Holyrood Inquiry: Factors of Delay and Cost Escalation

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Table of Contents

Introduction
Problem with Initiation and Definition of the Project
Problems with Planning and Development
Problems with Execution and Control
Problems with Closure and Review
Project Stage Responsible for Cost Increase and Schedule Slippage
Evaluation of the Project Management Problem
Conclusion
References

Introduction

Unique, non-repetitive activities occurring only once within a specified time frame are known as ‘Projects’ (Horne, 2004). Project management encompasses planning the project and controlling the project activities subject to resource and budget constraints to keep the project on schedule. Due to a number of challenges and problems faced during the progress of the project, the construction of the new parliament house for Scotland could not be completed even until 20 months after the scheduled completion in mid-2001(The Scottish Office, 1998). The project saw a lot of slippages during the progress; especially in the area of cost escalation in that £ 195 million target fixed in June 2001 was unachievable and was subsequently been fixed at £ 431 million with so many upward revision of estimated construction costs. Lack of proper project management resulted in inordinate delays and resultant cost escalations. The completion of any construction project follows different stages and it is possible that the project may have to face numerous challenges during these stages. Lack of managerial skills or improper decisions taken at any stage and mistakes occurred in estimating the costs during the initiation of the project might also lead to escalation of costs. The objective of this paper is to analyze the reasons behind the delay in the execution of and escalation of costs in the Holyrood Project.

Problem with Initiation and Definition of the Project

The initiation and definition include the recognition of the project idea or opportunity with an effective formulation of service and functional needs and objectives. This stage needs a proper definition of the project concept and an effective construction planning during designing. This stage identifies a clear project implementation and procurement plans including the outcomes of different other stages in the project completion. Detailed cost estimates and project delivery schedules form the essential part of the initiation and definition phase of any construction project. Well-designed project design contributes to the success of any project (Australian Construction Industry Forum, 2009).

In the case of Holyrood project design slippage was the major factor which contributed to the delay in the completion of the building project. Another reason for the delay is the unusual procurement route used by the project which is unsuitable for public construction projects. Major challenges obstructed the progress of the project making it more complex and always the client maintained a drive for the earliest achievable date, irrespective of the cost escalations. For the successful completion of any proejct, it is essential that the costs are determined at the time when the contract is awarded. The mode of executing the project through construction procurement method was another issue (Scottish Parliament, 2004).

Being an extremely difficult and complex building project, using the strategy of construction management method of procurement was the main reason for the problems that arose in the progress of the project. Selection of the unusual method of procuring construction projects also contributed to the delay, where the responsibility could not be pinpointed on anyone.

Problems with Planning and Development

After the initiation stage the basic design of the construction project is developed. This involves considerable planning of the various activities to be integrated so that the project is completed within the scheduled time and meets the cost and quality estimates. The project should have control mechanisms to ensure that the final specifications of the stakeholders are met properly. The design of the project should evolve a design that is functional meeting the cost and quality standards as well as aesthetic. The project design should be prepared in such a way that the design meets the schedule of time and costs estimated.

For the Holyrood project, design development was one of the main reasons for the delay in the execution of the project. The Auditor General commented that the design development process has added to the total cost of the project with each modification instead of the designs being developed in accordance with the standards established in advance. In the case of Holyrood project, the design was incomplete and uncertain when the construction started. The project because of higher degree of uncertainty and complexity was exposed to considerable risks with respect to the cost and time involved in the completion of the construction (Prasser, 2005). Due to poor planning and development and the resultant cost escalation, the Holyrood project has been ranked as the one of the worst building projects in the world for cost overruns (Macdonell, 2003). There were unachievable completion targets that led to the failure.

Problems with Execution and Control

The execution and control stage of the project consists of the actual implementation of the project. In this stage the actual construction takes place. Being an operational phase, during this stage it is necessary to provide latest and current information on the costs incurred on the project until the completion of each accounting period and spread over the whole life cycle of the project. The estimates so prepared represent the costs incurred up to date and the information on the designs made also form part of the project information. For the completion of this stage, the estimates should contain any possible deviations from the estimates covering the contingencies together with the details in respect of the contingencies are to be prepared and presented to the project management team for control purposes.

Confusion on the clarity of the leadership and lack of control on the part of client organization was the factor prevalent predominantly during the progress of the project. There never had been efforts taken to make a concise report on the progress as well as on the financial aspects of the project at any level. There was neither the risk approach in consistent with good and established practices nor was the construction management implemented fully with the usual practices. The excessive consultants’ fees were controlled at a very late stage of the project. Another issue with the control of the project is that the project manager did not possess the necessary authority and the title was quite misleading (Macleod, 2004). Lack of leadership quality, stricter budgetary control norms and the absence of an effective decision making process to balance the varied preferences of time, quality and cost was also another aspect which made the project extend over a considerable time period resulting in greater costs. Among other things the frequent variations in designs and late supply of vital information during the construction process led to the delay in the execution of the project.

Problems with Closure and Review

In the final stage of the project all the costs incurred for the project are identified, accounted and compared with the estimates. Evaluation of the quality and time of completion of the construction project is done by comparing the actual with the estimates of cost and time. In this stage the performance of the project in terms of the satisfaction of the stakeholders is with respect to the total costs incurred and the time taken for completion of the project along with the quality of the project performance are of vital importance. A critical review of the reasons for any variations and escalations are analyzed to pinpoint the responsibilities on various agencies associated with the project.

As per a resolution passed by the Scottish Parliament in April 2000, a Holyrood Progress Group (HPG) comprises of representatives of the Parliament and construction professional to work with the Scottish Parliamentary Corporate Body (SPCB). The mission of this body is to finalise the design, control the progress of the building, complete the project in time and make periodical reports to the SPCB. In turn SPCB will advise the Members on the total amount spent so far on the project and the estimated time and cost for completion of the project (Scottish Parliament Research Note, 1999). The Scottish parliament advised the SPCB to make quarterly reports to the Parliament’s finance Committee on the progress of the Holyrood building Project, highlighting especially the escalation in the costs of completing the project for getting the concurrence of the Committee for the increase in costs in the annual budget sanctions. The Chief Executive of the project made monthly reports to SPCB on issues relating to program budgets and quality. All these reports were based on the regular meetings and discussions between HPG and the SPCB. However such reports have not been taken in the proper perspective as the controlling mechanism for the progress of the project. This led to the improper closure and review of the project. As the Guardian reports the Holyrood project has embedded in itself a dependency culture with under-powered politicians who did not want to exert real authority which led to poor management of the project closure (The Guardian, 2004)

Project Stage Responsible for Cost Increase and Schedule Slippage

On an overall analysis of the progress of the Holyrood project, failure or lack of skill at every stage of the project has contributed to the cost increase and schedule slippage. The selection of the method of construction has contributed to the problems encountered in the progress of the project. There was no consensus arrived at either the cost or the design at the initiation and definition stage of the project. During the planning and development stages, there were too many changes in the design disregarding the cost and time implications of the changes. During the execution and control stage no accountability has been fixed on any individual person or authority to control the cost increase and schedule slippage. Risk management for the Holyrood project was insufficient with no qualified targets or quantification for the major risks associated with the project (Potts, 2008, p 119). Extended construction period is the main cause for the escalation of the project costs beyond reasonable levels. Very high costs involved in the development of designs and changes in each stage also caused the cost increases. The main focus on meeting the program deadlines has led to the process of uncompetitive procurement which ultimately escalated the project costs. In general, in most of the procurement contracts design changes in between make the estimated final cost of the project exceed the original cost plan allowance (Bain, 2006, p 56). In short as stated by the former Executive Minister Sam Galbraith “Everyone gets in, everyone wants to change it, every change cost money and no one accepts responsibility” (BBC News, 2003)

Evaluation of the Project Management Problem

Measuring the performance of any construction project precisely in terms of its success or failure has been proved to be a complex process. Because of the increase in the complexity, present day construction projects fail to achieve complete success in terms of performance. A successful project is one that has been completed within the estimated time within scope incurring budgeted cost and satisfies the required quality. Pinto & Prescott (1988) have identified the impact of human resource management on the success of any construction project. Research by Pinto & Prescott (1988) had arrived at ten crucial success factors which influence the success of any project. Leadership qualities of the people managing the project and timely information on the cost estimates and design data have been identified to be critical success factors among other things. Atkinson, (1999) has arrived at a model of success which takes into account the performance measurement of the project in terms of cost, time, efficiency and quality of the project. He also has identified the post delivery stage which deals with the benefits to the various stakeholders involved in the project. White and Fortune (2002) have established three most critical factors for the successful completion of a construction project. These are the identification and formulation of clear goals and objectives, support from senior management and adequate project funds or resources. Kezsbom, (1993) have suggested planning as the main ingredient for the success of the project and any lack in achieving the project milestones within the defined completion dates would result in failure of the project. According to Avots, (1969) inadequate basis for project, wrong person as project manager, lack of commitment to the project and inadequately defined tasks were some of the factors that determine the success of the project. According to Lim & Mohamed, (2000) lack of experience, site supervision, lack of appropriate skills and knowledge were the factors that influence the success of any project. All these theoretical considerations point to the reasons for the failure of the Holyrood project.

Conclusion

The report of the Scottish Auditor General (SAG) has identified several issues which offer important lessons for an effective management of public sector construction projects (Audit Scotland, 2004). The first observation made by the SAG is that it is wise to decide on such form of contracting that places the risk on the people or agency having the capability to best manage the associated risk. Secondly there is the need that the business need for a project should be scrutinized during the life cycle of the project at its various key stages. This evaluation should take place before the contract is awarded and such an evaluation is considered necessary to provide an assurance that there will be a smooth progress of the project to further stages. It is also vitally important that a distinction is between made project sponsor and project director to fix the respective roles and responsibilities precisely to ensure proper accountability. The performance of the project in terms of cost and time against the targets needs to be measured and reported for ensuring success.

References

Atkinson, R. (1999). Project Management Cost, Time, and Quality: Two best Guesses and a Phenomenon its time to accept other success criteria. International Journal of Project Management , 17 (6), 337-42.

AuditScotland, 2004. Management of the Hoyrood Building Project. Web.

AustralianConstructionIndustryForum. (2009). A Guide to Project Initiation for Project Sponsors, Clients and Owners. Web.

Avots, I. (1969). Why Does Project Management Fail? California Management Review , 12, 77-82.

Bain, S., 2006. Holyrood: The Inside Story. Edinburg: Edinburg University Press.

BBCNews. (2003). Dewar Defended over Holyrood.

Horne, J. V. (2004). Financial Management Policy ed XII. New Delhi: Prentice Hall India Private Limited.

Kezsbom, D. (1993). Integrating People with Technology: A Paradigm for Building Project Teams. Transactions of ACCE International.

Lim, C., & Mohamed, M. (2000). An Exploratory Study into recurring Construction Problems. International Journal of Project Management , 18, 267-73.

Macdonell, H., 2003. Holyrood’s World-Class Price Overrun. Web.

Macleod, A., 2004. Scotland not up to the job on Holyrood. Web.

Pinto, J., & Prescott, J. (1988). Variations in Critical Success Factors over Stages in the Project Life Cycle. Journal of Management , 14 (1), 5-18.

Potts, K., 2008. Construction Cost Management: Learning from Case Studies. London: Routledge.

Prasser, S., 2005. Overcoming the ‘White Elephant’ Syndrome in Big and Iconic Projects inthe Public and Private Sectors. Web.

ScottishParliament, 2004. The Holyrood Inquiry. Web.

ScottishParliamentResearchNote, 1999. The Holyrood Building Project. Web.

TheGuardian, 2004. Concern is Building around Holyrood.

TheScottishOffice, 1998. Chapter10 Making it Happen. Web.

White, D., & Fortune, J. (2002). Current Practice in Project Management. Journal of Project Management , 20, 1-11.

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