Introduction
Infrastructure is high on the agenda as Europe faces an investment bottleneck. EU-28 investment in infrastructure has been declining by 11 % since 2010 to below €400 billion in 2013 (Roland Berger Strategy Consultants 2015). There is a considerable gap between actual investment and the amounts needed to keep European nations competitive economies by international standards. Standard & Poors (S&P 2015) estimates €1 trillion investment needs in the EU member states for the next 3 years. To meet the investment needs, the European Commission introduced the “European Fund for Strategic Investments” (EFSI), an ambitious plan to attract €240 billion private investment in Europe’s infrastructure between 2015 and 2017 (European Commission 2015).1 The EFSI is intended to give the traditionally publicly financed infrastructure sector access to the liquidity of international capital markets. Many of the about 2000 infrastructure projects submitted for the EFSI are large—45 % are larger than €100 million in volume and 9 % are even larger than €1 billion (Roland Berger Strategy Consultants 2015). As a result, many infrastructure projects need to be delivered in Europe in the near- to long-term future.
A key reason for the lack of private investment is the high-risk nature of such large-scale infrastructure projects (Roland Berger Strategy Consultants 2015). Such ventures are often finished late and over the initially planned cost. According to Flyvbjerg et al. (2003), nine out of ten large-scale infrastructure projects face significant time delays and cost overruns while benefit shortfalls of more than 50 % are not unusual. With high initial investment in the planning and construction stage with no cash flow returns for years and risks of frequent time delays and capital-destroying cost overruns, infrastructure projects have been traditionally publicly financed, despite the opportunity of stable returns on capital (Roland Berger Strategy Consultants 2015). The risk factor of time delays and cost overruns is a problem of project delivery governance and the key dimension of this book. In order to analyze the issue of project delivery governance in depth, this book chose Germany as a case study.
Germany, Europe’s largest economy, has built up a backlog in infrastructure investment. S&P (2015) has calculated a €60 billion investment shortfall since 2004. According to the Cologne Institute for Economic Research (IW 2014), Germany needs to invest €120 billion by 2024 in transportation, broadband, and electricity infrastructure to remain a competitive economy. In addition, Germany has ambitious plans to significantly transform its national electricity infrastructure by introducing renewable sources of energy into its power generation fleet on a large scale (Energiewende). According to the German Institute for Economic Research (DIW 2013), this transition will require €31 to €38 billion per year until 2020. Germany, because of its size, centrality, and ambitious plans, is a key actor in European infrastructure policy and an important case to study failure and success in project delivery.
But so far, public budgets in Germany being constrained by tight fiscal rules do not plan for infrastructure investments of this size during the next 5 years. Against this background, time delays and cost overruns in visible public projects have been subject to heated controversy over the waste of taxpayer money and funds dedicated to infrastructure. Numerous large-scale public infrastructure projects such as Stuttgart 21, the Hamburger Elbphilharmonie, and the Berlin Brandenburg Airport (BER) have faced devastating criticism and mockery by the media and the public in recent years. While the problem of time delays and cost overruns is not new, the scale of recent failures in project delivery in Germany and Europe suggests an alarming trend, making it necessary for policymakers and academics to study the management and governance of large-scale infrastructure projects more closely. The particular questions this book seeks to answer are:
1.
How do the patterns of infrastructure project delays vary among sectors in Germany?
2.
What are the causes of these cost and time delays?
3.
What are the lessons for large-scale projects in the future?
To address the first question, we collected a database on large infrastructure projects in Germany from 1962 to 2015 and examined particular implementation patterns. In-depth case studies on the BER, the Hamburg Elbphilharmonie, and offshore wind parks help to address the second and third questions. We selected in-depth cases from different sectors—transportation, residential and commercial constructions, and energy—to analyze similarities and differences in the governance of infrastructure projects. Overall, the case of Germany includes various new forms of project delivery, such as public–private partnerships (PPPs), and draws particular attention to the risks and opportunities of ambitious first-mover or “pioneer” projects.
Patterns of Infrastructure Delivery
Large-scale infrastructure projects are typically megaprojects. A common definition is that megaprojects are “…large-scale, complex ventures that typically cost US$1 billion or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people” (Flyvbjerg 2014).2 Such projects can include a variety of types, ranging from industrial processing plants, oil and gas pipelines, and large dams to government administrative systems, mergers and acquisitions, and Olympic Games (Flyvbjerg 2014).
Research on various types of megaprojects has shown considerable differences in average cost overruns (see Table 1.1). For example, IT and ICT projects performance comparatively well on average, but they have a lot of outliers with drastic cost overruns. Such “black swans” with cost overruns over 200 % hit one out of six IT projects (Flyvbjerg and Budzier 2012). On the other hand, nuclear power plants and hydroelectric dams do consistently have extreme cost escalations. Sovacool et al. (2014a) have found an average cost overrun of 117 % in 180 cases of nuclear power plants. Ansar et al. (2014) have found an average cost overrun of 96 % for 245 cases of large dams. Other sectors, such as transmission lines, wind farms, and solar facilities, with average cost overruns of 8 %, 8 %, and 1 %, respectively, seem to have lesser problems with escalating costs and schedule slippage (Sovacool et al. 2014a).
Table 1.1
Existing research and average cost overruns
Category | Type of project | Average cost overrun (%) | Sample size | Study |
|---|---|---|---|---|
Roads | Motorway, trunk roads, local roads, bicycle facilities, pedestrian facilities, park and ride, bus lane schemes, and guided buses | 20 | 537 | Cantarelli et al. (2012) |
Rail | Metro rail, guided buses on tracks, conventional rail, and high-speed rail | 34 | 195 | Cantarelli et al. (2012) |
Fixed links | Tunnels and bridges | 33 | 74 | Cantarelli et al. (2012) |
Public buildings | Museums, signature architecture, hospitals, ministries, and maintenance works | 51 | 51 | Anzinger and Kostka (2016) |
Industrial projects | Oil and gas production, refining facilities, chemical processing, LNG, and pipelines | 24 | 318 | Merrow (2011) |
IT and ICT projects | National IT infrastructure (e.g. health or taxation), transportation IT, etc. | 27 | 1471 | Flyvbjerg and Budzier (2012) |
Nuclear power plants | 117 | 180 | Sovacool et al. (2014a) | |
Thermal power plants | Coal-fired, gas-fired, and geothermal power plants | 13 | 36 | Sovacool et al. (2014a) |
Large dam projects | Large hydropower, large irrigation, flood control, and multipurpose dams | 96 | 245 | Ansar et al. (2014) |
Transmission lines | 8 | 50 | Sovacool et al. (2014a) | |
Solar facilities | 1 | 39 | Sovacool et al. (2014a) | |
Wind parks | Onshore and offshore | 8 | 35 | Sovacool et al. (2014a) |
Olympic games | 179 | 17 | Flyvbjerg and Steward (2011) |
Infrastructure projects show considerable variation as well. Transportation infrastructure has received a lot of attention in the literature because, for example, roads, rail, tunnels, and bridges are typically large and complex because they involve multiple stakeholders. Since the groundbreaking work by Flyvbjerg et al. (2003) based a comprehensive database on transportation infrastructure worldwide, scholars have started to explore the phenomenon of megaprojects more systematically. Applying large datasets, statistical analysis, and case study research, Flyvbjerg et al. (2003) focused on the ...