Over the last few posts I have been looking at the problems for decision making. We may never be a hundred percent sure of success from our projects, but sometimes we can be a hundred percent certain of failure!
This is the story of a new hospital, designed as a private-public-partnership. It featured a very complicated financial vehicle that got extensive coverage in the financial press, so much so that I decided to visit with the designer and find out more. Over a period of 5 hours, he generously went through the details of the contract design with the relevant paperwork stacked in three piles at our feet, each almost a metre high! At the end, convinced that if it had taken 5 hours to explain it to me, a fellow economist, the chances of non-economists understanding the finer details were pretty slim, I asked him two questions.
The first was: “This is a very complicated contractual arrangement, what is the likelihood that you will have the opportunity to use this tool for another PPP?”
The designer replied that this was unique. I was concerned that so much valuable time had been committed to the design of this contractual vehicle and it would have no further use outside this project. But more so I wondered about the stability of such a contract. However it was the answer to my second question that told me that the project would not succeed.
I asked him “If you were an investor, would you undertake this project under these contractual conditions”. He laughed heartily and said a very definite “No Way!”
The contract failed and caused the government much grief. The moral, as I see it, is that unless a contract is designed to be a win-win situation – expect failure!
Our question for exploration today is: What would you look for to determine the success/failure of a project?