The Channel Tunnel (Chunnel)Project Case Study

By Juan Rios

Background

0An underground tunnel connecting England and France.

0The largest privately funded project ever undertaken. 0Bankers underwriting the funding for the project.

Project Proposal

0A 32-mile (51.5 km) double-rail tunnel0Will accommodate through-trains & special car-and-

truck-carrying shuttle trains.0Their bid was US$5.5 billion.0The country with the highest standard would prevail.

New Technology

0New technology being used.0State-of-the-art laser and computer tech.0The Chunnel project was completed but it was late

and over budget.0The new technology required significant

modifications during the project due to unexpected conditions and changes required by various parties.

Phases for the Project

01-Inception-Historical background, overall objectives, political climate, and pre-feasibility studies.

02-Development-Overall planning, feasibility studies, financing, and conceptual design.

03-Implementation-Detail design, construction, installation, testing, and commissioning.

04-Closeout-Reflection on overall performance, settlement of claims, financial status, and post-project evaluation.

Inception Phase

0The ideas was to create a fixed transportation link between England and France.

0This would create a spur of economic development.0 Improve trade using the new alternative high-speed

transportation.

Ground Rules & Time Line

01974- Initial tunnel ideas gather but abandoned.01978-British & French discussions resumed.01983-Frensh & British banks & contractors propose

tunnel scheme.01984 British and French agree to common safety,

environmental, and security concerns.

Ground Rules & Time Line

01985-French & British governments ask for fixed-link proposals.

01986 The project was awarded to Channel Tunnel Group/FranceManche a.k.a. Eurotunnel and declared owner of 55-year concession for the link.

Ground Rules & Time Line

01987 the “Concession Contract” was awarded to Channel Tunnel Group/FranceMache (CTG/FM) bid for US$5.5 billion and ended on Dec. 15, 1994 with a fully operational station.

0The project was 19 months late and had a cost overrun of some US$3 billion (total construction cost of US$7.1 billion).

0On 1 December 1990, Englishman Graham Fagg and Frenchman Phillippe Cozette broke through the service tunnel with the media watching.

The Implementation Phase

0Not agreeing in details resulted in eventual delays and cost overruns.

0Warning signs of rolling stock had not yet been designed (vehicle and freight cars).

0No contingency was set aside to cover “unknown unknonws” (Ventilation system).

0The specifications for British rolling stock and French rolling stock were not the same.

The Implementation Phase

0With costs out of control, fixed-priced contract were awarded to contractors in order to have any chance of winning the bid and not risk losing the bid to next lowest bidder.

0Contractors assumed an optimistic case, and since underground construction is rife with changed conditions.

Early Problems

0No air-conditioning was included costing US$200 million more.

0The Intergovernmental Commission (IGC) approved designs that weren’t within the original concession agreement.

0Thus indicating possible problems with initiation and planning.

Early Problems

0The lack of defined scope makes resource planning, cost estimating, and budgeting difficult.

0Return on Investment (R.O.I.) assumptions made in the planning stages may not prove accurate. Leaving a trail of unhappy investors and stakeholders.

Early Problems

0From US$5.5 Billion to US$7.1 Billion0Ongoing safety requirements changes sought by ICG

continued to create negative impact. 0Not enough was understood to limit the impact of

known and unknown risks.0Contractual errors were made in the estimates and

risk allocation method, costing additional US$2.25 billion.

Early Problems

0Passenger doors be widened from 600mm to 700mm. Cost increase from US$9 million to US$7O million.

0Objectives of a project need to be identified and communicated clearly from the beginning. This was the largest and most damaging failure of both governments.

Early Problems

0By not having the real goals, objectives, and scope defined early, and by not implementation a contract method that directly linked the rewards to contractors at all levels of the procurement chain to those objectives.

0The project was essentially run by bankers.

Finances

0The Chunnel project had to be financed through private sources without government aid or loan guarantees.

0The government was prohibited from regulating prices except in monopolies.

0Financing was pursed via equity and loan capital markets.

Finances

0Most shareholders seeking equity interest were mostly in France and eventually Britain.

0206 banks world wide participated with the loan. 0The refinancing had to be pursued, should negative

variances in time and cost estimates occur.

Success From a Project Management Perspective

0Contracts are a critical part of the procurement management process.

0Contracts define the scope of work, cost, timeline and rules of engagement.

0Risk planning and mitigation needs to be ongoing part of each project.

0The hope is that most material risk are identified, quantified, and prioritized early enough so that an effective risk response strategy can be establish.

Success From a Project Management Perspective03 tunnels total North, South, and Service.046 contractors were hired.0The tunneling itself was finished 3 months ahead of

schedule. 0Each team member has a responsibility for quality.0Quality requirements were mostly defined up-front,

quality planning, quality assurance, and quality control.

Success From a Project Management Perspective0Team work was necessary to complete this project.0 It was estimated that 15,000 workers were employed

on the project. 0From a P.O.V. quality management was a success.

The Development Phase

0Consisted of detailed planning, communication, agreements, and government approvals.

0A large part of the struggles were do to inflexibility of some characteristics of the project, and cross-cultural exchange between 2 countries.

The Development Phase

0A scope creep played a large part in the substantial increase from its initial cost estimates, and its completion behind schedule.

0The scope was not fully assessed and the proper precautions to prevent scope creep weren’t put in place.

0The project team were able to understand the complexity and were able to use previous research on the soil, but in the end, the lack of continued focus on the scope resulted in the frustrations of trying to do too much.

Closeout

0The completion of the project was rushed to allow operations to begin before the entire effort was completed.

0The tunnel was actually completed.0Teamwork and communication were broken down

into several key areas.

Financial Issues during Closing

0Focused on minimizing their losses, refused to accept negotiated arrangements for settling some of the key contracts disputes.

0 International Chamber of Commerce was involved with helping the various competing sides to bargaining table in an attempt to resolve key portions.

From a Management P.O.V.

0Even with a high-level design and respective rough-order-of-magnitude estimates were appropriate.

0 In 1996 the American Society of Civil Engineers identified the tunnel as one of the Seven Wonders of the Modern World.

Rating Scale: 5-Excellent, 4-Very Good, 3-good, 2-poor, 1-

Very Poor

Project Management Area Implementation Phase

Scope Management 3Time Management 1Quality Management 3Human Resource Management 5Communication Management 2Risk Management 4Procurement Management 3Integration Management 2