Looking At The Budget Costs Of Construction Projects Construction Essay

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On time and within budget completion of a construction project is of importance to both clients and the contractors. The clients need the project to be completed on time so that the finished final product can be put to it's intended use. Late completion will mean that the client is been denied the potential benefits that would have been obtained from the finished project. This could put the client at serious financial risks, as the client will be unable to pay off any debt incurred to finance the project. Depending on the type of contract the contractor could also be at risk from late completion and budget overrun of a construction project. The contractor could run extra costs extended use of labour, machinery, on site office etc.[1]

The effects of late completion and cost overrun of construction projects are very obvious but yet still many construction project fail to complete on time and within budget, such as Sydney Opera House, Channel tunnel, Scottish Parliament and Wembley National Stadium.

In this piece of coursework effort has been made to understand why civil engineering project often go over budget and surpass their completion dates. Two such projects namely New Wembley Stadium and Scottish parliament projects have been analysed and then compared with a success story of civil engineering world. Which has been hailed as the benchmark for future civil engineering projects.

New Wembley Stadium:

The Wembley National Stadium was put for tender by the subsidiary of the Football Association Wembley National Stadium Limited, It was offered on a fixed lump sum cost. Several contractors hesitated to put forward any bids, fearing that the job was very complicated and too big. Which would result in subcontractors and builders going over budget by hundreds of millions of pounds.[2]

Mutiplex in collaboration with Bovis were chosen as the favourite contractors to undertake the stadium construction. However later Wembley National Stadium Limited WNSL terminated the joint venture as Bovis would not accept lump sum lower than £339 million. Then later Multiplex offered to build the project for a fixed sum of £326.5 million, which was accepted by WNSL and the project was awarded under design and build contract. Where multiplex were responsible for the design and construction of the project, the design and work were subject to approval of WNSL. However subsequently after discussion of the detail works the project cost was agreed at a maximum fixed lump sum of £455 million.[3]

The deadline for completion of the project was May of 2006, giving Multiplix 40 months to finish the project. The project had advantage of late start with a well developed design and few design changes were expected to arise during the course of construction.[3]

One of the main challenges of this project was it's signature steel arch construction and erection. Multiplix awarded the construction and erection of the roof and the steel arch to Cleveland Bridge, a U.K based steel work specialists. This firm was awarded the contract to construct the roof and steel arch for £60 million over period of 80-week. They were to construct, deliver and then erect the works. But in 2004 the work at the site was stopped by a dispute between Cleveland and Multiplix. The reason for the dispute was that the steel work was severely behind schedule. This led to a legal row between the two parties and Cleveland were ordered off site. The rest of the work on the steel arch and roof was completed by Hollandia on a cost plus basis.[3]

Subsequently Cleveland Bridge filed a claim against Multiplix for non-payments. Cleveland argued that the delays were due to late and incomplete design work by Mot Mcdonnald who were working for Multiplix, as designers. Cleveland argued that the design changes and delay in supply of design works led to substantial cost increases and delays and disruptions to the works.[3]

The stadium, which was originally scheduled to open on 13 May 2006, after extensive delays was finally handed over to the client (WNSL) in March 2007. The project excessively ran over its initial budget and Multiplex made a loss of £147 million on the project.

There were some unforeseen incidents in this project due to which the whole project was delayed significantly. A major incident had occurred when a steel rafter from the roof of the new development fell by a half meter, forcing 3,000 workers to evacuate the stadium and raising further doubts over the completion date which was already behind schedule. The sewer pipes running under the stadium buckled due to the ground movement and which took months to repair and added to the already extensive delays. [4]

One of the main factors that led to the cost over ran and late completion of this project was the chosen contract. By choosing the Design and Build contract on a Fixed Price Lump Sum basis WNSL thought it had off loaded all risk to Multiplix. This type of contract would have been alright and helped delivered the project on time and in budget, if the chosen contractor had all the resources, experience and money required for such a complex project.[2]

The chosen contract created a adversarial environment, where each party focused on the needs and risks of their own business rather then the need of the project. Multiplix was a well established contractors in Australia but were new and inexperienced in U.K and did not have much knowledge of the culture of the construction industry in U.K. They had to employ a whole new team for this project and they did not have the needed relationship and understanding with their suppliers in U.K for this project. [5]

The chosen contract created a risk dumping environment, the risk and responsibility was dumped on Multiplix so, they passed the risk on to Cleveland Bridge which before this had not carried out such a complex project. Which resulted in Cleveland Bridge struggling to stay on schedule and unable to finish the job. Which in turn delayed the whole project by almost a year.

For this type of contract to work there had to be a detailed work plan. The client had to be given complete detail of how the work would be completed and how would the work be subcontracted to other firms.

A project of national significance needed to be better planned then it was, rather then the risk being passed on to Multiplix the WNSL should have been more involved from the start to finsih. This attitude of risk dumping led to the stadium being completed a year late and leading to loss of revenue from the scheduled events like the FA cup finals. On the other hand Multiplix were naive to take on this project as other British firms backed off from tendering for this project even though traditionally they would take on a job just to keep the company and it's employers active.

Report prepared by House of Commons Committee of Public Accounts indicated that WNSL had failed to follow a detailed procurement process, which might have also led to the under estimation of the cost and time of the project.[6]

Collapse of the roof

Buckling of sewage pipes under the stadium

Inexperience of Cleveland Bridge

Multiplix Naive to take this project

it is unrealistic surely to plan future sporting fixtures on the assumption that the completion date will be achieved in practice.

The Scottish Parliament:

This project faced controversy right from the beginning when the Holyrood site was chosen as the preferred location for the new Scottish Parliament, which is on the edge of a Park rather then other well built and populated areas in Edinburgh. The site was chosen in 1998. The project also faced problems when Donal Dewar, First minister and the driving force behind this project died all of a sudden in 2000, who was shortly followed by Enric Miralles, this project's Spanish architect who unexpectedly died as well.

The building was due to be handed over to the client by mid 2001 but was still surrounded by construction workers during it inaugural ceremony in 2004. The initial budget for this project was estimated to be at £40 million which ballooned to £431 million by end of the project.

An official inquiry was ordered by the Scottish Parliament into this project, which was headed by The Rt Hon Lord Fraser of Carmyllie QC. The inquiry found that the main source of problem in this project was the procurement method.

In 1998 it was decided by the Civil servants that the Construction Management would be the best procurement method to undertake the construction of 'Scottish Parliament Building'. This works by splitting the project up into smaller packages which can be designed separately and tendered separately. The main benefit of this method is that it is quick, that is due to the fact that the basic construction can start without the need for complete and final design.

This procurement method is expensive and risky for the client

This procurement method has been successfully used in private sector i.e. Honda.... where client is very experienced .....

Construction management requires client to be involved in the construction process, the client has to be experienced as they will be managing different parties. The client has to appoint designers, construction manager and deal with trade contractors directly without any intermediary contractor. Leaving the client liable for any problems during construction. The construction managers act as client's agents co-ordinating and controlling the whole construction process, they are only liable for negligence if they are found to be failing to perform their work with reasonable skill and professionalism. This puts less of a pressure and gives less incentive to the construction managers to keep the project cost under budget. [3]

As part of The Holyrood Inquiry Colin Carter of Gardner Theobold was asked for his evidence on the chosen procurement method. He came up with seven must have for the construction management to work effectively.

1. Well informed and experienced client with firm knowledge and understanding of the construction process

2. A experienced team with good and strong Leadership;

3. Well defined roles and responsibilities from the start;

4. An architect who can envisage the whole and the detail at the same time;

5. Sufficient time up-front in planning;

6. A very good construction instruction, approval and change process;

7. An effective and well-managed risk-management process. [3]

Construction management was the wrong type of procurement method for this project as the Client i.e. the civil servants were very inexperienced in the construction industry and did not have the right expertise for this type of procurement. This project was divided into more the 60 different packages which were designed and procured independently, which is a recipe for disaster as the client was not experienced to manage all 60 different contractors on site.

On the other hand Joe Martin of Royal Institute of Chartered Surveying thinks that Lord Fraser was over critical of Construction Management as the right procurement method for this project. He thinks that since at the beginning of the project there was a pressing need for quick start of the project and a quick completion of the project, the only way to meet these need was through using construction management. He also says one other way the cost of this project could have been kept under control was if the Client had simply waited till the design had been finalised which would have delayed the project severely. [8]

Construction management is mainly used on small scale commercial buildings where time is of the essence rather then the cost, the clients need the project to finish as soon as it is possible so that it could be used to generate revenue. Where client has clear understanding of their requirements of the final product. Whereas in the case of Scottish Parliament project had no clear idea of what final building should be like. There were numerous voices with different wish lists, there were 18,000 design changes over the entire project, the floor space requirements for each occupant was doubled and £40 million of blast proofing had to be added to the building after attacks on the twin towers in the U.S. Which clearly violated the 3rd, 4th and 6th of the above mentioned 7 must haves put down by Colin Carter of Gardner Theobold for the construction management to work effectively. [8]

In the enquiry it was found that the construction managers were not fully engaged with the construction process and the civil servants did not understood the needs of construction management. The civil servants did not understood the technical information received from the trade contractors and therefore misinforming their seniors, the ministers. [3]

It can be clearly seen that this project was more or less headed clueless with a ever changing design brief. Which clearly violated most of the 7 must haves put down by Colin Carter of Gardner Theobold for the construction management to work effectively.

The holyrood Enquiry also found that the civil servants failed to evaluate different procurements methods, the only thing discussed on alterative routes of procurement was 'the difference between PFI and traditional procurement methods'. [8]

According to Sir Michael Latham an alternative route to construction management could have been to get the contractors in a partnership rather then just hiring them, this would have spread the risk between the client and contractors. The conceptual design could have been prepared by the Spanish Architect Miralles. A major design and build company then could have been asked to take on the project with Miralles being novated to them as the main Architect. This would have given client a joint up team with experienced supply chain on board right from beginning of the project, help forming a strategic and robust plan to produce the end project. [8]

This route would have enable the client to control project cost, bring in value management, retain key aspects of the design and yet share risk of the project equally between themselves and contractors.

BAA Terminal 5:

Comparing the above two civil engineering projects that have gone wildly over budget and were completed well beyond it is scheduled completion date to a success story of civil engineering world will enable us to see where did the above project went wrong.

BAA's Terminal 5 Project at Heathrow Airport was Europe's biggest mega project, costing around £4.2 Billion. Phase one, which includes the main terminal and first satellite building, opened on 27th March 2008, which was on time and on budget. The second and last phase of the project will be completed in 2016. [9]

BAA knew they had to come up with new ways of dealing with this project. They realised that they were ultimately responsible and affected by any risk arising in the project. BAA took a bold step and took full responsibility of any risk arising from the project therefore they took out a insurance cover of £4 Billion for this project. [12]

BAA came up with a new innovative contract for this project which promoted teamwork and sharing of pains and gains of the project between all parties involved in the project. Contractors being paid for work carried out on cost reimbursement basis while bonuses being offered when targets beaten. They would also at the same time share the cost, for going over targets in terms of cost and schedule. They Ditched the old style adversarial contracts where parties spend most of the time blaming each other when something goes wrong, with the burden of the risk being lifted off contractors, they were relieved and encouraged to think innovatively and coming up with creative solutions. This contract encouraged proactive risk management, it managed causes rather then effects and ensured success in uncertain environment.[10]

BAA took active steps to knock down any barriers between different parties involved in this project and inspired them to work as one team under the banner of Terminal 5, with same shared sense of values, focusing on delivering the end product rather then concentrating only on their own individual short term business interests. [11]

BAA had a clear plan before it commenced construction work, they encouraged most suppliers to come on board and be part of the design team so that all potential risks and challenges can be identified from the start of the project. As a result this team work manifested in value being added to the design and safe solutions engineered for any potential risks arising during the construction of the project.[11]

BAA enforced a culture of transparency on the suppliers involved in this project, knowing their cost structure in depth. Which was not an easy task as many suppliers were not used to this type of working atmosphere but was crucial for successful completion of the project.[10]

Conclusion:

WNSL - Total risk dumped on Contractor

Take responsibility - team work

Holy road - Risk lies with the client

Leadership

Different wish List - 1800 design changes

T5 - Team work rather one party bearing all the risk

Robust planning led to most unknowns identified and plans prepared. - octr attended site

Well planned

Communication:

WNSL They just dumped whole of project on to multilplix and just hoped that they will deliver on their promise or otherwise they could be sued for damages, this is old adversarial style of project management. There was also communication problems in Scottish Parliament Project where the civil servants did not understood most of the technical information they were receiving from the trade contractors. Most expert says that this barrier in communication led to £100 million increase in costs.[8]

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