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Introduction

A joint venture between several large pipeline transportation companies agreed to develop an extensive natural gas pipeline running through a significant portion of the United States. The original approved project budget was $4.6 billion with a project duration of several years.

The project encountered several obstacles and delays to its progress and completion costs. The pipeline was completed almost a year later than expected with a final projected capital spend of $6.7 billion.

The operating joint venture partner wanted to examine the causes of the cost and schedule increases as well as have an independent bench mark study to compare the original estimate. This analysis was to assist in the joint venture board discussions.

Key Issues

The following issues concerned the joint venture partners.

• The original project budget was significantly underestimated.
• The project schedule underestimated the time necessary to manage permitting.
• The operating joint venture partner did not efficiently manage and accurately forecast the project.
• The construction market conditions were not proactively managed.

Role

Our consultants’ role was to independently provide:

• A benchmark study to validate or invalidate the original cost estimate.
• The root causes for the cost forecast increases and schedule slippages.
• The root causes for the final cost increase and schedule delay.
• The impacts of unforeseen material defects, market conditions, environmental permitting, and land owner difficulties.

Deliverables

Three work products were developed to substantiate our analysis: a benchmark study comparing this project to historical pipeline projects, a detailed report with supporting calculations that determined the root causes of the cost and schedule increases, and a summary level presentation for the joint venture board.

After gathering an extensive amount of cost and project documentation, our consultants began analyzing cost trends, progress impacts, productivity losses and delays. Progress, cost and delay impacts included:

• Unforeseen architectural and historical conditions, which increased the FERC permitting process beyond normal schedule and increased project scope
• Approval delays and increased right-of-way costs with  land owners
• Geographic complexity of the eastern United States segment
• Unplanned route changes that created more water crossing, some with added technical challenges, and more costly than forecasted

Other influencing factors that compounded the above progress delays and increased costs included:

• Market climate, which prioritized schedule considerations, limited contracting flexibility, and caused a shortage in skilled labor.
• Unanticipated winter and wet weather conditions, due to unplanned delays, increased labor, material and equipment costs.

Material, supply, and equipment issues resulted in rework and delays to project progress. These unforeseen cumulative impacts exponentially increased the project cost and schedule durations.

The benchmark report analyzed historical pipeline projects both in size, location and timeframe. Key results:

• This pipeline project had little to no precedence given its span in both unpopulated western United States to a populated eastern United States.
• The original cost-to-complete budget included contingency to account for risk but did not anticipate the cumulative impacts of risks that took place on the project.
• At the time of the original budget approval, market conditions were less owner adverse.
• This pipeline project had no similar recent projects from which to draw an accurate comparison.

The detailed cost, schedule and productivity analysis and presentation calculated the resultant cost impacts for the following root causes:

• Unforeseen market conditions that caused price escalation and increased owner contract risk
• FERC impacts and delays
• Unforeseen complexity of construction in the more populated eastern United States
• Defective pipe materials

In addition, the report illustrated the inability to accurately forecast schedule and cost due to the continual unforeseen progress impacts.

Results

Our consultants presented the findings to the operating joint venture partner executives along with the detailed cost analysis and substantiation. The benchmarking report and detailed cost and schedule analysis supported the project’s cost and schedule growth and the operating joint venture partner’s position to the other board members.