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The budget, construction cost estimate, and schedule for your construction project are all based on well-thought out and researched decisions. Decisions about materials, design, contractors, leadership, permits, and funding all impact the success of your construction project.
So, what happens when there is a change in design, a line item or two added to a budget, or a change in contractors?
This is when we see scope creep, cost overruns, schedule slippage, and a trickle-down scrambling effect. One part of the project is behind schedule, causing the next phase to be delayed, making it hard to secure funding, which then forces a change in leadership or the loss of qualified contractors.
Now the project is over budget, way out-of-scope, and a hot topic for discussion.
This is exactly what has happened in Ireland. A recent investigation by the conservative Fianna Fáil party reveals that 35 out of 38 health and education projects in Ireland have run over-budget.
Since 2010, the total cost overruns of these 35 projects adds up to $48 million.
In this blog, we’re digging into the recent news about the impacts of scope creep and cost overruns on Irish construction projects. Specifically, we’ll look at the problems swirling around the National Paediatric Hospital construction project.
This blog is part of our regular series focused on lessons learned from large-scale projects. Read about the Boston Big Dig and California high-speed rail.
Cost overruns are a global problem as noted in Price Waterhouse Cooper’s (PWC) annual Global Project Management Survey. Our goal with these series of project examples is to highlight lessons from projects that haven’t gone as planned, showing how these lessons should be used to improve the decision-making process before digging starts.
If you have large-scale or mega-construction project you’d like us to take a deep dive on, contact me with your ideas and suggestions.
Small Changes Can and Do Result in Big Impacts
To give you an understanding how scope creep, personnel changes, schedule slippage, and other changes impacts budgets, consider these quick facts on a sampling of Ireland’s health and education construction projects:
St. Luke’s Hospital: 56% cost overrun with the hospital ultimately costing $8 million more than budgeted. Caused by adding a new oncology department and education center after budgets, contracts, and designs were finalized.
University Hospital Galway: 16% cost overrun costing $3 million more than budgeted.
Clonburris post-primary school: 22% cost overrun costing $3.5 million more than budgeted.
Cluain Lir St. Mary’s Mullingar: this 100-bed community nursing unit had a 27% cost overrun costing $3.5 million more than budgeted.
The cumulative impacts of these cost overruns and the associated schedule delays, has deep impacts through-out the country. From questions about how publicly funded projects are managed to how these costs will impact future education and health projects – there is more to these costs overruns than what we see on paper.
The National Paediatric Hospital Construction Project
An April 2019 PWC report into the National Paediatric Hospital Project (NPH) in Ireland provides a good summary of the original scope and plan of this construction project.
The NPH is the most significant capital investment program ever undertaken in Ireland’s healthcare system. It includes the New Children’s Hospital at St. James’s Hospital and outpatient and urgent care centers located at Connolly and Tallaght hospitals.
The NPH project was envisioned as improving the future care of children and young people in Ireland. Once completed in 2023, based on the current schedule, the NPH project will provide 473 in-patient beds, 22 operating and procedure rooms, and 122 outpatient consulting and examination rooms.
This scale and scope of construction comes with a big price tag:
The original budget in 2013 was $893 million dollars.
In April 2017 this was adjusted to $1.1 billion dollars to fulfill the entire scope of the NPH project.
By December 2018 the estimated budget to build the New Children’s Hospital and the satellite centers had increased by $508 million dollars to a total budget of $1.6 billion.
To complete the entire project, an estimated $331 million is required to complete the following work: integration of the 3 hospitals $97 million, IT systems $109 million, implementation of an electronic health record system $58 million, a research and innovation center $20 million, and $45 million already committed to other site costs.
The new adjusted estimated total cost to complete the entire NPH project by 2023 is now $1.9 billion.
It should also be noted that the original completion date for the NPH project was 2020.
So how and why did this publicly funded project get into such a deep hole of cost overruns, schedule delays, and public taxpayer frustration? The impacts these cost overruns and delays will have on children and young adult health in Ireland cannot be overlooked.
What Can We Learn from the National Paediatric Hospital Project?
To drive home the key lessons from the NPH project, we want you to really think about the key findings by PWC regarding this construction project:
Set-up, Planning, and Budgeting
Significant failures occurred during the crucial planning and budgeting stages of the project.
THE BASIS OF THE ORIGINAL BUDGET WAS FLAWED, and risks were understated in the business case. There was a lack of sufficiently comprehensive or robust planning for the process to establish a Guaranteed Maximum Price for the construction of the New Children’s Hospital. This created a situation in which the approved project could never be delivered within the financial parameters agreed.
Execution
Once underway, the process by which the Guaranteed Maximum Price was determined was poorly coordinated and controlled.
The National Children’s Hospital quantity surveyor used a number of different techniques to determine quantities, which were in some cases different to those used by the contractors.
Progress reporting was generally unstructured, fragmented and lacked key information. This created the conditions for major issues to arise without warning and to escalate unchecked.
Governance
The level of trust that the NPH Development Board placed on the NPH Executive and Design Team gave rise to insufficient skepticism and challenge. The structure above the NPH Development Board became reactive, limited by their terms of reference.
This created an environment in which the project was allowed to progress too quickly without being subject to rigorous challenge.
Although the NPH Development Board and NPH Executive had extensive experience of major and complex project development, specific healthcare infrastructure development experience was more limited.
These core problems resulted in an underestimated, undermanaged, poorly executed, and inadequately reported large-scale construction project.
As you can understand the trickle-down impacts of these major fundamental flaws mean that scope change happens without oversight, contractors come and go with few checks and balances, budgets are adjusted and grow in hopes to keep the project happening and feasible.
The facts and realities of the NPH project drive home the need for every construction project, regardless of size and budget to be subjected to an independent validation of cost.
With an independent validation of cost, the problems with set-up, planning, budgeting, execution, and management of the NPH project could have been identified, and properly addressed by the decision makers.
Working with an independent construction cost expert also provides an unbiased perspective and opinion on how the project could be, estimated, scheduled, managed, and contracted.
Making Construction Work
Because of the NPH project cost overruns, money from other taxpayer funded projects is being diverted. Money is being shifted from other Department of Health projects, highway construction projects, and the Department of Education budget – all in attempts to fund and complete the NPH project.
The frustrating aspect of this, beyond the mistakes in planning, budgeting, review, and scheduling, is how this one construction project failure is impacting Irish citizens.
A noble vision of improving the healthcare of Irish children and youth could now very likely have harsh impacts for the education, well-being, and quality of life of Irish citizens at-large.
And this is why for us at PCS Construction Is Personal™.
Mistakes in planning, research, budgeting, and vision impact people. Real people who are relying on a construction project for jobs. Real people who are relying on the hope and promise that comes with a new children’s hospital and research center. Real people who have been promised change that will ultimately improve their quality of life.
At PCS, we want to make sure that the damages caused by poorly budgeted, designed, and managed construction projects stop.
It’s time to restore public confidence in construction – contact us to learn how we can help you avoid the problems plaguing the NPH project.
About the authorLee Thomas, MBA is the chairman and CEO of Project Cost Solutions. Lee has over 20 years of hands-on operational process experience under his belt. He is deeply committed to seeing your construction project succeed.
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