Apples and Orangutans

The latest Grattan Institute Report Megabang for Megabucks has come in for quite some flack over its headline that governments should be driving a harder bargain on mega projects here in Australia.

As the debate unfolded, it seems to me we are all after the same thing but failing in our communication with each other.

My reflection on what the report really tells us is this:

Where projects are knowable (even if complicated), then traditional contract strategies work when well deployed. A project is knowable where it has largely been done before, it is possible to fully scope the project and understand the majority of the issues that will arise in the course of the project’s delivery. The authors of the report are quite right in saying that, in these circumstances, we can get better outcomes (and avoid renegotiation) by focusing on the basics - scoping, realistic pricing and disciplined contract management. 

Megaprojects, however, are by their very nature complex and have not been done before.  They are not knowable. Therefore:

• it isn’t possible for a contract to proscribe everything that the parties will have to address across the course of its delivery;

• at some point, that complexity will probably require the project to be re-negotiated (and by the way, we should perhaps stop treating this renegotiation phase as a negative given that it is a typical characteristic of mega projects); and.

• alliance or relationship-based contracts serve an actual purpose of providing a pathway for the parties to sensibly solve the renegotiation phase without resorting to litigation.

In my view we are miscommunicating with each other around our expectations about knowable projects versus unknowable megaprojects. 

My key takeaways from the report are then:

• If you are delivering a knowable project, best practice tells us that scoping, realistic pricing and disciplined contract management will drive better outcomes.

• Where you can, avoid megaprojects or break them up to mitigate the risks and consequences of delivering mega projects.

• And if you can’t avoid a megaproject, then their performance and outcomes should not be compared to what can be achieved on knowable projects. They are apples and orangutans.