Government projects do have a habit of throwing up nasty surprises. This extract from Louise Hart’s Procuring Successful Mega-Projects offer some salutary and pragmatic advice to help you identify the exit points, if it all goes to hell.
Knowing what you want is fundamental, but you also need to know what you don’t want. Any project develops its own momentum. The momentum of a mega-project is correspondingly large. Unless you have clear grounds for deciding not to enter the contract, there is a very real danger of becoming gradually committed to a deal that would never have been considered acceptable if it had been offered at the start. Mega-projects are particularly at risk because it takes months, sometimes many months, to complete the tender process. It is 100 per cent certain that before you can get to the point of executing the contracts, unexpected things will have happened. Unless you have absolute clarity of purpose, you will deal with these things in whatever way seems expedient at the time. When the time comes for hindsight, you may wish you hadn’t.
Any project develops its own momentum. The momentum of a mega-project is correspondingly large.
In 1998 the UK National Audit Office produced a report into the £1.7 billion 1996 flotation of Railtrack, part of the highly complex and politically charged privatisation of British Rail. The situation was loaded with hidden agendas, but the National Audit Office determined that ‘Government’s policy was to secure the sale of Railtrack within the lifetime of the then current parliament’ and the ‘main objective for the flotation of Railtrack … was to secure the flotation as soon as reasonably practicable’. The only possible showstopper was the fall of the Government before the flotation could be accomplished.
Nothing was allowed to stand in the way of the flotation. Performance regimes not fully tested in circumstances of disruption? Make the train companies pay £75 million a year in access charge supplements to compensate. Shaky balance sheet? Write off £869 million of debt. Not sure if employees and the general public will buy shares? Add £47 million of incentives. Institutional investors don’t see growth opportunities? Include the Thameslink 2000 project, reducing flotation proceeds by around £125 million. Directors still edgy about signing the prospectus? Promise the chairman a knighthood.
Measured against its simple objective, the privatisation was a resounding success. Given the subsequent history (multi-fatality train crashes, multi-billion pound cost overruns and a complete breakdown in the relationship with Government that saw Railtrack put into administration), one may speculate that better outcomes might have been secured if the show had been stopped.
Where the overriding purpose of a major contract is to raise money by selling a business or asset, it is relatively easy to determine what should constitute a showstopper. In July 2013 the NSW Government embarked on the sale of Macquarie Generation, a state-owned electricity generator, with the announced objective ‘to unlock funds for critically needed infrastructure across NSW’. (Translation: ‘raise money’.) The agreed showstopper was that the sale would not go ahead if the sale proceeds did not exceed the retention value of the asset. This amount, although not made public, was calculated before assessing any tender.
Of the three bids received, only one exceeded the retention value, and that one required clearance from the Australian Competition and Consumer Commission (ACCC). In the media release announcing the decision in early 2014 to accept the $1.7 billion bid, subject to clearance by the ACCC, the NSW Treasurer was able to state unequivocally, ‘Should the ACCC not provide clearance … the Government will not proceed with the sale of Macquarie Generation at this time.’ Absolute clarity. We’re doing this to raise money. If we don’t raise enough money, we won’t do it. Clearance was refused by the ACCC (something unexpected always happens before you can sign the contract), but the bidder appealed to the Australian Competition Tribunal, which allowed the deal to go ahead, and the sale was eventually completed in September 2014.
When the contract being established is a procurement rather than a sale, things get more difficult. Typically you will be procuring something complicated: submarines or a railway line or a hospital, which need to be specially manufactured or constructed; the development and implementation of major IT systems; or the provision of complex services over a number of years. It is rarely obvious in advance what will constitute a genuine showstopper. These things tend to be matters of degree and of balancing a range of outcomes. One or two slices of salami aren’t important, particularly if offset by other benefits. On the other hand, if you keep slicing you will run out of sausage.
Don’t set absolute exit points, but work out trigger points for project reviews: define circumstances where Government should step back and take a good look at whether the project should proceed.
Read Procuring Successful Mega-Projects; How to Establish Major Government Contracts Without Ending Up in Court, (Louise Hart, 2015, Gower, Farnham) and over 100 other Gower project management books online at GpmFirst.com.