Background of the AWPR Project
Aberdeen Western Peripheral Route (AWPR) is a large scale highway construction project that was authorized by the UK government in 2012 and handed over contractors to three different contractors to complete the project in the three to four years time. However, failing to identify the issues associated with the project, Carillion, one of the contractors of the project underwent huge losses from the project and was ultimately liquidated (Braun 2010). As a result, the duty of execution of the rest of the project fell on the other two partners of the project. In order to reach the projected goals and business achievements, the company first needs to overcome the challenges in the AWPR project and complete the same within a short period of time as avoiding any losses. Since Carillion has been forced leave the project, Balfour Beatty has to invest more in the project including recruitment of more human resources who will be needed to drive the project towards completion (Stewart and Prebble 2003). Hence, it is evident that the upcoming business environment of Balfour Beatty is extremely challenging especially in the current state of the UK construction industry. The main error that the companies did in the AWPR project is that they ignored some critical elements and project management tools that are necessary for conducting such large scale projects. All the partners, especially Carillion failed to use any of such tools and just proceeded with the project for fast completion within the allocated budget. Hence, the failure in this project will act as lesson for future contractors to prepare suitable plans and follow proper project management models in order to achieve success in the projects.
In this report, the case of AWPR has been analyzed including the failure and liquidation of Carillion in order to determine what went wrong in the project and what the future holds for the remaining two partners for the project.
Background of the Case
This particular case is about the Aberdeen Western Peripheral Route (AWPR) project that was authorized in 2012 and three partner contractors were chosen to take care of the project within a specific timeframe and budget. However, the project was not even near completion at the deadline as works were continuously pushed back due to a large number of reasons. The final nail on the coffin was the recent liquidation of Carillion – one of the contractors associated with the project (Reid 2013). The problems of Carillion were multifold as they failed to complete any of their existing four projects and started losing huge amount of money due to lack of cash flow and timely progress of work. Finally, they were liquidated by the government due to lack of turnover and they had to stop working on the projects. However, Carillion was not a minor construction company; it was one of the construction giants in UK that had completed several high profile projects and was in course to complete a host of more projects (Ge and Polhill 2016). In spite of high net worth and annual revenue from the projects, the company failed to complete their last few projects in time due to a number of factors like contract issues, improper project planning issues, delay of work due to disputes and others. The liquidation of Carillion not only affected the entire project itself but also the other contractors who are associated with the project. Decisions have been taken that the other two contractors will still be associated with the project and complete the same within the next few months.
Liquidation of Carillion and Its Impact on the Project
In December 2016, the contractors uncovered the plan would be deferred and said the Balmedie to Tipperty area of the project would not be finished until next winter. The timetable had slipped on the grounds that key earthworks had not been finished before the beginning of winter, driving attempts to be put on hold because of potential natural dangers.
Balfour Beatty said it would not experience the points of interest of the amount it would need to contribute on the Aberdeen project, however said the crumple of Carillion could prompt extra costs of £35m to £45m for the firm general. Aberdeen Roads Limited has affirmed there are 76 Carillion staffs on the AWPR site and both Galliford Try and Balfour Beatty will offer occupations to permit movement of work on the project. The construction accomplices have reaffirmed their sense of duty regarding finishing the works (Route 2008). A Transport Scotland representative said there were 76 Carillion staff nearby and the two temporary workers would offer work to keep work going on the plan. Balfour Beatty and Galliford Try uncovered they would need to foot a joint bill totalling £80m to take care of the expense of completing the agitated £550m project – thought to be one of the employments that added to Carillion’s downfall.
Business Environment from Balfour Beatty’s Perspective
Due to the liquidation of Carillion, the business environment has become significantly tougher for Balfour Beatty who now has to complete the project its part of the project as well as the rest of the project left incomplete by Carillion. Now, in order to specifically understand the business environment that Balfour faces in the upcoming times due to the liquidation of Carillion, a brief analysis of current UK construction industry needs to be conducted.
Balfour Beatty’s Construction Services division has at last made a working benefit, making £36m in 2017 on proceeding with various construction projects over UK. Indeed, even the UK construction business, where the greater part of the issues were covered, has now come back to benefit, pivoting its 2016 working loss of £65m to a working benefit of £16m in 2017 (Council 2015). This takes after working misfortunes in 2016 of £55m; £229m in 2015; £391m in 2014 and £103m in 2013 – that is £778m of misfortunes in four years. Gathering wide, pre-charge benefit for 2017 moved to £117m, up from £24m for 2016 (or £10m when re-expressed for proceeding with tasks). The project investment income was £6,916m (2016: £8,530m detailed, £6,923m repeated). The UK construction income decrease was more than balance by a hidden income increment of 6% in the US and a 5% expansion at the Gammon joint wander in Hong Kong. Fundamental benefit from activities was £196m (2016: £69m) with all parts of the business indicating change (Sweet 2018). Within some time, basic UK construction income fell by 7%, to £1,998m (2016: £2,143m) due to the number of growing issues and problems that the industry faced. For some of these problems, the organizations themselves were responsible as they deliberately ignored certain important parts of a large scale problems that resulted in large scale and critical problems in the projects. In addition, some issue contracts remain, particularly in the engaged Aberdeen Western Peripheral Route (AWPR), where Balfour Beatty and Galliford Try hope to finish the 58km street project in the mid year of 2018 (Loxley 2018). Because of the liquidation of Carillion during the undertaking of the project, Balfour Beatty has also faced a significant budget shortfall of £44m, which mirrors the type of business environment that Balfour Beatty faced in the upcoming days.
Analysis of the UK Construction Industry
Future Project Implications for Balfour Beatty
Coming to the issue of the business environment, the organization said that each of the projects they are undertaking requires strong association of the government in order to guarantee the best achievable result and a beneficial outcome on client relations. Without sufficient support, the company has walked out of a large number of potentially lucrative contracts as fears were that they would not be able to fulfill the contracts in these projects (Hawkes 2018). However, the company has also taken up some big projects, albeit being difficult, as there was government association and support. The biggest of these is Aberdeen Western Peripheral Route (AWPR) which has encountered progressing time and budget issues.
The upcoming business environment for Balfour Beatty will depend on the projected benefits that will be generated from the AWPR project. The AWPR project will convey generous advantages to the entire of the north east of Scotland. Once the project is complete, the AWPR will support the economy of the area by creating salary through expanded sales and diminished costs (Smyth 2018). New business investment is foreseen to acquire £105 million and 600 occupations in that period. This monetary effect is relied upon to convey over £6 billion to the region, and 14,000 occupations throughout the following three decades. Some of the expected benefits from the project are as follows.
It is foreseen that the AWPR/B-T will enhance business aggressiveness and fortify investment by:
- Ensuring a quick connection for cargo and products from the north east to business sectors in the south
- Upgrading economic situations for key segments, for example, oil and gas investigation, angling and tourism, while holding and pull in occupations in those divisions
- Diminishing business costs caused by clog and conflicting adventure times, for example, fuel and driver costs
- Drawing in more individuals to work and live in the north east by extending work catchment regions and giving less upsetting suburbanite ventures
- Reviving the Buchan zone and ensuring developing economies in towns, for example, Peterhead and Fraserburgh
- Creating modern destinations on the outskirts of the city which are not right now suitable because of poor transport system
- Empowering different components of the Regional Transport Strategy to be finished, for example, rail projects and ‘Stop and Choose’
- Enhancing access to the downtown area and the zone all in all for occupants, customers and visitors
Other effects on the business map of the area resulting in Balfour Beatty’s increased chances of generating greater revenue in future projects are as follows:
- The food and drinks industry will expand sales by 1% and diminish costs by 5%
- Retail will build sales by around 5% and decrease costs by 1.7%
- Non-food assembling will build sales by 1.3% and decrease costs by 2.5%
- Tourism will expand sales by 5.6% and lessen costs by 2.5%
- Business administrations will diminish costs by around 5%
- Haulage and dissemination will lessen costs by around 3.3%
However, in order to reach the projected goals and business achievements, the company first needs to overcome the challenges in the AWPR project and complete the same within a short period of time as avoiding any losses. Since Carillion has been forced leave the project, Balfour Beatty has to invest more in the project including recruitment of more human resources who will be needed to drive the project towards completion (Esly 2017). Hence, it is evident that the upcoming business environment of Balfour Beatty is extremely challenging especially in the current state of the UK construction industry. However, if the company is able to overcome the challenges, it is almost sure that the company will receive very lucrative project contracts in the future that will change the entire business landscape of the country.
Upcoming Business Environment for Balfour Beatty
Strategic Project Management Tools Related to Project
The main error that the companies did in the AWPR project is that they ignored some critical elements and project management tools that are necessary for conducting such large scale projects (Haddadi, Johansen and Andersen 2016). All the partners, especially Carillion failed to use any of such tools and just proceeded with the project for fast completion within the allocated budget. Some of the critical tools that they avoided but needed in the project are discussed as follows.
Portfolio Management – Portfolio management is an important tool that is used to prepare suitable strategies for investments and allocation of assets while working in a project. In other words, portfolio management helps the organization to determine whether it should invest in a particular project or allocated resources in the project. Portfolio management also gives sufficient insight regarding the possible benefits and issues associated with the project (Mohd Nawi et al. 2018). However, the companies undertaking the AWPR project failed to develop a suitable portfolio for the project. Carillion specifically invested in the project due to the estimated benefits and the association of the government with the project. However, Carillion failed to identify the risks in the project as well as the problems that also affected their other active projects.
Maturity Model – A maturity model is defined as a framework or mechanism that is used by organizations in order to determine their capabilities for executing a particular project. The maturity model is developed by measuring the maturity of the project management processes. Development of maturity model is important for the organization to assess its capabilities and it must be done before the organization takes part in an official bidding process in a proposed project. Carillion made the most fatal mistake of ignoring the maturity model as they entered the bidding for the AWPR (Gamil et al. 2017). They lowered their price for the project as they improved their bid for gaining the contract for the project. However, at the same time, they failed to understand that with that low bid, they will not be able to complete the project, let alone finishing the project in time. Furthermore, they were associated with some other projects at that time and hence, they also needed to evaluate whether they would be able to manage all these projects together. As a result, they lost their track in the middle of the project after already encountering significant amount of losses due to far overshooting the project time allocated for completion and ultimately faced liquidation.
Critical Elements and Project Management Tools Ignored in the AWPR Project
From this case, the other partners of the project as well as other construction majors in the country should take lessons and take suitable steps to ensure these mistakes are not further repeated in the upcoming projects.
Conclusion
Finally, the analysis is concluded by saying that there were multifold problems with the AWPR project that both the government and the contractor organizations failed to identify and just proceeded with the same without much in–depth analysis and study. Of the three main contractors associated with the project, the biggest one was UK construction giant Carillion who ultimately had to quit the project and go through liquidation owing to the huge amounts of losses that they encountered in the project. The problems of Carillion were multifold as they failed to complete any of their existing four projects and started losing huge amount of money due to lack of cash flow and timely progress of work. Finally, they were liquidated by the government due to lack of turnover and they had to stop working on the projects. However, Carillion was not a minor construction company; it was one of the construction giants in UK that had completed several high profile projects and was in course to complete a host of more projects. In spite of high net worth and annual revenue from the projects, the company failed to complete their last few projects in time due to a number of factors like contract issues, improper project planning issues, delay of work due to disputes and others. The main error that the companies did in the AWPR project is that they ignored some critical elements and project management tools that are necessary for conducting such large scale projects. All the partners, especially Carillion failed to use any of such tools and just proceeded with the project for fast completion within the allocated budget.
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