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Archive for the ‘Governance’ Category

When public projects get too risky

Posted by David Kassel on April 10, 2011

In the March/April issue of Public Administration Review, two academic researchers describe an extraordinary breakdown in public sector management.

In “Waste in the Sewer: The Collapse of Accountability and Transparency in Public Finance in Jefferson County, Alabama,” Michael Howell-Moroney and Jeremy Hall detail a highly risky debt scheme that county officials engaged in, hoping to finance a major sewer project without raising sewer rates.  It didn’t work.

The scheme involved the county’s use of auction rate debt and financial derivative instruments known as rate swaps — yes, the same types of instruments that fueled the subprime mortgage crisis.  The whole thing went awry when the national mortgage crisis hit; and, as of the writing of the article, Jefferson County was on the verge of bankruptcy, unable to pay service on $3.3 billion worth of sewer debt.  Jefferson County is relatively small by national standards, but it holds the sixth highest level of debt of any county in the nation.  If the county were to go bankrupt, it would be the largest municpal bankrupty in U.S. history.

Howell-Moroney and Hall take us step by step through a thicket of poor judgment by private financial institutions, mismanagement and corruption by state and county officials, and a lack of adequate oversight by regulatory authorities.  They tell a compelling story, but it should be noted that  Jefferson County isn’t alone in engaging in risky financial and managerial schemes for public projects, although it appears to have dug itself deeper into a financial and legal mess than most. 

In recent years, municipalities around the country have resorted to novel and often complex financial and managerial arrangements in undertaking similar capital projects.  Often termed “public-private partnerships,” these are strictly business arrangements, and the long-term financial risks are often disproportionately placed on the public sector entities.

I discuss some of these cases in my book, “Managing Public Sector Projects,” such as that of Cranston, Rhode Island, which entered into a 25-year agreement with a contractor to upgrade its wastewater treatment system.  The agreement involved a $48 million up-front cash advance to the city to be paid back over the life of the contract.  Cranston projected it would improve its municipal credit rating due to the contract, but, in fact, the opposite occurred — its bond rating went down.  In the 10-year period following the 1997 contract signing, the city’s sewer rates jumped 55 percent.

In Lynn, Massachusetts, the sewer commission sought a legislative exemption in 1998 from the state’s public works bidding law to undertake a major sewer sewer system and treatment plant upgrade.  The commission ended up with a non-competitive solicitation process for sewer contractors that failed to identify beforehand the specifications of the sewer system it wanted.  The result was the approval of a proposal that was projected by the Massachusetts Inspector General to cost $22 million more than if the process had been competitively bid.

Jefferson County appears to have combined no-bid contracting arrangements with risky financing.  Program specifications were also missing in this case, and the county ended up approving numerous sewer projects that were found to be not required under terms of a consent decree with the Environmental Protection Agency.

To date, 21 Jefferson County employees and private contractors have been indicted by federal prosecutors in connection with the sewer program, according to Howell-Moroney and Hall.  Numerous no-bid contract and change orders were allegedly approved by county officials in exchange for bribes and other favors.  The $10 million to $20 million of additional costs found to have resulted from those alleged instances of fraud and mismanagement was then multiplied many times over by the debacle of the interest swap arrangements.

Howell-Moroney and Hall call for improved interest rate swap regulation and improved financial risk analysis by private-sector ratings agencies.  They also call on public agencies, such as Jefferson County government, to specify clearer goals and objectives in undertaking public projects.

These are worthwhile recommendations.  We’re finding out the hard way not only that there are no easy financial paths to follow in undertaking critically important public sector projects, but those who promise easy fixes are not to be trusted.

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The politicized presidency

Posted by David Kassel on August 9, 2010

Using the term “politicized presidency” might sound at first like an exercise in redundancy.

What presidency isn’t politicized?  But Donald Moynihan and Alasdair Roberts draw a distinction between “politicized” and “political.” 

In “The Triumph of Loyalty Over Competence: The Bush Administration and the Exhaustion of the Politicized Presidency”  (July/August 2010 issue of Public Administration Review), the authors make a case that the administration of George W. Bush went further than any others in history in subordinating hiring and decision-making to political considerations.

The result was a disaster, not only for Bush’s popularity toward the end of his second term and potentially for his legacy, but for the institution of the presidency itself.

The question the authors leave unanswered is how far the Obama administration intends to go, or has gone, to de-politicize the office of the presidency.  They point out that Barack Obama made an early effort to avoid shows of excessive partisanship, particularly in his decision to retain a Bush appointee, Robert Gates, as secretary of defense.  But politicization of the presidency may only be in remission, they say.

I would suggest that in one respect, Obama appears to have shown the same impulse as Bush and other recent presidents; and that is the impulse to reduce the power of career bureaucrats though privatization of governmental functions.  (See Rick Cohen’s interesting series in The Nonprofit Quarterly on the Obama administration’s push for more privatization and free-market approaches in public housing services, education, and other governmental functions.) 

It may not be the case that Obama is pushing privatization for the same political-loyalty-inspired reasons as Bush.  But that may not make a lot of difference to the career employees who lose their jobs as a result.

Moynihan and Roberts state that starting with Andrew Jackson, the decision to politicize a presidency has been connected with a distrust of the federal bureaucracy and of career employees, who are seen as hostile to presidential goals because of professional and ideological biases.  

They suggest at least three basic characteristics of a politicized presidency: 1) Expansion of the number of political appointees in the administration, with more weight given to loyalty than merit in hiring; 2) the transfer or termination of career officials in the bureaucracy who are deemed untrustworthy; and 3) the centralization of key decision-making in the White House.

It would be hard for Obama to top George W. Bush in the politicization arena.  Moynihan’s and Roberts’ article doesn’t provide new disclosures about  Bush.   But they put enough examples together that the case against the Bush presidency appears fairly persuasive.  We still clearly remember the debacle of the appointment of Michael Brown to head FEMA, for instance.  Brown and other senior appointees in FEMA lacked emergency management expertise, the authors note, but had “significant political campaign experience.”

Then there were the forced resignations of the U.S. Attorneys and the hiring at DoJ of politically connected yet inexperienced personnel such as Kyle Sampson, a classmate of Vice President Dick Cheney’s daughter, and Monica Goodling, who had been an opposition researcher for the Republican National Committee.  

Moynihan and Roberts also recount the case of Bradley Schlozman, a political appointee at the DoJ’s Civil Rights Division, who apparently had high-level personnel hiring and firing responsibilities there.   In email comments, Schlozman repeatedly referred to conservative applicants as “real Americans.”  He also wrote, regarding existing employees, that, “My tentative plans are to gerrymander all of those crazy libs right out of the section.”  He apparently had quite a bit of success in doing so.

And then there were the political considerations that colored the hiring of staff to manage the U.S. reconstruction efforts in Iraq.   Moynihan and Roberts rely heavily here on Rajiv Chandrasekaran’s excellent book, “Imperial Life in the Emerald City: Inside Iraq’s Green Zone,” for details on the White House’s insistence that job applicants in the reconstruction management effort be screened for loyalty to the Republican Party and the president.

As I point out in my own book, Managing Public Sector Projects,” the Iraq reconstruction has been marred by poor to nonexistent planning, shoddy and delayed project work, and a failure to properly account for billions of dollars in U.S. taxpayer money spent there.

In addition to hiring politically connected personnel, there is also the “assault on rationality in decision making” that the Bush administration engaged in as part of its politicization efforts.  These ranged from alterations by the EPA of scientific reports on climate change to opposition by the Food and Drug Administration to the vaccination of young women against the human papillomavirus, the most common sexually transmitted disease in the United States.

Moynihan’s and Roberts’ article might be no more than an interesting discussion of recent history, were it not that they ask the larger question whether the politicized presidency is on the wane or in remission.  The article also started me wondering whether some of the characteristics of politicization may have also spread to the private sector.

In today’s highly competitive job market, we hear, for instance, about applicants “dumbing down” their resumes in order to persuade potential employers that they won’t leave for higher-level opportunities when the economy improves.  In other words, are employers looking these days–as the Bush administration did a few years ago– for loyalty over expertise and experience?

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How government can regain the capacity to control and manage environmental disasters

Posted by David Kassel on June 11, 2010

On a recent segment of MSNBC’s “Morning Joe,” the folks around the table were discussing the federal government’s seeming inability to get BP to act with urgency and effectiveness in stopping the oil leaking into the Gulf of Mexico.

Much of the discussion, of course, concerned the damage to the environment that is being compounded daily by the spreading oil.  But there was also frustration expressed by just about everyone at the table at the government’s “loss of capacity” to do anything about it. 

It does seem that we used to be a “can do” nation that could win wars unambiguously, land men on the moon, and respond effectively to disasters.  But it seems we have lost much of our capacity in recent years, not only to accomplish great public undertakings, but even to manage the growing number of private sector actors that have moved in to fill the vacuum. 

Why is this?  Have we, in fact, become a “hollow state” in which public agencies have little ability left to do anything other than rubber stamp corporate activities, many of which seem irresponsible if not downright destructive?  From the reconstruction of Iraq to the Big Dig in Boston, we no longer seem to be able to control spiraling costs or ensure top quality in the results. 

In fact, the related managerial trends of privatization, decentralization, and deregulation have combined in the past couple of decades to reduce government’s capacity to act effectively in these instances.   The Government Accountability Office reported that while the amount of federal contracting rose by 11 percent between 1997 and 2001, the size of the federal workforce devoted to managing contracts decreased by 5 percent.   This phenomenon has certainly been true at the state and local levels as well. 

The late academic scholar Larry Terry pointed to a loss in “institutional memory” in government due to the departure of “institutional elders–those individuals who possess extensive knowledge, expertise, and valuable information about an organization’s history…”    Some of this governmental loss in capacity is the result of downsizing trends in government that took root in the Reagan years and continued during the Clinton years and during the presidencies of Bush 1 and 2.  The New Public Management, which was promoted by the Clinton administration, promoted “market driven management,” which advocated increased privatization of government services and the use of private sector practices and technologies within government.  

Meanwhile, countless politicians, from state legislators to presidents, have built their political careers on criticizing government as too big, bureaucratic, and ineffective.  The result, however, is that we now have a government in this country that may be a little less big, but still seems bureaucratic and even more ineffective. 

But that doesn’t mean we can’t undertake great projects anymore or that government is doomed to impotence in controlling  oil spills and other disasters.  Take the oil spill in the Gulf.  Government still has the capacity to act effectively in situations like that.  It simply has to act smarter. 

First, political leaders and public managers must resist the temptation to muddle through these crises with ad-hoc decisions that seem to change each day on the basis of news reports and polling.  The president needs to establish an environmental crisis team that can respond immediately to situations such as the oil spill, similar to the crisis team that advises him during national security emergencies.  

When an environmental crisis occurs, the president and his team must immediately develop a coherent plan for dealing with it.  That process must involve a careful analysis and definition of the problem the team is facing.  The president and all team members must constantly question their presumptions about the problem and its possible solutions.  From day one, such a team could have held a series of meetings in which they asked themselves: what methods of stopping the oil leak are likely to be the most successful and to stop it the fastest?  BP engineers and executives as well as outside oil industry and environmental experts should have been called in to the meetings. 

Many collateral issues should have been explored in the meetings as well, including the best options for cleaning up the already-spilled oil, the safety of the chemical dispersant being used by BP, and how the oil-capping and cleanup activities would be financed. 

The project plans that emerged from that process would have clear scopes of work for BP and others to accomplish as well as clear penalties for failure to meet the specifications.  Then, once the plans had been put into effect, the president and his crisis team would be well-positioned to monitor and assess the project activities in accordance with the plans. 

Both public and private-sector organizations have always suffered from a lack of systematic approaches to dealing with complex projects and sudden crises.  It’s all the more imperative that such approaches be developed and used by our current downsized public sector in our increasingly fragile world.

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Drilling and nuclear power are neither safe nor clean

Posted by David Kassel on May 3, 2010

[Cross-posted from Blue Mass. Group]

If there is one overriding lesson we can take from the ongoing oil rig disaster in the Gulf of Mexico, it’s that safety claims about energy technologies are likely to be empty.

I’m talking about both drilling for oil off shore and nuclear power.  In recent months, both of these technologies have been characterized by their industry proponents as “safe” and “clean” because of advances in technology.  That safety claim was seized upon by President Obama, who has called for a renewed emphasis on developing both off-shore oil drilling and nuclear power as part of our nation’s energy policy.

Obama has specifically used the words “safe”  and “clean” in describing both nuclear and drilling technologies.

Announcing his off-shore oil drilling expansion plans on March 31,  Obama said:

I want to emphasize that this announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies on homegrown fuels and clean energy.

On February 16, in announcing his plan to expand nuclear power, the president said:

My budget proposes tripling the loan guarantees we provide to help finance safe, clean nuclear facilities – and we’ll continue to provide financing for clean-energy projects…across America.

Yet, even as Obama was announcing his plan for the expansion of nuclear power, his own Nuclear Regulatory Commission was warning that the latest technology for housing nuclear reactors is far from safe.  The Westinghouse design for the two reactors in Georgia that received the first loan guarantees announced by the president may not be durable enough to withstand earthquakes, hurricanes, or a direct airplane hit, the NRC stated.

Of course, we are now witnessing the growing natural disaster along the Louisiana coastline caused by the explosion of an oil drilling rig that boasted the latest “safe” technology.

It’s understandable that the president felt he needed to make concessions regarding oil drilling and nuclear power to conservatives in Congress in order to gain their support for his proposed legislation dealing with climate change.  But the disaster in the Gulf shows the price of that GOP support is too high to pay.

The president needs to rethink his plans for expansion of both off-shore drilling and nuclear power.  We can’t afford disasters in either of those realms, and we can no longer fool ourselves into thinking they can’t happen.

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New book cites government downsizing as cause of Big Dig, other problems

Posted by David Kassel on April 7, 2010

High costs and quality problems on public projects, from the Big Dig in Boston to the American reconstruction of Iraq’s infrastructure, are a direct result of government downsizing and related issues, including inadequate planning.

 That’s the key message of my new book, Managing Public Sector Projects: A Strategic Framework for Success in an Era of Downsized Government, which has just been published by CRC Press.

The book discusses a recurring pattern of reductions in public-sector managerial staffing since the 1980s and an increased reliance on contractors for project management.  

If you look closely at the Big Dig and at many of the Iraq reconstruction projects, you see an over-reliance on contractors for basic management functions that the government itself used to do.  Among the results are unclear lines of authority, lowered accountability, inequitable allocation of risk, higher costs, and poorer quality. 

The book points out that that the Big Dig, in particular, suffered from a range of managerial issues common to public projects in which key managerial functions have been privatized.  For instance, the state of Massachusetts relied on Bechtel/Parsons Brinckerhoff, the private-sector design and construction manager of the Big Dig, to undertake much of the project’s preliminary and even some final design work, oversee construction contracts, and supervise its own work.   Similarly, in Iraq, the U.S. Agency for International Development used the Bechtel Corp. both as a project manager and primary contractor.  Accountability and cost issues resulted in both instances. 

The  book also discusses quality problems on the Big Dig, in Iraq, and in many other public projects that have resulted from a desire to meet schedule goals without undertaking proper planning or adhering to what have often been traditional internal control practices.  The Big Dig, for instance, was plagued by a practice of proceeding with incomplete and inaccurate designs in an attempt to avoid schedule delays.   

Similarly, in Iraq, one cost-plus contract with Kellogg Brown and Root (KBR) contained more than $200 million in questionable costs because task orders and specifications were not even negotiated until six months after construction began on projects to restore Iraq’s oil infrastructure. 

The book discusses a number of successful public projects as well, such as the development of a new information technology system in the City of Seattle and the recent construction of a new public library in the Town of Harvard, Massachusetts, which were completed on time and within budget.  While the projects discussed in the book vary widely in scope and cost and were undertaken at all levels of government, my intent was to distill management practices that are common to successful projects as well as to projects that are problematic or unsuccessful.

The purpose of the book isn’t to assign blame, but rather to give public managers new tools to cope with downsized staffs and related problems and to bring their projects to successful conclusions.

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Managing Public Sector Projects is finally out

Posted by David Kassel on March 18, 2010

It’s been a long wait, but my book on how to successfully manage public projects is in print.

The book, “Managing Public Sector Projects: A Strategic Framework for Success in an Era of Downsized Government,” has been published by CRC Press.   The book is available on CRC’s website, and you can find it on Amazon and on other online sites.  

The book is intended to provide managers at all levels of government with tips and advice on how to bring public projects to completion on time and within budget, without sacrificing quality.  It’s filled with discussion of real-life examples of problematic undertakings, from the Big Dig in Boston, to reconstruction projects in Iraq.  There are some success stories in there as well.

In addition to keeping managers in mind, I’ve tried to gear the book to students in graduate-level courses in public administration.   I’m indebted to Marc Holzer, Dean of the School of Public Affairs and Administration at Rutgers University, for the great foreword he wrote to the book.

Also, I owe a debt of gratitude to Professor Evan Berman, editor of the American Society for Public Administration (ASPA) book series of which my book is a part.   There are many others who deserve thanks as well, and most are mentioned in the book’s acknowledgements.

Buy the book now, or wait until you can get a used copy.  And please let me know what you think.

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Why didn’t we learn from the last swine flu debacle?

Posted by David Kassel on October 28, 2009

The Obama administration may be facing a credibility problem due to its apparent inability to anticipate the current shortage of vaccine to inoculate millions of Americans against the swine flu. 

As the Washington Post noted,  the Obama administration officials had projected in July that companies would make 80 million to 120 million doses of the vaccine by this month. They outlined an aggressive response to the current flu pandemic and promised to inoculate every American.

But only about 16.5 million doses have become available so far, putting the administration in the uncomfortable political position of appearing unprepared for what President Obama declared last week was a national emergency.

The Associated Press reported that federal Health and Human Services Secretary Kathleen Sebelius was blaming the manufacturers, who provided “overly rosy” numbers on the amount of vaccine that would be available.  It seems the Centers for Disease Control, however, did not anticipate the slower-than-expected growth of the virus in eggs in the manufacturing process for the vaccine.

Why are these things such a surprise?  Why didn’t the administration assume that the production might be slower than initially projected?

In Thinking in Time, their book on presidential decision making, historians Richard Neustadt and Ernest May analyzed the Ford administration’s mistakes in the previous swine flu fiasco of 1976.   It makes for interesting reading today.  After I re-read their account of the fiasco, which is one of several case studies sprinkled throughout the book, it seemed to me at least some of the Ford administration mistakes  may have been repeated this time around.

There were, to be sure, many differences between the situations then and today — the main difference being that in 1976, the flu refused to appear outside of 13 cases in a crowded Army camp.  Today, the flu is spreading rapidly, of course.  Compounding  the credibility problem resulting from the lack of the flu in 1976 was a severe neurological side effect that was statistically associated with the vaccine.  The mass immunization program was stopped.  So far, no side effects have shown up associated with the new vaccine.

But Neustadt and May contend that had a flu pandemic actually occurred in 1976, the supplies of the vaccine would have been inadequate to cover anywhere near all Americans, as Ford had promised.  Had that been the case, the Ford administration’s credibility problem could have been far worse than it was.  Sound familiar?  

In March 1976, David Sencer, the head of the then Center for Disease Control, had recommended that a new vaccine for the swine flu be developed, produced, tested, and distributed in the next three months, according to Neustadt and May.  His projection was that innoculation efforts would begin after Independence Day and that everyone would be reached by Thanksgiving.   President Ford agreed to the program after he received an endorsement from an ad hoc panel of experts.

Sencer and other Ford administration officials failed to ask many hard questions, Neustadt and May contended, including questions about tradeoffs between side effects and flu, distinguishing severity from spread, and stockpiling.

Neustadt and May maintained that a key reason why the Ford administration’s loss of credibility may have been far worse had swine flu erupted in this country or abroad had to do with the limitations at the time on the supply of the vaccine.  The Ford administration had managed to inoculate 40 million Americans — an amount apparently far higher than what has so far been accomplished today.  Yet, in what now sounds prescient, Neustadt and May wrote:

For down at the low level where shots actually were given, everything depended on the ingenuity and skill with which state plans had been prepared and local services enlisted…all those would have intersected wth supplies of vaccine insufficent to inoculate adults once and children twice if the demand ran high…

Unfortunately, that appears to be exactly the situation we are finding ourselves in today.

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On polls about government and health care

Posted by David Kassel on September 8, 2009

The trouble with basing political decisions on polls, as many elected officials and politicians do these days, is that most polls don’t seem to be very good at measuring people’s real opinions. 

The reason may be that those opinions are likely to be mixed–even among the same people on the same issues.

For instance, a New York Times  poll in July found “a nation torn by conflicting impulses and confusion”  about health care reform.  In the poll, 75 percent of the respondents said they were concerned health care costs would skyrocket if the government didn’t step in to provide a health care system for all Americans.  Yet the same poll also found that 77 percent were concerned costs would go up if government did create such as system.

How do you base political and policy decisions on results like that?

That same confusion and ambivalence appears to characterize American’s feelings about government in general.   PA Times, a monthly publication of the American Society for Public Administration,  reported that 79 percent of Americans say they would encourage young people to work for the federal government.  This finding came out of a George Washington University Battleground Poll, conducted in July.  

Yet, according to the same poll, only 21 percent of the respondents had a great deal or a lot of confidence in federal civilian employees.

But before getting too discouraged about government, big business, newspapers, and HMOs fared as badly or worse in a similar poll conducted by Gallup in June, according to PA Times.  In June, Gallup asked a similar question about confidence in employees of several professions.  Among the following institutions, the level of confidence held by respondants was:

Newspapers (25 percent), TV news (23 percent), banks (22 percent), organized labor (19 percent), HMOs (18 percent), Congress (17 percent), and big business (16 percent).  On the other end of the spectrum were the military (82 percent), small business (67 percent), the police (59 percent), and organized religion (52 percent).

The question Gallup asked was:  “Thinking about the civilian employees of the federal government and your view of them, would you say that you have a great deal of confidence, a lot of confidence, some confidence, or very little confidence in these employees?”   The George Washington University poll excluded the military, which tends to draw higher public confidence than other institutions.

This type of question and the responses to it illustrate some inherent weaknesses in polling.  People’s feelings and beliefs about these issues are clearly mixed.  They are based on presumptions that may not always be examined or questioned.  On the one hand, the George Washington University poll shows that people have little confidence in the federal workforce.  Yet, they endorse it as a profession for young people.

Similarly, polls, such as the Gallup poll, show people hold Congress in the lowest esteem among practially all institutions.  Yet, late last month, we saw an  outpouring of public emotion at the passing of Senator Ted Kennedy,  albeit a famous and unusually productive member of Congress.

Like statistics, polls can be made to say just about whatever you want them to.  We should pay far less attention to them than we do.

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A role for nonprofits in the subprime crisis

Posted by David Kassel on July 21, 2008

Nonprofits have come off looking a lot better in the subprime mortgage scandal than their counterparts in the for-profit banking industry and the federal government, says Rick Cohen of The Nonprofit Quarterly

Cohen maintains that community development corporations (CDCs) and other nonprofit housing development organizations have been careful not to push new homeowners into risky mortgages.  And while the federal government has largely been interested in protecting investors, nonprofit organizations have been busy, trying to help homeowners in trouble. 

Cohen cites the work already done of groups such as Neighborhood Assistance Corporation of America (NACA), which he contends is “among the most aggressive and most successful national nonprofits engaged in refinancing the mortgages of families facing subprime-induced foreclosures.”  In addition, the Center for American Progress in partnership with Enterprise Community Partners has proposed the Great American Dream Stabilization (GARDNS) Fund, to be capitalized by a $10 billion Community Development Block Grant appropriation.  The fund would be used to help low and moderate-income homeowners purchase foreclosed and abandoned properties.

As a January report on the GARDNS Fund plan by the Center for American Progress notes:

…debating whether subprime borrowers were more at fault than unregulated mortgage companies is no more productive than arguing about whether the negligent camper or the neglected forest clearance practices contributed more to the rapid spread of a wildfire-
the first order of business is putting out the fire before it consumes more homes.

Cohen also suggests in “How Foundations Can Heal the Housing Crisis,” that nonprofit charitable foundations will have an increasing role to play in financing the rehabilitiation of abandoned properities across the country due to foreclosures.

Foundations can help now before federal money starts flowing, Cohen suggests, by providing grants to municipalities and nonprofits to begin rehabilitating properties and to manage rental units and rebuild neighborhoods.  Cohen maintains that:

now is the time for them (foundations) – and other organizations with vast tax-exempt endowments – to put billions of their dollars to work as a capital base for groups that are trying to stimulate new investments in financially challenged neighborhoods.

Cohen adds that smaller and medium-sized cities, in particular, that have been hit hard by the property-foreclosure crisis, don’t have access to large foundations with “signficant track records in housing and community-development investment.”

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How not to undertake a public project

Posted by David Kassel on July 14, 2008

(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 the Basrah Children\'s Hospital. March 2008, from SIGIR April 2008 quarterly report

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.

Posted in Governance, Oversight, Private, Public | Tagged: , , | Comments Off on How not to undertake a public project