Project management case study
516 Chapter 14 • Project Closeout and Termination
CASE STUDY 14.1 New Jersey Kills Hudson River Tunnel Project
When dignitaries broke ground on the Access to the Region’s Core (ARC) project in northern New Jersey in 2009, it was supposed to be a celebration to signal the start of a bright new future. Creating a commuter rail tunnel under the Hudson River was not a particularly new or difficult idea, but it was viewed as a critical need. The project was first proposed in 1995, and every New Jersey governor after that time had publicly sup- ported the need for the tunnel. The reasons were com- pelling: The entire commuter rail system connecting New York and New Jersey was supported by only one congested 100-year-old, two-track railroad tunnel into overcrowded Penn Station in midtown Manhattan; both tracks had reached capacity and could no longer accommodate growth. Passengers were making more than 500,000 trips through Penn Station every day, with station congestion and overcrowding the norm. The project was especially critical for New Jersey residents because their commuter ridership to New York had more than quadrupled in the past 20 years from 10 mil- lion annual trips to more than 46 million annual pas- senger trips. In the peak hours, the New Jersey Transit Authority operated 20 of the 23 trains heading into or out of New York. Building the ARC would double the number of New Jersey Transit commuter trains, from 45 to about 90, that could come into Manhattan every morning at rush hour.
In the face of such congestion and perceived need, the ARC project was conceived to include the following elements:
• Two new tracks under the Hudson River and the New Jersey Palisades
• A new six-track passenger station, to be known as “New York Pennsylvania Station Extension” (NYPSE) under 34th Street, with passenger con- nection to Penn Station
• A new rail loop near the Lautenberg Secaucus Junction station to allow two northern New Jersey line trains access to New York City
• A midday rail storage yard in Kearny, New Jersey
Proponents also argued the environmental advantages of the project, noting that the ARC project would eliminate 30,000 daily personal automobile trips, taking 22,000 cars off the roads and resulting in 600,000 fewer daily vehicle miles traveled. The project was expected to thus reduce greenhouse gas emissions by nearly 66,000 tons each year.
The ARC project was anticipated to take eight years to complete, coming into service in 2017. The cost of the project was significant, as the Federal Transit Administration (FTA) reported the project cost as $8.7
billion in their Annual Report. To share the burden of the project costs, the funding as originally proposed included the following sources:
• Federal government: $4.5 billion • Port Authority of New York and New Jersey: $3.0
billion • New Jersey Turnpike Authority: $1.25 billion
A final important feature of the funding plan lim- ited the exposure of the federal government for any project overruns, meaning that the government was locked into its original commitment amount only. Any cost overruns or project slippages would have to be cov- ered exclusively by the state of New Jersey.
The contracts for various parts of the project began to be awarded following competitive bidding in June 2009, and the first tunneling contract was awarded in May 2010. Within little more than three months, rumbles began coming from the New Jersey governor ’s office regarding the viability of the project. Governor Chris Christie ran and was elected on the promise of reining in what many viewed as out-of-control spending by the state’s legislature, coupled with some of the highest property and business taxes in the country. As a self- described “budget hawk,” Christie was increasingly troubled by rumors of cost overruns in the ARC proj- ect. Worse, all projections for completion of the project pointed to a much higher final price tag than the origi- nal $8.7 billion estimate.
In early September 2010, Governor Christie ordered a temporary halt in awarding new contracts for the project until his office had a chance to study project cost projections more thoroughly. This issue was high- lighted when U.S. Transportation Secretary Ray LaHood, though a supporter of the tunnel, publicly admitted that federal estimates showed the project could go between $1 billion and $4 billion over budget. Christie suspected that even those estimates might be low, putting his state on the hook for a potentially huge new debt at a time when the economy was sour and the state was already desperately seeking means to trim runaway spending. As additional evidence of highly suspect initial cost esti- mates, Christie’s supporters pointed to the recently com- pleted “Big Dig” project in Boston, which started with an initial price tag of $2.5 billion and ultimately ended up costing well over $14 billion to complete.
Governor Christie first canceled the contract on October 7, 2010, citing cost overruns for which he said the state had no way to pay. The following day, he agreed to temporarily suspend his cancellation order so that he could try to resolve the funding dilemma
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Case Study 14.2 517
with federal transportation officials and other project stakeholders. After taking a two-week period to ana- lyze all their options, the governor made the cancel- lation official. Christie said that given the impact of the recession and the probability of continuing cost overruns, the state could no longer afford the tunnel’s escalating costs. More than a half-billion dollars had already been spent on construction, engineering, and land acquisition for a project that was budgeted at $8.7 billion, but which the governor said could go as high as $14 billion. “The only prudent move is to end this project,” Governor Christie said at a Trenton news conference. “I can’t put taxpayers on a never-ending hook.”32
Questions 1. How would you respond to the argument that it is
impossible to judge how successful a project like this one would have been unless you actually do it?
2. Take a position, either pro or con, on Christie’s decision to kill the ARC. Develop arguments to support your point of view.
3. In your opinion, how clearly must a large infra- structure project like ARC have determined its need, costs, and so forth before being approved? If the criteria are too stringent, what is the impli- cation for future projects of this type? Would any ever be built?
CASE STUDY 14.2 The Project That Wouldn’t Die
Ben walked into his boss’s office Tuesday morning in a foul mood. Without wasting any time on pleasantries, he confronted Alice. “How on earth did I get roped into working on the Regency Project?” he asked, hold- ing the memo that announced his immediate transfer. Alice had been expecting such a reaction and sat back a moment to collect her thoughts on how to proceed.
The Regency Project was a minor legend around the office. Begun as an internal audit of business prac- tices 20 months earlier, the project never seemed to get anything accomplished, was not taken seriously within the company, and had yet to make one concrete pro- posal for improving working practices. In fact, as far as Ben and many other members of the company were concerned, it appeared to be a complete waste of time. And now here Ben was, assigned to join the project!
Ben continued, “Alice, you know this assign- ment is misusing my abilities. Nothing has come from Regency; in fact, I’d love to know how top management, who are usually so cost conscious, have allowed this project to continue. I mean, the thing just won’t die!”
Alice laughed. “Ben, the answer to your question can be easily found. Have you bothered taking a look at any of the early work coming out of Regency during its first three months?” When Ben shook his head, she con- tinued, “The early Statement of Work and other scope development was overseen by Harry Shapiro. He was the original project manager for Regency.”
All of a sudden, light dawned on Ben. “Harry Sha- piro? You mean Vice President Harry Shapiro?”
“That’s right. Harry was promoted to the VP job just over a year ago. Prior to that, he was responsible for getting Regency off the ground. Think about it—do you really expect Harry to kill his brainchild? Useless or not, Regency will be around longer than any of us.”
Ben groaned, “Great, so I’m getting roped into serving on Harry’s pet project! What am I supposed to do?”
Alice offered him a sympathetic look. “Look, my best advice is to go into it with good intentions and try to do your best. I’ve seen the budget for Regency, and top management has been trimming their support for it. That means they must recognize the project isn’t going well. They just don’t want to kill it outright.”
“Remember,” Alice continued, “the project may not die because Harry’s so committed to it, but that also means it has high visibility for him. Do a good job and you may get noticed. Then your next assignment is bound to be better.” Alice laughed. “Heck, it can’t be much worse!”
Questions 1. What termination method does it appear the com-
pany is using with the Regency Project? 2. What are the problems with motivation when proj-
ect team members perceive that a project is ear- marked for termination?
3. Why would you suspect Harry Shapiro has a role in keeping the project alive?
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