Perth Arena: Lessons Learned For Future Capital Projects, Essay.

Prepare a formal essay that takes account of the following:

1.Critically evaluate the original Perth Arena project from a project management perspective using publicly available information, and summarise the major failings that occurred. Use recent theories and concepts drawn from the Unit, and from other sources such as reputable text books or journals such as the International Journal of Project Management to help you do this.

2.Using these theories and concepts, describe how the original Perth Arena project went wrong, and what some of the practical solutions could be from a project management perspective.

3.State whether you think similar projects could go wrong in the future for the same or different reasons as the Perth Arena project.

In relation to all of these issues, highlight and discuss any gaps in the theory that may need addressing, including in methodologies such as PRINCE2 or in the PMBOK Guide, and suggest ways in which these could be addressed for your Arena project

Designing Perth Arena

Perth Arena or RAC Arena is a multipurpose sporting and entertainment arena situated in the middle of the Perth city in Western Australia. It was officially opened in 2012. It was designed by joint contribution of two architectural firms i.e. Ashton Raggatt McDougall as well as Cameron Chisholm Nicol. The review of Perth Arena project offers lessons to be remembered during future projects related to capital works (ArchDaily, 2012). It exhibits how the declaration of cost estimates and timeframes of a project, before analysing the project effectively turns the project into troubles and put it under pressure, since initiation and increases impractical hopes for which, agencies are held responsible.  

The then government in Australia announced in 2005 that it would construct an outstanding stadium within $160 million which will be an icon to be constructed on time to host the Hopman Cup tennis tournament. The design brief of the Perth Arena project called for functioning feasibility, a landmark structure that could provide benefits to the community and a world -class stadium that could fulfil the needs of entertainment and sports events industry (Committee for Perth, 2014). The Arena was designed to be a building that would have seating arrangements for at least 12000 people during sports events and for 14000 people during concerts. The design included an advanced operating system to enable maximum flexibility, adjustable performance floor and broad support rooms (PerthNow, 2010).  

The review of the project revealed that the original cost and time estimates for the project were made well before understanding and defining the project. The Perth Arena was estimated to cost $483 million, which was $323 million more as compared to that had been announced by the government in 2005 (Krol, 2010). The original cost estimates were impractical and were declared without understanding the needs and requirements of the project (Love, Wang, Sing, & Sing, 2013). Various changes that were made to the opportunity of the project during preparation, submitting and contractual award stages added to the costs of the project (Love, Wang, Sing, & Sing, 2013). On the other hand, the Perth Arena was scheduled to open in 2012, which was a delay of almost 4 years than that was originally planned. The government announced the actual opening date for the Perth Arena project well before it was defined in an adequate manner. The extensions in construction time due to changes in design, further delayed the opening date of the Perth Arena because of which, the originally planned hosting of the five Hopman Cup tournaments were at risk (WSP, 2018).

Cost Estimation for Perth Arena

The increase in the costs was due to the hugely underestimated project costs at the inception of the project along with inaccurate estimates for successive changes in the design and project risks. The original cost estimation for the Perth Arena project involved the management and procurement, design, construction and ground works and other operational costs to be $160 million which was the approved budget for this project. It was estimated to be $320 million during pre-tender and $343 million during post contract award (Department of Finance, 2018). In 2009, after analysing the requirements of this project and changes made in the design, the total cost increased to $ 483 including car parking area costs and that too excluding the GST (Office of the Auditor General Western Australia, 2012). The increase in the cost estimates to $323 million, which proved that the original budget of $160 million was a significant underestimation of the project cost (Love, Wang, Sing, & Sing, 2013). It was declared even before the completion of the design, which means that the final project possibility was yet to be defined and the budget approved was based on standard square meter rates for a small size stadium. Moreover, in 2006, the cost estimates had risen to $320 million during pre-tender on the basis of more detailed design, which was estimated to cost $250 million and comprised of advanced operating system, corporate suites, moveable performance floor and function rooms (Machado & Martens, 2015). In addition to it, a multi-storey car parking area over the adjoining railway line amplified the budget by another $70 million. In this manner, out of the cost estimation of $483 million in 2009, the actual expenditure over the Perth Arena was $213 million which was only 44% of the costs estimated after finalizing the design, tendering and contracting award for the project (Love, Wang, Sing, & Sing, 2013).

The opening date for the Perth Arena had been delayed several times which reflected an inadequate understanding regarding the involvements of project and the time duration it would take in its completion. Initially, it was the plan of the government that the Arena project should have been completed on time in order to host the Hopman Cup of 2009, as it was expected that five out of the six Hopman Cup tournaments between the year 2008 and 2013 were going to be held at the Arena. So, it was announced by the government, before defining the work in the project in an adequate manner, in order to make pressure on completion of the project as early as possible. Department of Housing and Works (DHW) planned to start the construction process in 2006 and the time for completion of construction was estimated to be 30 months. So, even the initial plan was not in compliance with the completion of project and preparations for the Hopman Cup at Arena in 2009. The construction process was further postponed till 2007 with the opening date to be postponed till 2010 for organizing the Hopman Cup 2010 at Arena. In May 2007, the tender was awarded the contract for completion of project within 34 months and the completion date was estimated to be March 2010 (Radujkovi? & Sjekavica, 2017).

Delays in the Project

Furthermore, more extensions in the construction time occurred due to design changes as a result of which opening data for the Perth Arena delayed several times. It was realized later on that the construction and furnishing would not have been able to get finished till 2011. However, it was mentioned in the contract that the construction agency was entitled to extensions in time, owing to delays occurring due to changes in design on demand of State. Taking it into consideration, the construction agency had been granted an additional working days of 316 for the purpose of completing the project (Munns & Bjeirmi, 1996). As a result of this time extension, the expected opening date for the Arena was postponed until 2011, however it was also tentative. It was advised by the Office of Strategic Projects (OSP) that the construction of three months behind the planned schedule and the time duration for the purpose of furnishing was yet to be finalized because of which the opening date for the Perth Arena was later pushed back till January 2012. So basically, Perth Arena was scheduled to be opened almost 3 years after the initially planned timetable because of constant underestimation of the construction timelines and opening dates of Arena by the DHW.

In 2007, DHW invited few of the selected companies to provide their proposals for design and construction of the Perth Arena. BGC Constructions was selected as the favoured tenderer and DHW negotiated with them for the contract award for completion of the project and the responsibility for the design of the Arena retained with DHW itself. The management structure for such major projects should engage client agency, which is accountable for defining the necessities of the project and DHW was accountable for the delivery of project to the client. The client agency proceeds with the long standing possession of the advantage for service delivery and provides external examination of a project as well as ensures regular reporting and visibility of progress of the project and decisions external to the supply agency. It also helps in reducing the risks in the project. In this project, DHW was client as well as delivery agency with external reporting by the Ministry of Housing and Works in addition to the Cabinet. DHW was exclusively accountable for the project till 2007 but later on, OSP was held accountable for the project. The OSP had to report directly to the Minister for Housing and Works. It then became the part of DTF, as all the responsibilities related to public works were transferred to DTF. The tender process was tricky and negotiations of the contract resulted in typical situation where, DHW accepted the offer of a contractor which was basically varying with the original requirements of the project. At the time of tender assessment process, confidential information about one of the bids was publicized after which, conforming tenderer advised to take lawful action if DHW would have entered negotiations with others. DHW took officially permitted advice according to which, prioritizing the compliant tenderer was suggested but, there was an option to stop the Request for Tender (RFT) as well (ArchDaily, 2012). DHW entered into discussions with BGC based on single conforming tender and conducted the final stages of approval as quickly as possible (Western Australian Auditor General, 2010). The internal process of the DHW called for review of the site preparation by its Tender Committee and the project was found to be contentious. Above it, the evaluations of tender and final offer were not taken into consideration for scrutiny (Caffieri, Love, Whyte, & Ahiaga-Dagbui, 2018).  

The Tendering Process

DHW had not transferred the responsibilities for the completion of the design of the project to the contractor, in order to reduce the costs of contract. It altered the contract to a ‘construct only’ contract which resulted in the state to bear the risk of increase in the costs and delays in completion of the construction process due to continuous changes in the design of the project. The procurement strategy of  DHW was only to secure fixed price standard ‘design and construct’ contract, for which it should have transferred the responsibility for design to the construction agency, as the designs were yet to be finished and the procurement strategy would have eliminated the risks for the state (WSP, 2018). Furthermore, all the major decisions related to the fundamental changes in the contract were taken without proper evaluation of the risks as well as costs, legal advice and without considering the alternative options to eliminate the risks. The internal memos related to the retention of design responsibility represented huge risk and the Minister was also not informed about the same. The information about the importance and suggestions of the change and the alternatives such as re-tendering or review of other offers were not completely provided to the Minister (Department of Finance, 2018). These alternatives would have assured the DHW that they had obtained best possible price tender. On the other hand, no legal advice was taken by the DHW regarding the negotiations with BGC and even state solicitors were informed about the same after the formation of contract agreement even after being informed by them.

The major failures in the Perth Arena project were the shortfalls in the governance and management of project that had been suffered by the State to a huge risk than it was intended before. It was also revealed that tender process was already difficult and contractual negotiations led to DHW accepting the offer, which was basically not in line with the actual requirements of the project (Caffieri, Love, Whyte, & Ahiaga-Dagbui, 2018). In addition, DHW had not achieved the major purpose of its procurement scheme, for the purpose of transferring the responsibility for the completion of design to the contractor, which led to State being accountable for the risk of enhancement in the costs and delays caused due to the changes in the design of the project (Caffieri, Love, Whyte, & Ahiaga-Dagbui, 2018). The major decisions regarding important alterations to the contract were taken exclusive of satisfactory evaluation of risks and value for money. Along with it, official permission was not taken as well as alternatives were not entirely taken into consideration. DHW made several alterations to the design that could not be completely priced and they were not aware of signified values. The major risks such as the alterations in the distribution of designing task to the state and estimating doubts were not bring to be considered by the Ministry of Housing and Works or Cabinet because of which, their assessments might not had been completely informed (Inside Construction, 2010).

Management of the Project

Furthermore, it was also revealed that project governance and management were also inadequate. The Perth Arena project lacked appropriate governance structure which had restricted the misunderstanding as well as analysis. For the purpose of meeting the proclaimed timelines, extreme components of the Strategic Asset Management Framework (SAMF) and standard endorsement procedures were not monitored. The major plans restricting the ability of DHW for the purpose of managing and regulating the project were also not in existence at the requirement (VenuesWest, 2014). Moreover, it was not only the reason for the failure of the project the project team was not also sufficiently resourced for the major project. The poor record keeping regarding the project, infringed the State Records Act 2000, which provided shear evidences of the inappropriate planning, monitoring and reporting about the project. It means that DHW and OSP did not provide any kind of written information or record related to the negotiations within the contract. All these reasons contributed to the contentious and poor management of Perth Arena project (Pasian & Woodill, 2006).

The public sector supervisory body has criticized the state government department and held them accountable for inappropriate planning and mismanaging the Perth Arena stadium project. It was found by the Auditor General Colin Murphy that the governance of DHW failed to notice the project management and, administrations were not enough and normal processes were not being followed. The initial estimation of costs and opening date for the Perth Arena project were found to be impractical and were taken before the project was implicit or clear as per the Auditor General. Due to failure in managing as well as administering the Arena project, the budget has increased to $ 483 million which is 3 times than the initially planned cost and, the time overrun was almost three years. Additionally, there was risk that the costs as well as delay in the opening date might extend more till the completion of the project (Department of Finance, 2018).

The Perth Arena project was not planned and scoped in a proper manner with major parts of the normal processes being missed out or completed in rush. Furthermore, the process of tender and negotiations were conducted in rush, which should have taken sufficient time to analyze the best suitable tender. The possible risks to the state or substitute possibilities to the final proposal were not taken into consideration. In order to decrease the costs, the DHW considered BCG Construction for the purpose of constructing the Arena project only (Committee for Perth, 2014). The state took the responsibility for increasing the costs and delays that result from the changes in the designs. The report of the Auditor General revealed that the decrease in the costs of the contract has been cancelled by successive enhancement in the costs as well as the extension of time in order to complete the Arena project. Moreover, most of the changes to the design of the project were made during the period of negotiations in the contract by effectively understanding the appropriate estimation of costs incurred due to changes in the design as well as its impact on the extended opening date of the project schedule delayed extensively. However, the costs estimates were already at risk since the inception of the project. The costs declared at the time of formation of contract with BCG included the provisional sums for changes in the design that could not be appropriately priced, which also included an underground car parking that was provisionally accounted for $ 20 million but had cost $ 54 million, more than double the actual estimation. There were various significant changes made to the contract and risks associated with those risks were not reported to the Ministry as well as to the Labour Cabinet in writing, so the decisions taken by them might not have completely informed (Bentley, 2010). Therefore, it can be concluded that DHW had not implemented governance and project management arrangements that were essential for controlling such a major project. There was lack of transparency and failure to notice the errors taking place in the Arena project, which exhibited that the warning signals of the project going towards incorrect direction were not taken into consideration and the opportunities to drag back the project on track were also missed out by the concerning parties. There was lack of written evidential proofs which reflected that the concerning agency was unable to explain the reasons behind the decision taken by them in the middle of the project and, the reasons provided by them without any proofs were found to highly unsatisfactory. Furthermore, it was the utmost responsibility of the Parliament as well as the community to be aware about the resources of state and its effective management and that they are availing the best value for their financial expenditure. The responsibility for the Perth Arena project had lastly moved from DHW to the Treasury and Finance Department for further monitoring (ArchDaily, 2012).

The experts in project management should have taken into consideration, the Project Management Body of Knowledge (PMBOK) and PRINCE2 as these can help in managing the project in a standard format and costs and delays related  issues in the project could easily be managed (Hinde, 2012). The PRINCE2 comprises of four incorporated elements which are principles, themes, processes and tailoring to match with the requirements of the project. There are seven principles which are considered as milestone of the project and the project is classified as PRINCE2 project. The seven themes are those characteristics of the project management which must be addressed incessantly all through the project and are applied through 7 processes which describe the accountability of individuals or groups for the project and each of them is divided into various activities, which are 41 totally (Office of Government Commerce, 2009).  

The application of PRINCE2 in the Perth Arena project would have reduced the costs and delays and assisted in effective management of the project. The seven processes of the PRINCE2 are starting up of project; initiation of project; directing the project; controlling the stages of the project; managing product delivery; managing stages limitations; and finally the closure of project (Bentley, 2010). These processes could have been tailored on the basis of extent, level of risk, complexity and such others (Buehring, 2018). The PRINCE2 manual also comprises a checklist to be utilized to evaluate the existing situation of the project through which errors in the Arena project could have been identified at the initial level. The knowledge Areas associated with the PRINCE2 included Integration, scope, time and cost, quality, communication, stakeholders, risks, human resources, and procurement. As one of the main issues in the Arena project was time management, through application of PRINCE2, it has been eliminated as Time Management Knowledge Area of this approach involves analysis of a number of aspects such as expert judgment, analytical techniques, leads and lags, meetings, alternative analysis, estimation of published data, group decision- making and performance reviews through which delays in the project could easily be resolved.

However, the major strength of this approach is the expectation that major decisions related to the project should be taken on the basis of robust business i.e. a clear understanding of the benefits opposed to the time duration, costs and risks related to the project is essential. This approach develops this understanding before initiation of the project and gets it refined in detail as the project progresses. The project can easily be maintained and updated at each and every stage with the revised forecasts provided through this approach (Bentley, 2015). Secondly, PRINCE2 provides a comprehensive explanation of multiple project management team roles such as Project Board, Executive, Senior Supplier, Project Assurance, Project Manager, Team Manager, Project Support, Change Authority and such others (Buehring, 2018). So, implementation of PRINCE2 approach could have assisted the project Arena in an effective manner and the issues that had been arisen might have been eliminated from the project.

The contingency refers to the amount of funds, time or budget required in addition to the estimated value, to eliminate the risk of project objectives overruns to a level, satisfactory to the organization. The design contingency is owed to the changes made during designing of project for various factors which include incomplete scope definition and estimation of inaccuracy. With the project becoming more defined, the design contingency becomes more associated with the project budget for specific cost elements. The design issues that remain unresolved during the contract award should be integrated into the construction contingency (Love, Wang, Sing, & Sing, 2013). The empirical distribution of the cost overruns should be utilized for the purpose of determining suitable statistical distribution for the probability analysis. The contingency value of 3 to 5% should be used, as there was no statistical difference between the extent of cost increases and used procurement method. The probabilities identified through statistical distributions offer assistance to regulate and reassess the costs of project. After the identification of major factors that contributes to the cost overruns through contract award and assessing its probability, could allow the contractors to implement suitable risk management strategies (Love, Wang, Sing, & Sing, 2013).

Conclusion

After the in-depth analysis of the Perth Arena Project, it has been identified that major issues of the project were the increased costs and delay in the project followed with which several associated reasons have been discussed. As, it was a public project and dealt with by the government authorities, the financial burden and the pressure caused due to delay in project was all brought before them. The empirical distribution of the cost overruns should be utilized for the purpose of determining suitable statistical distribution for the probability analysis. The construction contingency is essential for changes that might occur during the process of construction. The project could have been effectively managed and costs and delays could also have been reduced to an extensive level with the appropriate utilization of project management approach such as PRINCE2. The project could have been conducted on the basis of different stages, knowledge areas and processes of the PRINCE2 approach and all the decisions taken by the concerning authorities could have been informed following transparency in the project. Therefore, with the implementation of this project management approach, the situation of the project could have been far better than the existing one.

References

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