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Going over the same ground? Photo: mihalec / Shutterstock.com.
Going over the same ground? Photo: mihalec / Shutterstock.com.
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Return of the Killer Zombie Projects

Nick Balmer

12th December 2013

The UK's £375 billion 'National Infrastructure Plan' is dominated by long-failed Zombie Projects, says civil engineer Nick Balmer. Not just a huge waste of time and money, they distract from the important task of rebuilding Britain for the 21st century.

We believe that many of these projects are dead in the water. That probably suits our current politicians.

Looking at the list of "new" projects in the Government's 2013 National Infrastructure Plan, one thing strikes me very forcefully: most of these projects are not at all new.

In fact many of the projects on the list are ones where I first met the promoters a decade or more ago. Quite a few of these projects were not viable then, and most are unlikely to have become viable today. They are the Zombie Projects.

A vicious cycle of failure

Throughout most of my 40-year professional life I have been heavily involved in business development and in bidding for major civil engineering companies, and it really troubles me to see the process creating the same old vicious circle of failure.

It is a characteristic of our system that almost all projects follow the same process. Firstly a driven individual, or small group of like-minded people often reaching the final years of their careers get a good idea.

It gets taken up by a group of like-minded investors, and they are able by self-funding or pro bono work able to get to a point where it goes to planning and out into the public domain.

It is at this point that so often that it all starts to go pear-shaped. Suddenly a whole series of publically funded official stakeholders become involved in the project. But they are only interested in the process, and not the final outcome.

Pen pushers paradise

Indeed in many cases these stakeholders give the impression by their actions that they would rather the outcome was held at bay for as long as is possible. If they hadn't got this project to take up their desk, they would have nothing else to do with which to justify their existence - and their smooth progression towards a civil service tax payer funded index-linked pension.

This process all costs money, indeed far more money than the original promoters would have ever conceived to have been possible when they started out. Indeed if the public understood just how much this process costs developers, they would appreciate that the final cost to society is far higher than mere civil servant salaries.

Business cases generally do not fail by large margins. It is usually a percent here, or a couple of percent there, that is all causes them to fail. This percentage is very often represented by the additional cost of dealing with the bureaucracy.

At this point the project stalls and enters into a spiral of decline. Numerous consultants are now believed necessary by all concerned. This is another really serious quagmire for developing projects. Consultants are key to many members of local authority and government agency staff surviving in their posts.

These local staff do not usually have the expertise to make an informed decision, and have in any case been trained over many years not to go outside the guidelines and policies. Above all they learn never to take a decision for which they could possibly be seen to have been accountable if they can possibly avoid it.

Roll in the consultants

Here is where the consultant comes in. Not to take the decision, but to act as the lightning conductor taking away the blame if the decision proves to have been wrong. "It was what I was advised to say."

The consultant has had to bid in competition against others for the role. In order to win he has had to bid as low as he or she possibly dared. He only makes a tiny margin on an hourly or daily rate.

His motivation is wherever possible to increase the number of hours he and his team work on any job. This has to be achieved by stealth because it cannot be seen that the consultancy has caused the need for these additional hours.

There are however lots of tried and tested tricks in his armoury with which to achieve this extended role, not least of which is to provoke unhelpful interventions from other government stakeholder bodies.

This generates long and entirely pointless formalistic correspondence which dances around the point, spinning out for months. With a bit of luck a £100k one-year commission can be spun into three years and £1 million.

But now the Zombie Project has a life of its own

By now the original promoters of the project have lost all momentum, the will to live and have become discredited in the eyes of their own organisations, so they get retired early.

Yet this doesn't destroy the project because by now it has developed a zombie life of its own. It is too valuable as a source of patronage, work and funding for a whole series of parasites, who hang off its moribund structure.

The business plan is now no longer fundable by commercial loans. It is 10% or more outside its funding envelope, and it has become apparent that it will only be viable if government fills the gap, government itself has caused by its involvement in the project.

But the politicians are happy

This leads to yet more delay but generates yet more fees and consultancy work. This is where the politicians come in. This is why zombie projects work so well for them. They are desperate to fill the news agenda, however they are lacking the funds with which to do it.

What is the point of committing to a project that will take five years to build? Ministers are in power for two years at most, and governments five years. The man in the opening photo will not be the minister who approved the original project, but somebody else, and most probably from the other rival party.

This is where the Zombie Project really comes into its own.

Ten million pounds looks like a lot of money to most poorly informed voters. In reality it is a drip in a ocean in the scheme of things.

Big ministers are only big ones because they have large budgets, and more staff than their rivals. They need these mega projects to big up their status. These relatively small percentage stakes can be spun into much larger investment figures, by quoting the much larger total CAPEX, and this looks even more impressive if you add in some OPEX to the CAPEX!

Nearly all the projects on this list are zombies. I and many of my colleagues in the contracting industry have been following there progress and in some cases bidding more than once for some of these projects for the past two decades.

Zombies bleeding profits and pensions

Sometimes Zombie Projects - like the A14 - have even been awarded to contractors, and site huts erected - but even then they were stopped. It routinely costs contractors £1-2 million by the time we win one. We are unlikely to win more than 1 in 4 of the projects we bid for.

This means that we have to get back about £6 million from each successful bid we win just to pay for bidding for that one plus the other three we missed.

This represents a huge waste of human effort and skill. Bidding teams are made up of anywhere from 5 to 25 highly skilled solution providers, and three quarters of their life is spent on completely abortive work. Most of us could be solving many major issues for society like the energy gap, flood alleviation and transportation.

Bids involve from three to four times more resources, time, money etc. than they did a decade ago. This is not giving value for money, and is not sustainable.

A typical large UK contractor will turn over annually in excess of £600 million in order to make a return to shareholders of about £24 million. It is easy to see that it is hard to justify spending £2 million on a bid, spending money which would otherwise have been part of the shareholders return. These shareholders are generally not 'fat cats' - they are more likely to be our pension funds.

As my generation of senior UK contractors have already been burnt once by many of these Zombie Projects, we will be very reluctant to be burnt twice. We believe that many of these projects are dead in the water.

The value of a politician's promise?

That probably suits our current politicians. They can make a 'big bold statement' knowing that in reality only insignificant sums could possibly be spent in the remaining term of the existing government. These projects would not in any case be opened before 2017, and in many cases until 2021. They are promising things they never expect to deliver.

And yet Britain desperately needs its infrastructure renewed if it is not to slip further and further behind the rest of the world.

 


 

Nick Balmer is a Bid Manager for a major UK construction company. In recent years he has worked for several UK contractors and his personal views represented above are based on his observations and experience with more than one of them. He has worked in the UK and abroad since the 1970's in the renewable energy, waste, environmental, rail and roads sectors.

 

 

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