Building for the future 

 
Three years ago the government entered into a contract with MMM Berhad to build a
community complex at the selected rural area. The idea was to develop an integrated
complex that will accommodate classes for the local community, sports arena, a
recreation area, laboratories, a library, a mini theatre, a cafeteria, a common, a business
centre, consultation and counselling rooms, and offices. Various programs were planned
to be carried out at the complex, including career and technical classes, seminars and
discussion forums. The project is part of a master plan to expand community centres
within the country. The project was supposed to be completed within two years. 
 
At the start of the project, additional plots of lands were acquired because the reserved
land was too small for the project. The construction of the complex also faced resistance
from squatters. The squatters claimed that they have occupied the land for more than 25
years and have developed sustainable livelihood. Relocation would cause them to lose
their current way of life and increase the cost of living. After several meetings that took
place over two months, the squatters consented to be relocated. The government
agreed to pay each family RM2,500 in an ex-gratia package and RM300 in monthly
compensation. Thirty-eight families were then relocated to an apartment complex. 
 
However, the project suffered problems which cause numerous delays and cost overran
by our RM3.4 million, resulting in the termination of the contract with MMM Berhad.
Another company, HGL Berhad, was then appointed to take over the project. MMM
Berhad claimed to have completed 80% of the work and delays were due to late
approval of design, delays on the handover of the land and disputes over a variation
order. MMM Berhad threatened to sue the government for the damages incurred by the
company. 
 
Ten months ago, the statement issued a stop-work order on the project. The state
government claimed that the project was an environmental hazard. The clearing of the
land to build the complex caused landslides in the nearby villages. The construction was
delayed for another month to allow for installation of retaining walls. 
 
Questions;
1. Explain how the government should deal with the cost overrun.
2. A development project such as the rural community complex requires much
planning. Discuss what are the factors that the government may consider when
deciding to engage in this project.
3. Discuss the causes of the project delays and cost overrun. What could have been
done to avoid the delays and cost overrun?
4. What options are available to manage the squatters? Do you think the
compensation given to the squatters are justified?
The government need to have a good project planning, need to keep to the planned scope and keep
on monitoring the progress of the project  so that to prevent the overrun costs. More information is
given at the explanation box below. Have a look.

Step-by-step explanation

Overrun is said to be the cost that is being incurred which is more than the amount that was being
budgeted for by the planning team. These being the major problem that many projects do faces
relevant stakeholders have to look for alternatives so that to avoid the effects it brings such as
delays. Like in our case the government which is the major stakeholder needs to do things like;

1. Have a thorough project planning before starting the project. This will enable them  to carry
a survey and stand a point of knowing that the available space they are building the
intended projects are enough. Therefore, if they had done a survey before starting the
project, they could have not bought more land that made it to cost it more. Therefore they
could have not reached a point of dislocating people and use more money that was not  in
the budget to compensate for them. But if the government could have done a good plan,
they could have set aside more money that could have made these activities go on smoothly
without experiencing any overrun and delays.

2. The government need to keep the MMM Berhad  company which decided to take over the
contract and not replace it with the HGL company.  Because when they replace, some
delays are being experienced as both the government and the company should have some
agreement before they start doing the work. Therefore, they result in wastage of time and
some more resources are being wasted because the new company has to take some more
money to continue with the project. Therefore, in our case we are seeing MMM Berhad
company going to court because their contract has been terminated and yet they had
completed like 80% of the project. Therefore these means if the government loses in these
case they will be able to incur more costs that was not even planned because they have to
compensate the company as the court ruling will be.

3. The government needs to monitor some progress of the projects so that to ensure that
every coin that is put in place is used for it correct purpose. By doing so they can involve the
relevant stakeholders of the project and be able to know the problems when they arise
hence solve it with ease before the problem arises that can end up making the government
to spend more money. Therefore through that they would have prevented and helped the
government to remain on their projected scope.

2. Things they should consider

 
a. Location- they should first check the location. Look at what happened. If they check
the location, they should have known that there are squatters that should be relocated
and compensated.
b. Budget or Money- all areas of the project should be taken into consideration. Budget
for materials, labor, cost of the land etc. Lack of budget cannot push through a good
project outcome.
c.Manpower- of course, they must consider how many laborers they should get in order
for the project to be finished on time. 
d. Time or the project duration- it is very important to set or designate a certain period
when the project should be finished. Any delays incur additional expense. And in a
contract, it is a loss on their side.

e. Machine- of course it is important to know what equipment or machine should be

needed as this is also considered in budgeting.
 
 
3. The possible damages for me is the credibility of their company and of course the
losses in the contract. Yes. I think the company will win. First and foremost, the land
should be cleared by the government before the project started. It is the cause of all the
additional expense and delay of the project. 
 
 
4. One way to deal with budget overrun is to budget accurately. This is the key step,
budget transparency. All members should track expenses to avoid it to happen again.

1. The government may consider the following factors when deciding to engage in the
project:
 
 
- The need for the project in the community.
 
- The availability of land and resources.
 
- The financial feasibility of the project.
 
- The environmental impact of the project.
 
- The social impact of the project.
 
 
2. The project delays and cost overrun may be caused by the following factors:
 
 
- Late approval of design.
 
- Delays in the handover of the land.
 
- Disputes over a variation order.
 
- Poor quality of work.
 
- Inadequate planning.
 
 
3. The options available to manage the squatters are as follows:
 
 
- Relocate the squatters to another area.
 
- Provide the squatters with compensation.
 
- Negotiate with the squatters.
 
 
4. The compensation given to the squatters may be justified if they are relocated to
another area. However, if the squatters are not relocated, the compensation may not be
justified
 
Step-by-step explanation
 
The government may consider the following factors when deciding to engage in the
project:

- The need for the project in the community: The community complex is intended to
provide classes for the local community, a sports arena, a recreation area, laboratories,
a library, a mini theatre, a cafeteria, a common hall, a business centre, consultation and
counselling rooms, and offices. Various programmes are planned to be carried out at the
complex, including career and technical classes, seminars and discussion forums. The
project is part of a master plan to expand community centres within the country.

- The availability of land and resources: The project require additional plots of lands to
be acquired because the reserved land was too small for the project. The construction of
the complex also faced resistance from squatters. The squatters claimed that they have
occupied the land for more than 25 years and have developed sustainable livelihood.
Relocation would cause them to lose their current way of life and increase their cost of
living. After several meetings that took place over two months, the squatters consented
to be relocated. The government agreed to pay each family RM2,500 in an ex gratia
package and RM300 in monthly compensation. Thirty-eight families were then relocated
to an apartment complex.

- The financial feasibility of the project: The project suffered problems which caused
numerous delays and cost overran by RM3.4 million, resulting in the termination of the
contract with MMM Berhad. Another company, HGL Berhad, was then appointed to take
over the project. MMM Berhad claimed to have completed 80% of the work and delays
were due to late approval of design, delays in the handover of the land and disputes
over a variation order. MMM Berhad threatened to sue the government for the damages
incurred by the company.

- The environmental impact of the project: The state government issued a stop-work
order on the project. The state government claimed that the project was an
environmental hazard. The clearing of the land to build the complex caused landslides in
the nearby villages. The construction was delayed for another month to allow for
installation of retaining walls.

- The social impact of the project: The project was recently completed. However, several
issues were found with the complex. The buildings were of substandard quality, with
cracks appearing in the walls and water leakages in several areas. The corridors were
too narrow and the fire department refused to provide fire safety clearance. Turf was
also missing from the recreation area. Upon further investigation, it was determined that
the costs charged for landscaping was unreasonably high. For example, the cost of a
small shrub was quoted at RM250.
 
 
It is now uncertain if the community complex would ever be used or it will be abandoned
since it is not safe for use. Fixing the issues would entail more costs and no guarantee
that the building will get the required fire safety clearance and certificate of fitness (CF).
The issuance of the CF requires for the local authority or an officer authorized by it to
have inspected the building and that all essential services including access roads,
landscaping, car parks, drains, sanitary, water and electrical installations, fire lifts, fire
hydrants, and sewerage and refuse disposal requirements have been provided. Since
there has been a change of contractors, it is also uncertain if there is any recourse to the
ministry to get the contractors to fix the defects as each contractor may accuse the other
contractor to be the culprit.

The project has already been delayed by more than a year and the Malaysian Anti-
Corruption Commission has received complaints from the public regarding the project.
The Public Accounts Committee is considering opening an investigation into the project.
The project delays and cost overrun may be caused by the following factors:
 
- Late approval of design: The project suffered delays due to late approval of design,
which caused the contractor to incur extra costs.
 
- Delays in the handover of the land: The project was delayed due to delays in the
handover of the land, which resulted in the contractor incurring extra costs.
 
- Disputes over a variation order: The project was delayed due to disputes over a
variation order, which resulted in the contractor incurring extra costs.
 
- Poor quality of work: The project has been completed, but the quality of work is poor,
with cracks appearing in the walls and water leakages in several areas.
 
- Inadequate planning: The project was not adequately planned, resulting in inadequate
provision of essential services and poor quality of work

 The options available to manage the squatters are as follows:

 
- Relocate the squatters to another area.
 
- Provide the squatters with compensation.
 
- Negotiate with the squatters.
 
 
1. Relocating the squatters to another area may be the best option as it would allow the
construction of the complex to proceed without further delays. However, the squatters
may resist relocation and it would require the government to provide them with
compensation.
 
2. Providing the squatters with compensation may appease them and allow the
construction of the complex to proceed. However, the amount of compensation required
may be significant and it is uncertain if the squatters would accept the offer.
 
3. Negotiating with the squatters may be the best option as it would allow the
government to reach an agreement with them without having to resort to force or provide
compensation. However, the negotiations may be lengthy and it is uncertain if the
squatters would agree to the terms.
 
4. The compensation given to the squatters may be justified if they are relocated to
another area. However, if the squatters are not relocated, the compensation may not be
justified.

Question 2 (Case Study Continued)

Bleak future ahead

Despite all the above, the project was recently completed. However, several issues were found with
the complex. The buildings were of substandard quality, with cracks appearing in the walls and
water leakages in several areas. The corridors were too narrow, and the fire department refused to
provide fire safety clearance. Turf was also missing from the recreation area. Upon further
investigation, it was determined that the costs charged for landscaping was unreasonably high. For
example, the cost of a small shrub was quoted atRM250.It is now uncertain if the community
complex would ever be used or it will be abandoned since it is not safe for use, Fixing the issues
would entail more costs and no guarantee that the building will get the required fire safety clearance
and certificate of fitness (CF). The issuance of the CF requires for the local authority, or an officer
authorised by it to have inspected the building and that all essential services including access roads,
landscaping, car parks, drains, sanitary, water and electrical installations, fire lifts, fire hydrants, and
sewerage and refuse disposal requirements have been provided. Since there has been a change of
contractors, it is also uncertain if there is any recourse to the ministry to get the contractors to fix
the defects as each contractor may accuse the other contractor to be the culprit. The project has
already been delayed by more than a year and the Malaysian Anti-Corruption Commission has
received complaints from the public regarding the project. The Public Accounts Committee is
considering opening an investigation into the project.

Required:

a. Discuss the issues and causes of the delays and cost overrun.

b. Describe how outcome-based budgeting would have avoided the issues related tothe project.

Answer:

1) Discuss the issues and causes of the delays and the overrun

The project raised a number of issues.  The major issues being:

1. Resistance from squatters, who claimed they had occupied the land for more than 25 years and
developed sustainable livelihood from it.

2. Delays in the project caused cost overruns to the tune of more than RM 3.4million, which caused
the contract with the initial contractor, MMM Berhad to be terminated.

3. The clearing of the land resulting in landslides in nearby villages

 
Even after the project was finally completed through the second contractor, the following issues
came up:

4. Buildings were found to have quality issues and walls were developing cracks and water leakages

5. Fire safety and Certificate of Fitness were not issued for the building

6. The corridors were found to be too narrow

7. Turf was found to be missing from the recreational areas

8. The landscaping cost was found to be too high

9. Issues related to change of contractor began to surface

10. The Public Account Committee were considering an investigation into the project

2) Describe how outcome-based budgeting would have avoided the issues related to the project

According to the definition of Segal and Summers, performance (or outcome-based) budgeting

comprises three elements:

 the result (final outcome)

 the strategy (different ways to achieve the final outcome)

 activity/outputs (what is actually done to achieve the final outcome)  [1]

If this method of budgeting had been utilised, while it may not have impacted issues 1) to 3) so
much, it would have resulted in more positive outcomes than what has been revealed in the post -
completion analysis.

For instance, under issue 4) the problem would have been identified earlier as an analysis of the
outcomes would have been conducted at an earlier stage, rather than after the completion of the
project.

The same could be said for issue 5) where required safety and fitness certificates were not issued by
the issuing authorities due to problems that surfaced after completion.  Even 6) would have been
detected and rectified has such a budgeting method been followed.

Issue 7) regarding the missing turf, it could be a matter of the contractor neglecting to carry out part
of his requirements, in which case this too would have been highlighted earlier on with the use of
outcome-based budgeting. However, it could also have been an act of theft, which could have taken
place irrespective of the method of budgeting.

Where 8) was concerned, even this fact, that the costs were too high for landscaping would have
been revealed under this method at an early stage.