What’s wrong with our mega projects?
> Ballooning bills and inflated costs raise the question as to whether the problem is systemic in nature
PETALING JAYA: From the East Coast Rail Link (ECRL) to the Light Rail Transit 3 (LRT3) and possibly others that are yet to be unearthed, what has really gone wrong with these mega projects that have seen spiralling bills and inflated costs?
Over the weekend, Prasarana Malaysia Bhd said it was fully aware that the RM10 billion approved by the previous Cabinet was not enough for the LRT3, explaining that it only covered costs for work package contracts and supply of feeder buses (RM9 billion), as well as land acquisition (RM1 billion).
Coming on the heels of a sudden bump up of RM26 billion to the initially projected RM55 billion cost of the ECRL, the revelation begs the question of whether the problem with mega projects is more systemic in nature.
The basic cost component of a construction project constitutes materials, equipment, transport, labour, financing, insurance and authority compliance expenses. A few may even require specialised professional services such as in the case of the Storm Management and Road Tunnel built in 2007, which adds up to the cost components.
Cost is one of the major considerations throughout the project management life cycle of a construction project, said Master Builders Association Malaysia president Foo Chek Lee.
“Maintaining steady cost projection and preventing cost deviation has always been a key concern of contractors,” he said.
Foo said from a technical standpoint, poor planning, management and implementation of projects on the contractor’s part is one of the major reasons for the bills to go up.
He added that errors in bidding and failure to understand the requirements are other reasons that lead to it.
Beyond the contractor, Foo said, external issues such as changes in government or authorities’ policies, unexpected ground conditions and increase in cost of workforce, are seen as contributing factors to added costs.
Building materials are known to have fluctuating costs, as prices of commodities such as steel or cement fluctuate for a various number of reasons.
When we consider the number of “sick” projects that the Auditor General’s report has highlighted time and again in the past, it is obvious that it is not just a mega project issue. It is also a government-awarded project issue.
A sick project is one that is delayed by 15% based on agreed project milestones or timelines.
“The National Audit Reports clearly imply that the mechanisms to award projects, monitor them and ensure their timely completion are inadequate at best, or absent at worst. Delays in the completion of projects and cost overruns add to unnecessary government expenditure.
“This means that there should be transparency in the award of projects; and a meritocratic system based on efficiency and competence should determine selection. In addition, stiff disincentives should be imposed on defaulters,” senior fellow at Malaysian Institute of Economic Research Dr Shankaran Nambiar told SunBiz.
On the implication of such projects on the government’s balance sheet, he said delays in completion of public projects and cost overruns only add to unnecessary government expenditure.
“They are a burden on government finances that could be better spent on healthcare, affordable housing or education.The fact that such wasteful expenditure recurs year after year is symptomatic of a systemic failure in the manner of the tender process,” Shankaran added.