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Infrastructure projects fail when procurement is pursued administratively rather than strategically

Infrastructure projects fail when procurement is pursued administratively rather than strategically

Photo by Creamer Media

9th September 2020

By: Terence Creamer

Creamer Media Editor

     

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An analysis of public infrastructure delivery in South Africa, prepared for consideration by the National Planning Commission (NPC), identifies the quality of procurement and client-delivery management as the main differentiators between those projects that have succeeded in recent years and those that have failed.

Prepared by engineers Dr Ron Watermeyer and Dr Sean Phillips the analysis shows that, when a public-sector client adopts a strategic, rather than an administrative, stance to the design, procurement and implementation of infrastructure projects, value for money is typically secured.

By contrast, when no distinction is made between the procurement of infrastructure and the acquisition of general goods and services and when that procurement is led by finance departments rather than at an enterprise level, led by the CEO, projects tend to run over budget and behind schedule.

In their paper, the authors juxtapose several megaprojects, such as Eskom’s Medupi and Kusile, which have fallen short of original cost and schedule estimates, against two project-delivery success stories: the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and Strategic Integrated Project 14 (SIP 14), which involved the building of two new universities.

Under the REIPPPP, government’s Independent Power Producer (IPP) Office oversaw the procurement, through seven bidding rounds, of 6 422 MW of renewables capacity, built by 112 IPPs at a cost of R209.7-billion.

Under SIP 14, the Department of Higher Education and Training employed the University of the Witwatersrand as its implementation agent for the construction of new campuses in Nelspruit, Mpumalanga and Kimberley, in the Norther Cape. Facilities for the first intake of students were delivered within 28 months of a political decision being taken in 2011. The costs deviation was also modest, despite the project proceeding before many of the contracts had been priced.

Phillips and Watermeyer tell Engineering News that, in the case of the REIPPPP, the quality of the procurement process run by the IPP Office resulted in the development of trust in the procurement process by developers and financiers. This, in turn, contributed to a marked reduction in the cost of renewable energy through successive bid rounds.

Key strengths of the new universities project, meanwhile, arose from client governance and organisational ownership practices, which provided effective direction and oversight of the organisation’s infrastructure delivery programme.

In both instances, there was also CEO-level client leadership, which helped ensure that a strategic and tactical approach was adopted throughout.

“Value for money is realised when the value proposition that was set for the project at the time that a decision was taken to invest in a project is as far as possible realised,” the authors explain.

For those megaprojects that ran well over budget and behind schedule the gap between what was intended and what was achieved is material:

  • The Gauteng Freeway Improvement Programme cost R17.4-billion rather than the R11.4-billion initially estimated;
  • The Gautrain budget increase from an original estimate of R6.8-billion to R25.2-billion;
  • The capital cost of Transnet’s New Multi-Product Pipeline grew from an estimate of R12.7-billion to R30.4-billion;
  • While Eskom’s Medupi and Kusile projects surged from initial estimates of R70-billion and R80-billion respectively to R208-billion-plus for Medupi and about R240-billion for Kusile.

Most of these projects have also seriously lagged their original delivery schedules.

In their paper, the authors highlight a direct linkage between the role played by the

client, or the organisation initiating the project and playing the role of the client, and infrastructure project outcomes regardless of size, complexity and location.

“The root cause of project failure or poor project outcomes can most often be attributed to a lack of governance and poor procurement and delivery management practices, all of which are under the control of the client,” Watermeyer and Phillips aver.

They acknowledge that poor project outcomes were exacerbated by corruption, but argue that the scope for corrupt practices increases in instances where procurement is conducted as an administrative rather than a strategic function and where the project implementors, the engineers, are excluded from procurement design and implementation.

“The major contributor to disappointing infrastructure project outcomes lies in inappropriate procurement practices, or the processes which initiate, create and fulfil contracts, and the absence of delivery management, or the critical leadership role played by a knowledgeable client to plan, specify, procure and deliver infrastructure projects efficiently and effectively, resulting in value for money.”

Phillips and Watermeyer add that “overly bureaucratised” procurement processes that emphasis compliance and box-ticking have not only made systems more costly, burdensome, ineffective and prone to fraud, but have also become entrenched.

Aligning South Africa’s investment profile to the National Development Plan’s objective of increasing gross fixed capital formation to 30% of gross domestic by 2030, with public infrastructure contributing 10%, will require significant changes to the procurement practices. Having spike at 8% of GDP in the run-up to the FIFA World Cup, public infrastructure had since fallen markedly to about 5%.

Phillips argues that initiating a recovery requires an acknowledgement in government, including the National Treasury, that infrastructure procurement is materially different from the acquisition of standard, well-defined and readily scoped and specified goods and services.

Instead it involves the procurement, programming and coordination of a network of suppliers of goods and services to collectively deliver or alter an asset on a site in accordance with specific client requirements and objectives.

Therefore, for infrastructure projects the prevailing supply-chain management practice in the public sector, which locates infrastructure procurement within financial processes and makes it a back office rather than a strategic function disconnected from operational line management, is not fit for purpose.

Watermeyer and Phillips acknowledge that it will take time to rebuild the capability of the public sector client, but hope that their input to the NPC could begin having an immediate influence as government seeks to use infrastructure investment as a way of reigniting the Covid-19-afflicted South African economy.

In parallel, however, they believe that a sustainable course correction could be supported through beefing up the language of the Procurement Bill, which is currently serving before lawmakers.

“Chapter 7 of the Bill is currently a blank canvas and is opened ended as everything is reliant on an instruction relating to an unknown infrastructure procurement and delivery management standard. We believe that the chapter needs to embed the principles for infrastructure procurement and delivery management.”

These principles, Phillips and Watermeyer explain, should include having all parts of the organisation that play a role in infrastructure delivery working together in a coordinated, efficient and effective manner to ensure that infrastructure delivery is managed as a long-term and strategic function, led by the CEO, rather than an administrative one.

“In this way, the institution can take ownership of infrastructure delivery and ensure delivery is managed as an enterprise.”

Edited by Creamer Media Reporter

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