Thursday, March 7, 2013

Literature Review: Cost Overruns & Delays in Municipal Construction Projects


I occasionally find an old piece of school work that seems suitable for this blog. Previously, I posted a book review I wrote for a class. This piece is a literature review related to cost overruns in municipal construction projects. It was written in 1999, so the references are a bit dated. I made no attempt to update the paper.

Literature Review

Problem Statement

Construction projects commonly suffer delays and cost overruns (Arditi & Patel, 1989; Baldwin, Manthei, Rothbart & Harris, 1971; Kraiem & Diekmann, 1987; Mahid & McCaffer, 1998; Mulholland & Christian, 1999). In projects that often cost millions of dollars, even a relatively small overrun can be very expensive. Likewise, construction delays may cause late delivery of services and loss of revenues related to that service.

Municipal governments construct and maintain a significant public infrastructure. Engineering construction accounts for 20 to 25 percent of the market for new construction, most of which is publicly financed (Clough, 1989). Even small cities will often be responsible for roads, wastewater collection and treatment, drinking water distribution, parks, and public buildings.

Municipal governments often use federal and state grants and loans to finance all or part of construction projects. For instance, the Missouri Department of Natural Resources operates eight grant and loan programs available to local governments for the construction of wastewater facilities, drinking water facilities, parks, and energy efficiency improvements to public buildings (Financial).

The reduction of cost overruns and delays could cause a reduction in the cost of public services, especially at the local level where many services utilize some constructed infrastructure. These savings could result in improved economy of state and federal programs that provide financial assistance to municipalities.

The actors involve in public construction are all levels of government, contractors, architects and engineers, and the public. Local governments directly experience the cost of construction projects. Federal and state agencies are interested in the economy and efficiency of their programs and accountability. Contractors are interested in the availability and profitability of public projects. Architects and engineers are similarly concerned about the amount of public work available and requirements for the management and cost estimation of projects. The public is concerned with the level of taxes and user fees necessary to pay for public services.

Key questions research might address include:
-How common and severe are cost overruns and delays in public works projects?
-What characteristics of local government relate to cost overruns and delays?
-What project characteristics relate to cost overruns and delays?
-Might some sort of intervention reduce the occurrence or severity of cost overruns and delays?

Literature Review

Cost growth and schedule growth are common measures of construction project success (Pocock, Hyun, Liu & Kim, 1996; Pocock, Liu & Kim, 1997; Sanvido, Grobler, Pafitt, Guvenis & Coyle, 1992; Songer & Molenaar, 1997). The Missouri Department of Natural Resources has a great deal of information available on cost and schedule for projects that received loans for the Clean Water State Revolving Fund. This includes contracts that describe the project cost and schedule and change orders that incorporate any cost and schedule changes into the contract. This information may also allow a review to identify owner-initiated changes that increased the cost or lengthened the time to project completion. However, municipalities do not appear to pursue claims as vigorously as other levels of government or private organizations. Therefore, these records may not clearly identify changes with the owner, contractor, engineer, or unforeseen circumstances. A pool of project-level information like this may be useful to this research because of the difficulty of finding measures of comparison at the municipal level (Coe, 1999; Kopczynski & Lombardo, 1999).

Projects funded through the Clean Water State Revolving Fund include the construction of wastewater collection and treatment systems. These are mostly government-owned systems. These projects involve many of the same products and processes as other construction projects. They are comparable to other projects that a municipality may construct.

Many of these questions relate to the owner’s role in the success of a construction project. The owner controls a number of factors that have a significant impact on the success of a construction project. These include a well-defined scope, and understanding of the scope shared with other participants, the owner’s construction sophistication, adequate owner staffing, and an established budget (Sanvido et al., 1992; Songer & Molenaar, 1997).

Because these are mostly skills and practices related to the development and management of projects, it seems reasonable to assume that municipal authorities could be taught these skills. It would be difficult to measure the availability of these skills in a number of cities over a short period, but some indicators may be available. Specifically, form of government and population may indicate the presence of these skills and practices.

Researchers still debate the efficiency of city manager governments relative to mayor-council governments. Stumm & Corrigan 91998) found that city manager cities have, on average, lower property taxes and general fund expenditures than mayor-council cities. Others have found that city manager and mayor-council cities do not differ in expenditures and efficiency (Deno & Mehay, 1997; Hayes & Chang, 1990; Morgan & Pelissero, 1980).

If cities do not differ on the bottom line, city manager and mayor-council governments appear to differ in their approach to capital budgeting and management. In their approaches to budgeting, city managers more often use a program budget while mayor-council governments more often use a zero-base or target-base budget (Poister & McGowan, 1984). City managers tend to spend more on infrastructure, use more sophisticate budgets and more often use separate capital budgets than mayor-council cities (Doss, 1987; Nunn, 1996).

Likewise, city managers often use formal approaches to managing capital. Doss (1987) found that city managers are more likely than mayor-council governments to use formal capital improvement plans and routine inspection programs.

Similarly, large municipalities tend to be more sophisticated. As populations increase, municipalities more often adopt separate capital budgets and make formal use of budget decision models (Doss, 1987; Sekwat, 1996).

In light of this, city manager governments and larger cities would seem to have natural advantages. Because of the use of capital improvement plans and separate capital budgets, city manager governments and larger cities seem more likely to have a well-established budget and well-defined scope for any given construction project.

Professional management is a fundamental of city manager governments. This would seem to give city managers an advantage in construction sophistication and experience, staffing and the ability to work with contractors to develop a common understanding of project scope.

Large cities have a practical need for professional staff, so they may have many of the same advantages as city manager cities. Because of the number of projects large cities can be involved in, they are likely to have staff with previous experience in many types of construction projects.

Previous research links form of government and population to a number of factors that are likely to lead to successful construction projects. Much of this research uses surveys of municipalities, contractors and engineers. While surveys are difficult and expensive, population and form of government information is readily available (Missouri Municipal, 1997; Official Manual, 1996).

Construction projects vary widely in size and complexity. Research that tries to attribute cost and schedule growth to specific factors must account for differences that occur as project increase in size or complexity. This is difficult to judge. However, because estimators attempt to consider these complexities (Clough, 1989), the contractor’s bid may be taken as a reasonable judgment of the size and complexity of a construction project.

A review of the literature leads to the following conclusions. Form of government and population can indicate the likely presence of skills and practices that lead to successful projects. Successful projects are those that have no cost or schedule growth. It is possible to account for project complexity in a comparison across projects and municipalities.

An assumption of this review is that municipal officials can learn the skills and practices that contribute to construction project success. Therefore, if it is found that form of government and population are related to cost and schedule growth, an intervention that increases these skills may decrease cost and schedule growth.

References

Arditi, D., & Patel, B. K. (1989). Impact analysis of owner-directed acceleration. Journal of Construction Engineering Management. 115(1), 144-157.

Baldwin, J. R., Manthei, J. M., Rothbart, H., & Harris, R. B. (1971). Causes of delays in the construction industry. Journal of the Construction Division. 97(CO2), 177-187.

Clough, R. H. (1986). Construction Contracting. 5th ed. New York: John Wiley & Sons.

Coe, C. (1999). Local government benchmarking: Lessons from two major multigovernment efforts. Public Administration Review. 59(2), 110-123.

Deno, K. T., & Mehay, S. L. (1987). Municipal management structures and municipal services in America’s largest cities. Southern Economic Journal. 53(3), 21-26.

Doss, C. B. (1987). The use of public budgeting procedures in U.S. cities. Public Administration Review. 7(3), 57-59.

Financial Assistance Opportunities. Jefferson City, MO: Missouri Department of Natural Resources.

Hayes, K., & Chang, S. (1990). The relative efficiency of city manager and mayor-council forms of government. Southern Economic Journal. 57(1), 167-177.

Kopczynski, M., & Lombardo, M. (1999). Comparative performance measures: Insights and lessons learned from a consortium effort. Public Administration Review. 59(2), 124-134.

Kraiem, Z. M., & Diekmann, J. E. (1987). Concurrent delays in construction projects. Journal of Construction Engineering and Management. 113(4), 591-602.

Mahid, M. Z. A., & McCaffer, R. (1998). Factors of non-excusable delays that influence contractor’s performance. Journal of Management in Engineering. 14(3), 42-49.

Missouri Municipal Officials 1997-98 Directory. (1997). Jefferson City, MO: Missouri Municipal League.

Morgan, D. R., & Pelissero, J. P. (1980). Urban policy: Does political structure matter? American Political Science Review. 26(1), 8-15.

Mulholland, B., & Christian, J. (1999). Risk management in construction schedules. Journal of Construction Engineering and Management. 125(1), 8-15.

Nunn, S. (1996). Urban infrastructure and capital spending in city manager and strong mayor cities. American Review of Public Administration. 26(1), 93-112.

Official Manual 1995-1996. (1996). Jefferson City, MO: Missouri Secretary of State’s Office.

Pocock, J. B., Hyun, C. T., Liu, L. Y., & Kim, M. K. (1996). Relationships between project interaction and performance indicators. Journal of Construction Engineering and Management. 122(2), 165-176.

Pocock, J. B., Liu, L. Y., & Kim, M. K. (1997). Impact of management approach on project interaction and performance. Journal of Construction Engineering and Management. 123(4), 411-418.

Poister, T. H., & McGowan, R. P. (1984). The use of management tools in municipal government: A national survey. Public Administration Review. 123(4), 411-418.

Sanvido, V., Grobler, F., Parfitt, K., Guvenis, M., & Coyle, M. (1992). Critical success factors for construction projects. Journal of Construction and Engineering Management. 123(4), 411-418.

Sekwat, A. (1996). Use of capital budgeting decision models by county governments: A survey. State and Local Government Review. 28(3), 180-192.

Songer, A. D., & Molenaar, K. R. (1997). Project characteristics for successful public-sector design-build. Journal of Construction Engineering and Management. 123(1), 34-40.

Stumm, T. J., & Corrigan, M. T. (1998). City managers: Do they promote fiscal efficiency? Journal of Urban Affairs. 20(3), 343-351.

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