A number of projects undertaken in Australia have highlighted the problems of ‘big’, ‘white elephant’, and ‘iconic’ projects.
The Port Adelaide Flower Farm (PAFF) project illustrates very clearly deficiencies in project conception and definition.
On August 1988, the South Australian Minister of Local Government approved the development by the Port Adelaide Council of a farm on the LeFevre Peninsula for the growing of native plants. The project became known as the ‘Port Adelaide Flower Farm’. Work started in September 1988 but, after continual financial losses in operation, the farm closed on 3 August 1995.
PAFF would have created much needed employment in the Port Adelaide area at a time of significant economic recession. The aim was to successfully grow, harvest and export Kangaroo Paw and Geraldton Wax flowers to Japan and Europe with prospects of extending to the North American market (South Australia 1997). The demise of the project after such a short time was a waste of public money and resources.
PAFF provides important lessons, particularly for local government, including:
PAFF was not only a new venture, but it was a new venture in a fledgling industry. At the time, ‘no one had any long experience’ in the growing of Australian native plants for the international cut flower trade (South Australia 1997). More importantly, this was not made clear in the project Business Plan. The lesson is that government is not the appropriate vehicle for taking such economic and technical risks, particularly with totally inadequate research and planning;
The Business Plan as presented to the Port Adelaide Council was deficient in a number of areas. Financial projections were overly optimistic, significant technical issues relating to the varieties of plants to be grown were not addressed, the marketing plan was extremely ambitious and based on dubious information and the risks associated with the flood-prone location for the farm were not identified;
The Business Plan set out a number of ‘wider social, economic and environmental objectives for the project,’ but did not relate these to the critical success factor – that the flower farm had to be commercially viable for the project to achieve its objectives;
Key project sponsors, that is councillors who were in office at the time, were advised by consultants and council officers that the project would be profitable and provide benefits to ratepayers and other key stakeholders. They were not adequately briefed as to the significant risks associated with the PAFF project. Failure to adequately assess project risks is a common theme in the audit reports on public projects.
A key lesson from PAFF concerns the identification of a clear business need to underpin public projects. In the mid to late-1980s councils were being encouraged to be more entrepreneurial and to become less reliant on revenue from ratepayers and government funding. While this may explain to some degree the willingness of the Port Adelaide Council to embark on PAFF it does not justify undertaking such a high-risk venture with totally inadequate research and planning.
For some time a light metals industry was mooted based in Rockhampton.[2] It was to produce magnesium for use in the car industry. However, no commercial backer came forth. Nevertheless, the Queensland Department of State Development pursued the project, despite advice from a major industry partner of the project’s lack of long term viability, and even internal departmental assessment that questioned many of the basis of many of the project’s underlying assumptions. This critical view was echoed even more strongly by Treasury assessment. In addition to these economic issues, there were technical concerns. For instance, the technology for the production processes was not satisfactorily resolved even as government funds started to be allocated to the project.
Nevertheless, both the Queensland and federal governments provided over $300m worth of funding, though this was still not enough to attract major commercial interest. The Queensland Government subsequently developed a scheme to attract small investor support. Sadly, the project then collapsed with reputed losses of $450m that has been borne by the two governments and small investors (Cunningham 2006). Ultimately, it appears the project has cost taxpayers alone $240m (Fraser 2004).
The magnesium project reflected all the aforementioned problems of poor project management. It also highlighted what happens when projects are hijacked for ‘political’ purposes to meet electoral timeframes and how the lack of transparency concerning advice, clothed as it was in the cloak of ‘commercial in confidence’ arrangements (de Maria 2002) in a public service, in this case the industry department, lacking independence and too eager to please the government rather than analyse.
The National Wine Centre in Adelaide was conceived and built for the purpose of focusing national and international attention on the Australian wine industry and South Australia as a principal wine-growing and wine-making state (DiGirolamo and Plane, 2002). The business need as set out in the National Wine Centre Act 1997 (SA), stated that the purpose of the centre was to conduct a range of functions, ‘including the promotion and development of the Australian wine industry and the management of a wine exhibition (South Australia 2002). Under the Act a board of directors was established to control and direct the centre with the board responsible to the appropriate Minister.
Construction of the National Wine Centre in Adelaide was problematical enough with cost overruns and time delays, but those difficulties were overshadowed by the crippling losses that the Centre made on operations subsequent to its opening for business in early October 2001. Reports suggested that the centre was costing South Australian taxpayers $50,000 per week, despite major cost cutting measures (The Australian, 2 October 2002). The South Australian Treasurer, Kevin Foley described it as the ‘cash-burning’ National Wine Centre.
The original business need for the National Wine Centre could be questioned. Less than two years after its opening under State government ownership, operation of the debt-ridden facility was handed over to the Winemakers’ Federation of Australia. Eventually, on 1 July 2003, it was taken over by the University of Adelaide for $1 million on a 40 year lease.
This project highlights the issue that public ‘icon’ projects are frequently launched without an adequately identified business need. In fact, unlike private-sector projects, taxpayer funded projects are frequently conceived and defined to meet a political need or justification while the business need is cobbled together to ‘legitimise’ the expenditure of significant public funds. This is not to say that a political need is not legitimate, but the ‘what?’ and ‘why?’ questions must be clearly stated and agreed by all stakeholders if large, complex projects are to have any chance of proceeding successfully.
The Hindmarsh Soccer Stadium Redevelopment Project (HSSR) provides another important example of the dangers of inadequately defining the business need of a large public project. In February 1994, the South Australian Soccer Federation proposed to the South Australian Government that Hindmarsh Soccer Stadium be upgraded to a 22,000 seat facility at an estimated cost of $22.5 million. The redevelopment received bi-partisan support (SA Auditor-General 2001).
From December 1995, under the sponsorship of the new Minister for Recreation, Sport and Racing, the scope of the project was increased. In the opinion of the South Australian Auditor-General (SA Auditor-General 2001: 3) ‘that increase was pursued without proper or adequate due diligence’. In June 2001, the total cost of the redevelopment of the stadium was $41 million.
The business need identified for the redevelopment of the Hindmarsh Stadium was to secure the staging of preliminary matches in the 2000 Sydney Olympic Games. No alternative to the upgrading proposal ‘was given serious consideration’.
The subsequent controversy over this project damaged the already embattled Liberal government of South Australia. The difficulty for the government was in providing sufficient justification for the escalation in the scope of the project. True, South Australia acquired a soccer stadium of international standard (with seating capacity for 15,000 spectators) and seven Olympic soccer matches were played there in September 2000. From then on, however, Hindmarsh Stadium was used for a limited number of National Soccer League (NSL) and other soccer matches and trials with an average attendance of less than 3,700 spectators (SA Auditor-General 2001: 10). Premier and State League finals attracted over 1,000 spectators with other events not achieving this level. Attendance has not exceeded 5,500 and income generated by ticket sales has been far less than required.
The South Australian Auditor-General (2001: 10) concluded that, ‘In economic and financial terms, there is a very strong basis for concluding that the Hindmarsh Soccer Stadium Redevelopment Project was not cost-effective’. The political damage that was caused to the government and the relevant ministers was severe. The apparent waste of taxpayers' funds was also significant and increasingly apparent to the general public. So what went wrong?
First, the government committed to the expenditure of substantial sums of public funds without adequate justification (business need). In fact, the Auditor-General could not find that either the Sydney Olympics organisers (SOCOG), or South Australian soccer officials had insisted on the redevelopment of the stadium in the first place. The business need was never clear and the decision to proceed was taken entirely by Cabinet on the recommendations of the relevant ministers.
Second, project management controls existed but were repeatedly ignored (SA Auditor-General 2001: 11). The controls ignored included:
inadequate feasibility study or cost/benefit analysis was undertaken;
cabinet submissions recommending major contract and financial commitments were ‘inaccurate and incomplete in material aspects’;
an alternative to redeveloping Hindmarsh Stadium was not adequately considered;
Treasury instructions on project management were disregarded;
FIFA and SOCOG requirements were inadequately defined. As a result, the required minimum pitch size was compromised to provide for corporate boxes and other non-essentials; and
ownership and management issues were not resolved before the project commenced.
The main lesson from this case was that proven project management practices should have been followed to avoid fundamental mistakes. There was ample evidence of previous bungled projects, but that experience was ignored. There appears to have been a strong element of groupthink in the South Australian government’s management of the Hindmarsh Stadium project. Once work started, error piled on error, despite the then government being in considerable political difficulty. Unacceptable risk was built into the project from the start, but the government apparently failed to identify and analyse the risks and to manage them effectively.
The Millennium Train project was initiated on 8 October 1998 when the New South Wales State Rail Authority signed a contract for the design, construction and in-service management of 81 new suburban double-deck electric passenger trains. These became known as the Millennium Train.
While the New South Wales Auditor-General (2003) found that the train represented value for money, the project came in well beyond schedule and considerably over budget. As at June 2003:
capital costs had increased by $114 million or 24 per cent to $588 million; and
total project costs had increased by $98.4 million or 17per cent to $658 million.
The Millennium Train project highlights issues concerned with technically complex and innovative public projects. Risk management is an essential element of such projects, particularly where the number of suitable suppliers or contractors is limited. This inevitably places the client (government) in a relatively weaker bargaining position and the supplier in an almost monopolistic position (New South Wales Auditor-General 2003).
The risks of achieving contract delivery requirements in the Millennium Train project were significant but the New South Wales State Rail Authority and the Minister for Transport were not provided with a risk management plan for the Millennium Train. With an aggressive delivery schedule (prompted by government election commitments to meet public transport service goals) the risk was borne disproportionately by the client. As the New South Wales Auditor-General (2003: 5) rightly pointed out:
… because governments cannot readily walk away from such projects, even if difficulties arise, they necessarily carry significant risk for such projects. Contract provisions designed to share risk with private sector providers thus need to be robust and enforceable should the need arise.
An essential requirement in this type of project is that government contracting authorities must be both competent and experienced. Private sector suppliers in this type of project are commonly blessed with long-serving project managers and contract administrators. Government managers and staff, on the other hand, frequently occupy their positions for a relatively short period of time and may lack the longevity and experience of their private-sector counterparts with whom they must conduct complex project negotiations involving very significant sums. The New South Wales Auditor-General (2003: 5) stated that:
… the restructure of the New South Wales rail authorities in 1996 and a disruptive purchase environment at State Rail had some effect on the Millennium Train project.
The lesson is that risk management plans must be adequate to protect the public interest. Considerable information on public project management exists in a variety of sources and governments should share expertise and experiences to offset the disadvantage of public-sector employment policies and practices.
In his Report on Public Sector Agencies for June 2002, the Victorian Auditor-General (2002: 4.21) reported that:
Two of the key drivers of cost increases included the adoption of a ‘fast track’ approach to construction, whereby construction moved ahead of the detailed design work, and the adoption of a complex and unique architectural design.
These issues echo the experiences in the Sydney Opera House project almost 40 years before and yet they still bedevil public projects today. Significant risk was obvious from the start of the Federation Square project, but risk management still appears to have fallen far short of the standard required.
The Auditor-General reported in May 2003 (Vic 2003: 2.236) that the Federation Square Management Pty Ltd’s ‘quantity surveyors’ have progressively identified a number of major risks that could impact adversely on the latest estimated completion cost of the Square. These risks, which represent ongoing project management challenges for the company, involve the potential for higher costs arising from:
cost variations associated with incomplete documentation;
trade contract disruption and delay claims;
managing contractor cost increases (due to further project delays);
tenancy fit-out costs borne by the project;
consultants’ fees and management delivery expenses;
unplanned prolongation to completion of outstanding works leading to additional costs for the project;
latent design defects;
operator initiated changes (post-completion);
poor or uncoordinated workmanship; and
failure to secure full reimbursement for costs of works undertaken on behalf of major tenants.