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What’s the deal with megaproject delays and cost overruns?

Peter Caulfield
What’s the deal with megaproject delays and cost overruns?

“The megaprojects paradox consists in the irony that more and more megaprojects are built despite the poor performance record of many projects,” writes Bent Flyvbjerg et al in Megaprojects and Risk/An Anatomy of Ambition.

It’s no surprise that academics like Flyvbjerg are skeptical of large infrastructure projects and their promoters’ promises — even the entertainment industry has cast a jaundiced eye on the subject.

The Simpsons’ hyperbole notwithstanding, the public’s skepticism of large projects, especially public sector megaprojects, is not always without grounds.

Cost overruns and schedule delays are common stories in the media. Research suggests that the bigger the project, the more likely it will go over budget and miss its deadlines.

One needn’t travel far to find a tale of megaproject woe.

At the end of February 2021, the Manitoba government published its economic review of the Bipole III and Keeyask Manitoba Hydro megaprojects in northern Manitoba.

The report was scathing in its criticism of the project and the government then in charge

This is just one example of a megaproject that went over its budget and attracted a lot of negative attention while it did so.

As Bent Flyvbjerg might ask, “What is it with large infrastructure projects that so many seem to get into trouble?”

To try to get a handle on the megaproject big picture, the Journal of Commerce spoke to some public policy experts who are familiar with the subject.

 

Christopher Adams, adjunct professor of political studies, University of Manitoba

“Megaprojects are big investments and conditions can change greatly while they’re being built. They’re not like two-storey houses that can be put up in months. Furthermore, in the case of energy megaprojects, the price of the energy is likely to change while the project is being built.”

 

Ewald Boschmann, former Manitoba Deputy Minister of Finance

“Many megaprojects start as political visions — that’s like blood in the water. In come the bankers, lawyers and the promoters.  They know not to submit low-cost estimates for their part of the project, to make it more saleable. And the temptation is the same everywhere — to exaggerate the spin-off benefits. Cost overruns are almost guaranteed.”

 

Herb Emery, economist, University of New Brunswick

“Almost all big projects are controversial when they are being built. Many people look at them as inherently doomed to fail, but they can be successful if they have good management that have the right incentives.

Something that contributes to cost overruns are delays of any kind, such as a labour shortage or a blockade, and they’re becoming more frequent. Cash continues to get spent during these delays while nothing gets built.”

 

Kent Fellows, economist, University of Calgary School of Public Policy

“You need to get the initial cost estimates right the first time. Sometimes it’s forgotten that, if the project is a big one, it will raise the price of inputs and potentially beyond the immediate area. Megaprojects are different from small projects that have only limited impact on the price of labour, capital and supplies.”

 

Byng Giraud, president of Sedgwick Strategies Inc., Vancouver

“Governments need to stop pretending to the public that public sector megaprojects aren’t really, really expensive. In addition to the high costs, they also need to tell the public if a project is really needed and what all the economic and social benefits will be from a power line or a road through a remote, thinly populated region, and that the private sector won’t touch it because the financial returns aren’t there.”

 

Jack Mintz, President’s Fellow, University of Calgary School of Public Policy

“Because the projects are so large and complex, there’s no guarantee they won’t lose money. Big projects must forecast prices and costs down the road, which is hard. Governments tend to think short-term and they know that any price that has to be paid for a bad decision is likely to paid by a government that comes after it. Public-private partnerships are generally better at controlling costs. It’s why they’re becoming more popular in Canada. The successful projects, the ones don’t run out of time or money, are the ones you don’t hear about.” 

 

Matti Siemiatycki, professor of geography, University of Toronto

“We treat megaproject cost overruns as one-off events, but research shows they’re part of a larger pattern of going consistently over budget. Why are people surprised? We should expect them to go over.

The three main explanations for cost overruns and delays are technical challenges, over-optimism and strategic misrepresentations.

The all-too-human tendency to underestimate the costs and time required to complete a project means that megaprojects are well-nigh guaranteed to exceed their budgets and schedules.”

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