Problems with the Channel Tunnel Project - Essay Example

Introduction The Channel Tunnel project represents one of the greatest engineering feats executed in the twentieth century. The tunnel project connects England and France through a railway link that exists in the ground layer under water. This project effectively reduced the dependency on the English Channel as a means of transportation between England and France. Moreover, this project can be seen as laying the basis for larger and longer tunnel projects that might one day even connect the Atlantic. On the business front, the Channel Tunnel project represents one of the largest privately funded projects ever undertaken. The project relied on the cooperation between two governments, several bankers providing the funding and several contractors along with numerous regulatory agencies. As mentioned before, the engineering aspects of the tunnel and its railway traffic represented new unbroken ground. This in itself represented new challenges as the Channel Tunnel forced engineers to do what was previously seen as impossible. As the Channel Tunnel project proceeded, several major and myriad minor changes had to be undertaken to make the project a success. The Channel Tunnel project represented something that had never been done before so the challenges confronting all teams on all fronts were new and required innovation to be dealt with successfully. Later changes in the structure of the project also mandated some large changes. Finally, as the Channel Tunnel project was commissioned, it was found that the project was both over budget and late. A number of complex factors and situations were responsible for creating delays and overruns through the life of the project. This text will attempt to analyse the complex factors that were responsible for these delays and overruns while also suggesting solutions that could be implemented in the future to avoid similar problems. These factors will be looked at in detail from the perspective of the planning and implementation phases that represent the greatest project management problems. 2. Problems with the Channel Tunnel Project 2.1. Planning Issues The initial planning phase demarcated that the Channel Project was to provide a fixed transportation system that connected England and France. This new transportation connection was expected to spur economic growth and development. In addition, the Channel Project was expected to aid the integration of Britain with mainland Europe in order to improve European trade. Moreover, the tunnel between England and France was expected to provide cheaper alternatives to more expensive modes of transportation such as shipping and air transport. The railway system envisioned for the purpose was also better in that it was a high-speed system when compared to both shipping and air transport. Although working for the Channel Tunnel had been on going in the seventies but the real concrete measures came through in 1984. The British and French governments agreed to common proposals for safety, security and environmental concerns before the project was opened up for bidding. Both governments in 1985 requested the first proposals for the Channel Project. A number of proposals were submitted for the Channel Project. After an evaluation from both the British and French sides, the proposal submitted by Channel Tunnel Group / FranceManche (later Eurotunnel) was accepted. The initial proposal delineated a 32-mile double rail tunnel that was to accommodate passenger trains as well as cargo trains and a special truck and car carrying shuttle service. The initial bid price was set at some $5.5 billion for the entire project. 2.2. Shortage of Time for Planning The initial proposals were submitted in a short period and this in turn led to many oversights that could have been avoided by detailed studies. When put in a project management perspective, it could be surmised that high-level design estimates along with rough order of magnitude estimates could have led to better estimates as to the total scope and cost of the project. The shortage of time meant that detailed studies were never carried out. Consequently, the scope of the project was redefined several times, as new needs became known. For example, the need for tunnel air conditioning was not part of the initial proposal and its addition later meant that $200 million were required to implement it (Veditz, 1993, p.20). Another major problem during the proposal stage was the strenuous process used by the Intergovernmental Commission (IGC) to approve the design. The IGC process put additional pressure on the project scope because the approved design drafts were not considered as parts of the original concession agreement. Consequently, this may be considered as pressuring the scope initiation and planning. Colin J. Kirkland served as the Technical Director of the Eurotunnel from 1985 to 1991 and expressed this in the following words (Kirkland, 1995): “When governments announce an intention to have such a huge public utility built, leaving all the details to be determined in the course of competition, it is rather like releasing a mouse at a Christmas party – the reactions of all those affected are unpredictable and uncoordinated, and everybody believes that he knows what the end result should be.” 2.3. Costing Issues The initial planning estimates put the cost of the project at $5.5 billion mandating that the project would be privately funded. The Channel Tunnel Treaty provided that the entire project would be financed through private means only without any governmental support of any kind at all. The governments also agreed not to regulate prices until and unless a potential monopolistic situation was faced. It was expected that these measures would allow the estimation of costs even if governmental economic pressures were not considered. The major facets of financing for the project were derived from the loan capital markets and private equity. Overall people ready to invest in the project as shareholders belonged more to France than to Great Britain. The loans required to finance this gargantuan project came through 206 banks from around the globe. While this was initially seen as a positive thing but as the project proceeded this had negative consequences. As the project went on, the change in scope meant that refinancing had to be done and the original financing banks were not ready to lend more. Already a large number of banks were involved so pursuing refinancing was a challenge in itself. Cost considerations particularly changes in cost considerations had other major impacts as well. The Eurotunnel had managed to secure a concession agreement on the tunnel for a period of 55 years. Within this period of time, Eurotunnel had exclusive rights to operate the Channel Tunnel. However, any delays or escalation in cost throughout the life of the project would tend to affect the planned cash flows for that period in time. Furthermore, any delays in the construction of the Channel Tunnel would affect the total cost recovery period of the Eurotunnel team. When these things are put in the project management perspective, it becomes clear that there is a direct relationship between the scope definition and the cost estimate for a project. This is all the more important for the case of mega projects. When a project as large as the Channel Tunnel is considered, it is often the case that there are problems in initial estimates, scope management as well as the choice of type of contract. The lack of a clearly defined scope often creates hurdles in resource planning, estimating costs and budgeting. The impact on fiscal measures also means that any initial estimates on ROI (return on investment) may not prove to be as accurate as initially thought or desired. Often these early ROI assumptions serve to disappoint investors and other stakeholders so that finding investment later on in the course of the project is even more demanding. These failures of scope definition and other assumption based limitations aided to inflate the initial budget of the Channel Tunnel from $5.5 billion to some $14.9 billion at completion. Consequently, critique on this project has often pointed out to various areas that could have been improved upon heavily in order for better project management practices to have taken precedence. 2.4. Scheduling Problems The schedule demarcated for the project required that planning had to be carried out for all activities that were related to building three tunnels (north, south and service) at the same time. These planning requirements introduced unique complications because forty-six contractors had to be hired in order to deal with design requirements alone. When the project was taken into the execution phase, it became clear that the time estimates required to complete work on tunnelling was accurate as the total tunnelling activity ended three months before the schedule’s appointed time. In contrast, the changes that were required by the ICG for safety requirements had an entirely negative impact on the schedule. The imposition of new safety standards by the ICG as work commenced caused negative schedule variances that were not previously anticipated. When the Channel Tunnel’s schedule planning is put into the project management perspective, it becomes clear that the schedule planning was composed of various activities that were related to (Fairweather, 1998): activity definitions; activity sequencing; activity duration estimates. These schedule planning activities were used in turn to develop the baseline for the project. This point is further clarified by the fact that scheduled activities were composed of twelve tunnelling faces (six seaward and six landward) which were executed using eleven tunnel boring machines (TBMs) that worked in both directions (Williams, 1993, p.6). It can be concluded from these facts that the schedule was highly complex and required sizable experience in dealing with logistical planning as well as sizable experience in the work breakdown structure (WBS) development. Furthermore, during the planning phase Eurotunnel entered into a construction contract with TML in 1987. The contract was based on three distinct costing categories that were: target cost for tunnelling that was done on the basis of cost plus fixed fee such that there would be a target cost above or below which the difference would be shared; lump sum costs for the terminals as well as mechanical and electrical works for the entire tunnel; procurement contract covering the rolling stock as well as major equipment that was procured on the basis of cost plus percentage fee. 2.5. Sharing of Risks When put on a one to one basis, Eurotunnel was responsible for some seventy percent of the overrun on the originally agreed to contract while TLM was responsible for the rest of the overrun. This overrun was capped at a maximum of 6% of the total cost. The agreement between Eurotunnel and TLM was revised in 1990 to provide for a more equitable distribution of the associated risks. Eventually the new agreement concluded that Eurotunnel was responsible for around 1.58 billion pounds worth of overruns while TLM was responsible for thirty percent of everything that overran this new figure. The types of contracts involved in these contracting practices prove to be highly challenging with problems such as ground consistency and fixed equipment claims amongst others. When these issues are viewed in the project management perspective, it becomes clear that contracting is essential to the procurement management process. The contracts raised for procurement management are responsible for defining the scope of work along with the costs, timelines as well as certain rules of engagement such as penalties. When the Channel Tunnel project is considered, it becomes obvious that the procurement planning process was complex and tedious. These constraints were exacerbated by the shortage of time that faced the initial proposal. It can therefore be expected that certain assumption based errors became part of the initial proposal because these assumptions were not given due time and consideration. These errors in assumptions largely concerned the ability to procure the resources required to complete the project in time. In terms of the fixed price contracts, there was little understanding of ways to limit the impact of both known and unforeseen risks. In case of the Channel Tunnel project, there were contractual errors within the domains of estimates as well as allocation methods. This in turn led to additional contract claims amounting to some $2.25 billion that represented some forty-one percent of the value of the initial proposal. 2.6. Risk Management Another major aspect is risk management. When this aspect is considered, there seems to have been reviews for assessing risks faced by the project initially. While there was consistent risks assessment taking place, but there seems to have been a narrowed focus on certain kinds of risks compared to others. The overwhelming focus of risk assessment and management was based on engineering risks while the areas of process and approval risks were not really accounted for. Greater focus on process and approval risk assessment and management were necessary and this became apparent as the project proceeded. The management of the project seemed to be more at ease with dealing engineering risks compared to dealing with IGC oversight as well as various kinds of change management controls. In terms of the highest levels available for the project, both nations involved were fully aware of the financial risk involved in the project as funding came entirely from private equity and shareholders. The amount of business risk involved in the overall project was contained using various forms of contractual agreements but in the longer run, this proved to be problematic as well. These contracts were designed to contain business risks and when new stakeholders were added these contracts were not able to spread the business risks appropriately between different stakeholders. Instead, the use of these contracts allowed the containment of these risks to a number of stakeholders only. The aspects of risk planning and mitigation need to be a continuous facet of any ongoing project. The contention behind risk planning and mitigation is to ensure that the majority of material risks are identified, quantified and prioritised in the earliest stages of the project. The earlier these risks are identified, the easier it becomes to formulate an effective risk response strategy that requires only minimal change over time as the project proceeds. In order to deal with both known and unforeseen risks it is necessary to meticulously identify and understand the nature of the initiatives involved in the project. When the Channel Tunnel project is considered, it becomes apparent that certain decisions in the planning phase concerned with the type of contracts allowed and change control methods could have been dealt with better through meticulous risk impact assessment. 2.7. Quality Issues Another confusing aspect of the Channel Tunnel project was quality. The domain of quality was established by the IGC that was composed of civil servants from both France and the United Kingdom. It was agreed that the differences in standards between both countries would be worked out such that the higher (or better) standard should prevail (Fairweather, 1998). From a theoretical standpoint, it was a very good idea. However, in actual practice, it was often a problem on how to decide exactly which nation’s standard was better. For example, contractors often had problems in dealing with how to pour contract based on differing standards from both countries and their ensuing interpretations. 3. Recommendations The work done by the IGC added to greater confusion rather than helping the project’s execution phase out as such. It would have been better if the staffing and working of the IGC were decided in greater detail than what was displayed during the execution phase. The differences in standards should have been attended using solid comparisons instead of vague statements. One of the primary causes behind negative time schedule variance were quality issues so this aspect needs to be looked into detail during planning in order to avoid delays and cost overruns during execution. The raucous mess created over the train doors extension from 600mm to 700mm is an issue that could have been tracked down easily enough through thorough analysis during the design phase. This only serves to show that better scope definition would have helped to improve the overall status of the project. The amount of teamwork achieved during execution could have been improved as well if the interfaces in interaction could be convinced to work in greater collaboration. One of the chief methods to achieve this would have been to develop common stakes in all teams so that cooperation could be maximised. Furthermore, the role of banks and other financial lenders in delaying and adding costs to the overall project cannot be under stressed. When projects of the scale of the Channel Tunnel project are being executed it is pertinent to keep specialised jobs for specialised teams to deal with. The involvement of finance and similar interfaces in taking technical and legal decisions is a blunder in itself given their lack of expertise and experience in such affairs. 4. Conclusion The Channel Tunnel project is one of humanity’s most ambitious projects to date. The connection between England and France has always borne strategic importance whether one talks of Napoleonic times or the current day. In order to access mainland Europe it was necessary for the United Kingdom to initiate such a project. The vital link provided by the Channel Tunnel ensures that the United Kingdom is available for commerce and trade no matter the conditions in the English Channel. The great importance of the Channel Tunnel is undeniable as is the fact that this project was a major failure in terms of cost and project management. The project’s initial cost estimated at $5.5 billion shot up to $14.5 billion at the end of its execution signifying major planning failures. A closer look at the project break up indicates that the project suffered primarily due to lack of time devoted to planning and proposal making in the initial most stages. In turn, this failure spurred several other planning hiccups such as the lack of assessment for procurement needs as well as the lack of a comprehensive risk assessment and management scheme. The management team’s overbearing focus on engineering issues alone meant that other risks were sidelined. The emergence of these sidelined risks meant that the project’s costs and timeline suffered accordingly. Furthermore, the lack of agreement on standards used by both nations meant that confusion was rampant on these fronts as well. Overall, the Channel Tunnel project went to completion but its execution signified a number of problems that could be expected on other mega projects of a similar nature and size. 5. Bibliography Fairweather, V., 1998. The Channel Tunnel: Larger than life, and late. In R.P. Bursic & Y.A. Vlasak, eds. Project Management Casebook. Newtown Square, PA: Project Management Institute. pp.289-96. Kirkland, C.J., 1995. The Channel Tunnel - Lessons learned. Tunneling and Underground Space Technology, 10(1), pp.5-6. Veditz, L.A., 1993. The Channel Tunnel: A case study. Executive Research Report. Washington, D. C.: The Industrial College of the Armed Forces The Industrial College of the Armed Forces. Williams, C.L., 1993. DoD contracting in a global environment. Investigation. Washington D. C.: The Industrial College of the Armed Forces The Industrial College of the Armed Forces. Read More