CASE STUDY

CHAPTER

3 Budgetary Process

Case Study Guide

There are no right or wrong answers to a case study. A case study is a device used to encourage
thinking and analysis of situations by students. This guide provides some suggestions as to the
points that may be made by students. However, lecturers should use their discretion and give credit
to other acceptable answers which are relevant and helpful.

Building for the future

1 Identify the parties who are accountable in terms of the finances, management and programmes
related to the project.
The project involved the following parties, with different accountabilities:
– MMM Berhad and HGL Berhad—These were the contractors appointed for the construction
of the centre. The contractors were accountable for managing the project and ensuring the
completed project meets the required specification and standard set by the project owner.
The contractors are also accountable to the shareholders in ensuring positive returns from
the project. Hence, the contractors have to ensure that costs are properly monitored and
controlled.
– Federal government—The project owner who was accountable in terms of controlling the
quality of the project as well as the monitoring its progress.
– State government—Indirect stakeholder in the project since the project took place within its
locality.

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.
Factors the government may consider include:
• The main objective of the project and how it relates to the government’s strategic plan.
• The usefulness of the complex in terms of the number of residents who will be utilizing the
facilities provided and whether the facilities are what the local needs.
• The acquisition of land should not cause losses to any party.
• Future maintenance of the community complex, which will impact the future operating
budget. The sources of funds to support this cost must be decided.
• Additional costs in relocating the squatters, which also will impact future operating budgets.
• The ability of the selected contractor in completing the project.
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3 Explain the possible damages suffered by MMM Berhad from the contract termination. Do
you think MMM Berhad would win if the company decided to sue the government due to the
termination of the contract?
It would depend on the terms in the contract. A properly drawn contract would indicate what are
the responsibilities of both parties and the penalties for failure to execute their responsibilities.
Looking at the facts of the case, MMM Berhad was to develop an integrated complex that will
accommodate 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. Some of these are straightforward building works while others such as the
sports arena, mini theatre and business centre may require a specialized technical service.
Delays in construction can be caused by either party. If the delays were caused by slow decisions
or slow progress payments on the part of the government, MMM may have a case to sue. However,
there should have been some provision in the contract that foresees this eventuality thus giving
MMM some protection.
If, however, the delay is caused by MMM due to incompetent building works as well as project
management, then MMM will have to bear the blame. Possible damages include:
– Tarnished reputation—MMM Berhad could be blacklisted from future projects
– Financial losses due to cost overrun and inability to claim payment from the government.

4 Explain how the government should deal with the cost overrun.
The government should have done its due diligence and feasibility studies prior to building the
complex. On large or complex projects, different feasibility studies using different skills may be
required where various stakeholders and other third parties may need to be consulted in the
preparation of the feasibility studies.
The issues that need to be considered are, among others:
– Planning approvals need to be obtained. Although the municipal council is the one who is
ordering the project, nevertheless the government needs to consult those at the site to identify
unexpected challenges such as the squatters, access to the site from the road, soil condition,
etc.
– Budgetary allocation will need to take into consideration the construction company’s
experience, number of subcontractors involved, technical requirements, etc.
– Project scheduling or execution plan needs to take into consideration interdependence
between various contractors and work packages.