How Can Clients Improve the Quality of Transport Infrastructure Projects? The Role of Knowledge Management and Incentives

Abstract

The aim of this paper is to argue for a number of statements about what is important for a client to do in order to improve quality in new infrastructure projects, with a focus on procurement and organizational issues. The paper synthesizes theoretical and empirical results concerning organizational performance, especially the role of the client for the quality of a project. The theoretical framework used is contract theory and transaction cost theory, where assumptions about rationality and self-interest are made and where incentive problems, asymmetric information, and moral hazard are central concepts. It is argued that choice of procurement type will not be a crucial factor. There is no procurement method that guarantees a better quality than another. We argue that given the right conditions all procurement methods can give good results, and given the wrong conditions, all of them can lead to low quality. What is crucial is how the client organization manages knowledge and the incentives for the members of the organization. This can be summarized as “organizational culture.” One way to improve knowledge and create incentives is to use independent second opinions in a systematic way.

Explaining cost overruns in infrastructure projects: a new framework with applications to Sweden

“…This is not explicitly included in Flyvbjerg's framework, but can of course be an explanation for initially proposing a design that later will be found not to work, or the explanation for mistakes in a procurement document that later leads to extra cost, or an explanation for why geotechnical investigations were not carried out in a satisfactory way. There is currently a discussion about the importance of knowledge management in organizations (see, for example, Warsame et al, 2013) and this indicates that lack of competence can be an explanation for cost overruns in a specific project. (4) Finally, there can in any project be genuinely unexpected events, and cost overruns can then be seen as caused by bad luck.…”

“…○ If cost overruns occur in the earlier stages because of a combination of design changes, price changes and underestimated amounts of inputs, there might be a suspicion that a combination of strategic behaviour and optimism bias is the explanation. A possible measure could then be to systematically use independent third party reviews of plans and calculations (see Warsame et al, 2013). ○ If cost overruns occur late in projects during the construction stage, then maybe the procurement documents and the type of procurement chosen should be reviewed.…”

“…• By continuously making data about the project's development available to the public, including data presented in our proposed descriptive framework, with information about who is responsible, it is possible to reduce the risk of strategic behaviour and optimism bias. High transparency reduces the risk of this type of behaviour, as discussed more in detail in Warsame et al (2013). • Flyvbjerg (2008) proposes something called 'Reference class forecasting'.…”

Policies to Avoid Cost Overruns in Infrastructure Projects: Critical Evaluation and Recommendations

“…Mandell and Brunes (2014) show that there might be a rational and efficient procurement process that cause side-effects in which cost overruns might occur. As argued in Warsame, Lind & Borg (2013) the quality of the final product is of course also important.…”

Framework for Structuring Procurement Contracts

“…Eriksson & Hane 2014). Warsame, Borg and Lind (2013) however, question whether finding such relationships is really possible. How a certain model works in a specific situation depends on the skill and experience of the parties involved.…”