Case study: Hollowdale's public transport investment

Course Name:Complex Project Management

Program: Master of Engineering Management

***Case Study - Starts***

• Thecityof Hollowdale countedabout1.5minhabitants.Itwasthecountry's fourth largest city, with a population growth above the national average.Its publicserviceinfrastructuresfortransportation,healthcare,education,and socialserviceswereallcompetingforadditionalresources,andthecity's tax revenues could barely keep up.
• Public transport was of priority concern. Up to that point, the city had been relyingonanextensivenetwork ofbuses,underpinnedbyaseries ofreserved trafficcorridors.However, the city had arrived ata pointwhere downtown streets were clogged with buses at peak times, generating traffic congestion, pollution and noise. Public transport users were increasingly dissatisfied with the service, and the City's public transport manager was concerned that the current system was no longer sustainable: the downtown capacity had been saturated, and growing the city's public transport required a new approach.

ThefutureofHollowdale'spublictransport

• The city council had been briefed by the public transport manager (Mrs Leentrak) that two optionscouldbetypicallyconsideredtogrowthecapacityofpublictransportinHollowdale:
  • Ametrosystem wouldprovidehighcapacity(20kto40kpassengersperhourperdirection- pphpd) - but the infrastructure costs, includingtunnels and fast dedicated tracks, would be high
  • Alightrailwouldprovide lowercapacity(typically10kpassengersperhourperdirection),but the less demanding technical requirements make this a somewhat cheaper option
  • Publictransport engineershavecalculatedthatanysystemmusthaveacapacity ofaminimumof 20k pphpd to alleviate congestion in the city centre
  • Existingpublictransitcorridors wereavailabletobeconverted frombustorail,inparticularalong the East-West arterial road.
• The transition from a bus-only to and bus-and-rail public transport system represented a transformational change for the Hollowdale public transit authority: rail operations required new skill sets (e.g. drivers), new infrastructure, the integration of what remained of the 'old' bus system with the 'new' rail system required new equipment (e.g. ticket machines, barriers, stations), and crucially a brand new, system-wide, rethink of busroutes andtimetables.Thepubliccommunicationsefforttoexplain thetransitiontothetravellingpublic would be significant, and critical to the project's success.
• MrsLeentrackdeclared:"Hollowdale'srailneedsaredifferentthatmost:wearenotcreatingagreenfieldrail system, we are upgrading our dedicated traffic corridors from bus to rail in order to cope with the increased usage that comes with population growth. We also need a greener system: the new system must reduce environmental impacts. We need this new system urgently, and we need it to work at 100% capacity from day 1: no bedding down period, or gradual ramp-up, because we already know the ridership is there. As the Mayor said, we want this system <>.

Hollowdale: rail route options

Two design options were considered for the new rail public transport route:

North-South: this option would see the extension of the existing, small, diesel-powered, five stops, rail line that connected the University with the Terminal station near the City centre (total: 11 stations). This design would extend the line North to the downtown core, and South to the Airport, connecting major suburbs. Although it required tunnelling into the downtown core, the North-South design was by far the cheaper option as it made use of existing infrastructure.

East West: this option would see the construction of a brand new rail line (10 stations), mostly along or on the bus transit corridors. This option was more expensive as it required boring longer tunnels under the downtown core, but it had the greatest impact on traffic congestion and pollution.

Digging tunnels underground in Hollowdale presented known geological challenges. The risk of incidents such as sinkholes was estimated to be low, but possible due to the sandy terrain.

Optionsandcostestimates

• Thecitycouncilwasfacingtwopossibletechnical solutions:
  • Ametrosystem: wouldcarryupto40kpphpd.Metrovehiclesweretypicallymoreexpensiveto acquire than light rail vehicles, but carried more passengers.
  • Alightrailsystem:wouldtypicallycarry10kpphpd,withalower constructionandacquisition costs
• SteveBright's(Mayor'sadviser) back-of-anenvelopeestimates fortheprojectacquisitioncostswere:
  • North-South:
    • Metro:1.8Bnconstruction,200mrollingstock-total:2.0Bn
    • LightRail:1.2Bnconstruction,125mrollingstock-total:1.325Bn
  • East-West:
    • Metro:3.250Bnconstruction,250mrollingstock-total:3.5Bn
    • LightRail:2Bnconstruction,125mrollingstock-total:2.125Bn

TheMayor'sviewoftheproject

• Mayor Jack Wassup was concerned: the city required a system with a 20k pphpd capacity, which was at the low end of the range for metro infrastructure. So, there was a concern that a metro might provide unused capacity, not enough bangfor your buck.And the Citycould only, barely, affordametroontheNorth-Southextension.Atthesametime,lightraildidnothavethecapacity required.AlightrailontheEast-West routewouldcostaboutthesameastheNorth-Southmetro: investing in an infrastructure asset whose capacity would be saturated from the start seemed unwise, and insufficient to address the City's public transport needs.
• Theprojectalsopresentedapoliticaldilemma fortheMayor:
  • The North-South extension option was lower risk in terms of construction and costs, but delivered fewer political benefits for the Mayor: the ridings along the North-South corridor weresafeseatsfortheMayorandhisteam,andimprovingpublictransporttherewouldnot improve their political futures much.
  • The East-West option was higher risk as it was more ambitious, but it also served the greener, moreaffluent,Westernsuburbs werepopulationgrowth wasfastest.Wassuphadcampaigned with his "light rail on time, on budget" mantra at the last municipal election, and recorded significant gains in the ridings along the mooted route: the Mayor thought that further gains could be possible.

Hollowdale-theplayers

• MayorJackWassup:WassuphadjustbeenelectedMayor. Hepreviouslyserved asinfrastructure minister in the provincial government, and had intimate knowledge of the processes and politics of public infrastructure funding. In the run-up to the election, and during his campaign, Wassup critiquednegativelytheotherleading candidate'splansforpublictransport,anddeclaredthatby thenextendofhisfirstterm(fouryears),workwouldhavebegunonanewproject,which would be delivered "on time, and on budget" before the end of his second term.
• Mayor Wassup had two priorities: advancing the project in time for the next municipal elections infouryears; keepingthebudget withina2bnenvelope,whichhadbeenestimatedbyhisadviser (Steve Bright) to be the maximum amount the City could afford to fund (with the assistance of higher levels of government), and had become a campaign commitment of Wassup. The public transport project was Hollowdale's largest investment in generations, andWassup was keenly aware that such a high profile project would define his legacy as Mayor: this lead him to require his team to provide detailed briefings on every aspect of the project, and every major decision had tobe approved bythe Mayor's office.In particular, the Mayor's office was keen tobe able to orientthepublicconversationabouttheproject, andthepublic's perceptionoftheMayor(always an eye on the next election).
• TheMayor'steam:
• Citylawyersandconsultants:SteveBrighthadassembled ateamoflawyersandconsultantsto assistthecityinpreparingforthebidding process.Theirbrief fromBrightwastoadvise thecity on contractual strategies that would cap the project costs to the 2Bn the city believed it could afford, and transfer as much of the financial risk as possible to the private sector contractors in order to minimize the city's exposure.
• Municipal executives:the Manager of City Business (Mr Armstrong), and the Public Transport Manager(MrsLeentrak)weremayoralappointeesandlong-timecollaboratorsoftheMayor. They were tasked with looking after the money and monitoring the project.
• OppositionLeaderMrsShowdry:Showdrywasaconservativecouncillor,concernedaboutthecostsoftheproject(keep localtaxeslow),andalsothetransparencyandprobityoftheprocess.ShearguedthattheMayorandhisteamhadclose ties to property developers, and voiced concerns that the light rail design may be influenced to satisfy the needs of powerfulpoliticaldonors.The MayorhadbeenadvocatingforanEast-Westdesignfor theproject,whilsttheopposition preferred the less expensive North-South design. Although Showdry and her fellow conservative councillors were a minority, their ability to impact provincial and federal elections in local seats was a concern for Wassup. Showdry could count on the support of fellow conservative elected officials, in particular the conservative provincial member of parliament for Hollowdale West, Rick Brown.
• ChiefMikMik:wastheheadofthelocalfirstnation.Hewasadvocatingfortheprojecttoprovideopportunitiesforlocal indigenous entrepreneurs, and also the acknowledgement of sacred sites along the routes of the rail system.
• Public Transport Users Association President, Bill Power. Power was a senior public servant in the Federal Government officeslocatedinHollowdale,andapublictransportuser.Hewasadvocatingforprioritizingpublictransportaccessforthe mostdisadvantagedpopulations,inparticularintheEasternandSouthernsuburbsofHolloway,whereimmigrants,ethnic minorities,andlowwageworkersdisproportionatelyresided.Power'sadvocacyhadmadehimpopular,andhewaswidely perceived to have political ambitions, which concerned Mayor Wassup.
• Bus drivers: once the rail project was completed, the city was bound to lose about half of its 1,000 bus drivers, to be replacedbyabout150trainoperators.Alargenumberofbusdriverswereconcernedabouttheirjobsprospects,andonly afew were hopingto make the transitionto drive trains.This presentedachallenge to maintainstaffmorale for Mrs Leentrack, Hollowdale's director of public transportation. It was feared that the younger drivers, and those with broader skill sets might see the arrival of the rail system as a signal to seek jobs elsewhere.
• Property developers:about a dozen major construction firms dominated the local market for housing construction and property development. The project was bound to transform how residentsusepublictransport,anddeveloperssawmajoropportunitiestobuildlucrativeluxury condotowers near the newtransit stations.The project had been talked about for a number of years, and savvy developers had already acquired plots of land they hoped to build on, making a very tidy profit in the process. The Western suburbs, attractive to middle-class residents due to the proximity of good schools and green spaces, were their priority target: they had been frantically lobbying the municipality for an East-West design. It was rumored that Wassup had benefitted from generous donations from developers during his mayoral campaign.
• Smallbusinessowners:smallbusinessowners,inparticularintheretailandhospitalitysectors had raised concerns about the impact of the project on their operations. They feared that lengthy construction works would drive customers away and disrupt their businesses. Another concern was the change of transportation patterns the new system would generate: some small business owners were concerned that they may have to relocate in order to adapt, and were afraid that higher rents near new transit stations would jeopardize their sustainability.
• Infrastructure and engineering firms: Most national and many international infrastructure and engineering consultants had a keen eye on the Hollowdale project. The project was perceived to bethefirstoneofanewwaveofinfrastructureinvestmentintheCountry'smajorcities:winning the Hollowdale contract was an opportunity to burnish their reputation, and gain a favorable positionfortheotheropportunitiestocome.Anumberofconsortiabetweenmajorplayerswere being discussed as the prospect of the City issuing a request for proposals loomed closer.
• Rolling stock manufacturers: they were also keen to come on board the Hollowdale project. Potentially, the project was an opportunity to showcase their capabilities to other potential clients.ThecapacityneedsexpressedbytheCitysuggestedthatthiswasanopportunitytosell metro vehicles, though most manufacturers also produced light rail vehicles.
• The Media:The new rail project had been a major point of the political campaign that saw the electionofJackWassupafewmonthsearlier.Thenewinfrastructureprojectwasperceivedtobe transformational and had attracted local, provincial, and even national media attention.
• The citizens of Hollowdale:there was a general consensus among the population that Hollowdale'spublictransportneededanupgrade.Butpastthisagreedobservation,arangeof views were aired:
  • Publictransportuserswantedafaster,morecomfortablesystem,thantheageingdieselbusesinuseatthetime;
  • Residentsfromallneighborhoodswantedthenewsystemtoservetheircommunity.
  • Some environmental groups were monitoring air quality in high traffic corridors, and were advocating for the establishment of an "Ultra Low Emission Zone" charging more polluting vehicles a daily fee (about twice a public transportfare)inordertoentertheperimeter.Suchgroupsoftenarguethatthose"ulez"feescouldthenbeusedto pay for the public transport upgrade. "like in London" argue the scheme's supporters.
  • Many motorists associations (and some populist politicians) disputed the environmental impact of ulez, and described the fees as a tax on motorists and small businesses. Most motorists viewed the proposed rail project as beneficial,asitwouldreducetrafficcongestion,butwouldnotsupportitsfundingthroughanykindofnew"traffic tax"
  • Mosthomeownersintownwelcomedthenewpublictransportsystem,astheyexpectedthatpropertyvalueswould rise in neighborhoods served by the new system, along with quality of life. But this anticipation was tempered by a concern of the project's impact on city finances, and therefore property taxes (which were the municipality main source of income, after central government grants).
• Hollowdale Airport: The CEO of Hollowdale Airport Corporation had long been arguing that the lack of public rail transportation from downtown to the airport was detrimental to tourist and businesstraffic."WithoutaraillinkfromtheAirporttodowntown,Hollowdalewillcontinuetobe a second-rate destination" he declared provocatively at the annual Chamber of Commerce Dinner, as he was furiously lobbying for the North-South extension.
• Provincialgovernment:theprovincialgovernmentwassupportiveoftheproject.MayorWassup wastheformerinfrastructureminister,andhemaintainedgoodrelationshipswiththeprovincial Premier. Based on Wassup's request, the provincial government had agreed to fund 30% of the project, up to a maximum amount of 600m.
• Federal government:the federal government was the largest employer in Hollowdale, as such theyhadavestedinterestintheproject'ssuccess.Thefederalgovernmenthadagreedtomatch the provincial funding. 600m from the Federal Government, plus 600m from the Province provided Hollowdale with 1200m, and the municipality had the financial capacity to borrow another 800m in order to complete the project's funding (according to Mr Bright's advisers' calculations, this was the maximum amount the City could borrow without increasing taxes significantly).

RiskManagement

• Deliveringasafesystem wasaconcernfortheCity.TheMayorhadsoughtadvice fromhisconsultantsabout thebestwaytoensure thatpassengerswouldbesafe, and the City's reputation remained intact. One recommendation was to require compliancewiththemorestringentInternationalsafetystandard,ratherthanthe national standard.
• ImagemanagementwasacoreconcernoftheMayor.Hehadaskedhislawyers aboutthePPPfundingmechanism:"thisterm,partnership,doesitmeanIhave to share the blame with contractors if something goes wrong?"
• Lawyershadensuredthatthe'partnership'wasonlyafundingmechanism.There werewaystoensurethatrisksweretransferredtothecontractors:forexample, contractors could be asked to sign off on the level of geotechnical risk they were readytotake,afrequent practiceininfrastructureconstructionprojects.Another advice was to separate the operations of the assets from the (contracted) maintenance:thiswayanycostescalationwasborne bythe contractor.

***Case Study - Ends***

Question:

Assignment is to "Advise the City of Hollowdale about the acquisition and contracting strategy to employ."

The recommendation should include:

- Consideration of the risk profile of the strategic option(s) considered

- Justified recommendation of the type of contract to select

- Recommendation(s) about key contracting terms and conditions that would follow (e.g. relational, performance-based, etc.)

- Advice about the type of contract relationship management style preferred (e.g. transactional v. partnership)

Please provide detailed answer for above assignment topic in reference to Hollowdale case study posted above related to Complex Project Management.

Thanks!