Overly optimistic cost estimates for big public projects are creating “significant public and political condemnation” when the final bill initially put forward is nowhere near robust enough to begin with, according to a leading State agency.
A risk paper from the National Transport Authority (NTA) explains how Government rules demanding a “fixed price” for every large construction contract has created a “perverse effect” leading to claims culture and adversarial relations between contractors and the public sector.
It says this has incentivised “lowball tender pricing” where companies look to win a tender using an unrealistic estimate and then try to claw back money at the end during a costly dispute-resolution process.
The NTA paper says that while fixed-price, lump-sum contracting can work for certain smaller “more conventional” projects, it is completely unsuitable for major programmes.
The NTA research raises the example of proposed BusConnects routes in Dublin and how “inordinate delays” in planning and with An Bord Pleanála make putting forward realistic price estimates extremely challenging.
“Such delays not only extend the delivery timeline by the longer approval period but create significant additional significant cost implications (as well as schedule and benefits) such as exposure to inflationary impacts in future years,” it says.
The report also warns of “unknown unknowns” that can hit any project and that have, in recent years, become ever more frequent. It says this includes the Russian invasion of Ukraine, Brexit, cyberattacks and Covid-19.
It also says it could be better to put forward price ranges rather than a specific figure to help “demonstrate the scale of uncertainty”, especially at the start of a project.
“It produces more realistic estimates, enabling teams to focus on delivery rather than being consumed and demoralised by issues driven by anchoring to insufficiently mature early estimates,” the research states.
The report also warns of challenges already cropping up in planning for one of the State’s planned “megaprojects”, the building of an underground metro to connect Dublin city centre with its airport and Swords.
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The report states: “Delayed approval of TII [Transport Infrastructure Ireland] additional resources (including the MetroLink Programme Director role) is impacting overall delivery timelines and dates committed to at preliminary business case stage, which has had, and will continue to have, considerable increased cost implications.”
A spokesman for the NTA said: “[We are] responsible for the delivery of the Government’s growing investment in sustainable transport infrastructure.
“We undertake this role in a knowledgeable and professional manner, learning from project delivery in other jurisdictions, garnering advice where required, undertaking risk assessment and detailed cost evaluation, all designed to achieve the best value for the State’s investment and the highest benefit to the public.”
