rail projects.
Key Finding 4
Intensive management of project resources, pre-planning, and quality of design enhance project
productivity.
Key Finding 5
The appropriate choice of procurement/delivery method is likely to impact upon the efficiency a
project is delivered.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Introduction
The Business Council of Australia (BCA) has engaged Evans & Peck (E&P) to undertake a desktop research
study into the delivery of large-scale capital projects, specifically in the infrastructure sectors of transport,
water, and telecommunications.
The study’s primary focus is to establish a benchmark of Australia’s
performance in the efficient and effective delivery of large capital expenditure projects and, where possible,
with reference to international projects of a similar nature.
This research forms part of a broader BCA study aimed at identifying policy recommendations for government
for the financing and effective delivery of large capital projects. The broader study aims to address the
following:
1 . Defining Australia’s investment challenge;
2 . Establishing a baseline of performance in Australia in delivering large scale capital projects –
infrastructure and mining/energy sectors;
3 . Identifying issues impacting on effective delivery of large capital projects; and
4 . Providing policy recommendations.
Scope
Through consultation with BCA, the scope of this study has been limited to the following:
•
Investigation into Australia’s performance with regards to time and cost for project delivery.
In
conducting this investigation the following search criteria was applied to identify suitable projects:
o
Large capital projects, defined as those with a capital cost in the order of $500 million or
greater;
o
Projects relating to economic infrastructure only, including road, rail, ports, airports, water,
and telecommunications; and
o
Projects completed within roughly the last decade.
•
Comparison against international projects, where possible
•
Case studies of Australian projects
•
Discussion on wider literature pertaining to project delivery.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Methodology
The methodology followed in undertaking this study is depicted in Figure 1 below.
Figure 1: Methodology adopted for this study
RESEARCH &
ANALYSIS
AUSTRALIAN
INFRASTRUCTURE
SECTORS
Road
Rail
Port
Airport
Water
ICT
CRITERIA
DEFINITION
Timeframe – 10 yrs
Size ~ $500m
Status-Complete
Australian Project List
Australian Case Studies
Quantitative assessment –
time and cost
Qualitative assessment –
key delivery factors
Literature Review – Project Delivery
Drivers of success
Difficulties
Threats
Delivery methods
Define & Quantify Key Project
Delivery Factors
Time
Cost
International Project Delivery
Benchmarks
Dr Bent Flyvbjerg
Saïd Business School
University of Oxford
Related Research
AUSTRALIAN BASELINE PERFORMANCE
Delivering Large Scale Capital Infrastructure
Projects
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Australia’s Infrastructure Landscape
In June 2011, Infrastructure Australia (IA) provided a report to the Council of Australian Governments (CoAG) Communicating the Imperative for Action. In the opening letter to the Minister for Infrastructure and Transport,
Infrastructure Australia Chairman, Sir Rod Eddington, stressed the importance of the urgent need for action in
infrastructure planning:
“Most critically, we need to make the case for major reform in the way we finance the
development, operation and maintenance of our infrastructure networks. We need to
show the consequences – lower rates of growth, declining standards of service – of
failing to act.” 1
Importantly, the Report highlights Australia’s current infrastructure network inadequacies that result in the
imposition of significant, long-term cost structures and ultimately a slowing in the rate of productivity growth.2
Four key challenges relating to the future provision of infrastructure facing Australia were identified:
1 . “Removing uncertainty in future improvements to productivity through the provision of necessary and
suitable infrastructure;
2 . The need for Government leadership in the debate on necessary changes to ensure funding the
development and operation of infrastructure;
3 . Accelerating progress in the pursuit and implementation of regulatory and other reform; and
4 . Strengthening our approach to infrastructure planning and investment decisions”. 3
Major reform in the planning, investment and regulation of large infrastructure works is particularly important
given the potential pipeline of Australian projects.
Two relevant industry research activities undertaken by IBISWorld forecast the scale of potential infrastructure
investment; a) Heavy Industry and Other Non-Building Construction in Australia (which includes water, rail,
electricity, telecommunication, oil and minerals) (‘Heavy Industry’), and b) Road and Bridge Construction in
Australia (‘Roads & Bridges’).
Heavy Industry research identified the value of work in Australia’s total engineering infrastructure market will
climb by 3.5% to $65.90 billion in 2010-11. 4 This research indicated substantial support (not quantified) will
continue to be derived from investment in water supply, pipeline, and telecommunications infrastructure along
with strong activity in railway and harbour construction. 5 The total value within Heavy Industry is expected to
peak in 2013-14, before declining with a forecast total value of $70.85 billion in 2015-16. 6
A trend identified by IBISWorld is the recent surge in private sector funding in the past two decades, with
significant investment into the mining and energy sectors. IBISWorld predicts the total value of investment into
1
Infrastructure Australia, Communicating the Imperative for Action – A Report to the Council of Australian Governments,
2
ibid., p. 7.
3
ibid., p. 12.
4
IBISWorld, Heavy Industry and Other Non-Building Construction in Australia, IBISWorld Industry Report E4122, 2011.
5
ibid.
6
ibid.
June 2011, p. 2.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
mineral and energy developments will increase from $27.25 billion 2010-2011 to approximately $45 billion by
2013-14. This will be driven by high commodity prices and accelerating exports to East Asia. 7
IBISWorld’s other relevant industry report, Road and Bridge Construction in Australia, estimates that the total
value of work done on Roads & Bridges was $17.7 billion in 2010-11, and has grown by an average 5.5% per
annum over the past five years. 8 The IBISWorld report forecasts that the Roads & Bridges construction
industry will grow at an average rate of 3.0% per annum over the next five years. 9
Further, according to The Age, Deloitte Access Economics published a report on July 28, 2011 suggesting that
despite parts of the Australian economy showing weakening signs, investment in major projects in Australia is
still very healthy.
The report identified $831.7 billion in large projects planned or under way by both
government and private enterprises, reflecting an increase of 8.4% in the June quarter. 10 A breakdown of the
total value of key projects is:
•
$357.4 billion of definite projects (classed as under construction or due to start soon) and the
remaining $474.3 billion in unconfirmed or planned projects;
•
54% (approximately $449 billion) are accounted for in WA, and Queensland; and
•
$394 billion in resources projects. 11
The IBISWorld and Deloitte Access Economics reports highlight the significant investment planned for
Australia’s infrastructure.
7
IBISWorld, Heavy Industry and Other Non-Building Construction in Australia, IBISWorld Industry Report E4122, 2011.
8
IBISWorld, Road and Bridge Construction in Australia, IBISWorld Industry Report E4121, 2011.
9
ibid.
10
C Yeates, $64bn push in big projects, in The Age, viewed 28 July 2011, <http://www.theage.com.au/business/64bnpush-in-big-projects-20110727-1i086.html>
11
ibid.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Existing Studies
A literature review was completed to identify relevant studies regarding project delivery in Australia and
internationally. The following table (Table 1) summarises the studies identified and provides a brief outline of
each study and its relevance to this paper. This list is by no means exhaustive, but is believed to cover the key
literature that currently exists on this topic of project delivery. Some of the studies are discussed in further
detail throughout this report where the information is deemed appropriate for inclusion.
Table 1: Literature review of existing studies relating to project delivery
Title
Author(s)
Year
Description of Study
Scope for Improvement: Project
Blake Dawson
2011
Research into the importance of the treatment of
Risk – Getting the Right Balance
risk to project outcomes to develop a better
and Outcomes
understanding of approaches to risk identification,
risk allocation and risk management, and the
impact of those approaches on project outcomes.
A total of 121 responses were received from
industry participants across Australia.
Evidence Based Comparative
GHD
2011
A high level analysis of Australian and international
Analysis of Major Infrastructure
infrastructure construction costs. Data-based
Construction Costs in Australia and
research identifies trends in and drivers of
Internationally – Final Report for
movements in infrastructure construction costs in
Infrastructure Australia
Australia and internationally.
The Engineering Profession: A
th
Statistical Overview (8 edition)
Institution of
2011
Presentation of statistics on the size, structure, and
Engineers
characteristics of the engineering profession,
Australia
including information on skills shortages and
recruiting difficulties.
Infrastructure Planning and
Department of
Delivery: Best Practice Case
Infrastructure &
practice in infrastructure planning and delivery and
Studies
Transport
presentation of a series of overarching lessons.
2010
Exploration of six case studies as examples of best
The case studies selected were: M7 Motorway
(NSW); Southbank Institute of Technology (QLD);
Channel Deepening (VIC); Southern Seawater
Desalination Plant (WA); Tiger Brennan Drive
(NT); and Northern Expressway (SA).
Success and Failure in Urban
KPMG
Transport Infrastructure Projects –
International
2010
A study of 19 international urban transport
infrastructure projects to analyse the factors
KPMG’s Infrastructure Spotlight
affecting the success of a project across three
Report
dimensions: financial success; policy success;
durability success.
PMI-KPMG Study on Drivers for
Project
Success in Infrastructure Projects
Management
market to uncover the issues inhibiting successful
2010 – Managing for Change
Institute, KPMG
project delivery. Over 100 top management
2010
A survey conducted for the Indian infrastructure
personnel representing leading Indian
infrastructure companies were surveyed.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Title
Author(s)
Year
Description of Study
Survival of the unfittest: why the
Bent Flyvbjerg
2009
The comparison of ex ante estimates of costs and
worst infrastructure gets built – and
benefits against the actual ex post costs and
what we can do about it
benefits, showing the consequences of cost
overruns, benefit shortfalls, and the systematic
underestimation of risks.
Benchmarking Study into Alliancing
Department of
in the Australian Public Sector
Treasury &
to investigate whether alliancing delivers
Finance, Evans &
incremental value for money to government
Peck, Melbourne
against other procurement methods.
2009
A detailed analysis of 14 alliances across Australia
University
Report on the Performance of PPP
Colin Duffield,
Projects in Australia when
Peter Raisbeck,
traditional projects in Australia to benchmark on
Compared with a Representative
Ming Xu
time and cost performance indicators.
2008
High level analysis of 25 PPP projects and 42
Sample of Traditionally Procured
Infrastructure Projects
Scope for Improvement: A Report
Blake Dawson
2008
Research into the specific issue of inadequate
on Scoping Practices in Australian
scoping in Australian construction and
Construction and Infrastructure
infrastructure projects. A total of 183 responses
Projects
were received from industry participants across
Australia.
Performance of PPPs and
Allen Consulting
Traditional Procurement in
Group, Colin
projects in Australia to assess the management
Australia
Duffield, Peter
and construction of public infrastructure projects in
Raisbeck
terms of cost performance and timeliness
2007
Analysis of 21 PPP projects and 33 traditional
outcomes.
Scope for Improvement: A Survey
Blake Dawson
of Pressure Points in Australian
Waldron
2006
Research into the root causes of project pressure
points by way of a survey. A total of 190
Construction and Infrastructure
responses were received from participants who
Projects
included constructors, developers, government,
financiers, private sector principals and
consultants.
The Journey to Delivered Value in
Tony Sidwell and
Australian Procurement
Rosemary
are critical to achieving project success and
Kennedy
summarises the key drivers of project excellence
(Queensland
and the attainment of value in project delivery.
2004
Charts previous research to identify the factors that
University of
Technology)
Cost Overruns in Road
James Odeck
2004
Investigation into the statistical relationship
Construction – What are their Sizes
between actual and estimated costs of road
and Determinants?
construction using data from Norwegian road
construction over the years 1992 to 1995.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Title
Author(s)
Year
Description of Study
Review of Partnerships Victoria
Peter Fitzgerald
2004
Evaluation of the Partnerships Victoria policy. The
Provided Infrastructure, Final
eight PPP projects investigated were declared as
Report to the Treasurer
being equal to or better value than the option of
public sector provision, with a weighted average
saving of 9%.
How Common and how Large are
Bent Flyvbjerg,
Cost Overruns in Transport
Mette Skamris
significant study of cost performance in transport
Infrastructure Projects?
Holm, Soren Buhl
infrastructure projects using a sample of 258
2003
Presentation of results from a statistically
projects in 20 nations.
PFI: Construction Performance –
National Audit
Report by the Comptroller and
Office
2003
Examines the construction performance achieved
in Private Finance Initiative (PFI/PPP) projects in
Auditor General
the three key areas of price certainty, timing of
construction delivery, and quality of design and
construction: 29 out of 37 (78%) PFI projects
surveyed reported no construction related price
increase after contract award; 28 out of 37 (76%)
PFI projects surveyed were delivered on time or
earlier than specified in the contract.
Review of Large Public
Mott MacDonald
2002
Procurement in the UK
A detailed assessment of 50 major projects in the
UK, comparing planned and actual performance in
terms of costs, duration and benefits. Traditional
projects were compared against PPP projects for
project types: non-standard buildings; standard
buildings; non-standard civil engineering; standard
civil engineering; equipment/development.
Value for Money Drivers in the
Treasury
Private Finance Initiative.
Taskforce, (Arthur
Initiative (PFI/PPP) projects showing lifecycle
Andersen,
savings of 17% over conventional projects.
2000
Investigation into the delivery of 21 Private Finance
Enterprise LSE)
As can be seen in the table above, studies exist where cost and time escalation metrics have been calculated.
The difficulty with comparing these parameters across different studies, is the point in time during a decision is
taken to commit to construction.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Some of the studies are based upon business case information as the starting point, while others rely on the
information at contract award (contractual commitment). These two points in time may deliver considerably
different outcomes even for the same project.
At contract award a greater understanding and level of
knowledge regarding the project will provide a more accurate, yet potentially considerably different cost and
timeframe outcome than at business case. This is depicted in Figure 2 below, which shows the project lifecycle
and the anticipated cost estimation accuracy.
Figure 2: Anticipated cost estimation accuracy during the project lifecycle (adapted from DTF, 2008)
Project
Identification
-40% to +60%
Project
Evaluation
-30% to +50%
Business Case
-15% to +25%
Tender
-10% to +20%
Contractual
Commitment
Construction
-5% to +10%
From the studies it is extremely difficult to ascertain the point in time from which the information has been
drawn. Therefore, when comparing cost and time variances between different research pieces, caution must
be exercised in assuming the information has been assessed at the same point in the project lifecycle.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Assessing Project Performance
In assessing project performance during this study, the effectiveness, and efficiency of the delivery phase of
major infrastructure has been considered. A project’s delivery phase is defined as from the commencement of
construction to its practical completion and being suitable to commence operations. Under this definition any
business case estimate or ‘budget approval’ is not included for the purposes of this study.
The successful outcome for a project relies on the interrelationship of three factors: time, cost, and productivity.
This interrelationship is depicted in Figure 3 below.
Figure 3: Drivers of Project Delivery
The assessment of a project’s performance is, in practical terms, limited to the predictability of the project’s
outcomes in relation to time and cost when measured against the acknowledged schedule and budget. The
key driver of both time and cost is productivity which, when assessed comprises numerous variables. In this
study, productivity was only able to be assessed in qualitative terms.
Ideally, project performance would also be assessed in terms of its effectiveness when compared with projects
of similar scale, nature and geopolitical environments. However, projects are rarely similar, being influenced by
numerous factors including, but not limited to, design solution, construction methodology, labour costs,
geology, geographic location, and weather. For this reason, effectiveness of project delivery has not been
assessed.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Quantitative Assessment
Time
Time can be assessed quantitatively by comparing the original scheduled timeframe for the project at the point
where the commitment to build was made (e.g. contract award) against the time taken for the project to be
delivered. For the purposes of this study, both the original scheduled timeframe and final time data, we have
relied on the information available in the public domain.
Cost
Similarly, cost can be assessed quantitatively by comparing the original budget for the project (at the time of
contract award) against the final actual cost to complete the project. For both original and final cost data, we
have again relied on the information available in the public domain. The actual final cost for a project is not
often publically available as it is generally confidential to government agencies/departments or private
construction companies.
Productivity
Productivity has been assessed qualitatively (see below). A quantitative assessment of a project’s productivity
is useful for comparison against other projects of a similar nature. However, as discussed above, projects are
rarely similar, especially large scale infrastructure developments. For example, some road projects have
bridge structures, others tunnels, making a comparison of a cost per km assessment relatively irrelevant. As a
result, attempting to assess productivity quantitatively requires ‘normalising’ projects, a process which is highly
complex and beyond the scope of this study.
Qualitative Assessment
Productivity
A project’s productivity can be affected by any one or more of the following project components/variables,
which can be assessed qualitatively:
•
Project pre-planning: How much effort has gone into the pre-planning?
•
Site availability: Is the site available immediately from the time the contract is awarded?
•
Resource availability: Are adequate resources available in terms of human, capital, plant, etc?
•
Safety: Are the necessary safety measures in place to minimise OH&S risk?
•
Regulatory requirements: Have the regulatory requirements been satisfied already and if not what is
the expected delay period?
•
Design completeness: How much of the design has been completed at the time of contract award?
•
Approval processes: Have all planning approvals and other approvals been granted and if not how
•
Quality: Are special items requiring a higher quality required for the project and do these sit on the
•
Utility Services: Is the site equipped with the necessary utilities (e.g. water, electricity, gas, and
•
Inclement weather: Was there significant delays borne out of inclement weather?
•
Industrial Relation disputes: Did Industrial Relation disputes cause significant delays to the project?
lengthy is the approval process?
critical path?
telecommunications) and if not where are the tie-in points?
Factors influencing productivity are highlighted in Project Case Studies.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Major Project Delivery in Australia
A desktop investigation was carried out for large scale capital projects recently completed in the infrastructure
sector in Australia. A number of internet sources were used in uncovering project information, including
construction company, government department, and other industry websites. Evans & Peck’s own knowledge
base was drawn upon to provide additional information.
The following criteria were set in conducting this investigation:
1 . The infrastructure sector was limited to economic infrastructure including road, rail, ports, airports,
water, and information and communication technology (ICT);
2 . Large scale capital projects were defined as individual projects or a program of projects with a total
capital cost of approximately $500 million or greater; and
3 . Projects recently completed were defined as completed within the last decade.
The availability of cost and time data when conducting this exercise was a major limitation of
this study.
The accuracy of the results presented in this report is a direct function of the
accuracy of those values reported in the public domain.
A total of 27 projects were investigated during this study, with 23 providing the required data on cost and time.
The summary table below (Table 2) shows the breakdown of projects for each sector in terms of delivery
against cost and time. The list of projects investigated is presented in Appendix 1.
Table 2: Mean ratios for infrastructure projects assessed
Sector
No. of Projects
Cost Ratio 1
Time Ratio 2
Investigated
(mean)
(mean)
Road
12
1.1
0.9
Rail
4
1.2
1.1
Ports
2
0.9
1.0
Airports
0
-
-
Water
4
1.0
1.0
ICT
1
1.7
2.8
1
Cost ratio is calculated as: Actual final cost to deliver project/budget as at contract award.
2
Time ratio is calculated as: Actual time to deliver project/Planned time to deliver project as at contract award.
Even though the total useful sample size of 23 is relatively substantial, the number of projects within each
sector is relatively small. Therefore the results should be treated as indicative only. The sample mean will
tend towards the true mean with increasing sample size, but this is a limitation of this study.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Rail projects appear to be the weakest performer with an average cost escalation of schedule overrun of 20%
and 10% respectively. Again, it is important to reiterate that the sample size was limited, which affects the
accuracy of the results.
With a more appropriate sample size of 12, road projects showed to have an average cost escalation of 10%.
Interestingly, the road projects assessed were completed on average 10% faster than the planned schedule.
Of the four water projects assessed, a high degree of predictability was shown (average zero escalation in cost
and time). Two large water projects are currently under construction that have not been included in our
analysis, namely the Victorian Desalination Plant and the Adelaide Desalination Plant. These projects are
likely to impact average cost and time escalation results for the water sector as it has been publically
announced that both are currently over budget and behind their planned completion dates.
The sample sizes for the Ports (2) and ICT (1) projects is too limited to provide worthwhile comment.
Of note is the lack of large scale airport projects available for assessment. This is as a result of all major
airport projects in recent times being the redevelopment of existing facilities.
This situation is unlikely to continue as new major facilities will be required at some time in the future and the
necessary skills, planning, resources and capital will be required to deliver these projects effectively and
efficiently.
As previously noted, this study specifically addresses project delivery. In reviewing cost and time metrics for
project predictability, we have taken the initial cost and time data from the date of contract award. From the
diagram below contract award can be late in the planning/design stage of a project and therefore should
provide a reasonably accurate cost estimate.
The Department of Treasury and Finance (DTF), Victoria, provides guidelines on the accuracy of cost
estimates at different stages in the investment lifecycle. A reproduction of their guideline is provided below in
Table 3. As the table shows, DTF anticipate a range of accuracy of -5% to +10% at the time of contract.12
This is consistent with the Australian projects assessed as part of this study. Additionally, the ranges provided
in the table highlight that different starting points in obtaining cost and/or time data would result in less
accuracy and predictability in a project’s outcome.
12
Department of Treasury and Finance, Victoria, Investment Lifecycle Guidelines – Overview, Victorian Government, 2003,
p. 13.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Table 3: Project cost estimation accuracy by investment stage (DTF, 2008)
Investment development stage
Estimate type
Stage performed
Anticipated range of
accuracy
Strategic assessment – project
Order of magnitude
Project identification
-40% to +60%
identification
estimates
Indicative cost only
Options analysis – project
Concept estimates
Stage A
development
-30% to +50%
Concept and options
development
Developed concept
Stage B
estimate
Option feasibility, development
-25% to +40%
and evaluation, risk identification
Preliminary design
Stage C
estimate
Concept design, costing of
-20% to +30%
preferred option and preliminary
financial packaging
Business case project
Detailed estimate
development (ERC funding)
Costing of project for ERC
-15% to +25%
approval and documentation
preparation
Design, planning and
Tender estimate
approvals – project delivery
Tender
-10% to +20%
To assist with evaluation of
tenders
Tender price and
Negotiated contract price
contract
agreement
-5% to +10%
Partially Completed Major Projects
In assessing major project delivery in Australia, this study was limited to only those projects that were
completed. It is worth providing brief commentary on four particular projects that are still under construction
and are experiencing considerable difficulty in efficiently being delivered.
Victorian Desalination Plant – Wonthaggi, Victoria
At an estimated capital cost of $3.5 billion, the Victorian Desalination Plant project will become the largest
desalination plant in Australia. When completed, it will have an estimated capacity of 150 billion litres per year.
Unfavourable weather conditions and industrial disputation are reported to be causing delays to the project.
First water was originally due by late 2011. Leighton Holdings, parent company of project contractor Thiess,
one of the two joint venture companies constructing the project, now considers the revised completion target
date of 30 June 2012 to be at risk. 13
13
Leighton Holdings, 2010/11 Preliminary Final Report & June Quarterly Update, p. 35.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Airport Link – Brisbane, Queensland
The $4.1 billion Airport Link project in Queensland involves a 6.7 kilometre multi-lane toll road with dual 5.7
kilometre tunnels. Leighton Holdings, parent company to the Thiess John Holland Joint Venture, the project’s
construction contractor, claims increased design costs, greater materials quantities , increased staff costs, and
higher tunnelling costs than budgeted, have contributed to project cost overruns. 14
National Broadband Network
The National Broadband Network (NBN) project is currently the largest infrastructure project ever undertaken
in this country. At an estimated cost of $43 billion, the NBN project is aimed at making high-speed broadband
available to all Australians. The original completion date of June 2018 has already been extended by two and
a half years to December 2020. 15 With respect to project cost, industry is claiming that a cost overrun of
between 50 to 100 per cent is not unrealistic. 16
Concern over the onerous tender process raised by
construction companies suggesting that the risk allocation is heavily weighted toward the contractors, is likely
to cause project costs to surge by more than 50%. 17
Oakajee Port and Rail - Oakajee, Western Australia
The Oakajee Port and Rail project involves the construction of a deep water port and rail infrastructure to
support the needs of the mining industry in the mid-west Region of Western Australia. In March 2009, the
project was originally estimated to cost $3 billion; a recent feasibility study released by Murchison Metals in
July this year estimates the project will now cost around $5.94 billion. 18 The project’s viability has been in
jeopardy since June this year when Chinese firm Sinosteel Midwest Corporation ceased operations at its Weld
Range mine due to delays in the project. It is understood the Oakajee Project is at least 12 months behind
schedule. 19
Common to all four projects is their unprecedented size. Major infrastructure projects appear to be increasing
in size in Australia, which as shown by these four examples, is impacting on our ability to effectively deliver.
14
15
ibid.
Sydney Morning Herald, Senate sittings extended to debate NBN, 25 March 2011, viewed 14 September 2011,
<http://news.smh.com.au/breaking-news-national/senate-sittings-extended-to-debate-nbn-20110325-1c8rf.html>.
16
D Martin and T Leslie, Expert predicts broadband cost blowout, 30 July 2010, viewed 14 September 2011,
<http://www.abc.net.au/news/2010-07-30/expert-predicts-broadband-cost-blowout/925088>.
17
M Bingemann and L Wilson, NBN builders fear blowout, in The Australian, 7 April 2011, viewed 12 September 2011,
<http://www.theaustralian.com.au/national-affairs/nbn-builders-fear-blowout/story-fn59niix-1226034971524>.
18
Sydney Morning Herald, Barnett flies to China to save Oakajee, 14 September 2011, viewed 14 September 2011,
<http://news.smh.com.au/breaking-news-national/barnett-flies-to-china-to-save-oakajee-20110914-1k8q1.html>.
19
C Trenwith, China pullout leaves Oakajee port in the balance, in WA Today, 23 June 2011, viewed 14 September 2011,
<http://www.watoday.com.au/business/china-pullout-leaves-oakajee-port-in-the-balance-20110623-1ggyn.html>.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Project Delivery: Australia vs. International
BT Professor and Chair of Major Programme Management at Oxford University, Bent Flyvbjerg has worked as
a consultant to numerous government and non-government organisations on infrastructure, environment,
transportation, and science national policies. His research covers cost overruns and benefits shortfalls in
major programs; theories of success and failure; complexity and innovation; optimism bias and strategic
misrepresentation; cost and demand forecasting in high-risk environments; risk assessment and management;
and governance of major programmes.
Through research in 20 nations on five continents, Flyvbjerg uncovered significant inaccuracies in the project
cost estimates of 258 transportation projects researched (See Table 4). 20
Table 4: Inaccuracy of transportation project cost estimates by type of project (Flyvbjerg, 2009)
Project type
No. of Projects
Average cost overrun (%)
Standard deviation
Rail
58
44.7
38.4
Bridges and tunnels
33
33.8
62.4
Roads
167
20.4
29.9
All projects
258
27.6
38.7
Cost overrun/escalation in Flyvbjerg’s research was measured as:
Cost overrun
= [(actual out-turn costs - estimated costs) / estimated costs] x 100
Actual out-turn costs
= accounted construction costs determined at the time of project completion
Estimated costs
= budgeted/forecasted construction costs at the time of decision to build
In Table 5 below, Flyvbjerg’s international benchmarks are compared against the sample of Australian projects
investigated in Major Project Delivery in Australia section (values readjusted as a percentage for comparative
purpose). This comparison is somewhat limited as similar international studies with respect to time for the
delivery of major infrastructure projects have not been undertaken. Similarly, international benchmarks for
other infrastructure sectors including ports, airports, and water were not readily available.
20
B Flyvbjerg, Survival of the unfittest: why the worst infrastructure gets built – and what we can do about it, Oxford
Review of Economic Policy, Volume 25, Number 3, 2009, pp. 344-367.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Table 5: Cost overrun comparisons – Australia vs. International
Project type
Australian benchmark
International benchmark
No. of Projects
Average cost overrun (%)
No. of Projects
Average cost overrun (%)
Road
12
10
167
20.4
Rail
4
20
58
44.7
In comparing road and rail Australian projects to their international counterparts, it was assumed that on
average they were of a similar scope technically (i.e. factors that influenced the technicality of projects, such as
bridges and tunnels, were assumed to similar).
For road projects, Australia’s average cost overrun of 10% is well below the international benchmark of 20.4%.
Australia’s cost uplift performance in delivering road projects is comparable to results found in Norway for road
projects in the period of 1992 to 1995, which had a mean overrun of 7.9%. 21
In terms of rail projects, although Australia’s performance was assessed at an average cost overrun of 20%, it
is significantly better than 44.7% cost overrun which is reported for international projects. In fact, Australia’s
reported cost performance for rail was largely marred by one particular project, namely the Epping to
Chatswood Rail line, which was delivered close to $900 million (64%) over budget (and nearly three years
late). 22
A separate study conducted solely on ICT projects examined 1,471 projects, the largest global study ever of IT
change initiatives. 23 This study compared budgets and estimated performance benefits with the actual costs
and results. The average cost overrun was 27%, but more alarming was that fact that one in six projects had
an average cost overrun of 200% and a schedule overrun of almost 70%. 24 This compares with Victoria’s myki
project, which as shown in Major Project Delivery section above, was 70% over budget and 180% behind
schedule.
Although the ICT study was largely focused on public agencies and U.S. based projects, it found little
difference between these and the other European organisations that made up the rest of the sample.25
Several examples of out-of-control ICT projects are presented in this study, which have been consolidated in
the Table 6 below.
21
J Odeck, Cost overruns in road construction – What are their sizes and determinants?, Transport Policy, Vol. 11(1),
pp.43-53.
22
Ninemsn,
Epping-Chatswood
rail
link
finally
opens,
23
February
2009,
viewed
12
August
2011,
<http://news.ninemsn.com.au/national/755832/epping-chatswood-rail-link-finally-opens>.
23
B Flyvbjerg, A Budzier, Why Your IT Project May Be Riskier Than You Think, Harvard Business Review, September 2011,
p. 3.
24
ibid.
25
ibid.
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Table 6: Examples of poorly delivered international ICT projects (Flyvbjerg & Budzier, 2011)
Project
Details
Levi Strauss (2008)
•
•
Migration of international IT network onto a single SAP
system
Hong Kong International Airport (1998 and 1999)
IT development
Hershey’s
Order-taking and fulfilment system
Kmart (2000 - 2002)
IT modernization project
•
Proposed budget less than $5 million
During switchover unable to fill orders and caused three
U.S. distribution centres to close for a week
$192.5 million charge against earnings due to project
•
•
•
Glitches in flight information display system
Glitches in database for tracking cargo
Reportedly cost economy $600 million in lost business
•
Prevented the shipment of $100 million of candy (in time
for Halloween)
18.6% drop in quarterly earnings
•
•
•
•
Toll Collect
German motorways technology implementation
Airbus (2005 - 2006)
•
•
•
A380 technology development
•
•
•
•
•
$1.4 billion project launched. Highly customised –
systems maintenance prohibitively expensive
$600 million project launched to update software –
project failed
Kmart filed for bankruptcy, significantly contributed to by
these IT projects
Combining different software systems proved
challenging
Estimated to cost government >$10 billion in lost
revenue
German and Spanish facilities found to be using older
versions of product development software than British
and French facilities
Six month delay in first delivery announced
Further six month delay announced
26% drop in share price, high profile resignations
Further financial losses
Reputation damage
Page 19
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Project Case Studies
Transport
Epping to Chatswood Rail Line
Owner:
Cost Ratio 1.64
Time Ratio 1.70
Department of Transport, NSW
RailCorp
Non-Owner Participants:
Thiess, Hochtief (Joint Venture)
Delivery Method:
Design & Construct
Original Timeline:
November 2002 – mid 2006
Actual Timeline:
November 2002 – December 2008
Original Budget:
$1,400,000,000
Actual Capital Cost:
$2,300,000,000
Project Components:
12.5km twin underground rail tunnels (each tunnel is approximately 7m diameter and
contains one track)
Three new intermediate stations: North Ryde, Macquarie Park, Macquarie University
Major station redevelopments: Epping, Chatswood
Productivity - Key Delivery
Factors:
•
•
•
•
•
•
Design – inappropriate design criteria set as incline of tunnels minimised the fleet that
could be used.
Design – noise levels excessive.
Safety, design – tunnel lighting caused drivers to feel ill.
Quality, design – problematic concrete sleepers.
Quality, design – flaws in the way tracks were fixed.
Quality, design – cracks in the ceiling.
Sources:
http://www.thiess.com.au/capabilities/projects/epping-to-chatswood-rail-line
http://www.railway-technology.com
http://www.tca.nsw.gov.au
http://news.ninemsn.com.au/national/755832/epping-chatswood-rail-link-finally-opens
http://northern-district-times.whereilive.com.au/news/story/in-the-right-direction-finally/
http://www.dailytelegraph.com.au/news/chatswood-epping-rail-link-a-blinking-farce/story-e6freuy9-1225746641924
http://www.smh.com.au/news/national/rail-to-epping-has-to-be-relaid/2008/02/27/1203788353920.html
http://news.smh.com.au/breaking-news-national/epping-to-chatswood-rail-to-finally-open-20090222-8ek9.html
Page 20
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Water
Perth Seawater Desalination Plant (Kwinana)
Cost Ratio 1.00
Time Ratio 1.00
Owner:
Water Corporation of Western Australia
Non-Owner Participants:
D&C: proAlliance - Multiplex-Degremont Joint Venture (mechanical subcontractors–
McConnell Dowell Constructors)
O&M: Degremont-Water Corporation Alliance (25-yr contract)
Delivery Method:
Alliance – Design & Construct, Operate & Maintain
PPP
Original Timeline:
April 2005 – November 2006 (18 months)
Actual Timeline:
April 2005 – November 2006 (18 months)
Original Budget:
$387,000,000
Actual Capital Cost:
$387,000,000
Project Components:
Capacity: 130ML/day (45 GL/yr)
Technology: Reverse Osmosis
Transfer Pipeline: 26km, 1,200mm diameter
Productivity - Key Delivery
Factors:
•
•
•
•
•
•
•
Project pre-planning, resources, design – 18 month deadline committed to and
achieved through running the design, procurement and construction processes in
parallel paths. Effective communication and commitment made this work.
Design – the design rapidly moved forward through constant 24hr design between the
Perth project office and Degremont's office in Spain.
Resources – off-site construction utilized wherever possible, pre-cast construction
maximized, high degree of interface planning.
Resources – risk-reward formula used to incentivize delivery under budget and ahead
of schedule.
Resources – “Best for Project" philosophy.
Resources – building of respect and the willingness to trust and truly work together
was a key to success (“Relationships”).
Industrial Relations – trade union involvement - high profile, fast tracked nature, and
challenge of delivering prior to the summer of 2006/07 helped focus the entire project
workforce.
Sources:
http://www.watercorporation.com.au/D/desalination.cfm
http://www.water-technology.net/projects/perth/
http://www.degremont.com.au/index.php?page=perth_seawater_desalination_plant
http://www.acaa.net.au/pdf/2008_tp_pp/perth_tp.pdf
http://www.internationalsalinityforum.org/Final%20Papers/crisp_plenary.pdf
Page 21
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Sydney Desalination Plant (Kurnell)
Cost Ratio 0.98
Owner:
Sydney Water Corporation
Non-Owner Participants:
BlueWater Consortium
Time Ratio 1.00
D&C: John Holland, Veolia Water, SKM, AECOM (Maunsell), Coffey Geotech
Water delivery Alliance (pipeline): McConnell Dowell, WorleyParsons, KBR, Bovis Lend
Lease, Environmental Resources Management
O&M: Veolia Water (20-yr contract)
Delivery Method:
Design & Construct, Operate & Maintain
Original Timeline:
July 2007 – January 2010 (30 months)
Actual Timeline:
July 2007 – January 2010 (30 months)
Original Budget:
$1,830,000,000
Actual Capital Cost:
$1,800,000,000
Project Components:
Capacity: 250ML/day
Technology: Reverse Osmosis
Transfer Pipeline: 32km
Tunnels: 2 x 2.5km long, 3.4m internal diameter
Productivity - Key Delivery
Factors:
•
•
•
•
•
•
•
•
•
Resources, design – designers embedded on site with construction team to facilitate
rapid response to construction demands and provided designers with a direct
understanding of construction constraints.
Project pre-planning – procurement managed effectively with early procurement of
long lead items based on conceptual specifications.
Resources, quality – teams of quality inspectors deployed to monitor production of
equipment to reduce the risk of non-complying products.
Quality – engagement of suppliers with a proven track record in quality and timeliness
of delivery.
Resources – latest in information management systems utilised (inCITE).
Project pre-planning – high levels of coordination and sequencing during construction.
Resources – early development of commissioning team with experienced personnel.
Resources – dedicated pre-commissioning team to systematically inspect and test
every piece of equipment prior to commissioning.
Safety – collaboration of key stakeholders and engagement of the work teams in
promoting a safety culture which included several strategic safety initiatives.
Sources:
http://www.water-technology.net/projects/kurnell-desalination/
http://www.sydneywater.com.au/Water4Life/Desalination/documents/DesalPlantContract_Summary.pdf
http://www.sydneywater.com.au/WhoWeAre/MediaCentre/documents/Fact_sheet__Comparative_operating_costs_of_the_Desalination.pdf
http://trenchless-australasia.com/news/top_prize_for_sydney_desal_plant/056482/
http://news.smh.com.au/breaking-news-national/sydney-desalination-plant-opens-20100128-n0jq.html
http://www.acaa.net.au/pdf/Sydney-Desalination-Plant.pdf
http://www.audit.nsw.gov.au/publications/reports/financial/2010/vol07/pdf/19_sydney_water_corporation.PDF
http://www.nsw.gov.au/articles/final-approval-wind-powered-desalination-plant
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EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Adelaide Desalination Plant (Port Stanvac)
Cost Ratio: Ongoing
Time Ratio: Ongoing
Owner:
SA Water
Non-Owner Participants:
D&C: AdelaideAqua – AbiGroup Contractors, McConnell Dowell Constructors, ACCIONA
Agua, TRILITY
O&M: ACCIONA Agua, TRILITY (20-yr contract)
Delivery Method:
Design & Construct, Operate & Maintain
Original Timeline:
February 2009 - July 2011 (commence operations)
December 2012 (project completion)
Actual Timeline:
February 2009 - July 2011 (first water produced)
Ongoing
Original Budget:
$1,824,000,000 - expanded 100GL/yr, announced May 2009 (original plant of 50GL/yr
was estimated to cost $1.1 billion.
Actual Capital Cost:
Ongoing
Project Components:
Capacity: 300ML/day (100GL/yr)
Technology: Reverse Osmosis
Transfer pipeline: 13km
Tunnels: 1.5km intake, 1km outlet
Sources:
http://www.water-technology.net/projects/adelaide-plant/
http://www.sawater.com.au/SAWater/WhatsNew/MajorProjects/ADP.htm
http://www.sawater.com.au/NR/rdonlyres/9CC87486-E229-4521-BD5D-86F507115CD0/0/ADP_100GLExpansion.pdf
Page 23
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Victorian Desalination Plant (Wonthaggi)
Cost Ratio: Ongoing
Owner:
Department of Sustainability & Environment, Victoria
Non-Owner Participants:
D&C: Thiess Degremont Joint Venture, PB Beca Joint Venture
Time Ratio: Ongoing
O&M: Degremont Thiess Services (27 years)
PPP: Suez Environment/Degremont, Thiess and Thiess Services, Macquarie Capital
Delivery Method:
Design & Construct, Operate & Maintain
PPP
Original Timeline:
September 2009 – December 2011 (27 months)
Actual Timeline:
September 2009 – Ongoing
(reports that it is anywhere from 6 to 12 months behind schedule)
Original Budget:
$3,100,000,000 (originally announced on 19 June 2007)
Actual Capital Cost:
Ongoing (construction costs estimated at $3.5 billion)
Project Components:
Capacity: 410ML/day (150GL/yr)
Technology: Reverse Osmosis
Transfer Pipeline: 84km
Tunnels: 1.2km intake tunnel, 1.5km outlet tunnel
Underground Power Supply: 87km
Productivity - Key Delivery
Factors:
•
•
•
Weather – inclement weather (wind and rain) has delayed productivity on site.
Industrial Relations – ongoing IR disputes.
Project pre-planning –
o
Discovery of acid-sulphate soils (poor environmental effects
investigations carried out prior to the project delivery phase).
o
Site operations complexity underestimated resulting in:
 Extended walking distances for construction staff
 Complex truck & traffic movements
 Inaccessible areas as a result of inground pipework
 Interface issues between multiple buildings
 Lack of local material suppliers.
Sources:
http://en.wikipedia.org/wiki/Wonthaggi_desalination_plant
http://archive.premier.vic.gov.au/newsroom/1042.html
http://www.water-technology.net/projects/wonthaggidesalinatio/
http://www.theage.com.au/victoria/brumbys-giant-money-pit-20100827-13w2n.html
http://www.partnerships.vic.gov.au/CA25708500035EB6/0/8ACBA1C56F57CF23CA25736E0001DCE8
http://www.water.vic.gov.au/programs/desalination
Page 24
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
ICT
myki
Cost Ratio: 1.72
Time Ratio: 2.82
Owner:
Transport Ticketing Authority
Non-Owner Participants:
Kamco (Keane Australia Micropayment Consortium): Keane Inc, Ascom, ERG, Giesecke
& Devrient Australasia
Delivery Method:
Design, Build, & Implement
Original Timeline:
May 2005 – March 2007 (22 months)
Actual Timeline:
May 2005 – July 2010 (62 months
Original Budget:
$494,000,000 (original contract award)
Actual Capital Cost:
$850,000,000 (estimated capital cost as announced February 2010)
Project Components:
Smart card ticketing system for Melbourne’s public transport (train, tram, and bus
services).
Sources:
http://www.myki.com.au/Home/default.aspx
http://www.theaustralian.com.au/australian-it/ticketing-boss-axed-for-myki-woes/story-e6frgam6-1111115951730
http://www.theage.com.au/victoria/outsmarted-victoria-pays-the-price-20100223-p0tw.html
http://spectrum.ieee.org/riskfactor/computing/it/australias-au13-billion-myki-ticketing-system-introduction-marred-by-multiplemissteps
http://www.computerworld.com.au/article/385200/myki_remains_vic_govt_spares_it/
http://en.wikipedia.org/wiki/Myki
Page 25
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Discussion
Drivers of Successful Projects
The case studies investigated in the section above promote consistent messages on the key factors that are
likely to lead to a successfully delivered project. These are summarised as follows:
Resources
Adequate resources are required throughout the entire project lifecycle, from project pre-planning to
commission. The appropriate financing model should be selected to ensure the necessary capital is
available. Adequate personnel, in terms of numbers and competency levels, should be deployed
across the project, including owners representatives, design team, construction team, procurement
team, commissioning team, community consultation, and quality inspectors.
Pre-planning
The pre-planning of a project should be thorough and complete to minimise delays during the delivery
phase. This pre-planning can be divided into two main phases as follows.
•
Pre-construction phase:
Extensive project pre-planning prior to construction ensures land
acquisition and approval processes are completed.
•
Construction phase: Thoughtful pre-panning also allows for a head start on construction
elements such as the procurement of long lead items and construction sequencing. Optimising
lay-down areas and site traffic movements can also be considered at this time.
Quality of design
It is important to get the quality of the design right the first time to minimise rework efforts. Design
quality can be largely enhanced through the coordination of the engineering disciplines and an
understanding of the required construction sequencing.
Continuity of the design process is similarly important. In most major infrastructure projects the State
will participate in numerous roles. Significantly the appointment of a design certifier or verifier is
usual. The State will generally demand a rigorous design approval process for the initial design and
any design changes. Each design change must be certified and agreed to by the State. On projects
of this size and nature, design amendments can occur in the tens of thousands and approval
processes can be onerous. On the Victorian Desalination Project, this process took up to 55 days for
each amendment.
These findings can be built on by what has been discovered in the literature.
Research conducted by
Queensland University of Technology into previous studies attempted to identify elements that contribute to
excellence in project delivery. Based on their research, key drivers of project excellence and value in project
delivery were identified as:
•
Clear focus on owner’s business needs, rather than lowest contract price;
•
Strong commitment by owners to equitable risk allocation, attention to risk assessment, analysis and
•
Co-operative and motivated teams, with experimentation in partnering, relationship contracting,
management;
alliancing, and other forms; and
Page 26
EVANS & PECK
Research Study for Business Council of Australia
Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
•
Introduction of pre-qualification and other measures focussing on experienced or appropriately skilled
key personnel and organisations.
26
A recent report by the Department of Infrastructure and Transport, Infrastructure Planning and Delivery: Best
Practice Case Studies commissioned by a COAG Infrastructure Working Group, selected six projects for
review that highlighted key examples of best practice in infrastructure planning and delivery.
The six case studies demonstrated common overarching best practice planning and procurement lessons,
which contribute to delivering successful infrastructure projects:
1 . Projects that develop from long-term plans and which have robust business cases are likely to be
most successful;
2 . Strong project governance arrangements mean strong project delivery;
3 . The procurement model should be chosen on the basis of project specifics and should rigorously
follow established published guidelines;
4 . Transfer risk appropriately in order to maintain value for money;
5 . Careful management of local and environmental impacts assists project delivery; and
6 . Be open to learning the lessons from previous projects.
27
Difficulties in Major Project Delivery
Major infrastructure projects are generally characterised by:
•
Long planning horizons and complex interfaces;
•
Non-standard technology and design;
•
Multiple stakeholder processes in decision-making, planning, and management (often with conflicting
•
Early stage ‘lock in’ of certain project concepts minimising the analysis of alternatives;
•
Significant project scope changes over time;
•
Budget and time contingencies for unplanned events often inadequate or unaccounted; and
•
Misinformation about costs, benefits, and risks is ‘likely’ throughout project development and decision-
interests);
making, often resulting in overruns and/or benefit shortfalls during project implementation.
These characteristics highlight the challenges to consistently delivering major infrastructure projects within time
and budget.
Flyvbjerg’s study, Survival of the unfittest: why the worst infrastructure gets built – and what we can do about it,
claims the 258 transportation infrastructure projects researched identified the following observations in relation
to cost overruns:
26
•
90% of projects experienced cost overrun;
•
Overrun was found across all 20 nations covered by the study; and
•
Overrun is constant for the 70-year period covered by the study.
28
T Sidwell and R Kennedy, The journey to delivered value in Australian procurement, in AUBEA National Conference,
University of Newcastle, Australia, July 2004.
27
Department of Infrastructure and Transport, Infrastructure Planning and Delivery: Best Practice Case Studies,
Commonwealth of Australia, 2010.
28
B Flyvbjerg, Survival of the unfittest: why the worst infrastructure gets built – and what we can do about it, Oxford
Review of Economic Policy, Volume 25, Number 3, 2009, pp. 344-367.
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These issues were identified as being exacerbated with ICT projects in performing more poorly on cost overrun
than other major infrastructure, with average cost escalation linearly increasing with increasing project size.
Flyvbjerg promotes three factors that account for cost overrun:
•
Technical
•
Psychological; and
•
Political-economic.
He argues competition between projects and authorities creates a political-economic environment providing
rationale to project promoters to underestimate project costs and risks and overestimate project benefits. This
environment leads to the ‘wrong’ projects surviving the approval process.
29
Over the period 2006 to 2011, Blake Dawson in partnership with industry associations produced the following
three reports:
•
Scope for Improvement: A survey of pressure points in Australian construction and infrastructure
projects.
•
Scope for Improvement: A report on scoping practices in Australian construction and infrastructure
projects.
•
30
31
Scope for Improvement: Project risk – getting the right balance and outcomes.
32
These reports are based on stakeholder surveys of organisations involved in major construction and
infrastructure projects. Although the research conducted for these reports includes sectors and project values
beyond the scope of this assignment, the findings are still considered relevant. The key findings from each of
the three reports are set out in Table 7 below.
29
30
ibid.
Blake Dawson Waldron, Scope for Improvement: A survey of pressure points in Australian construction and infrastructure
projects, 2006.
31
Blake Dawson, Scope for Improvement: A report on scoping practices in Australian construction and infrastructure
projects, 2008.
32
Blake Dawson, Scope for Improvement: Project risk – getting the right balance and outcomes, 2011.
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Table 7: Scope for Improvement report series – key findings (Blake Dawson, 2006, 2008, 2011)
Scope for Improvement
Pressure Points
•
•
•
•
•
The existence of a shortage of
skilled resources
An inadequacy in project scoping
The use of inappropriate delivery
methods
Inappropriate or poor risk allocation
Unrealistic time and cost objectives
Scoping Practices
Project Risk
•
•
•
•
A high prevalence of deficient
project scoping regardless of
industry and project value
Scoping inadequacies discovered
late, most commonly during project
execution
Poor scoping leads to significant
consequences in cost overruns,
delayed completion, and disputes
•
•
•
•
Significant differences in views on
appropriate allocation of risks (on
Principals or Contractors) remains
Inappropriate allocation of key risks
(time delay, design, scope
inadequacies, site conditions)
common
A belief that Principals shift risk
onto Contractors believing it results
in the best commercial outcome
Risk procedures considered
irrelevant and ineffective on
particular projects
Key risks often identified during
project execution
Additional Comments
These are believed to lead to major
Contributing factors to inadequate
The survey confirmed that
pressure points at all stages of the
scoping:
inappropriate risk allocation strongly
project life cycle and are strong
•
contributes to adverse outcomes,
contributors to cost overruns, delays,
and disputes.
•
•
•
•
•
Lack of competent and/or
experienced personnel
Insufficient time to prepare the
scope document
Inadequate definition of project
objective by Principal
Incomplete, uncoordinated and
inaccurate scope document
Failure to properly consult with end
users
Insufficient site information
particularly relating to cost overruns,
delays, and disputes.
Respondents indicated the treatment of
risk in projects was improving under
the alliance model, which in turn
improved project results.
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Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Key Threats to the Delivery of Australia’s Infrastructure
As noted in previous section, major project delivery is universally difficult. Looking closer to home, there exist
several additional factors making infrastructure delivery particularly difficult. The following key threats have
been identified as potential barriers to Australian projects being delivered efficiently.
1.
Skills shortages
The Australian construction industry is facing a significant problem in a shortage of appropriate skills
at all levels.
The extent of the problem is emphasised by the fact that the shortage is multi-
dimensional with an insufficient workforce of professionals (engineers, project managers, planners,
etc), trades, and individuals with high levels of experience. For the infrastructure sector specifically,
this is being compounded by the current resources boom, with many workers being lured by
significantly higher salary offerings.
Engineers Australia released a report this year highlighting the continuing shortfall of adequately
skilled engineers within Australia; 77 per cent of survey respondents experienced difficulty in
recruiting engineers with the required skill set in 2010. 33
2.
Rising construction costs
GHD provided a report to Infrastructure Australia this year, which compared infrastructure
construction costs in Australia with comparator countries. The data-based study found that increases
in infrastructure construction costs have at times not exceeded the rate of inflation in Australia, a
trend shared with comparator countries studied (US, UK, France, and Canada). 34
However, periods have existed where construction costs and CPI have not aligned; from 2004 to
2008 construction costs outstripped increases in inflation, and from 2009 to 2010 the reverse
occurred with inflation rising by more than the costs of infrastructure construction. 35
The analysis found world oil prices and fuel prices to be the main cost drivers of Australian
infrastructure construction costs, with input material costs and labour wage costs playing a more
modest role. With world oil prices projected to increase in the medium to long term, real increases in
Australia’s infrastructure construction costs are implied. 36
3.
The process (financing, planning, approvals)
The process of developing any major infrastructure project requires extensive planning: sensible
collaboration between the private and public sectors; extensive negotiation with approval authorities;
a structured and well-managed communication process with numerous stakeholders, in particular the
communities upon whom the infrastructure may have an impact; and the involvement of numerous
consultants, project managers, contractors, banks and other advisors including legal and tax.
33
34
Institution of Engineers Australia, The Engineering Profession: A Statistical Overview, 8th Edition, 2011.
GHD, Evidence Based Comparative Analysis of Major Infrastructure Construction Costs in Australia and Internationally –
Final Report for Infrastructure Australia, 2011 p. 44.
35
ibid.
36
ibid.
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Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
The complexities experienced throughout the coordination and interaction between all parties requires
an open and relatively simple series of processes by which a major infrastructure project is
undertaken.
Notwithstanding the various funding or delivery models available to government
(including PPP, design & construct, traditional design then construct, alliance contracting, and others)
to deliver a major project, the more complex the processes of approval, the greater the issues that will
need to be confronted to efficiently and effectively complete that project. Australia has benefited by
the development of a market that enables involvement of the private sector in both funding and
delivery. At the same time however, the at-risk costs experienced by the private in securing a project
are significant. Should a project be lost, the costs for lost bids are generally absorbed in the pricing
structures of projects that are won in the future.
Whilst structured approaches to the manner in which governments take projects to market exist, there
is still the need for these processes to continue their development for greater efficiency. For example,
the Department of Treasury & Finance in Victoria has led the development of the Public Private
Partnership (PPP) process through Partnerships Victoria (PV). Even today, PV’s processes are being
revised to improve the decision making protocols around Government investment in ‘high risk, high
value’ projects.
Along with this continuous development of processes however is the recognition by the machinery of
government to acknowledge appropriate risk-sharing. No longer will it be acceptable that demand
risk be borne solely by the private sector. This is exemplified by the failure over the last decade of
several major road PPP projects, where traffic usage risk has been the sole domain of the project
consortiums. Changes to the manner in which these projects are taken to market by government will
need to be considered to incorporate the pricing of long-term equity risks within projects.
4.
Project pipeline consistency
To ensure an efficient market structure, a consistent and coordinated roll-out of large infrastructure
projects across Australia, particularly across State jurisdictions, is required. A lack of coordination
currently results in major projects often competing for financing and skilled labour.
A strategic roll-out, coordinated between states, of large scale capital projects would assist in
managing these issues, along with potentially improving the competitiveness of construction cost.
This improvement in construction cost pricing would come about as a result of international
contractors being more confident of establishing their business in a robust Australian market.
This issue will require close cooperation between the Federal and State governments to ensure that
projects are prioritised on an agreed basis.
5.
Available funding
Funding availability is an issue with both the public and private sectors. The public sector is currently
more fiscally constrained than prior to the GFC due to their policies of stimulatory spending. This has
degraded public sector balance sheets with States in particular becoming concerned with maintaining
their credit ratings and as such are attempting to limit their level of debt exposure. That said the
Australian balance sheet is stronger than much of the rest of the world, and to the extent that public
spending stimulates economic and productivity growth, both ratings agencies and governments in
general can see the use of debt to generate these benefits as a positive.
However in the current global economic climate there is a mood of wariness. On the private sector
side, a definite impact on the availability of funds for a period after the GFC first broke was apparent.
This concern has now passed and in general large banks have retained funds and, combined with the
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relative stability of the local market, interest from offshore banks and funds in entering the Australian
market is being shown.
Currently there is a constant discussion regarding the availability of funds in the Australian
superannuation market.
There is however limited interest and avenues for increasing their
commitment to invest in the infrastructure sector.
Overall however, limitations on the private sector side are not the availability of funds, but the cost
and conditionality of private sector funding and the limitations that can be imposed. In addition,
unless the infrastructure is economic and based on market demand, inevitably even with private
sector funding the cost comes back to government. Economic or market demand infrastructure is
hard to finance currently given a number of recent ‘failures’ particularly in the toll road sector.
Procurement Methods
There have been several local studies conducted on the effect that procurement methods have on the project’s
performance. These are discussed in the following sections.
Public-Private Partnerships (PPPs)
In 2007, Allen Consulting Group produced a report on behalf of Infrastructure Partnerships Australia (IPA)
titled, Performance of PPPs, and Traditional Procurement in Australia.
As the title indicates, this study
assessed the performance of projects delivered employing the PPP method against projects delivered under
Traditional procurement methods. The study involved the assessment of 21 PPP projects and 33 traditional
projects.
The study concluded that PPP projects demonstrated superior performance in both cost and time. Further, the
study noted that the PPP advantage increases (in absolute terms) with the size and complexity of the project. 37
Focusing only on project delivery, i.e. from contract award to project completion, the study produced the
following results:
•
In terms of cost, the total value of the traditional projects sampled was $4.53 billion at contract
signing. A total over-run value of $672.5 million was calculated for this sample, representing a 14.8%
increase in cost. This compares with the $4.95 billion in contracted PPP projects sampled, which had
an over-run value of $57.6 million (1.2%). 38
•
For project delivery timeliness, the sampled PPPs were found to be completed 3.4% ahead of time on
average (from final contract signing to project completion). In contrast, the Traditional projects were
delivered 23.5% behind time on average. 39
37
Allen Consulting Group, C Duffield, P Raisbeck, Performance of PPPs and Traditional Procurement in Australia, Melbourne,
Infrastructure Partnerships Australia: 57, 2007, p. 1.
38
ibid., p. 5.
39
ibid., p. 6.
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The University of Melbourne conducted a benchmarking study that built upon the Allen Consulting Group
study, again comparing infrastructure projects delivered under the PPP model against traditionally procured
projects. The objective of the research was to provide statistical analysis on the key metrics of time and cost
for each of the four time periods they identified:
•
Full period: Original Announcement to Actual Final;
•
Stage 1: Original Announcement to Contractual Commitment;
•
Stage 2: Budget Approval to Actual Final; and
•
Stage 3: Contractual Commitment to Actual Final.
The results from Full Period (Original Announcement to Actual Final) and Stage 3 (Contractual Commitment to
Actual Final) for normalised cost and time are presented below (Table 8) 40 as these are the periods in the
project cycle that are of most interest to our study. Unfortunately, the Melbourne University study does not
present the data by infrastructure sector.
40
C Duffield, P Raisbeck, and M Xu, Report on the Performance of PPP Projects in Australia when Compared with a
Representative Sample of Traditionally Procured Infrastructure Projects, National PPP Forum, 2008, p. 43-44.
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Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Table 8: Normalised cost and time results from Melbourne University benchmarking study (Duffield et
al, 2008)
PPP Projects
Traditional Projects
TIME
COST
Measure
Original
Announcement
to Actual Final
Contractual
Commitment
to Actual Final
Original
Announcement
to Actual Final
Contractual
Commitment to
Actual Final
No. of samples
30
30
10
10
Average (mean)
1.52
1.18
1.24
1.04
Standard Deviation
1.55
0.58
0.53
0.08
Maximum
9.46
4.18
2.57
1.22
P75
1.42
1.17
1.05
1.01
P50 (median)
1.10
1.04
1.01
1.00
P25
1.00
1.00
0.95
1.00
Minimum
0.81
0.85
0.89
0.95
Inter-Quartile Range (P75 –
P25)
0.42
0.17
0.10
0.01
% Projects > 5% over expected
value
57%
43%
40%
30%
No. of samples
14
21
16
18
Average (mean)
1.15
1.26
1.17
1.01
Standard Deviation
0.45
0.42
0.23
0.20
Maximum
2.27
2.30
1.64
1.51
P75
1.27
1.43
1.38
1.05
P50 (median)
1.11
1.07
1.06
1.00
P25
0.89
1.00
1.00
0.93
Minimum
0.52
0.73
0.92
0.57
Inter-Quartile Range (P75 –
P25)
0.38
0.43
0.38
0.12
% Projects > 5% over expected
time
57%
52%
50%
28%
The data indicates the following key points:
1.
Irrespective of delivery method, the time and cost at Contractual Commitment is a more accurate
predictor of the Actual Final, compared with the time and cost at Original Announcement. This makes
sense as projects are often announced with little completed design (perhaps conceptual design only).
Conversely, at contractual commitment a project’s design is normally partially complete (functional or
even detailed design).
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2 . Irrespective of project period, PPP procurement is a more cost efficient method in delivering projects
compared with traditionally procured projects. PPP projects delivered for a price that is far closer to
expected cost with cost overrun risk borne by the private sector contractor.
3 . For the full project period from Original Announcement to Actual Final, PPPs and traditional projects
are delivered with a similar confidence in the likely overall time performance.
4 . From Contractual Commitment to Actual Final, PPP projects provided greater certainty on time
performance compared with traditional projects.
The research suggests that the PPP project procurement method has an advantage in terms of cost effective
and timely delivery of infrastructure projects.
Alliancing
In 2009, the Department of Treasury and Finance (Victoria) commissioned a benchmarking study into
alliancing in the Australian Public Sector. This study included a quantitative and qualitative confidential case
study analysis of 14 alliances (5 road projects, 2 rail projects, 6 water projects). 41
Although the research covered all components of the project lifecycle – namely business case, procurement
strategy, selecting the Non-Owner Participants (NOPs), agreeing the commercial arrangements, project
delivery – the study found the following six key findings pertaining to project delivery:
1 . The number of Owner resources provided to alliances varied, but active senior level participation by
the Owner proved to provide clear direction and support to the alliance;
2 . The majority of projects met the Owners’ target completion dates as the physical works were able to
be commenced many months in advance of what would have been possible under traditional delivery
methods;
3 . There was no evidence of any disputes between the Owner and the NOPs that needed to be resolved
outside the alliance;
4 . Although self-evaluation of both NOPs and Owner representatives within alliances showed that many
believed their own alliance achieved outstanding outcomes, there was very little objective evidence to
support this claim of game breaking / breakthrough performance and outstanding outcomes;
5 . Agreed initial Target Outturn Cost (TOC) increased in general to an adjusted final TOC in the order of
5-10%; and
6 . Actual Outturn Cost (AOC) was less than adjusted final TOC by approximately 0.5%, on average. 42
The last two findings are illustrated in Figure 4 below (also taken from the study but slightly modified to suit this
study), which shows the movement of costs during the project lifecycle. 43 Interestingly, most of the cost
increase in alliances was found to be early in the project between business case and contract award. The
figure below also shows a comparison against traditional and PPP delivery methods.
41
Department of Treasury and Finance, Victoria, Benchmarking Study into Alliancing in the Australian Public Sector, Evans &
Peck and Melbourne University, 2009.
42
ibid., p. 39.
43
ibid., p. 47.
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% Increase on Contractual Commitment
Figure 4: Cost movement for various delivery methods
Alliance
PPP
Traditional
Contractual
Commitment
Final TOC
Project Lifecycle
Actual
Outturn Costs
The figure above illustrates two key points worth noting:
1.
Cost overruns are likely under the alliancing delivery model
Of the 14 alliances investigated, the mean cost increase from contractual commitment to project
completion (AOC) was 10%. (The report show actual cost overruns in the order of 40% between
business case estimate and contractual commitment.)
2.
Alliances are likely to suffer greater cost uplift than PPPs, and less cost uplift than traditional delivery
methods
From contractual commitment to project completion, alliances have an approximate cost uplift of 10%,
compared with approximately 2% and 17% for PPP and traditional projects respectively.
Figure 4 shows that there is a greater level of confidence about the final Actual Outturn Cost for PPP projects
compared with projects delivered under the alliance or traditional methods. However, PPP projects are by no
means the solution to delivering all projects to budget and schedule. Each procurement method must be
considered and assessed for each project individually. For example, alliances are an excellent delivery model
when the scope of the project is poorly defined however are inappropriate should there be well developed
design and defined risk allocation. Careful selection of the appropriate delivery method is a critical part of
project planning.
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Delivering Large Scale Capital Projects in the Infrastructure Sector – A Baseline of Performance in Australia
Conclusions
The rate of productivity growth is slowing in Australia, arguably due to inadequate infrastructure networks.
Fortunately, research shows that infrastructure investment in Australia continues to grow. However, issues
exist with the manner in which the planning and delivery of large scale capital projects is undertaken and these
must be addressed to ensure their efficient delivery.
Major project development in Australia was assessed quantitatively by comparing initial and final cost and time
data for a sample of 23 infrastructure projects delivered within the last decade. The availability of data for this
assessment was a major limitation of this study. Nonetheless, the data showed that Australia’s performance,
on average, was largely within ±10-20% for both cost and time escalation. The exception was the one ICT
project assessed, which had significant cost and time overruns of 70% and 180% respectively.
Although a sample size of 23 projects is quite reasonable, the sample size within each sector was quite low
(with the exception of road which had a sample size of 12 projects). Therefore, the results can only be
considered as indicative.
Due to the limited existing literature regarding cost and time delivery for international projects , research
undertaken by Bent Flyvbjerg was relied upon for comparative purposes. His research is limited however to
cost escalation for road and rail projects. The comparison showed that Australian road and rail projects
perform better than international based projects with respect to cost overrun. The comparison should be
treated with caution as the starting point for selecting initial cost data may be inconsistent.
There are four major Australian infrastructure projects currently being delivered of unprecedented scale.
Efficient delivery of these mega projects is proving to be a challenge with severe cost and time overruns likely.
Several Australian infrastructure projects were selected as case studies. The purpose of the case studies was
to assess the projects qualitatively, providing comment on productivity factors. The case studies showed that
productivity is largely affected by three key factors; resources, pre-planning, and quality of design.
The literature researched as part of this study identified high-level drivers of successful projects and the
general difficulties faced in delivering major projects. Building on this previous research, five key threats were
identified for the delivery of Australia’s infrastructure; skill shortages, rising construction costs, the complexity
of the planning and development process, the lack of a strategic roll-out of projects from a planned portfolio,
and the uncertainty of funding.
Previous studies show that procurement methods have an effect on the delivery of projects due to the different
characteristics of each method. Studies suggest that PPP project procurement can have a real advantage in
terms of cost effective and timely delivery. This is not to say that the other delivery methods don’t have their
place in project procurement. Alliancing has proven to be a robust method for certain projects.
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Appendix 1: List of Australian Infrastructure Projects
Investigated
Available from the Business Council of Australia on request.
Page 40