The overriding concerns that caused delays and cost escalation in the construction of the tunnel link between England and France - Essay Example

Executive Summary The Channel Tunnel project serves as a major learning stage for other similar large projects. The scope of the project kept changing over time leading to massive increases in costs as well as negative schedule variations. The problems associated with the Channel Tunnel project stemmed from failures in the pre-planning, planning and execution phases indicating that meticulous attention must be paid to all aspects of project planning and execution. 2. Background The twentieth century witnessed developments on many fronts at the same time including construction. A number of hallmark projects were commissioned in the twentieth century such as New York’s Empire State Building and others that served to boost mankind’s confidence in taking on large projects. A large number of mega projects spanned progress in the twentieth century but taking on and executing these projects represented large challenges. The early parts of the twentieth century saw randomised approaches to project management in order to deal with large projects. However, as time proceeded and human experience increased in dealing with large projects, the approach to such projects became more and more structured. A large amount of advancement has occurred on the fronts of project management although there is still much ground to be covered. Initially project management was largely restricted to dealing with the technical aspects of projects especially the larger projects. In time it was found that project management needed to deal with other aspects of projects such as financing, scheduling, quality initiatives and others. Development on these fronts has been steady and has resulted from learning from various mega projects. The unique nature of mega projects means that the same ideas are not equally applicable to different projects even though they may hold similar grounds. One project that sparked the imaginations of mankind was the Channel Tunnel project that was initiated to build a fixed link between England and France. Historically the English Channel has represented a major obstacle to crossing over into United Kingdom. In order to deal with this challenge some kind of a system was required that could facilitate the movement of goods and people between both nations. This project was all the more critical for England because it did not have a direct link to mainland Europe. Such a link was necessary to ensure trade and commerce between England and mainland Europe. Prior to the tunnel’s opening, the only modes of transport available included ferries and airplanes. Both modes of transport were not only expensive but were at times dictated by weather over the English Channel making crossing or flying difficult. Early ideas to deal with this challenge included large iron bridges with spans of many kilometres. However, the technical challenges facing the creation of such spans and bridges were large and rather insurmountable. Constant tries on the British and French sides finally saw the emergence of a tunnel system beneath the English Channel that could finally connect both countries with ease. The movement from mere ideas to a practical working system represented one of the largest challenges undertaken by mankind. The creation of the Channel Tunnel was confronted by myriad challenges such as costing, planning, execution, finance, teamwork, quality, safety and scheduling amongst others. When the project was finally completed, it was found that the project was delayed as well as overpriced when compared to original estimates. This paper analyses the overriding concerns that caused delays and cost escalation in the construction of the tunnel link between England and France. 3. Problems 3.1. Pre-Planning The creation of such a gargantuan tunnel system to accommodate trains and shuttle services required taking over challenges on many fronts. The primary challenge to initiate the Channel Tunnel project was garnering the right kind of political will to create this project. The political will garnered to initiate the Channel Tunnel project included the agreement between the British and French governments. Both governments came together to create a new regulatory authority for the purpose of this project. This regulatory authority was known as the Inter Governmental Commission (IGC) and was composed of civil servants from both countries. The IGC asked for proposals to create the Channel Tunnel from various interested bidders. Theoretically, this step should have had positive effects only but this was not the practical case (Krezner, 2003). Practically, the IGC created a lot of pressure on the bidding parties that submitted their proposals. It was decided in 1984 that the Channel Tunnel project should be initiated and the proposal bids were invited by 1985. This provided the bidding parties a mere window of one year in order to provide fitting bids for the entire project. The small time allocated for the proposals required that the bidding parties should speed up their work and rely on estimates alone in order to produce realistic plans. The limits on time meant that the submitted proposals did not account for many major factors which had near disastrous consequences later. Perhaps one of the most related facts is that the initial proposal that was approved did not account for any air conditioning systems in the project scope. However, when work was initiated on the project it was felt that this was an impractical position and that air conditioning should be available for all tunnels. Consequently, the scope of the project was expanded in haste again in order to accommodate air conditioning systems. The inclusion of the air conditioning system had direct impacts and indirect impacts on the overall project scope. For one thing, the inclusion of air conditioning on short notice meant the addition of $200 million to the overall project budget. The haste to procure and install air conditioning also meant that this system could have been procured and installed for less if this system had been envisioned earlier and if work on this system had begun earlier. On the other hand, there were indirect problems in installing a new system as well such as raising new contracts in order to deal with installation. This had the profound effect of enhancing the amount of teams working on the project therefore requiring greater teamwork and coordination for the project. This indicates that the creation of the IGC was effective in garnering political will but had disastrous consequences for project management (Lenley, 1995). Another pressing issue in the pre-planning phase was the mobilisation of finance required for executing such a large project. Few projects this size had been pursued before in both England and France especially after the Second World War. In order to finance such a large project one would expect that the respective governments would provide some kind of fiscal support or cover to the involved parties but this was not the case at all. Instead, the respective governments made it clear from day one that the finance required to create such a gargantuan project would be derived from private equity as well as private shareholders. With both governments steering clear of the financing requirements, it became obvious that finance had to be derived from many smaller sources put together. The involved governments had steered clear of financing requirements in order to avoid financial contagion or other difficulties for themselves. In real terms, only the involved governments had the kind of financial backing required to take this project forward smoothly. However, given the involved government’s stance on the issue the finance was sought from a combination of some 206 banks along with over 700,000 shareholders. When the project proceeded, there was a large demand for increase in the base cost of the project that had to be met with some kind of new funding source. The financers for this project were not able to cater to the demands of large escalations in cost for this project leaving the room open for new unwanted investors. The inclusion of these investors in the overall investment palate meant that financing was a chaos-based phenomenon in the project. As new investors jumped on board, they tried to reduce the overall risk in their own individual ways leading to greater fiscal constrain than already existed. The newly included investors tried to rely on disputes in order to pay contractors less than originally deemed required. This in turn led to many contractors heading off to courtrooms in order to settle their fiscal disputes with the Eurotunnel business enterprise. The courts overturned various stances held by the investors of Eurotunnel and awarded the contractors large sums of money in dispute and claim settlements. One of the more enhanced claims came from TLM who were able to convince the court to pay them an additional $2.25 billion while the total cost of the project was estimated initially at $5.5 billion. This additional claim represents some 40% of the cost of the original project estimate indicating that claim and dispute settlement was a major losing point for the investing banks (Morris, 1994). 3.2. Planning It has already been mentioned that pre-planning failures were already occurring when the Channel Tunnel project was being initiated. Some of these errors crept over into the planning phase and then into the execution phase as well. When the project was being planned out, it was felt that the technical requirements had a large bearing on the overall cost and schedule for this project. The overall planning was carried out by the Eurotunnel business enterprise that was itself composed of one British and one French company. The overwhelming focus of these companies was to capture any technical risks that might occur when the project was being executed. When the project actually commenced it became obvious that the Eurotunnel team had managed to capture nearly all technical risks with great dexterity. What was amazing for most observers was that the tunnel boring teams managed to come within a few feet of each other. Had this not been the case, there would have been the need for costly re-boring in order to straighten the approach paths for both tunnelling teams. In these terms, the technical planning was a major success for this project but there was the constant problem of overkills emerging from areas where risk mitigation had gone to the extremes. One such example was the French side’s fear for being unable to grout well enough on their side. In order to cover up this risk the French side resorted to the procurement and use of much more advanced and sophisticated machinery and equipment. This procurement and use was able to mitigate an overplayed risk because investigations of the issue later showed that previously available cheap equipment would have been able to do the job just as well. Research carried out after this project’s completion showed that equipment available from as back as 1974 was just as capable of doing this job as the newly procured equipment (Anbari et al., 2004). Eurotunnel was not a contractor for tunnelling jobs on a constant basis so the procurement of this new equipment spelt two things simultaneously – increased costs and real time depreciation of this equipment on the final sale. Risk mitigation measures such as this were primarily responsible for increase in costs. On the other part of the spectrum the project planning team failed to account for a number of variables that they later had to confront head on. Some of these risks were internal while others were externally imposed on the project. Internal risks included a long line of failures on the fronts of effective costing, work break down structure, contracting, quality management and others. In contrast external risks stemmed mostly from the need to borrow more capital as well as the indifferent attitude displayed by the IGC that imposed new safety and quality requirements at will and discretion without accounting for the problems faced by Eurotunnel. The majority of variables that turned “bad” for Eurotunnel stemmed from weak planning measures taken by both Eurotunnel and IGC. The WBS presented by Eurotunnel was just not detailed enough to provide effective critique on major issues on the Channel Tunnel project. For example, the IGC later came up with problems related to the size of the passenger doors on railway trains because the initial proposal did not have detailed enough specifications. The initial proposal submitted related that passenger doors on trains would be sized as per statutory requirements. However, IGC felt that there was a need to override statutory requirements in this case to allow for greater safety such as when passengers needed to exit during emergencies such as fire. If the initial proposal submitted by Eurotunnel were detailed enough, there would have been some chance that the IGC officials would have been able to identify this problem early on and inform Eurotunnel accordingly. Unfortunately, the haste created by the pressure from IGC in the initial planning phase meant that Eurotunnel was not able to subscribe fitting limits for this aspect of the project (Serich et al., 2001). The result of this small mistake in the initial planning phase was simple and ironic – the manufacturing costs for the train doors shot up from a mere $9 million straight to $70 million! This cost escalation was perhaps one of the most dramatised errors in the entire Channel Tunnel project because the escalation of costs was some 700%. In terms of procedure, when Eurotunnel was about to place a manufacturing order for these train doors the IGC intervened. The intervention meant that Eurotunnel had to put the manufacturing order on halt as long as the IGC did not present its findings on the issue. The red tape attitude of the IGC came through in this case, as the decision to use changed width on doors arrived very late for Eurotunnel to mitigate the risk and its associated damage. The only change proposed by the IGC was to change the width of the door from the previous 600 mm to 700 mm but the time taken to form such a decision was critical to the manufacturing costs. When the final manufacturing clearances were provided by IGC, the Eurotunnel team had to pay more to get speedier manufacturing done. If manufacturing had not been sped up then there would have been chances that the installation of these doors would have been delayed. This would in itself cause further delays so in order to avoid these delays; the Eurotunnel team chose to pay more for manufacturing so that this aspect of the project could be kept on schedule. 3.3. Execution The problems encountered in the execution phase of the Channel Tunnel project stemmed from certain issues in planning that could not be attended early on in the project. When these matters had to be dealt with in a more practical perspective such as their execution on ground, it became clear that these errors and oversights existed. A typical example of this thing is that the project relied on two different forms of standards for engineering work. One set of standards originated from Great Britain while the other set of standards originated from France and there was dire need to classify which standards to use in what situations. The IGC made an easy job of the entire affair by placing a “simple” method to determine what set of standards to use. It was decided that the “best” available standards would be used in order to carry out work on the Channel Tunnel project. In theoretical terms this position places the IGC clear of blame and lets the contractor decide hands on which set of standards to use. However, the IGC forgot to take into account the fact that these standards were from different languages and would present a communication barrier during actual use. Moreover, there was discrepancy in the set of units being used for either set of standards with the French relying on SI measurements while the British relied on imperial units. Consequently, switching from one set of units to the other meant a lot of wasted time and effort along with error based dilemmas in conversion. It is one thing to convert a centimetre to an inch and an entirely different matter to convert thousands of pounds worth of concrete from cubic feet to cubic meters. As a result of this loose definition and fluid demarcation of boundaries the contractors were faced with dilemmas when operating in the field. These fluid distinctions were also the cause of claims and disputes as well as the cause behind underestimation or overestimation of costs. The IGC or Eurotunnel should have taken more time in order to clear up these issues because these issues occur regularly in multinational contracts and are solved with a one to one focus on standards. It is strange that a multinational venture of this kind would fail to demarcate clearer boundaries in respect to such work (Project Management Institute, 2004). 4. Recommendations The lack of time provided by the IGC to carry out contracting activities as per the pre-planning and planning phases led to underestimation of the overall challenge at hand. Given the fact that the project was a one of a kind project, there should have been more attention and time involved in the planning phases. The lack of air-conditioning and the later scope change added huge fiscal undertaking that could have been avoided if things were properly accounted for before. This indicates that more time and effort should be allotted to planning such projects. Financing was another trouble spot that could have been handled better if the respective governments were on board. The conglomeration of a large finance base meant that finance accumulation and movement was slow and often required new investors to be taken aboard. The addition of new financers meant that they could pressure to steer the project that lead to near disastrous circumstances. Therefore, before such projects are executed, it is best practice to account for the involved finance. Planning on the technical side was over amped given that there were certain overkills in the project that led to escalated costs. While technical planning was overdone, the other aspects of planning were undervalued leading to inefficient project execution. Better internal planning would have also helped to ease the situation at hand. Additionally the standards in use for such projects should be unified in order to avoid technical errors later. 5. Conclusion The Channel Tunnel project represents a major defining moment in twentieth century construction practices given the enormous overrun and negative schedule variance. The costs for the project shot up from a planned $5.5 billion to $14.5 billion representing an overrun of 145% over the original cost. Largely these discrepancies in cost and schedule resulted from the haste in the pre-planning phase that was to define the rest of the project. The errors created in the pre-planning scenario spilled over into the planning phase and resulted in massive problems for all parties involved. These errors were not restricted to one facet alone but instead encompassed the entire project structure. Overall, in order to avoid such situations in the future it would be best if projects of this magnitude were carefully evaluated before planning even begins on them. Secondly, it would be highly appropriate if separate regulatory agencies for such projects would be taken on board as investors as well to create their stakes in the overall process. 6. Bibliography Anbari, F.T. et al., 2004. The Chunnel Project. Project Management Institute, pp.1-37. Krezner, H., 2003. Project Management: A systems approach to planning, scheduling and controlling. 8th ed. New York: John Wiley and Sons. Lenley, J.K., 1995. Managing the Channel Tunnel - Lessons learned. Tunneling and Underground Space Technology, 10(1), pp.9-11. Morris, P.W.G., 1994. The management of projects. London: Thomas Telford. Project Management Institute, 2004. A guide to project management body of knowledge. 3rd ed. Newton Square: Project Management Institute. Serich, S. et al., 2001. The Chunnel: The Channel Tunnel Project. Washington D. C.: The George Washington University. Read More