Explaining cost overrun in infrastructure projects A qualitative comparative analysis (QCA) of cost overrun in road infrastructure projects tendered as a public-private partnership Source: Dissolve Master thesis by Joël Goodijk Faculty of Spatial Sciences University of Groningen Environmental and Infrastructure Planning August, 2019 Explaining cost overrun in infrastructure projects A qualitative comparative analysis (QCA) of cost overrun in road infrastructure projects tendered as a public- private partnership Master thesis Environmental and Infrastructure planning Faculty of Spatial Sciences University of Groningen Student name: Joël Goodijk [email protected] Thesis supervisor: Dr. S. (stefan) Verweij Second supervisor: Prof. ir. W.L. (wim) Leendertse Internship at Rijkswaterstaat Afd. Grote Projecten en Onderhoud (GPO) - ICG Rijkswaterstaat supervisor: dhr. D. (danny) Zwerk 2 Abstract Cost overrun is common among infrastructure projects, and can be a result of different causes. There is a research gap in which configuration of conditions have an effect on cost overrun in public-private partnerships (PPPs). The conditions that will be used to analyze the outcome (cost overrun) are: (1) contract type; (2) type of stakeholder management; (3) proper risk allocation; (4) project size. The research method is a qualitative comparative analysis (QCA). In this research, 10 projects from the project database of Rijkswaterstaat were analyzed. The results indicate that D&C contracts in combination with an improper risk allocation and a relative small project size (between €120 million and €410 million) lead to cost overrun. The results also give a solution for cost underrun, consisting of two solution terms. The DBFM contract in combination with process management and a proper risk allocation, and a DBFM contract with a proper risk allocation and a large project size lead to cost underrun. The outcomes are relevant for Rijkswaterstaat, because it confirms the efficiency of the DBFM contract (in combination with other conditions). However, no strong conclusions can be drawn due to the limited amount of cases of the QCA. 3 Contents Abstract .............................................................................................................................................3 1. Introduction ...................................................................................................................................6 1.1 Background of the research ......................................................................................................6 1.2 Scientific relevance and connection to theoretical debate .........................................................8 1.3 Research objective ...................................................................................................................9 1.4 Research design ..................................................................................................................... 10 1.5 Reading guide ........................................................................................................................ 10 2. Theoretical framework ................................................................................................................. 11 Infrastructure .............................................................................................................................. 11 2.1 Cost overrun .......................................................................................................................... 11 2.2 Contract type ......................................................................................................................... 12 2.3 Stakeholder management ....................................................................................................... 15 2.4 Proper risk allocation.............................................................................................................. 17 2.5 Project size ............................................................................................................................. 19 2.6 Conceptual model .................................................................................................................. 21 3. Methodology ............................................................................................................................... 22 3.1 QCA ....................................................................................................................................... 22 3.2 Case selection ........................................................................................................................ 23 3.3 Data collection ....................................................................................................................... 24 3.4 Operationalization and calibration .......................................................................................... 25 3.4.1. Cost overrun ....................................................................................................................... 25 3.4.2. Contract type ..................................................................................................................... 28 3.4.3. Stakeholder management ................................................................................................... 29 3.4.4. Proper risk allocation .......................................................................................................... 32 3.4.5. Project size ......................................................................................................................... 34 4. Results and analysis ..................................................................................................................... 37 4.1 Cost overrun and cost underrun with first calibration of project size................................................. 37 4.1.1 Total cost overrun ............................................................................................................... 37 4.1.2 Negated total cost overrun .................................................................................................. 39 4.2 Analyses of cost overrun and cost underrun with second calibration of project size ................................. 40 4.2.1 Total cost overrun ............................................................................................................... 40 4 4.2.2 Negated total cost overrun .................................................................................................. 42 5. Discussion and conclusion ........................................................................................................ 44 5.1 Main findings and relation to the cases ............................................................................................... 44 5.2 Relation between the findings and theory .......................................................................................... 45 5.2.1 Contract type ...................................................................................................................... 45 5.2.2 Type of stakeholder management ........................................................................................ 46 5.2.3 A proper risk allocation ........................................................................................................ 46 5.2.4 Project size .......................................................................................................................... 46 5.3 Research questions .............................................................................................................................. 47 5.4 Practical relevance ............................................................................................................................... 49 5.5 Theoretical relevance ........................................................................................................................... 50 5.6 Limitations and reflection of the research ........................................................................................... 50 6. References ................................................................................................................................... 52 7. Appendices .................................................................................................................................. 56 Appendix 1. Questionnaire stakeholder management and risk transfer ........................................................... 56 Appendix 2. Clusteranalyses cost overrun ......................................................................................... 61 5 1. Introduction 1.1 Background of the research Infrastructure, including road infrastructure, is a large expenditure of the national government. Cantarelli, Flyvbjerg, Molin, & Van Wee, (2011) argue that investments in infrastructure are a considerable burden on the national gross domestic product (GDP). The Ministry of Infrastructure and Water Management has spent annually between 7 and 9 billion euro’s recent years (CBS, 2018). The executive agency of the national government, Rijkswaterstaat, is responsible for the main road network in the Netherlands. Flyvbjerg (2003) in Cantarelli et al. (2010b) indicates that in 86% of the infrastructure projects, there appears to be cost overrun, with an average overrun of 28%. In addition, a review by Morris and Hough (1987), which covered about 3500 projects, revealed that cost