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Introduction ..............................................................................................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)
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
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:
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
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)
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.
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:
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