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Procurement Perspectives: No magic bullet for delivering major capital projects

Stephen Bauld
Procurement Perspectives: No magic bullet for delivering major capital projects

I have always maintained that there is no magic solution to delivering major capital projects “successfully.”

However, there are common sense recognized guidelines, based on proven management principles, that can ensure the decision to proceed with a major capital project is made on a sound business basis and the major capital project itself has more than a reasonable chance of being delivered on time and within budget and of satisfying the organization’s functional requirements.

At the highest and most abstract level there are in reality only two, “best practices” for carrying out major capital projects: selecting the right project for development and managing that project from conception through to implementation in a sound business-like manner.

The question of whether the right project has been selected is one that should not be lightly overlooked. Indeed, the selection of the right project is a critical concern because few municipal capital facilities are able to operate on a self-sustaining basis.

At the municipal level, major capital projects frequently relate to such items as highway construction, new public housing projects, new library facilities, the creation of a light rail or subway system and other transportation services, the construction of a new city hall, opera halls, performing arts centres or an art gallery.

It is often not appreciated that municipal expenditures on such capital items invariably involve long-term commitments of operating support. Few of these projects lead to the generation of net income.

Across the country, municipally-owned facilities often are able to remain open only through the provision of tax subsidies.

Public transportation systems, which, in the main, are anything but underutilized, illustrate the extent of this obligation.

At the end of the Second World War approximately 35 per cent of urban travel in Canada and the United States took place on public transit.

Immediately after the war, transit began losing market share to the automobile at a significant rate. To make public transit more attractive, most municipalities, followed by the state, provincial and federal governments, began to subsidize public transit.

Unless the fare-setting strategy changes, any significant expansion in the transportation system implies a corresponding increase in the operating subsidy that the system receives and, quite possibility, requires. Thus, the initial capital expenditure is only the beginning of the public’s long-term cost.

With a track record of this kind, it is essential to incorporate into the major capital project approval process some form of rigorous reality checking system.

However, relatively few municipalities seem to have any formalized set of standards that would provide even the most general guide as to the kind of capital improvements that should be undertaken.

Such standards are necessary if the intent is to link major capital procurement to a coherent strategic plan.

The District of Columbia in the United States has done so, but as with many guides of this kind, the language used tends to offer only limited direction:

To build facilities that support the district stakeholders’ objectives.

To support the physical development objectives incorporated in approved plans, especially the comprehensive plan.

To assure the availability of public improvements. To provide site opportunities to accommodate and attract private development consistent with approved development objectives.

To improve financial planning by comparing needs with resources, estimating future bond issues plus debt service and other current revenue needs, thus identifying future budget and tax rate implications.

To establish priorities among projects so that limited resources are used to the best advantage.

To identify, as accurately as possible, the impacts of public facility decisions on future operating budgets in terms of energy use, maintenance costs and staffing requirements among others.

To provide a concise, central source of information on all planned rehabilitation of public facilities for citizens, agencies and other stakeholders in the district.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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