Cover story - MEGA PROJECTS CONTRACTOR OF CHOICE

Murray & Roberts is the contractor of choice for South Africa’s largest and most complex infrastructural projects. But, at what cost are private sector contractors delivering world class social infrastructure?

No-one can deny that the 2010 FIFA Soccer World Cup was a spectacular coup for South Africa. But, now that the final whistle has blown, for many the harsh glare of reality has replaced the thrill of hosting one of the largest international sporting events.

Certainly the eyes of the world were on South Africa from 11 June to 11 July and investment bankers say visiting businessmen were doing more than just watching soccer and admiring our new stadiums. There is an anticipation of much business to follow the World Cup, but that is still far into the future. For now, and for companies like Murray & Roberts that have become used to punching above their weight on the global stage, it is also a sobering time as management assesses the consequence of taking on mega projects with demanding deadlines.

The first phase of the Gautrain project incorporating the link between the OR Tambo International Airport and Sandton Station, was completed ahead of schedule following an effort that Murray & Roberts CE Brian Bruce describes as Herculean. But, at what cost to Murray & Roberts was this achieved?

"It is this ability to overcome obstacles that allows us to compare ourselves to any other organisation on this planet."

Ironically, because of a compromise agreement entered into to accelerate the completion of Phase 1, payment for this achievement will be delayed.

The continued involvement of Murray & Roberts in the mega project market requires ongoing debate, because there is no doubt it is a demanding arena. In most cases, mega project experience is hard won and carried on the shoulders of too few people.

Brian poses this question: Should Murray & Roberts be a major project business or does it now retire gracefully into the status quo and become a second-tier local contractor? Or put another way: Is Murray & Roberts committed to playing in this space or would its people prefer more comfortable jobs that pose less challenge and limited risk? This question, he says, goes to the very heart of what Murray & Roberts stands for.

“What is it that we have done that is different to other construction companies that have made perfectly sound contracting businesses in a relatively protected environment here in South Africa?” He answers saying: “We consciously decided to join the major league, to bid for the big global projects – and we won some.”

The first victory on this path was winning the Gautrain tender, and as it so often happens in life, being the first posed significant challenges. The selection of partners was made in 2001, before the Group’s Opportunity Management System and at a relatively low level in the organisation, for what was then estimated as a R4 billion project. Important lessons have been learnt and Murray & Roberts is today better skilled at selecting its partners for bidding on mega projects.

Murray & Roberts approached the international stage with significant experience of mega projects, but it still had to learn fast and in the process build the scale and capacity that makes its position in the South African market almost unassailable.

“We’ve grown as a result of this experience, but does the promise of future rewards make it worthwhile?” asks Brian. The decisions Murray & Roberts makes are deeply influenced by the fact that challenge and ambition are ingrained in its DNA. Even before relaunching itself onto the global stage, the Group was involved in many of the domestic mega projects that defined much of this country’s infrastructural development. From the Carlton Centre half a century ago, to the Mossgas refinery and the Hillside and Mozal aluminium smelters. These were ultimately successful developments, but extremely taxing ones. The Carlton Centre almost led to the demise of Roberts Construction over funding issues, partly caused when the company was let down by its American partner. Mossgas came in significantly above the budgeted cost.

The complexity of mega projects is what makes them so stressful, and ultimately why so few end up satisfying all stakeholders. But this is also the reason why experience is essential, bringing an expectation that things can and will go wrong, but having the capacity to resolve them.

“If one or two critical subcontractors lack capacity to meet deadlines and the project begins to fall behind schedule, this often cannot be caught up. It’s like trying to fly an aeroplane while you are still building it,” says Brian.

What this means is that once you have the experience and capacity, whether you want to be in the mega project space or not, by default the market will come knocking as it cannot risk inexperience.

Another cause of stress in the mega project model is the time-value placed on capital by financiers. This forces work to commence even though everything may not be correctly in place.

Nothing demonstrates this better than the South African power program where significant design changes and technological modifications as well as delayed services delivery have largely negated the original benefits of repetition and planned economies of scale.

The same applies to projects such as Gautrain, where the providers of finance have prioritised completion to schedule while government has failed to deliver the land for development on program.

These issues are particularly crucial in a public private partnership (PPP), a financing model which appears likely to become more commonplace in the coming years as an answer to the infrastructure demands of the country and indeed the entire African continent.

The challenge in PPPs is the complex nature of the contracted relationship between a regulatory‑constrained public sector and financially motivated private sector. This in turn creates differing expectations, and unnecessary pressures.

“With the hindsight of some tough projects under our belts, we are forced to question our limitations,” says Brian. “Is there a project that is too big for us – not necessarily in terms of capacity, but the hassle factor? While Gautrain has been a considerable success in being launched ahead of the 2010 FIFA Soccer World Cup, it took a mammoth effort on the part of Murray & Roberts and its partners to achieve this result. Without the passion and drive of Murray & Roberts alone it may not have happened.

“It is this ability to overcome obstacles with well thought through solutions that allows us to compare ourselves to any other organisation on this planet. Gautrain is a considerable accolade to our resourcefulness, but if this is to be the standard operating basis for all mega projects, we have a near insurmountable challenge.”

Such successes – even at the price Murray & Roberts is confronting, enhances the company’s reputation for achieving the near impossible.

Brian believes a major projects strategy is worth it, particularly if each employee takes on more of the burden, thereby reducing stress levels. “It is the contractor who does not meet deadlines that will suffer in the long run. If you do not complete project milestones on time, you don’t get paid and that impairs your future,” he says.

“In the end this comes down to self-belief. It is only through that sense of self-belief by some that we hosted a successful Soccer World Cup, with roads repaired on time and visible policing dealing with the criminal element. Self-belief has to come from everybody, because it is only by having agreement on what we are as a nation or what we are as a company that real success is born.

In asking the question: Is the will of the entire Murray & Roberts organisation behind us to remain a major project player, or is it to be driven only by a handful of people? Brian believes each employee will have to individually make this decision for his or her self. The preparation for mega projects is on a vastly different scale, which he likens to the training differential between a pilot and an astronaut.

“Mega projects introduce a completely different dynamic. Everybody is in the game of doing traditional contract work, but only a select few have the capacity and expertise to do major projects. To do the latter, you have got to get fit. It cannot be done on an occasional basis. We will probably never have a critical mass of trained astronauts,” he says.

“But if we decide that we want to continue to ‘punch above our weight’ as Murray & Roberts, or retain our new FIFA ranking as South Africa, we need to look at what more we need to do to stay there.

“We have learned a great deal from the mega projects we have undertaken over the years, but everyone must have the opportunity to learn, not just a few executives. Furthermore, what we have learned is country specific and isn’t replicable on an international basis. For instance, despite our experience in Gautrain, it is unlikely that we could go to another country and be successful in bidding for a fast-rail system there.

“Our ability to do mega projects is dependent on South Africa doing mega projects. We are perhaps fortunate in that we recognised early the advantage of being essentially South African and have always identified ourselves as such.

“South Africa is currently in a period of initiating a number of mega projects, and because of our experience in this sector we should be the first contractor that comes to mind in public sector circles,” says Brian.

Eamon Ryan & Brian Bruce