Saudi Arabia to review project management as budget cuts loom

15 December 2015

The kingdom’s major projects will increasingly employ programme management solutions for large, complex developments

Saudi Arabia is turning to programme management, a methodology for managing large and complex projects, as a way of containing spending and increasing the returns from the Middle East’s largest capital investment programme.

The reason is the increasing pessimism about the possibility of any significant rise in the oil price, which was one-third lower than its closing level at the end of 2014 on 11 December.

Saudi Arabian government departments are now expecting swingeing capital and current spending cuts in the kingdom’s budget for 2016, which is due to be announced by the end of the month.

Project Management Office (PMO) advisor at the Ministry of Municipalities & Rural Affairs Akram Hassan told MEED’s annual Saudi Mega Projects conference on 9 December that the ministry’s budget could be cut by 20-40 per cent.

If this is an accurate reflection of the thinking of top policymakers, the reductions in government spending next year could be the largest in the kingdom’s modern history.

It will deliver a profound short-term shock to the whole economy, but students of Saudi Arabia’s economy say trends in public spending are no longer sustainable because of the oil price fall. In the 12 years ending 2014, it grew by an annual compound rate of 10 per cent a year.

Policymakers are also recognising that some of the spending has been wasteful. Subsidies, including for gasoline, water and electricity, are being reviewed.

The Saudi government is also conducting a comprehensive review of the effectiveness of public spending on projects.

Government officials and construction industry leaders say the majority are behind schedule, many are costing more than budgeted and completed projects are often defective. In short, the kingdom is not getting value for money from its domestic capital investment.

“What is needed is complete change in the way that government agencies view spending on projects,” says a senior Saudi Arabian construction executive.

“They need to stop thinking about it as simply completing buildings and to focus on the need to ensure capital spending delivers services efficiently to the public.”

The new approach is being expressed in the establishment earlier this year of a National Programme Management Office (NPMO) under the chairmanship of Saudi Arabia’s Minister of Economy & Planning Minister Adel al-Faqieh. He is emerging as a key figure in kingdom’s government following the succession of King Salman Bin Abdulaziz al Saud in January.

Its mandate is wide-ranging.

Construction industry executives say it could radically change the way government projects are designed, procured, built and operated in the Middle East’s largest project market.

The head of the NPMO is Ali O al-Zaid, a seasoned construction and real estate executive and businessman. His extensive experience includes a spell as chief executive of the Saudi Real Estate Company, the largest quoted real estate firm in the kingdom.

His task will be to develop a centre for megaproject excellence that will co-ordinate and, where necessary, direct radical change in the way the kingdom’s public sector projects are procured and delivered.

This will entail a complete review of the construction supply chain from masterplanning through design and construction to final operation, and is designed to increase the cost-effectiveness and quality of government projects.

The NPMO will also be seeking to standardise designs to allow mass procurement of material and fittings. This will create opportunities for local manufacture.

Labour-saving modular construction in factories, where the demanding site conditions for most Saudi projects can be avoided, will be encouraged as a way of attracting more Saudi Arabians to work in construction.

At present no more than 20 per cent of the kingdom’s construction labour force, totalling more than 4 million people, is Saudi Arabian. Other possible changes include mandating a five-day working week for the sector

The NPMO will draw on Saudi Arabia’s extensive programme management experience.

The prototype was developed by the Royal Commission for Jubail & Yanbu, an executive body set up to deliver the industrial cities of Jubail and Yanbu.

The US’ Parsons has had the programme management mandate for Yanbu and Bechtel for Jubail since the cities were founded in the 1970s. Both are implementing expansion programmes involving programme management methodologies.

Technical affairs general manager at the Royal Commission for Jubail, Ahmed Balawi, told the Saudi Mega Projects conference that this encompasses the second phase of the Jubail industrial estate; the expansion of the city’s residential districts, the construction of the new Jubail City Centre, which will accommodate 25,000 people, and the development of the Ras al-Khair Mineral City.

Programme management allows the Royal Commission to prequalify multiple contractors efficiently, procure systematically, deliver projects on time and budget and create quality assets that can be maintained optimally for decades.

Jubail is also the setting the standard through what is probably the most effective deployment of programme management in the Middle East.

On 8 December, Sadara Chemical Company, the world’s largest petrochemical complex delivered in a single phase, started shipping polyethylene.

The $20bn scheme, now 97.5 per cent complete, was procured through a sophisticated programme management system that co-ordinated 26 separate projects employing a total of 55,000 people at the peak of construction.

“This is not a megaproject, it is a gigaproject,” Sadara director Nizar al-Khadhra told the Saudi Mega Projects conference.

Sadara, a 50:50 joint venture between Saudi Aramco and Dow Chemical Company, used three contracting strategies: engineering, procurement and construction management (EPCM) for early construction of critical projects; lump-sum turnkey contracts for well-defined process units and build-own-operate (BOO) contracts for services including utilities and gas supplies.

An integrated schedule to track the project’s critical path was developed. Other innovations included helping contractors with unexpected cost increases and providing advanced payments. The key to the project’s success was the role of Saudi Aramco, which is recognised as having the widest experience in using programme management effectively in Saudi Arabia.

The Waad al-Shamal industrial city being developed in north-west Saudi Arabia by the Saudi Arabian Mining Company (Ma’aden) presented a different set of challenges.

These include building a mine, a beneficiation unit and sulphuric and phosphoric acid plants in Waad al-Shamal and, simultaneously ammonia and fertiliser units in Ras al-Khair on the kingdom’s Gulf coast, 1,200km to the west.

“There are more than 40 stakeholders involved with the project including Saudi Aramco, the Saudi Electricity Company (SEC), the Saudi Seaports Authority… and Ministry of Electricity & Water, all under the supervision of the Ministry of Petroleum & Minerals,” Ma’aden’s project management director Ibrahim Abusaai told the Saudi Mega Projects conference.

“Programme management allowed the integration of dozens of stakeholders in planning, procurement and delivery.”

“Saudi Arabian projects are getting bigger and more complex,” Abusaai added.

“You must never underestimate the importance of stakeholder management in complex megaproject delivery. We found there are huge benefits to having an independent interface management team and early stakeholder engagement is essential. We shall use this model in the future.”

The Arriyadh Development Authority’s (ADA’s) Riyadh Metro is another megaproject where programme management is being deployed.

It involves more than $20bn-worth of investment in a six-line network with a total length of 176km and 85 stations. There will be 73km of tunnels and 85km of viaducts.

Contracts for the project were placed in 2013 and the project is due to be completed in 60 months. It is now 25 per cent complete, ADA project director Alwalid Alekrish, told the conference.

To ensure it was delivered on time, the project was divided into three parts, each the responsibility of international consortia working under the direction of the ADA and the guidance of Riyadh Metro programme manager CH2M.

“You have never seen a project with these challenges,” FAST consortium project director Jaime Freyre de Andrade said.

“We identified four main challenges. The first is to have an optimised design. The second, is delivering 65km of metro in a large city and dealing with the traffic challenges this creates. There is a huge network of underground utilities and, finally, we had to mobilise 15,000 people to work on the project.”

Some Saudi government departments already have extensive programme management capacities.

Planning and studies director in the Interior Ministry’s medical cities supervision agency Mohammed Alalshaikh told the Saudi Mega Projects conference that the ministry has successfully used programme management on its megaprojects, including its medical cities programme.

The Ministry of Municipalities & Rural Affairs has programme management units for delivering individual project programmes, but is now preparing to create an integrated enterprise PMO to supervise the delivery of all its projects. These include roads, sanitary networks, schools and other public buildings in all Saudi Arabia’s towns and cities.

The NPMO will seek to draw on this experience and create, for the first time in the region, a cohesive project and megaproject procurement and delivery framework. Construction industry leaders are welcoming the initiative.

‘The effective deployment and implementation of PMOs, when correctly structured, provide governance and transparency combined with greater surety of delivery,” says Faithful & Gould’s regional development director David Clifton.

“Portfolio, programme and project management offices will enable the Saudi government to embed best practice and lessons learnt. It will ensure projects and programmes are not just completed in isolation and as part of a much greater long term development plan for the country.”

“Programme management is the best way to deliver complex, large and inter-related projects and has been deployed successfully in many construction markets,” says CH2M’s Saudi Arabia country manager, Amer Khan.

“A wider deployment of programme management principles and practices will definitely deliver benefits to the Saudi economy in the form of better and more sustainable buildings and infrastructure within planned schedules and budgets.”

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