Tuesday, 3 March 2020

Is PDP the Way for Large Infrastructure Projects?

Cost overruns, delays, financing difficulty are all potential pitfalls for timely and cost effective completion of major infrastructure projects. To counter this, ambitious projects like U.K.’s Crossrail and South Korea’s HSR adopted the Project Delivery Partner (“PDP”) model to take on delivery risk from the Project Owner – usually the Government. Also, PDP manages the complexity of a large project. This was the rationale for the Klang Valley Mass Rapid Transit (“MRT”).

PDP manages the procurement process for all work packages jointly with the Project Owner and ensures quality and supervision of contractors. In the event any contractor fails, the PDP troubleshoots to ensure project delivery date and costs are within budget. The problem is whether the budget is slack enough to accommodate cost overruns anticipated in the future!

Why not PMC?

The conventional Project Management Consultant (“PMC”) route could have been used, but why then PDP? The PDP concept goes beyond PMC due to project’s magnitude, complexity, stakeholder management and sole responsibility to Project Owner (the Government). PDP’s fee (about 6% of project cost) is aligned to project’s completion and delivery. And hence the fee may be impacted if project is delayed or exceeds costs.

Recently, the Finance Minister announced the termination of the PDP for the Pan Borneo Highway Sarawak project. The project cost of RM21.9 billion is now reduced to RM18.8 billion. PDP cost “savings” is not 6% but a massive 14.2%. Is that real?

Perhaps, a clearer framework and an acceptable fee structure could help. Otherwise it seems to have an unsavoury taste for its role, especially when projects are huge but not popular with citizens.

1. PDP way to building public infrastructure, Adriana Mroon Ambrose, Borneo Post Online, 7 July 2017
2. Why is a PDP for RM46 bil PTMP ok? P Gunasegaram, Focus Malaysia, 18 Feb 2020

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