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6 NOV 2018

Referendum cancels airport under-construction in Mexico City

Anil Sawhney-RICS

Anil Sawhney FRICS

Director of Infrastructure

RICS

A referendum in which less than two percent of eligible Mexicans voted has led to the cancellation of an airport project in Mexico City in mid-construction leading many to ask what will happen to the already constructed massive substructure.

Bureaucrats are not commenting, the outgoing president does not have much say and the incoming president used the project cancellation as a pillar of his campaign. What will happen to the key stakeholders including investors, debt holders and contractors in the abandoned project?

The business community is unhappy with the outcome of the referendum and is asking the incoming president to disregard the vote. The incoming president claims that the project was marred by ‘overspending and corruption’ and $5 billion can be saved by abandoning the unfinished project. It is unclear how prepayment of bonds issued to finance this project will take place after cancellation and how air travellers will navigate the outdated and overwhelmed existing airport.

Missteps from the start

The $13 billion airport project has technical, economic, social and political dimensions that needed to be carefully balanced right from the concept stage through to the end-of-life of the asset. There have been allegations of improper contract award procedures as close to 50 percent of the contracts that were studied showed that direct contracts were awarded without competitive bidding.

In the absence of a detailed study that could perhaps provide more answers, one can only speculate that these dimensions were not fully considered when the project initially started, or the politically overheated referendum did not present to the voters all these dimensions. Either situation warrants a review of the basics and careful consideration of various aspects of infrastructure planning and management.

So what could have been done to stop this disruptive and expensive stalemate (some estimate that 30 percent of the design and construction work on the project is now complete)?

Standards that yield efficient project selection, project delivery, project control, reduction in operating costs, usable benchmarks and enhance asset performance may have helped avoid this impasse. One main argument that seems to have derailed the project is the alleged cost overruns (and concomitant allegations of corruption).

To yield best results, the government should insist International Construction Measurement Standards (ICMS) are followed to estimate project costs.

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Application of the International Construction Measurement Standards (ICMS)

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A key step in managing costs on a project of this scale is the ability to predict and estimate a budget accurately over the early lifecycle phases of the project.

Maintaining project control through ICMS

Following the international standard is the first step in creating a seamless, global, pyramidal hierarchy of construction cost classification: from high-level global cost benchmarking to granular, local cost measurement. ICMS was developed by a coalition of 46 professional bodies including the Royal Institution of Chartered Surveyors (RICS), Sociedad Mexicana de Ingeniería Económica, Financiera y de Costos (SMIEFC) to harmonize global cost reporting across markets, regions and sectors. By insisting all stakeholders, including contractors, adopt these transparent standards, the Mexican government can better monitor whether projects proceed according to its plan.

Communication is key

A critical step in the successful delivery of a mega-project is stakeholder management, especially public engagement. If the public is fully informed and engaged from the start of a project, the referendum could have been avoided as the project would not have entered the political realm during construction. RICS strongly encourages stakeholder management and provides professional guidance on stakeholder engagement.

At the same time, an informed infrastructure client can navigate these issues and provide the project leadership that is crucial in the delivery of large-scale projects through RICS professional guidance for project owners.

Moving forward with Plan B

During the heated political campaign leading up to the referendum, a new option has emerged. Those who voted yes to cancel the ongoing construction in Texcoco suggest adding two commercial runways to a military air base in the town of Santa Lucia, about 28 miles (45 kilometres) from the capital. That would imply an improved road to get there from Mexico City and upgrading of the current 1940s-era airport.

Were these options considered during the project selection and project formulation phase of the airport project? Were economic, social and environmental aspects considered? RICS recommends conducting a life cycle costing for infrastructure projects especially documenting the social value of projects.

By putting in place international standards and adopting efficient project delivery and commercial management models and systems, the sector can start accounting for the social value of infrastructure projects and assets and providing a holistic appraisal of the impacts infrastructure projects on society. Incorporating social value into the analysis will help improve project selection and project formulation, leading to the improved operational performance of infrastructure assets.

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Anil Sawhney-RICS

Anil Sawhney FRICS

Director of Infrastructure

RICS

Anil Sawhney is the Director of the Infrastructure Sector for the Royal Institution of Chartered Surveyors (RICS). He leads the emerging RICS initiative and strategy on placing and positioning the Institution within the field of commercial management of infrastructure projects globally. His primary focus is on the (economic) infrastructure sector, defined by the RICS as transport, utilities, energy and similar fields. Anil is involved in the production of infrastructure sector’s body of knowledge, standards, guidance, practice statements, education, and training. He’s also a Visiting Professor at Liverpool John Moores University in the UK. Dr Sawhney is also a Fellow of the Royal Institution of Chartered Surveyors (FRICS) and a Fellow of the Higher Education Academy (FHEA) of the UK. Anil has a rich mix of academic, research, industry and consulting experience gathered working in the USA, India, Canada, the UK, and Australia.

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