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Index -

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Introduction ..............................................................................................4

The Iron Triangle .....................................................................................4

Budget ......................................................................................................5

Time .........................................................................................................7

Specification ............................................................................................8

What lessons have been learned from the Eurotunnel project? ...............9

References ................................................................................................13

Introduction The Eurotunnel, also known as the Channel Tunnel, was inaugurated by
Queen Elizabeth II and the French President Franois Mitterrand on the 6th May
1994. It had been some eight years since the contract to construct the Channel
Tunnel had been awarded and it would officially open, with the entire world
watching on the 1st June 1994. The Channel Tunnel is the longest undersea tunnel
in the world. It is also the largest privately funded megaproject with an investment
of more than 10 billion by June 1994. The tunnel stretches some 50km in total
linking the French terminal at Coquelles, Calais with the English terminal at
Folkestone. Of the 50km length, 39km is via a tunnel bored under the English
Channel. (Figure 1)

Figure 1: The Channel Tunnel Project (www.michellehenry.fr) The project as a whole


had been a success in terms of delivering the intended product, but this turned out
to be some 12 months later than planned, which in part was the consequence of
many problems the project faced from the very early stages. The purpose of this
paper is to reflect on the Eurotunnel: Eyes Wide Shut case study and consider the
following as detailed within the brief: i) Review the performance of the Eurotunnel
project against the Iron Triangle dimensions of budget, time and specification. With
this in mind, outline the predominant tasks of the Project Manager during these key
tasks. What principal lessons have we learned from Eurotunnel to guide us in very
large scale international projects in the future?

ii)

The Iron Triangle The Iron Triangle is a model used within project management to
demonstrate that all projects are bound by the same three constraints of time, cost
and specification as shown in Figure 2. The triangle states the constraints of a
project and highlights the fact that you cannot change one of these objectives
without affecting another. From further reading it is clear that many academics
agree with this theory and include quality within the specification of the project.
However, it is becoming increasingly common for quality 2

to be considered the fourth constraint, sitting in the centre of the triangle. Logic
dictating that quality of the project as a whole is affected by any change to the
time, cost or specification. However, there is no universal standard for quality as
this can only be defined within the project. (Microsoft.com) Specification (Quality)

Quality

Cost

Time

Figure 2: The Iron Triangle of project management adapted from Microsoft.com


For an effective triangle, the following would need to be established from the outset
of the project: Who is setting the objectives? Which objective dominates? Which
objectives compete? Which objectives may be incompatible?

Budget It would be fair to say that the Channel Tunnel project proved to be a
disaster in terms of its ability to deliver versus its budget. However, the Channel
Tunnel is not alone in this, with the majority of megaprojects, especially rail,
encountering massive over-spends in the last 100 years. A comparison of several
transport projects highlighting the percentage cost overrun including the Channel
Tunnel are noted below in Figure 3:

% Construction Cost Overrun


Boston's Arterial Tunnel Humber Bridge UK Boston-Washington-New York Rail Link
Great Belt Rail Tunnel, Denmark A6 Motorway Bypass, UK Shinkansen Joetsu Rail
Line, Japan Channel Tunnel, UK Mexico City Metreo Line Paris-Auber-Nanterre Rail
Line Tyne & Wear Metro, UK 0 20 40 60 80 100 120 140 160 180 200 % Cost
Overrun

3 Figure 3: % Construction Cost Overruns for transportation mega-projects

Regarding the overrun, increases on the original budget were applicable across all
three categories of project including tunnelling, terminals, fixed equipment and
procurement items. The comparison between the 1987 estimate and 1994 actual is
shown below in Figure 4: (Genus, 1997, Villanova, 2006)
1987 Estimate ( million) 1,329 1,136 245 1994 Actual ( million) 2,110 1,753 705
46 230 4,844 723 824 1,591 7,982

Cost Category Tunnelling (target costing works) Terminals and fixed equipment
(lump sum works) Rolling stock (procurement items) Bonuses and contingency
Direct and additional works Total Construction Owner's costs Adjustments for
inflation Finance fee's and cost's Total Costs

% Change 59% 54% 188% 79% 28% 69% 55% 65%

2,710 565 489 1,024 4,831

Figure 4: Channel Tunnel Budget 1987 estimate versus 1994 actual With reference
to the costs listed above, the question would be whether the estimate was ever
viable. Flyvberg et al (2003) refers to this from the outset of the project at the
awarding of the concession. He writes The concession for the fixed link across the
Channel was thus originally won by a consortium of contractors and financiers in
1986, whose prime interest was to win construction contracts and provide financing
rather than to serve as the concessionaire.Flyvberg also refers to the fact that
there was considerable doubt with all consortia whether they would recover the
cost of the bid. For these reasons it is known that very little was invested in
detailed design and the cost estimates, in my opinion, were little more than a best
guess. During the bidding process, it was estimated that construction of the
tunnels, terminals and rolling stock would cost 4.8 billion, inclusive of the
construction cost of 2.8 billion. A contingency of only 25% was deemed sufficient,
which as it turns out would prove woefully inadequate and at times threaten the
viability of the project from a promoter and stakeholder perspective. Throughout the
early stages, in the absence of an owner, the relationship between the contractors
and the banks regarding the budget was fraught. The banks kept pushing for final
figures, then resigned themselves to the reality that these were not forthcoming,
instead assuming that the estimate must be high. However, the contractors knew
the bid was low as they saw this as the only way of winning the bid. Stannard
(1990) writes In banking you bid high and then trim your margin: in contracting
you bid low and then get your profit on the variations With this in mind the
relationship between the two very active original promoters was unlikely to improve
as the need for finance would continue to rise. The role of Project Manager fell to
the Maitre dOeuvre, a position that was a stipulation of the governments to oversee
the administration of the project and protect the interest of the promoters. The

Maitre dOeuvre in the early stages did little to stamp its identity on the project and
establish the hierarchy within the contractors and investors. The consequence of
this is the fact that the original promoters were still very much in control of the
project, with no leadership from Eurotunnel. The impact of the budget constraint
on the iron triangle is one of pressure on the timescale of the project, as the
overruns were due to complications causing delays, and the subsequent pressure on
the specification 4 of the project in terms of potential compromise, which due to the
nature of the product, and the role of the IGC would not be difficult. Time In May
1986, after the concession was awarded to CTG-FM, the construction companies left
the consortium to join forces and be re-branded as Transmanche Link (TML). In May
1986 TML were awarded the contract to build the Channel Tunnel. However,
although the concession had been awarded, the owner Eurotunnel was not
incorporated until September 1987, some sixteen months after the concession had
been awarded. Eurotunnel found itself involved in many contractual relationships for
which it then started to negotiate changes. With the contract to build awarded to
one contractor, TML, this only antagonised the relationship, with TML being the
experts in construction and Eurotunnel being a newly formed company with no
experience in construction. It would be proven that much time and money would be
wasted due to arguments between Eurotunnel and TML. Figure 5 details the
complex relationship Eurotunnel had with its contractual partners. (Wikimedia.org)

Figure 5: Eurotunnel Contractual Relationships Due to the complexities of this


structure, and the lack of satisfactory client/contractor relations, the project
continued to haemorrhage time and money through conflict management and
arbitration. With the benefit of hindsight, rather than award the construction
contract to one contractor in TML, its founder shareholders, Eurotunnel would have
undoubtedly benefitted from awarding a series of contracts for separate sections of
the works. Eurotunnel took control of the daily project management and attempted
to establish itself as the Project Manager of the build. This appointment, which
demoted the Maitre DOeuvre to having responsibility for the technical monitoring
and auditing of the project, was a condition of the Equity II release which insisted on
the promoters giving up control of Eurotunnel. Eurotunnel, as the owner and client,
found that their 5

position strengthened by the injection of further finance, together with the


appointment of a team of specialist managers from a company called Bechtel in the
USA. This would prove to give Eurotunnel the backbone it needed in the role of
Project Manager, but would equally lead to may disputes with the contractors over
the coming years. In truth, the complete incompetence in the first 16 months of the
project lead to much time lost due to a lack of communication and direction from
the owner. In my opinion had a specialist team such as Bechtel been appointed from
the outset, the issues could well have been minimised. Within the iron triangle, the
impact of the time constraint on the project inevitably affected the ability to
complete the project within the budget, to the required specification. Due to the
complexities around the management structure, the Inter-Governmental
Commission (IGC) for example are cited for causing numerous changes to
specification resulting in huge losses in time at considerable cost. One example
being the halting of the production of the rolling stock to make possible a 10cm
increase in the width of the passenger doors. This cost Eurotunnel approx. 40
million and, more seriously, months of delay and additional capital costs. (Flyvberg
et al, 2003) Specification The specification and design of the project, as already
noted, was only at an early stage when the concession was awarded. Therefore,
both final design and construction were carried out concurrently to reduce time.
Throughout the project, many elements of the specification were challenged, with
many of these coming from the IGC who had been appointed by Eurotunnel to
oversee the design with specific focus on areas such as fire safety. It would be
changes insisted upon by the IGC that would also contribute to cost overruns and
lost time. An example of this is the change to the doors of the passenger trains.
Whilst this change was recommended for safety reasons, the delay in making the
final decision caused issues as production had to be stopped, with procurement
orders already placed with suppliers. At the very start of the project, the
specification of the tunnel boring machines (TBM) was based upon an assumption
resulting from a geological analysis. As it turns out, these machines would not be fit
for purpose to perform in the wetter than expected conditions, and to then rub salt
into what were fast becoming increasingly open wounds, it was agreed that unused,
existing TBMs from the aborted dig in the 1970s would have sufficed. Another
example where the design and specification failed was highlighted in the early
1990s when the tunnels were being extensively tested for air flow and
aerodynamics. It was discovered that, not only would the speed of the trains have to
be reduced, but crucially due to the length of the tunnel, the temperatures
generated by the rolling stock would create excessive temperatures. This proved
another very costly mistake on the part of the design specification and would lead
to what would become one of the worlds largest air conditioning systems running
the length of the main tunnels at a cost in excess of 100 million. The project, which
in the early stages was described as relatively simple in technological terms,
became a real headache for Eurotunnel. The lack of a final design and specification
when viewed within the iron triangle had a massively detrimental effect on both
time and cost, as both are intrinsically linked in this instance. An understanding of
the project by the owners and the presence of a final design would have helped
alleviate, or at least given a platform to solve many of the issues had the right
management structure and communication channels been in place from the start.

The appointment of the Maitre dOeuvre from the outset was a key issue in terms of
the delays and costs as design and construction were progressing simultaneously.
This being the case, it would be incredibly hard for the Project Manager to monitor
costs and control the budget. Whilst many changes to the specification were a
requirement via the IGC on the grounds of safety, the original design and
specification could not necessarily be guaranteed. With changes occurring, often at
considerable cost due to the advancement of construction or production of goods to
an original specification, the role from the role given to the Maitre 6
dOeuvre I believe was virtually unworkable. Ultimately, due to the nature of the
project, and the importance to the many promoters that the project be completed
without any compromise to quality, the project was eventually completed to the
specification required. What lessons have been learned from the Eurotunnel project?
The Eurotunnel project, through analysis of the study and further reading, has many
things to teach us regarding large international projects. Of particular note is the
management of the project with consideration given to the fact that it is bi-national.
In my opinion, specific areas of focus are as follows: i) ii) iii) iv) Issues relating to
communication. Issues relating to the cultural differences between Britain and
France and the multi-national workforce. Issues relating to the contract on which the
project was based. Issues relating to the operation of the stakeholders and partners
within the management of the project.

Effective communication is an important aspect of any project regardless of its size


or complexity. In the case of Eurotunnel, communication in the early stages would
be regarded as minimal as there were effectively two separate projects running
concurrently in two separate countries. It seems that little consideration was given
to this until the project advanced and the need for effective communication became
apparent between the two teams. The cultural differences between the two sides
also needed to be considered. These needed to be identified, accurately defined
and incorporated into agreed actions through operating procedures before work
commences. A large cultural barrier is language, which creates potential problems
as language is not always directly translatable and interpretation then becomes a
concern. Equally, language is not just spoken, but written, which is an important
factor to bear in mind when considering the contractual issues relating to the
project. Lemley (1995) writes Legal issues, purchasing techniques, methods of
measurement, labour relation negotiations, just to name a few, come out differently
in different languages, even if the words themselves have been translated exactly.
Research indicates that two contracts existed; one in English and one in French, with
neither taking precedence over the other. Whilst the contracts will have been
identical, although translated, the different legal systems operating in the specific
country will have meant that the contracts, and therefore the works would have
been approached in a different way. This also brings into consideration how any
disputes would be resolved when the contracts are being governed by two different
legal systems. The contract, as we now know, was produced in both English and
French, of which the law governing this was based on the common principles of both
countries. However, it appears that in the event that there was conflict within these

principles, international trade law would take precedence and apply. According to
Lemley (1995) there were many dissimilarities between British and French law.
Particular examples of this are legal approaches to health and safety, trade union,
taxation and crime and punishment. However, when the tunnels were being
excavated, the respective national teams were able to take their domestic law with
them across the International Frontier. It was in April 1985 when both the British
and French governments issued a joint invitation for interested parties to submit
plans for a fixed link between the respective countries. These proposals had to be
submitted by the 31st October 1985 for both governments to consider the way
forward. Four projects were shortlisted as follows. Eurobridge: 5 billion 37km
composite fibre suspension bridge. EuroRoute: 4.8 billion part-bridge, part-tunnel
road and rail link. Channel Expressway: 2.5 billion twin-bore road tunnel with
separate rail tunnel. 7

CTG-FM: 2.8 billion twin-bore rail tunnel and a service tunnel of 50km each.

It had been made clear to the promoters who submitted bids that whilst both
governments would provide legislative support to the project, no financial
guarantees would be provided. The project had to be financed by the market. This
aspect would become an issue at a very early stage as the banks, who had stated
that the project could be realised using private capital, sought government
guarantees to secure the required financing. After much deliberation by both
governments, although in my opinion not enough, and upon the advice of many
financial and technical advisors, the project to Build, Own & Operate the Channel
Tunnel was awarded to CTG-FM consortium, later to be known as Eurotunnel.
However, it is considered that the decision to award was not based upon the correct
criteria. Stannard (1990) writes that much detailed work was undertaken but, one
fundamental question was never asked, namely; the competence of each promoting
group to be a true Owner. Stannard continues that The choice was made on
financial and technical viability of the proposal, not the competence of the proposed
owners. This is despite the fact that the structure to be Built, Owned and Operated
was a vital transportation link between Britain and France. It was down to the
simple financing arrangements and the use of proven technology that swayed the
respective governments to favour the CTG-FM (Eurotunnel) proposal. Also, an
additional factor was the commitment from both British Rail and Socit Nationale
des Chemines de Fer Franais (SNCF) to use the tunnel proposed by CTG-FM. Within
the project, many promoters and stakeholders existed. In fact, when the proposal
was submitted by Eurotunnel, the company did not actually exist. The promoters
being The Channel Tunnel Group Ltd and France Manche S.A consisted of
contractors and banks as detailed in Figure 6:

British (Founder Shareholder of Channel Tunnel Group) Contractors Balfour Beatty


Construction Ltd Costain UK Ltd Tarmac Construction Ltd Taylor Woodrow
Construction Ltd George Wimpey International Ltd Banks Midland Bank PLC National
Westminster Bank PLC

French (Founder Shareholder of France Manche) Contractors Bouygues S.A Dumez


S.A Societe Auxiliaire dEntreprises S.A Societe Generale dEntreprises S.A Spie
Batignolles S.A Banks Banque Indosuez Banque Nationale de Paris Credit Lyonnais

Figure 6: The Initial Stakeholders of the Eurotunnel Project

As with all projects, promoters and stakeholders are vital to be able agree objectives
and drive the project forward. However, the promoters have to understand their role
and be able to understand what their objectives are within the project. In the case
of the Channel Tunnel, the promoters consisted of contractors and banks, each with
a differing objective. The contractors were there to build the tunnels and the banks
wanted to lend the money to allow the contractors to build, but crucially, neither of
them wanted to own or operate the project. This would prove to be a critical
failure in the early stages of the project. Stannard (1990) expands on this further
and writes the result was that the promoters were bidding for a role they did not
want or, more exactly, as sole owners of The Channel Tunnel Group Ltd and France
Manche S.A. they had to accept risks they had no intention of taking. The absence
of an owner was not challenged by the numerous promoters and stakeholders who
were all actively preparing for their roles within the project. From research there are
numerous papers referring to the fact that the promoters were all well aware that
there was an ownership issue, but chose to ignore it. It is generally accepted that
both contractors and financers need to have the reassurance, direction and support
of an owner. The consequence of this according to Stannard (1990) is a conflict of
issues at all levels, an inappropriate management structure and project mentality.
The conflict of interests referred to by Stannard (1990) highlighted the issues that
existed between the owner and the promoters. Both the contractors and banks
wanted to have control over the project until they were satisfied their interests and
objectives were met; these being the construction contract and the loan terms. After
much wrangling, it would be 1989 before senior roles were established on both
sides and the project would now be considered to have a true owner, despite
Eurotunnel taking control of the project in October 1986 when the Equity II share
issue was made. (Genus, 1997) So what can be taken from this in terms of lessons
learnt for future projects? As noted throughout, communication plays an incredibly
important part in all projects. Effective communication from the owner from the
outset is imperative, and a lack of communication is only compounded by the size
of the project, for which the Channel Tunnel was vast. From the conception of the
project, more consideration should have been applied to the cultural differences
that operate within both countries. Differences such as language, government, legal
and public perception have to be addressed at the earliest stage. If any or all of
these are not considered, these will inevitably lead to conflict between parties which
in the best case will delay the project, or in the worst case could lead to its demise.
Equally, the contract on which the project is based should have been addressed.
One important observation from this study was the presence of two contracts, both
written in two different languages, for two different countries with two very different
legal systems. It is therefore logical that the project would have benefitted if there
had been only one contract, written in one language, based on one legal system.
One contract managed effectively from the outset would have provided a link
between all parties through one agreed set of rules. All elements of the project
would have been agreed in advance and all stakeholders would know where they
stand within this contract. All terms included within would be such that the project
reflects good business for all concerned, and that any issues are dealt with through
an agreed dispute resolution process, for which all parties agree and are familiar. As
this was not the case, all issues, of which there were many, were exacerbated and

communication became difficult with many issues progressing through arbitration. If


this had been the case, and all parties are working towards the same objective, with
clarity and knowledge throughout, any challenges would have been approached
collaboratively and would have stood a better chance of being solved amicably.
Finally, it was the absence of an empowered and knowledgeable management team
and workforce that lead to many of the delays and arguments that were evident
throughout the project. A lack of communication, a lack of understanding of binational cultural issues and a lack of an owner left the project without a leader 9 to
steer the resources through the complexities of the project. With a vast human
resource, it is important that they, and the teams they work within, are understood
and are represented. It is apparent that the British and French, whist working on the
same project, were allowed to work to their own methods, preferences and
disciplines. The impact of communication throughout cannot be underestimated,
and is, in my opinion, the key factor to the issues encountered throughout the
Channel Tunnel project. Lemley, (1995) sums this up with a simple but powerful
sentence; The key element is communication.