An important misplaced belief that has become entrenched in infrastructure project delivery is that of substituting public system capabilities with outsourced project management consultants (PMCs) and independent engineers (IEs).
In India, commentators misleadingly attribute the successes of NHAI or DMRC or the few other successful projects to private participation in general and particularly the adoption of private sector management practices and outsourcing of services to consultants. They overlook the critical importance of the role played by the engineers, planners, and bureaucrats in these organisations, the processes followed, and the autonomy enjoyed by these project entities.
Echoing these important requirements, Alon Levy at Pedestrian Observations has a very good post on infrastructure project delivery practices, where he makes the distinction between the models of modern management theories-based delivery (followed in US and UK) and the traditional public sector-driven delivery (followed in continental Europe).
The takeaway is that effective project delivery “requires an active public sector that can supervise consultants and contractors, learn within its own institutions, and assume risk”. Even when project delivery is largely done by private consultants, they are done “under public-sector supervision, with institutional knowledge retained in government agencies even in an environment of privatization”.
If there’s a common theme to the various elements of Southern European (and largely also French and German) urban rail procurement norms, it’s that they require an expert civil service. Teams of engineers, planners, architects, procurement experts, and public-sector project managers are required to manage such a system, and they need to be empowered to make decisions. This empowerment contrasts with American public-sector norms, in which to a small extent in law and to a very large extent in political culture, civil servants are constantly told that they are dregs and cannot make any decisions. Instead, they are bound by red tape requirements that can only be waived if a political appointee wants to take the risk…
The idea of listening to engineers and planners is denigrated as siloing, whereas generalist managers with little knowledge are elevated to near-godhood… In contrast, it is less important how many civil servants are hired to supervise contracts than that they have the authority to make judgment calls and that they do not have to answer to an overclass of generalist managers. Italy and France use very large bureaucracies of planners and engineers at Metropolitana Milanese and RATP respectively… Once the civil servants can make decisions and supervise contractors, they can look at bids and score them technically, or delve through itemized lists, or oversee changes and make quick yes-or-no decisions as the builders are forced to vary from the design… making this the most significant single intervention in reducing infrastructure construction costs.
Levy lists out some of the good practices followed by Southern European countries, which have a track record of delivering large projects on time and within budget. While he discusses in the context of metro rail systems, these principles apply to infrastructure projects in general.
Technical scoring: infrastructure contracts must be awarded primarily on the technical score of the proposal (50-80% of the weight of the contract) and not on the cost (maximum 50%, ideally about 30%)
Itemized costs: contracts must have a bill of items, priced based on transparent lists produced by the state, with change orders using the same itemized list to reduce conflict
Separation of design and construction into two contracts (design-bid-build), rather than bundling into design-build contracts
Public-sector planning, with the decisions on the type of project and technology made before any designers are contracted
Flexibility for the builders to vary from the design, so that in practice the design only covers 60-80% of the design, as 100% design is impossible underground until one starts digging
Moderate-size contracts (tens of millions of dollars or euros to very low hundreds), to allow more contractors to compete
Limited use of consultants, or, if consultants are used, regular public-sector supervision
The orthodoxy on infrastructure project management today is characterised by certain core principles drawn from management theories - efficiency maximisation (bundling of design and construction), life-cycle cost approach (bundling of construction and O&M), private sector efficiencies (PPPs and long-term concessions), outsourcing services to professional experts (PMCs, IEs), etc. Levy attributes this dominance of modern management theories to the soft power of “English-speaking multinational consultants with extensive experience in megaprojects” and the belief that they knew better than the continental European state.
As I have blogged on numerous occasions (and written in detail here), contrary to conventional wisdom, it’s technically prudent to separate design and construction in most cases, though with some significant design flexibility during the construction phase; it is financially prudent to separate construction and O&M, so that the O&M contractor does not bear any construction risk; it is cheaper to construct with public finance and then do concessions; and leverage and PPPs must be used only where there are private sector efficiencies to be had and never merely as a means to address fiscal constraintsand avoid large upfront costs.
A very important, and under-appreciated, aspect is that of effective contract management by the government entity. It’s not uncommon for the consultants employed for the project, including the IE or the third-party quality audit firm, to be captured by the project developer. Given the financial stakes involved, the political economy of infrastructure construction, and the tightly knit ecosystem involving the project developers, consultants, IEs, and other service suppliers, the incentives are strongly aligned to collude at the margins. Strict internal supervision and monitoring become essential to address this problem.
Fortunately, the use of IT applications makes it possible to significantly increase the quality of oversight and remote monitoring of large projects. However, this must go beyond mere videography, biometric attendance, location tracking, GIS mapping, data acquisition systems, and so on, and involve deep data analytics of the data so captured to identify outliers and trends of systematic manipulation. Getting this done and effectively using it to enforce contract and execution discipline is deeply dependent on internal capabilities.
An important takeaway here is the capabilities of the internal project team and the autonomy given to them. Perhaps the most important requirement for the success of any large project delivery is ensuring that the project team is adequately staffed with engineers, planners, and leaders who are competent and have high integrity. Any relaxation on this, especially in important positions, is a recipe for certain failure. Nothing is more important than this requirement. Unfortunately, this is often the area where governments tend to compromise the most.
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