A new law forcing public sector bodies in Saudi Arabia to set up programme management offices is aimed at curbing huge cost overruns and delays.
But will it work?
Saudi Arabia has always been the jewel in the crown for international contractors looking to get into the Arabian Gulf’s construction market, despite frustrations with onerous contract terms and visa restrictions.
Figures produced by Meed for Deloitte’s 2015 GCC Powers of Construction report showed that the kingdom remains the most active market, with US$1.2 trillion (42 per cent) of the region’s total $2.8 billion projects either planned or underway.
Not only this, but until reports recently emerged about government ministries halting new contract awards and reassessing existing projects as a result of lower oil prices, the construction market was crying out for new entrants – so much so, that laws were passed late last year making it easier for foreign contractors to set up joint ventures with Saudi partners.
The reason for this was constrained capacity. There are only a handful of major Saudi contractors capable of carrying out the kingdom’s megaprojects, and their performance records in recent years have been patchy, at best. Huge projects such as the new $4bn terminal at King Abdulaziz International Airport in Jeddah and the $11bn Haramain high-speed rail link between the holy cities of Mecca and Medina are running years behind their original schedules and billions of dollars over budget.
It is with this in mind that the Saudi government recently passed a law that will set up a network of programme management offices (PMOs) to oversee megaprojects. A new body will be set up, overseen by the ministry of economy and planning, to help to establish and monitor compulsory PMOs within the kingdom’s 13 regional municipalities and about 45 to 50 central government departments and government-related entities. The law was passed at the end of August.
David Clifton, the regional director of cost and project management consultancy Faithful + Gould, says the potential benefits of PMOs had been talked about for years, but it was only until a decision was taken 18 months ago by the then-minister for economy and planning, Mohammed Al Jasser, that things started to happen.
“We were challenged by Muhammed Al Jasser to do things better,” says Mr Clifton. “[He] said, ‘You know how to do it, so how do you do it?’ That’s quite a refreshing outreach from someone of that level.”
Faithful + Gould, which is part of the UK firm Atkins, is one of a number of consultancies that worked with the kingdom to help create the framework, and which now hopes to benefit alongside other project management firms by advising the new PMOs.
Mr Clifton argues that the need for such bodies is clear, citing a PwC survey conducted among 130 Middle East project owners, contractors and financiers last year. Of these, 95 per cent said their projects were delayed, and 71 per cent said they were running over budget.
“There are a variety of reasons for that, but that’s not how it should be,” says Mr Clifton. “We accept that things can happen and there may be cost and time overruns, but we shouldn’t be that bad.”
Amer Khan, the KSA country manager for the US firm CH2M Hill, says PMOs represent a delivery method that has worked effectively in more developed markets for the past 20 years. He says they would be of particular benefit to the kingdom because they work through a centralised monitoring and control structure.
“We all know Saudi Arabia from its style of governance is quite centrally planned, so this is actually quite conducive,” says Mr Khan.
Nader Reslan, the Middle East transport and infrastructure industry sales director for the technology company Bentley Systems, says Mr Al Jasser’s keenness for PMO stemmed partly from a desire for building greater capacity.
“These projects come with excellent teams, advanced processes and so on, but they deliver [and go]. Then you go to the next phase or the next project and have to start all over again.”
Mr Khan says the skills element is vital for a country that is placing so much importance on a Saudisation initiative aimed at building skills among its own workforce.
“That’s very important for the country. If we can achieve the objective of retaining the knowledge gained through lessons learnt, then that can benefit multiple times over many different projects.”
He adds that some projects, such as Riyadh Metro, have already employed large teams of project management consultants, but adds that the new law should provide a governance and a clear set of priorities from the centre.
Mr Clifton agrees. “What we’ve seen with those that have tried to do a PMO is a lack of consistency in continuity. How ADA [Arriyadh Development Authority] is planning Riyadh Metro is not how Dammam is planning its whole programme.
“Also, the controls that are there don’t actually match from one agency to another.”
He says the new law will mean that “municipalities have to stick to a broadly similar set of frameworks to the other government institutions”.
Mr Clifton adds: “That’s what we’d like to see. Whether or not that comes to fruition, I don’t know.”
Steve Lankester, the director of integrated project delivery at WSP Parsons Brinckerhoff, says: “Having one body to develop and oversee a standardised approach to project management is a positive step towards ensuring international best practice on public projects, where coordination is always a challenge due to the scale and complexity involved.
“A standardised approach to delivery and contracting strategies, and managing risk, will go a long way to ensuring projects goals are met successfully in future.”
Although the law has been at least 18 months in the making, Mr Khan says its introduction is timely as it will help the Kingdom to re-prioritise – and to re-engineer projects.
“It will force the country to find more efficient ways of either delivering what they are committed to, or cutting back and still achieving functional objectives by doing things smarter.”
However, one area in which it may help could be funding, Mr Clifton argues. If, as a result of continued low oil prices, Saudi Arabia decides to fund more of its infrastructure projects using private finance, PMOs can help by bringing greater transparency to projects than there would have been if they were run by ministries.
“Liquidity wants transparency in governments, it doesn’t want opaqueness,” he says.
Despite this, experts agree that the PMO law would only have a limited effect unless other changes are introduced – specifically to labour laws to make recruitment easier and to procurement rules so that government shares more project risks with contractors.
“Thankfully, those things are already in process,” says Mr Khan.
“You can’t have a PMO law being delivered without a parallel improvement in procurement law.”
That, he says, coupled with a review of the labour law, is “absolutely key to our industry – to enable the Saudi government to attract the best talent and service providers to achieve its development goals”.
mfahy@thenational.ae
