Down the drain: what to do when setbacks occur in major government projects

Two projects, same setbacks, but drastically different outcomes. How is that possible? Researchers Feng Fang, Wendy van der Valk, Henk Akkermans and Bart Vos examined four cases of complex public-private projects involving the entire process of design, construction, operation and maintenance of wastewater treatment plants. The projects were capital intensive and were the result of complex partnerships between regional water authorities (RWAs) and private contractors bound by long-term contracts. 

'The study shows that bumps in the road are part of projects,' says Feng Fang. The two projects both stalled and both faced problems with contractors and rules on environmental legislation, for example. Yet they both had different outcomes. One project recovered successfully, while the other had to abort the collaboration.'

Focus on contract sets higher standard 

The researchers found that a key gamechanger is how each project addressed the issues: by sticking to the contract or by building strong relationships. One project adhered strictly to the details of the contract (contractual governance); the other invested in good communication and trust (relational governance). 

If you strongly focus on the contract, you set a higher standard for the other party, says Feng Fang. 'There's nothing inherently wrong with that, as it will encourage the other party to invest more. However, by placing this emphasis on contractual matters, you unintentionally communicate less about the technical problem and its solution. Less communication on potential solutions leads to less trust in the other party and the project, which in turn results in reduced investment in a solution. Naturally, the bar is then set even higher, diminishing confidence in a positive outcome and further decreasing willingness to invest in the necessary resolution of the problems. This vicious cycle can only be broken by terminating the contract.'

However, if you focus on building good relationships, it not only increase trust but also gets people more involved.  This increases the chances of them wanting to pitch in and invest in the project.

Waste of taxpayer money

The researchers' advice to organizations is to find a balance. Don't just stick to the rules, build good relationships. Communication should be about finding solutions to problems rather than figuring out who is to blame and bear the cost. Feng Fang: 'Generally, government agencies (such as the RWAs in this study) want to avoid being seen as 'wasting taxpayer money'. However, if they give too much priority to meeting specific performance targets agreed to in contracts, they may inadvertently do exactly that. It's a balance - making sure you meet the goals without putting too much pressure on the available resources.'

Once solutions are in place, the parties can work out the details. This may mean extending the contract period, temporarily waiving penalties or adjusting the revenue model. Most importantly, managers should focus on solving the problems together before getting into the details of responsibilities and costs. When parties resort to legal confrontations the intended effect may be to limit discussions, but it also inadvertently reduces mutual understanding, damaging trust and hindering collaborative problem-solving efforts. 

This research was published in the top core scientific journal Journal of Operations Management. View the publication here.