Building project cost overruns are not unusual

In the mid-1980s, I participated in the feasibility study for the Three Gorges hydropower project on the mainland. At that time, the total cost of the project was estimated to be around 80 billion yuan (HK$100.4 billion).

It was based on a preliminary design of the 2.2 kilometre-long dam, and preliminary estimates of the costs associated with resettling the population affected as well as with the protection of historic sites and the environment.

By the time the final design of the dam was completed in 1993, the updated total project cost was 200 billion yuan. Approximately half of this was resettlement cost. Between the mid-1980s and 1993, the number of people that needed to be relocated rose from about a million to more than 1.2 million, and the cost of resettlement went up accordingly.

In addition to compensation in cash, many new towns had to be constructed to accommodate the population affected, along with schools, hospitals, community centres, etc.

The cost of preserving historic sites also went up significantly.

In addition to a huge amount of archaeological digging and the relocation of temples and other historic monuments, an "underwater" museum was built to preserve historic records of low water levels since the Tang Dynasty, as recorded on rock and carvings on a sandstone island in the middle of the Yangtze River near Fuling district, Chongqing . That museum project alone cost about 200 million yuan. All these costs could not have been accurately estimated during the feasibility study in the mid-1980s.

From a layman's (or citizen's) point of view, one might say that there was a huge cost overrun for the Three Gorges hydropower project - more than double.

However, in the world of engineering construction, or from a project management perspective, such a jump in project cost estimate from the preliminary to the final stage of design is not unusual.

This is because there are many cost factors that could not be clearly defined during the preliminary or conceptual design stage of the project.

One can, of course, put in some contingency (typically 10 per cent to 15 per cent) in the preliminary cost estimate, to allow for uncertainties, but this may or may not reflect the real situation.

This applies to many large infrastructure projects around the world, particularly when some of the variables could not be pinned down during the conceptual or preliminary design stage.

In the end, the Three Gorges hydropower project was completed one year ahead of schedule (in 16 years instead of 17); at a cost that was 10 per cent less than the final cost estimate. Hence, in the engineering world, it was not considered as a case of cost overrun.

In recent days, there have been questions raised on the cost overrun of the West Kowloon Cultural District project. This refers to the cost estimates for building the art and cultural facilities proposed for the project.

In all fairness, most of these facilities are still in the conceptual (i.e. not even preliminary) design stage.

The tendering process for selecting an architect to design each of these facilities has yet to begin. Hence there is really no architectural design for these facilities as such, let alone accurate cost estimates for constructing them.

The only exceptions are the Xiqu Centre and the M+ Museum, the architectural design teams for which have recently been appointed and identified respectively.

Even for these two facilities, an accurate estimate of the construction cost cannot be confirmed until the design is actually completed.

The actual construction cost will depend on the final design features adopted, and the construction material and labour costs at the time.

Professor Lee Chack-fan is the director of the University of Hong Kong's school of professional and continuing education