Management of public infrastructure projects
the case of Spain and comparison with other developed countries
M. Pilar de la Cruz, Construction Engineering and Management Professor, Universidad de La Coruña, Spain
Construction projects undertaken by the civil service can have specific characteristics in their management processes that those undertaken by the private enterprise do not. These contrasts can be more or less marked in different countries. The Spanish Civil Service has been involved since the 1980s in large programs to update the existing public infrastructures and also to construct new expressways, harbors, airports, railroad infrastructures (normal and high speed lines for trains with velocities up to 350 Km per hour), urban services and utilities, environmental infrastructures, etc. Most projects are developed in the traditional way, and some through different types of private finance systems. The authors are currently developing work dealing with how the efficiency of the construction project management processes performed by the Spanish Civil Service can be improved. This paper reflects part of the work developed to date.
General Environment for the Management of Public Infrastructure Projects in Different Countries
A possible categorization of public procurement systems could be the one related to the two generic trends in this field that will be now explained. The first trend is followed by France, Germany or Spain, among other European countries. In these countries public procurement is regulated, in a more or less rigid manner, by acts and other mandatory regulations. Let's refer to this first trend as “regulated.” The second trend (let's call it “non regulated”) is the one followed by countries like the USA, U.K., Australia and other Commonwealth countries. In these countries public procurement is not regulated by any act or other mandatory regulations. In these countries, essentially, the civil service is very similar to a private client in the way it manages projects. The public service in these countries apply different codes of practice (non mandatory; including standard forms of contract) to manage the project in general, and particularly for procurement. These kinds of codes and standard forms of contract are normally published by (private) national professional associations and institutes (see Construction Industry Board, 1997; or Cox & Clamp, 1999, among others). Some times these codes are published by specific public service agencies.
In both types of countries the public servant in charge of a project has a multiple hierarchical control (especially cost control) on behalf of other public servants, politicians and, very often, specific independent public agencies. The private finance system in its different forms (Build-Own-Operate [BOO], Build-Operate-Transfer [BOT], etc.) can also be used in both types of countries, but it is more used in the “non regulated” trend.
In general (Flynn, 1997), the “regulated” countries have an established civil service (institutions and practices) based on and protected by written constitutions, laws, and legal norms. Changes in institutions and procedures are subject to parliamentary and juridical procedures, in a more interventionist philosophy. The “non regulated” countries are on the opposite side. Flynn (1997) explains that “Ministers [in the U.K.] can, for example, determine the spending levels for individual local authorities, alter the funding arrangements for universities, … privatize the Inland Revenue computer system and individual prisons, … all without the need for changes in the law or reference to the Parliament.” The “non-regulated” countries adopted a philosophy of less interventionism (market-based philosophy). Flynn analyses the main pros and cons of these philosophies. In the construction environment the market-based philosophy is usually advantageous (for instance, in normal transportation projects) while, in some special projects, it can be disadvantageous. An example of the last is the two aforementioned philosophies applied by France and the U.K. to the Channel Tunnel, and the results on each end of the tunnel.
One of the main advantages of the “regulated” trend is that the main management processes are unified for all the public service agencies. The contractor knows the generic procurement and management steps very well, independently of the public client. Another advantage for the contractor is that project publicity is assured, so the main procurement steps are normally published in official journals (except in special cases, such as defense secret projects). To publish the procurement decisions in the Official Journal of the European Communities is now an obligation for all CE countries, including the U.K., when the project budget is greater than a specific amount. Besides that, the public service can be more or less decentralized, but the contractor pre-qualification system is usually centralized.
One of the key disadvantages in the “regulated” trend is that the efficiency of the procurement and management processes in public projects depends on the ability of the legislator to establish realistic, practical, and state-of-the-art legislation. Normally, not all the existing contracting systems (general contractor, turn-key or design+build, construction management, management contracting, etc.) and types of contract price (cost plus, unit prices, fixed price, target price, maximum guaranteed price, etc.) are explicitly included in legislation. Another disadvantage can be that, after the effort of establishing legislation on public procurement, establishing specific guides to improve project management processes can be forgotten.
In countries included in the “non-regulated” trend, the efficiency of the procurement and management processes in public projects depends on the ability of civil service professionals to select, adapt, improve, and apply the appropriate codes of practice and standard forms of contract. The civil service has more to do with defining the procurement and management processes. In these countries, the public servant can use the complete set of existing contracting systems and types of contract price without important problems.
One of the main disadvantages of the “non-regulated” trend is that the main management processes cannot be standardized for all the public service agencies. Other disadvantages for the contractor are that public procurement information is less easily available, and that the pre-qualification systems are not usually centralized.
There are problems common to all countries, such as those caused by the heterogeneity between large and small public service agencies (for instance, between central, regional, and local authorities). Or those caused by the very small size of specific agencies (small municipalities) in cases of excessive decentralization. One of the main problems that affect public procurement in both types of countries is the predominance of adversarial contracting over obligational contracting (partnership) (European Commission, 1997). In the obligational contractual relationship (Flynn, 1997), both parties trust each other, work together for mutual benefit, share risk and do things for each other which go beyond the details of the contract. On the contrary, the adversarial contractual relationship is based on low trust, the expectation that each side wishes to gain at the expense of the other, and the use of contracts to protect each party from the other.
Our opinion is that, in general, public procurement and project management efficiency is higher in the “non-regulated” countries, but the disadvantages and exceptions (such as the case of Channel Tunnel, for instance) have been referred to above. As usual, radical philosophies (market-based / interventionism) of any kind are not adequate.
Risk Maturity Level in Public Service Agencies of Different Countries
In developed countries, the public service applies, with varying degrees of efficiency, basic traditional project management tools and techniques. The pioneers in that field were the civil service in the USA and U.K. The effectiveness of applying project management processes, tools, and techniques has been proven worldwide, including within public infrastructure projects. But project risk management, currently found in the main project management bodies of knowledge (Project Management Institute, 1996; Simon et al., 1997), was not included in traditional project management (in the 1960s and 1970s). And nowadays it is not formally included in the project management performed by many civil service agencies of developed countries.
In relation to this topic, Hillson (1997) established a taxonomy of possible risk management maturity levels in an organization undertaking projects. The first of these is called “naïve.” At this level, the organization is unaware of the need for risk management. The corporate culture doesn't include any formal or informal processes to deal with uncertainty, and the management processes are mainly reactive, with little or no attempt to learn from the past or prepare for the future.
The second level is called “novice.” The organization is now beginning to experiment with risk management through a small number of individuals. But there is no generic, structured approach to manage risk. The organization is aware of the potential benefits of managing risk, but the processes to deal with uncertainty are ineffective. Therefore, the organization is not gaining full benefits. Effectiveness can vary depending on the skills of the risk team and on the availability of external support. There is little or no formal training in this field. Risk management may be viewed as an additional overhead with variable benefits, and will only be used with selected projects.
The third level is called “normalized.” Now risk management is included in normal business processes and consistently implemented on all or most projects. The organization uses an integrated set of techniques, and tools and generic risk management processes are applied in a formal way. Specific processes and tools can be developed by the organization. The possible benefits of applying risk management are expected and well understood at all levels of the organization, although they are not always consistently achieved. The organizational culture includes an accepted policy for risk management, and the management will commit resources in order to reap gains. There is formal training for the personnel who are directly involved, and these employees are committed to risk management. Given this, there is less of a need for external support.
The fourth level is called “natural.” In this level, the organization has a risk-aware culture, with a proactive approach to risk management in all aspects of the business and with an emphasis on opportunity management. Risk management is second nature. The organization uses state-of-the-art tools and methods. Moreover, there is a top-down commitment to risk management, with leadership by example. Proactive risk management is encouraged and rewarded. Risk information is generated and used to improve business processes and gain competitive advantage. There is internal and regular external training to enhance skills. The entire staff is risk-aware and uses basic skills in risk management. Furthermore, the business processes are risk-based, in a concept of “total risk management” permeating the entire business. The organization is continuously updating its processes and constantly learning from experience.
The experience of the authors is similar to that of Hillson (1997); they found that, in general (including all public and private sectors), few (or no) organizations are currently at Level 4, many organizations are either at Levels 2 or 3, and a significant number remain at Level 1. In the authors' experience, project-driven organizations can be at Level 1, but many are at Levels 2 and 3. Only project-driven organizations could be at Level 4. In contrast, non-project-driven organizations are normally at Level 1.
In general, the project management maturity level of many civil service agencies undertaking projects in developed countries is medium, but can be high in the main agencies (as may be the case with the U.S. Department of Transport or Department of Energy), or low (and even very low) in small public clients (small municipalities, for instance).
As far as the authors know, in France and Spain very few (or no) public service agencies (the largest) can be at Level 3, some agencies are at Level 2, and many agencies are at Level 1. In these countries there is an increasing concern for project management and project risk management on the part of the public service (MAP, 2000). On the other hand, in USA, U.K. and Australia, the risk management maturity level is a little bit higher; a few large public service agencies (central agencies for public works, for instance) are at Level 3; many agencies, Level 2; and some agencies (small local authorities, for instance), Level 1. In these countries there is a higher concern for project management and project risk management, on the part of the public service. And there are more publications covering risk management in public services. For instance, the USA Department of Energy has a specific risk policy program (DOE, 2000), among other aspects; the U.K. Ministry of Defence has a specific guide to perform risk management in procurement (MoD(PE)-DPP(PM), 1991); and Australia has several guides for risk management and project risk management in public service agencies (Purchasing Australia, Department of Administrative Services, 1996; among others).
Procurement in Construction Projects Undertaken by the Civil Service in Spain and Other Developed Countries
In Spain, the Ley de Contratos de las Administraciones Públicas (Public Procurement Act) (MAP, 1995) established a basic framework for the management of public procurement, in general, and particularly, of public construction projects. It explicitly establishes the possibility of using two types of contract system (general contractor and turn-key or design+build) and three types of contract price (unit prices, fixed price, and cost plus, the last of which is only used for very small projects in specific cases). The private finance system is also included in the Act. Other types of contract system and price are not excluded but not referred to, so they are not used by the public servant, thus avoiding problems. The Spanish Act also establishes three types of tendering procedures: open, restricted, and negotiated. In the open procedure any company can bid, but if the budget is greater than 20 million pesetas (U.S. 135.000$) the contractor must be officially qualified for the specific type of construction project (building, roads, etc.) and for the specific budget. The open procedure is commonly used in Spain.
In the restricted procedure the public service, first, publishes an official notice to communicate the tender process to contractors, establishing in it the conditions of participation. After that, the contractors apply to be accepted in the procedure. After the selection of contractors, they bid. The restricted procedure is used when the public servant wants to assure the adequacy of the contractor, in cases of technical/technological complexity over the normal level covered by the official qualification system previously referred to.
The negotiated procedure is used in cases of very reduced budget, special urgency, important changes in the initial contract of a project in progress, secrecy (specific defense projects), and other special circumstances, and also in the case of not having positive results with the other procedures. In the negotiated procedure, one or more contractors are invited to bid, and this procedure is much simpler and shorter than the other.
On the other hand, the Spanish Public Procurement Act establishes two types of awarding procedure: lowest price and “most advantageous” tender. In the first procedure, the price is the only criteria, but in case of excessively low prices (10% below the average), the bidder can be either excluded or forced to establish a guarantee for 100% of the contract value. In general, the lowest price procedure is used in cases of low complexity projects with very well defined design and a high degree of trust in the designer.
In the “most advantageous” tender procedure, several criteria can be used to assess the bids, including price, compatibility, whole life cost, technical performance, after sales service, financial capacity, quality, or compliance with specification, among other factors.
Several interviews have been held with engineers or architects working as public servants in France and the U.K., to compare the various environments. In France, the situation is similar but, in some fields, the current French legislation and practice (Bouchon & Cossalter, 1999; Journal Officiel de la République Française, 1998) has adopted measures to correct specific problems that exist in Spain. As previously referred to, in the U.K. (HMSO, 1995; Latham, 1994) and USA (Commission of the European Communities, 1992; Krol, 1993), the situation is different, with no legislation covering public procurement.
Main Risks in Construction Projects Developed by the Spanish Civil Service
A bibliographic search combined with a set of interviews with professionals in the construction sector experienced in domestic and international construction projects (working as owners, engineers, consultants, and contractors) have been developed to prepare a database draft containing risks in construction projects carried out by both the public and private sector worldwide (de la Cruz, 1998).
The two preceding aspects have formed the basis of several interviews with engineers, architects, and other technical and construction project management staff working as public servants for central, regional and local authorities in Spain. These interviews helped to prepare a database draft containing the main risks in construction projects developed by the Spanish Civil Service. Finally, a survey has been carried out among Spanish public servants, and a final database has been built. In completing the survey, those polled established a qualitative assessment of probability and impact of each risk factor. Some of the most frequent risk factors included in that database are:
• Funds for training public servants (architects, engineers) are insufficient.
• The main evaluation criteria for awarding is the price; other aspects are quasi neglected.
• Present law and legislation, the contractors' need to win contracts, and a certain permissiveness on the part of the client mean that contractors lower their offers disproportionately. At the very least, there is a decline in quality.
• The budget has to be reduced within a predetermined range, independently of real needs.
• Limitations in staffing or other resources in the Administration hamper the control of design and construction.
• The competitive tendering system and the type of contract are inadequate. For this reason, the relationship between the Client and contractor is always confrontational and prone to rivalry.
• Time limitations prevent an adequate soil's report, good quality design, an audit of this design, or an in-depth analysis of the bids of the various contractors.
• There's a gap between the authority granted to and the amount of responsibility held by the engineers and architects of the public service.
• The team offered in the proposal by the contractor, the site supervision company, or the quality control company is not the final team working on site (qualification, knowledge, experience, etc.).
• In some cases, a large-sized contractor (sometimes also a medium-sized contractor) can have more financial resources, or more and better qualified staff than the client. Consequently, there is a disadvantageous situation for the public institution.
• Once the contract has been awarded, the client decides to make changes in the scope of work, usually due to insufficient project planning. This means that the contractor isn't necessarily the most suitable one. This leads to cost overruns and delays.
• In case of small sized agencies, specialized technical staff is not assigned to the project, and one or two people (architects, engineers) must deal with all kinds of construction projects.
• The deposits, warranties, and performance or other bonds established by the Public Procurement Act aren't enough to cover possible problems that can come about.
• Through ignorance or an unintentional lack of objectivity, the weight criteria used for the bid's comparison do not correspond with what is technically desirable (weights are set by nonexperienced persons and not by professional engineers/architects).
• There are problems of coordination, endemic to the agency, which hinder all manner of communication and procedures (these include “red tape,” departmentalization, civil servant obstinacy, etc.).
• For various reasons (which may be political, technical, or caused by bureaucratic matters), the client's tardiness in making payments to the contractor produces a climate of discontent, unmet deadlines, or even stoppage.
• Lawyers or other law experts get involved, with, sometimes, conflicting interpretations of the law and legislation, as far as contracting procedure is concerned. Consequently, the tendering procedure (open, restricted, etc.) is inadequate.
• The prequalification system of contractors is not adequate. Despite passing the preselection test, the contractor lacks the right experience.
• The need of the public client for run out the annual budgets involving payments to contractors for stockpiled materials or equipment. This materials or equipment cannot exist, or the value cannot be equal to the payment made (if the funds are not exhausted in the current year, those funds can not be accumulated for the following year's budget).
• For political reasons the project is not planned and constructed in accordance with the real needs (for instance, the decision to build a traditional market instead of an attached one to a shopping center/mall, in a city where this type of facility is needed).
• Problems for the client because the contractor delays in paying the subcontractors and vendors.
• The client (frequently politicians) isn't firmly committed to the project.
• Changes in government (central, regional, local) lead to management shifts in the project, as well as changes in allocation, scope or design.
• The political support of the project is based on alliances between parties, and this support may lose stability or disappear.
• There are omissions or a lack of clarity in the contract clauses. This leads to further conflicts and unnecessary litigation.
Further work is now in progress, and after carrying out a set of interviews with contractors' project managers and consultants working in projects developed by the Spanish Civil Service, a list of measures to improve efficiency in public infrastructures project management in Spain will be prepared and published.
To Xunta de Galicia (Spain), for funding the project (project code XUGA16603A98).
To Mr. Alberto Castro, Ferrol Municipality (La Coruña, Spain), for help in analyzing the Spanish sector, and in establishing the database draft.
To Mr. José Alfonso Asenjo, Construction Engineering and Management Professor at the Universidad Politécnica de Madrid (Spain) and former Director for Institutional Relations at Dragados International Division, for help in analyzing the various national sectors from the point of view of the contractor.
To Mr. José Irisarri (U.K.), civil engineer, consultant and former British Railways engineer, for help in studying the U.K. sector.
To Ms. Amalia Mandon, France, for arrangements in preparing interviews in that country.
To all the professionals in Spain, France and the U.K. that participated in studying the various national sectors, in preparing the database draft, and in the survey.
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