In civil engineering, the management of large-scale projects to build new public infrastructure is a major challenge. In this article we review some of the risks in infrastructure projects. We will also take as an example the expansion of the Panama Canal.
The most frequent risks in infrastructure projects that have the greatest impact on the development are usually: extra costs, delays in construction and/or risks related to the completion of works.
Poor planning of works, lack of clear rules when drafting tender specifications or poor cost estimates use to be source of the problems.
Cost estimates should take into account political, socio-economic, geographical, climatological and topographical aspects. In addition to the legislation on recruitment, availability of materials and equipment, labour performance, mentality and ideology of personnel in the region, among others.
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The Panama Canal Expansion
The risks in infrastructure projects such as the Panama Canal Expansion are a good example. It was a major public infrastructure project. It was also of great importance both regionally and globally.
The Panama Canal has great historical importance in world trade. This civil work connects the Atlantic Ocean with the Pacific Ocean. It is currently estimated that 5% of world trade passes through the Panama Canal.
Many ports worldwide depend on the smooth operation of the Panama Canal. In addition, there were large investments in the construction of new ships and ports that depended on the execution of this project.
The project was managed by Grupo Unidos por el Canal (GUPC). This group was made up of the following construction companies: Sacyr (Spain), Impregilo (Italy), Jan de Nul (Belgium) and Cusa (Panama).
Risks in infrastructure projects such as the Panama Canal Expansion
This infrastructure project was initially awarded for a value of 3,192 million dollars in 2009. However, total cost overruns reached 75% over the initial cost. As we will explain below, this public infrastructure project suffered all the risks we mentioned at the beginning.
During the implementation of the project there were several strikes because the workers were demanding better working conditions. However, the most noticeable thing was the strike on the construction site between February 5 and 20, 2014 because the contractor was claiming more than $1.6 billion in additional costs.
Due to the great influence of this project and the amount (more than 30% of value initially awarded), it appeared in all the media at international level. In addition, Panama had to accept a delay of several months in the delivery of the project.
These delays and cost overruns were due not only to workers’ strikes, but also to the quality of construction materials, such as basalt, ground failure, changes in regulations, geotechnical soil conditions, climatic factors, etc.
It is certainly a huge project, but many of the complaints are not justified. If an effective cost estimate had been made, the construction company would not have been in this situation. The climatic aspects should have been taken into account, a prior study of the source of the materials should have been carried out, and of course these reservations should have been reflected in the specifications.