Mini case study – Scottish Parliament: the £431mquestion

Scotland’s new parliament building cost more than 10 times theoriginal estimate and opened three years behind schedule.

Official cost estimates changed 10 times and ballooned from theinitial £40 million estimate to a final £431 million.

The procurement model chosen for Holyrood in early 1998 hasemerged as the root of the problem. A fast-track contracting methodknown as construction management was used to build the parliament.It works by splitting a large building job into numerous smallerpackages that are designed, tendered and let independently of oneanother.

Its main advantage is to speed up construction, because theoverall design does not have to be complete before basic buildingwork can begin.

It does not allow a client to know the total cost of a projectuntil well after work has begun. It is considered risky for theclient, which is responsible for running each individual package –in this case more than 60.

The project cost escalated from about £40 million in 1997 to£109 million in 1999, £241 million in 2001 and £294 million in2002, and finally £431 million in February 2004. There were 18,000design change orders over the five years of construction,combining

to form a three-year delay. Requests for design freezes on threeoccasions were ignored. The reality is that construction managementwas the only contract option for a client

wanting to make an early start on a project that was still atthe design concept stage.
It is also clear that this was a classic case of procurementexpertise being bypassed. The procurement department at theScottish Office was not involved in the project. It was

not consulted over the procurement model.
There is nothing wrong with construction management as aprocurement route. It is

best suited to high-quality, potentially high-cost projects,where the client is fully engaged, has a clear goal and worksclosely with the supply side team.

Some estimates put the money lost to delays and backtrackingover design changes at as much as £100 million. If one tradecontractor has a problem, it tends to ripple through all the othersand cause delay and changes. The contracts are with the client, sothe client picks up the cost of that.

However, between the extremes of fixed speedy constructionmanagement, a host of options exist under the heading of‘conventional’ procurement. Their structures affect the risk andcontrol over the final design that falls to the client.

The ‘design and build’ route would have seen the projectmanagement team drawing up a detailed design brief, which the maincontractor then builds. It leaves the contractor footing the billfor cost overruns, but freezes the design as well.

A middle-of-the-road option, prime contracting, keeps designmore open, but cuts the risk of costs going up if things go wrong.This is because a contractor joins the client’s project managementteam, and brings its entire supply chain of proven builders andsuppliers along.

Then there is management contracting, where the client retainsthe design brief fully and splits up the project into smallpackages to be individually let, as in construction management.However, a professional intermediary runs all of the contractors ona daily basis, although they are still contracted to the client,which pays for design alterations.

Management contracting may, it seems, have given a more stableframework to the project by introducing an industry expert to runthe many contractors.

Construction management was not the most suitable procurementvehicle. Sir Michael Latham, whose influential 1994 report,‘Constructing the Team’, called on the construction industry tomove towards partnering in the supply chain, says that fullpartnering should have been used to share the risk between clientand contractor.

Discussion Question:

1. What was the nature of the procurement including theorganization that conducted it and Who was involved in theprocurement?

2. What was the process followed (briefly)?

3. Critique the procedure indicating what went wrong and howcostly it was.

4. Suggest necessary improvements.