Engineering

Early costings on infrastructure projects leading to inaccuracy: Grattan report

infrastructure

Governments and project authorities need to improve costings on transport infrastructure, and megaprojects in particular, a new report highlights.

The Grattan Institute’s The rise of megaprojects: counting the costs report found that Australian transport infrastructure projects over the past two decades cost $34 billion more than initially expected.

Megaprojects, those costing more than $1bn, are particularly risky, with 45 per cent of projects over this size costing more than expected and that cost being 30 per cent more than initially expected. In addition, the few projects that have significant overruns account for a high proportion of the total cost overruns. Seven of the largest projects completed in the past two decades accounted for more than a third of overruns.

The report’s lead author, Grattan Institute transport and cities program director Marion Terrill said that governments should instead focus on smaller projects.

“Taxpayers would get bigger bang for their buck if politicians steered clear of what they like to call ‘nation building’ and ‘city shaping’ mega projects, and instead spent more on upgrading existing infrastructure,” said Terrill.

The report highlighted a number of rail projects that have had substantial increases since their initial announcement. Inland Rail’s total cost was estimated at $4.4bn in 2010 while the project is now expected to cost $9.9bn. Sydney Metro City & Southwest also increased in cost from its initial announcement of $11bn in 2015 to $15.5bn currently.

Peter Gill, managing director – infrastructure at quantity surveying and project management firm Donald Cant Watts Corke, said that with infrastructure projects sometimes being used as “political footballs”, costings have not always taken all factors into account.

“It is true that the announcements of major infrastructure have been rushed and that, in order to provide backup to these premature announcements, rough designs and figures are published. Without appropriate consideration of escalation, scope creep, risk management and other complex factors, such announcements will only result in a blowout in costs in the future.”

However, Gill noted that not all cost escalations are inherently problematic, and that in fact, as scope on major projects change, costs would inevitably also vary.

To provide proper cost assurance at early stages, Gill highlighted that investments of time and money needed to be made to provide clear project costs.

“Insufficient funding for proper planning, investigations, risk management, procurement model, construction methodology and a host of other issues is also a factor. Without the correct information for latent conditions, inaccurate costing is a result.”

To avoid cost overruns, Terrill and the report’s authors recommend that projects should not be announced before they are ready, with prematurely announced project accounting for three quarters of cost overruns. In addition, projects with first cost announced before commitment, which were substantially larger than later announced projects, had significantly larger increases in cost by completion than those projects with first cost announced upon commitment or construction.

Building more larger projects in response to COVID-19 also created the risk of underutilised assets, as transport patterns change in response to the crisis.

“The danger is that governments are rushing to waste our money on what may turn out to be a herd of white elephants,” said Terrill.

Gill said that with inaccurate or rushed costings at the early stages, the public loses trust in the delivery of major projects.

“Taxpayers need to know that they are getting value for money and that governments are being held accountable for getting it wrong,” said Gill.

“Cost overruns on megaprojects will ultimately result in governments breaking these projects down into smaller, more manageable projects.”

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