How not to undertake a public project

(Part 2 in a comparison of public projects)

In the previous post on this site, I described a successful project to design and construct a new public library in my hometown of Harvard, Massachusetts.  It’s interesting to compare some of the key managerial decisions and actions in that case with a public construction project in Iraq.

Clearly, the construction of the Basrah Children’s Hospital in Iraq, now three years behind schedule, is being done under much more difficult conditions than was the Harvard town library.  Yet, many of the basic management decisions involved in these two public projects are the same.  The Basrah Children’s Hospital project in Iraq is an example of a public project beset by managerial problems, and in many ways it seems to symbolize the overall U.S.-led reconstruction effort in Iraq.

In August 2004, the U.S. Agency for International Development issued a job order to Bechtel National, Inc. to construct the 50-bed pediatric facility in the city of Basrah. The construction of the hospital was to be part of the overall U.S.-led effort to rebuild the Iraqi infrastructure following the invasion of the country in 2003. Congress authorized $50 million in funding for the hospital project, which was intended to improve the quality of care and life expectancy for women and children in that war-torn country. 

The hospital project was apparently one of some 20 projects being undertaken by USAID under a single $1.4 billion contract with Bechtel.

The scope of work was expanded in July 2005 to increase the number of beds to 94 and to upgrade the faciity to be an oncology center, according to a 2006 report by the Special Inspector General for Iraq Reconstruction.  The schedule and projected cost of the project, however, remained the same.  The hospital was projected to be complete as of December 2005.

According to a July 2006 report by the Special Inspector General, USAID’s accounting systems and processes were inadequate, and the agency failed to identify and report project costs to the U.S. Chief of Mission in Iraq and to Congress.  The Special IG noted that the completion date of the hospital had slipped by nearly 270 days as of March 2006, and the projected construction cost had risen to between $150 and $170 million.

Corner view of Basrah Children's Hospital, March 2008 (SIGIR)

 Here are some highlights from the Special IG’s report on the construction of the hospital through July 2006:

• USAID did not establish an appropriate program management structure for the hospital or for its other reconstruction projects.  The agency relied on one “administrative contracting officer” and one “cognizant technical officer” to manage the entire $1.4 billion in projects under contract with Bechtel, and never appointed a program manager with sole responsibility for the hospital project.
• Even though Bechtel briefed USAID in March 2006 that the hospital project was 273 days behind schedule, USAID’s report to Congress the following month reported no problems with the project schedule.  In addition, the agency continued to report the project cost as $50 million, even though Bechtel was estimating the cost at $98 million by April 2006.
• USAID did not include the installation of medical equipment in its cost estimate for the hospital.
• A consultant to USAID recommended that the agency discontinue Bechtel as the prime contractor for the hospital project.  The consultant, Louis Berger Group, projected that discontinuing Bechtel would reduce costs by some $8 million, primarly from the reduction in contractor overhead.

In the wake of the Special IG’s report, the U.S. Mission in Iraq transferred the the hospital project from USAID to the U.S. Army Corps of Engineers.  In addition, the U.S. Mission ordered Bechtel to stop work on the project, at least until the Corps of Engineers could take over management.

As of now, the hospital is still not finished.  An April 2008 quarterly report by the Special IG listed the project as 85 percent complete.  The total cost of the project, now projected to be finished by February 2009, is pegged by the Special IG at $163.6 million–a roughly 227 percent increase over the original cost estimate.

To me, a key difference between the hospital project and the Harvard town library that jumps out is the level of involvement by public managers in each case.  It appears there was a higher actual number of public-sector managers overseeing the construction of the $7 million Harvard library than were overseeing the entire $1.4 billion USAID reconstruction effort in Iraq, including the $163.6 million Basrah Children’s Hospital.