Effects of lagging projectification in the public sector on realizing infrastructure projects

“The German economy has great innovativeness and a strong focus on exports to thank for its competitiveness and global networking. In high-selling sectors, such as car-making, mechanical and plant engineering, the chemicals industry, and medical technology, exports account for well over half of total sales” (Schayan 2021). A share of 11.6% of the GDP is generated in the construction industry with 2.57 million employees. Investments in the construction sector and employment figures have risen slightly for years. As in the economy as a whole (Schlömer-Laufen and Schneck 2020), the construction industry is dominated by small and medium-sized enterprises. More than 80% of the value-added in this sector is generated by companies with fewer than 200 employees (Weitz 2021). “The German Mittelstand is at the forefront of a modern management model that builds flatter, innovative, and networked enterprises. They develop a high degree of specialization and possess an extreme focus on the wishes of global customers” (Parella and Hernandez 2018, p. 16).

Although the economy in Germany has picked up again after the setbacks during the pandemic in 2021, supply bottlenecks for materials, rising energy prices, and labor shortages are currently preventing a further recovery to pre-pandemic levels. Even though the new government will maintain budgetary discipline, it has announced additional spending in education, infrastructure, and climate protection (Bundesbank 2021), which is a positive sign for construction.

Germany is a federally structured nation with 16 states that enjoy a relatively high degree of independence. “The close links between the federal states and central government is unique, resulting in the state governments having numerous opportunities to play an active role in central government policy” (Schayan 2021). Due to the federal structure of the state, public administration also comprises three levels: the national level, the state level, and the local level. Although the last of these is part of the state administration, they can organize themselves independently through bylaws and implement statutory ordinances (Sommermann 2021). A unique role in the civil service is played by the Federal Administrative Office Bundesverwaltungsamt, which reports to the Federal Ministry of the Interior Bundesministerium des Innern and provides services for all ministries and the entire civil service (von Knobloch 2021). For example, the Federal Administrative Office plays a vital role in digitizing the administration. Still, its President is also a significant participant in the action program “Shaping Germany's Future with Projects” of the GPM. The program comprises representatives from the federal government, the states, and local authorities, which aims to clarify what contribution project management can provide to maintaining Germany's future viability (GPM 2021). However, there is constant criticism of how little the public administration in Germany is capable of reform. For example, the pandemic has revealed the urgent need for digitalization and modernization of public administration in Germany (Wegrich 2021).

Sparked by the German reunification in 1990, Germany's infrastructure has been systematically expanded and upgraded ever since. “The various transport and traffic infrastructure projects build bridges over the open inner-German borders between the old and new Federal States and Berlin. A total of nearly 40 billion euros has been invested in nine railroad projects, seven express-ways, and one waterway project. To date, 98 percent of these projects have been completed or are in their final state” (Tiefensee 2018, p. 88). Yet, the public sector carried out only about 12% of construction projects in 2020. The vast majority was residential construction, with 61%, and the remaining 27% commercial (Weitz 2021).

An essential instrument for developing the infrastructure in Germany is the Federal Transport Infrastructure Plan (FTIP). The first edition of the FTIP was published in the wake of reunification in 1992, and after the second edition in 2003, the third edition was finally published in 2016 for the period up to 2030. It is concerned with the construction and structural maintenance of the federal transport infrastructure. “The FTIP comprises necessary capital maintenance investment and investment in replacement infrastructure as well as upgrading and new construction projects... the FTIP focuses on projects that have significant impacts on large areas and develop a significant capacity-enhancing and/or quality-improving impact. The FTIP is the Federal Government's most important transport infrastructure planning tool” (BMVI 2016, p. 4). With the FTIP, more than 270 billion euros are spent in up to 2,000 projects and programs in Germany during the entire period. In the process, the federal level coordinates the evaluation of projects in terms of expediency and feasibility, creates legislative foundations, and coordinates the implementation of projects via the federal states, cities, and municipalities. Criticism regarding the FTIP is mainly directed at the inefficient selection, prioritization, and implementation of projects within the framework of public administration (Frey 2014) and the insufficient consideration of macroeconomic impulses in the planning of infrastructure projects (Walther and Haßheider 2018), as well as an overestimation of the possibilities for implementing the many projects (Fichert 2017).

Major infrastructure projects in Germany, especially those for which the public sector is responsible, have been criticized for years. “Large-scale projects, especially in infrastructure, are often finished late and over the initially planned cost. This has been subject to heated controversy over the alleged waste of public money in Germany. The Elbphilharmonie in Hamburg, the Berlin BER Airport and Stuttgart 21 are prominent examples” (Kostka and Anzinger 2016, p. 2). A Reform Commission for the Construction of Major Projects convened by the Federal Government called on all stakeholders to implement a fundamental culture change in the planning and delivery of large projects (BMVI 2015).

However, despite the criticism and recorded overruns, we have learned that the need for infrastructure projects in any society remains constant, or is even growing, due to ecological modernization (Haas 2020). So, nothing will stop these projects. They could be faster or slower, or more or less successful. And that's precisely the void that the public sector has a significant role to play in filling.

In order to answer our research question regarding the effects of lagging projectification in the public sector on realizing infrastructure projects, we focused on a quantitative survey on the projectification of society in Germany and compared the results with a previously conducted survey on the projectification of the German economy. To investigate the effects of different levels of projectification in the German construction industry and the public sector on infrastructure projects, we conducted an interpretive case study with a focus on governance. The nature of such research is based on understanding, describing a phenomenon with the researcher being internal in relation to the research object. “In such case studies, the researchers can embrace an insider's perspective on the research object being investigated and acknowledge the experiences of the informants and of the researchers themselves as elements of the research process” (Martinsuo and Huemann 2021, p. 419).

Our participation as subject matter experts in the German Reform Commission for the Construction of Major Projects between 2013 and 2015 allowed us to gain valuable insights into several major infrastructure projects, including the Berlin BER Airport, which we have analyzed here as a single-case study (Yin 2018). To validate our own findings, we have drawn on secondary qualitative data (Heaton 2008), which allowed us to triangulate all findings from the different sources (Maylor et al. 2017). In the context of case study research, “the investor's goal is to expand and generalize theories (analytical generalization) and not to enumerate frequencies (statistical generalization)” (Sharcia 2016, p. 3843). This form of inductive research enables the derivation of research hypotheses that can subsequently be tested deductively, hence supporting the inference of theoretical propositions (Eisenhardt and Graebner 2007).

Our quantitative survey on the status quo of projectification of society in Germany with the most significant causes and effects was conducted between January 18, 2021, and February 26, 2021. All persons involved with projects in Germany in any way, whether as a member of a project team or in one of the following roles, were invited to participate in the survey. During this period, 200 people completed the questionnaire with a completion rate of 97%. Of these, almost 30% were from the industrial sector, 10% from the public sector, and the rest from other sectors of society (Wagner 2021). The data collected in this way were compared with a study by GPM on projectification in the German economy (Wald et al. 2015b) and other surveys on the phenomenon of projectification in the context of Germany (Hofmann et al. 2007; Rumpp et al. 2010), and these data were used for further analysis.

The Berlin BER Airport, a major public infrastructure project, is considered a downbeat example of a public sector project in Germany and is in the public spotlight due to the immense delays and the cost explosion. Therefore, we have chosen this case to analyze in greater detail the effects of lagging projectification in the public sector in Germany on realizing infrastructure projects. For this purpose, we have drawn on a large number of publicly available reports, expert opinions, and publications (e.g., Kostka and Anzinger 2016; Müller 2020).

The first evidence of an increasing projectification of the economy in Germany was published in 2007 by Deutsche Bank Research, which highlighted the following scenario: “In 2020, the ‘project economy’ delivers 15% of value creation in Germany (in 2007 the figure was about 2%). The ‘project economy’ refers to usually temporary, extraordinarily collaborative, and often global processes of value creation. It is closely intertwined with the traditional way of doing business and is based on mature information technologies. Germany's small and medium-sized enterprises benefit in particular” (Hofmann et al. 2007, p. 1). Three years later, an intra-company survey of the projectification shows that project-based work has permeated large parts of the organization in many companies in Germany and is still on the rise (Rumpp et al. 2010). Around three-quarters of the decision-makers surveyed stated that project-based structures had already been established in their company at the time of the survey and that around 37% of all work processes were already organized on a project basis. In particular, innovative issues, such as the introduction of new processes and procedures or the development of new products or services, are realized in the form of projects. In contrast, projects are used far less for administrative tasks, which primarily require reliable and fixed arrangements in a permanent framework. Projects, on the other hand, offer the advantage that project teams can act in a more solution-oriented manner, identify more closely with their goals and objectives, and work more independently. Operational project management is cross-departmental and brings together the know-how required to answer new questions from different internal and external areas in projects.

The GPM study on the extent of projectification in the German economy conducted in 2013 and published in 2015 also shows an increase in the proportion of working time spent on projects compared with total working time, namely from 34.7% in 2013 to 41.3% in 2019 (Wald et al. 2015b). The hypothesis of a further increase in projectification in the German economy could thus be confirmed, although the projectification varies significantly from sector to sector. Although “construction” accounts for only 4.6% of gross value added in Germany, the sector's projectification rate is with 80% by far the highest, followed by “business services,” “trade/transport/hospitality,” “manufacturing,” and “information and communications.” This is where the need for knowledge-intensive collaboration appears to be greatest for corporate success. By contrast, the “public services/education/health” sector follows with 17.8% at a considerable distance and has a great deal of catching up to do in terms of projectification (Wald et al. 2015b). Our own research on the extent of the projectification in Germany confirms the clear divide between the private and public sectors (see Table 2). It also indicates further growth of projectification in the coming years by almost 3% per annum (Wagner 2021).

One of the biggest differences between actors from business and public administration is that the latter do projects, not for profit maximization or the best possible return on investment, but to use public money in the most effective way and to create value for society (Kwak et al. 2014). Furthermore, the public sector operates in an environment where a political agenda influences actions and goals, multiple stakeholders with their sometimes conflicting interests and dynamics need to be taken into account, and much is aligned with the timing of the next election (Flyvbjerg 2017). The image of an independently acting project manager, who leads a temporary project dynamically and fluidly toward the intended goals, does not suit the image of public administration. “In these settings, projects are severely bounded and, as a result, the organization of projects involves considerable efforts to position the project within its institutional arrangements and among powerful political players” (Dille and Söder-lund 2011, p. 480). Implementing projects can be attractive to politicians because it allows them to show that they are putting their political agenda into action and doing something for their constituents. However, time-limited projects do not necessarily fit the way of working in administration: “The public sector is traditionally associated with routine, hierarchy, and stability, whereas projects connote in principle a conflicting logic of discontinuity, flexibility, and innovation” (Hodgson et al. 2019, p. 6). Furthermore, the focus of a “homo projecticus” is more on performing activities that complete a pre-agreed scope in a specific timeframe or increments and less on setting that framing and creating stable conditions, as is more common in public administration (Jacobsson and Söderholm 2021).

Although projects and project management originated primarily in engineering and business management and developed to maturity there, it is slowly but surely spreading to public administration as well (Sjöblom 2009). Projects are used on the one hand to make ambitious political goals possible, such as infrastructure development (Fichert 2017), and on the other hand to reform the administration itself, e.g., through systematic digitalization and knowledge building (Ziekow 2021). However, the implementation of projects involving the public sector is repeatedly criticized, are significantly more expensive than planned, and also often take much longer: “manifold political interests are nested and hidden in the process … Key actors are interested in increasing performance requirements regardless of costs as well as in keeping the transparency of this cumulative process as low as possible” (Flyvbjerg et al. 2016, p. 41). Berlin's “BER Airport,” the “Elbphilharmonie” at Hamburg, and “Stuttgart 21” are prominent examples of public projects that suffered from severe time delays, cost overruns, and controversial debates (Kostka and Anzinger 2016). As a supporter of the German Reform Commission for the Construction of Major Projects, we were able to gain deep insights into the causes and effects of these cases and to contribute to the final report and action plan for large projects. One of the causes mentioned is lack of collaboration: “Major projects are frequently characterized by mistrust and disputes rather than collaboration and cooperative partnerships” (BMVI 2015, p. 7). Most of the Reform Commission's recommendations point in the direction of strengthening the governance of major projects and improving the cooperation of all stakeholders with a focus on the role of public administration in forming the network of partners (Braun and Sydow 2019). A variety of dimensions of success need to be considered, allowing all stakeholders a chance to benefit, and this has to be taken into account from the very beginning (Elbaz and Spang 2018).

Shortly after the German reunification, a search began to identify a suitable location for a future airport that could meet the requirements of the new capital. In 1992, an agreement was finally reached on the expansion of the existing airport in Berlin-Schönefeld. At that time, the Germany Flughafen Berlin Brandenburg (FBB) was formed as the sponsor of this major project (Roth 2013). The City of Berlin and the State of Brandenburg are majority shareholders with 37% each, and the remaining shares are held by the Federal Government. The original plan to commission a general contractor and privately build the new airport was abandoned due to legal disputes during the tendering process and cost estimates of the private consortium that were deemed to be too high. “After abandoning the private tendering process, the board chaired by the mayor of Berlin, Wowereit, and the prime minister of Brandenburg, Platzeck, decided to build the airport under the owners’ control … It was a megaproject ‘squeezed’ into an existing corporate governance framework designed for a going concern” (Müller 2020, p. 245). Yet, this was just one of many occurrences that ultimately led to a delay of 9 years and an increase in costs from the original 2.4 billion to almost 6 billion euros today.

In several respects, the Berlin BER Airport is an illustrative example of how divergent projectification levels between private industry and the public sector can cause governance and implementation-related problems in large-scale projects. Corresponding lessons learned have been discussed not only by the aforementioned German Reform Commission for the Construction of Major Projects but also by investigative committees and expert reports (e.g., Fiedler and Wendler 2015). The likelihood for failure, cost increases, or schedule delays in complex projects is high if adequate governance is not in place: “Megaprojects are qualitatively more complex and riskier, and therefore require governance regimes that are different from those of more routine and less risky endeavors” (Miller and Hobbs 2005, p. 42). Governance in connection with projects comprises “the value system, responsibilities, processes, and policies that allow projects to achieve organizational objectives and foster implementation that is in the best interests of all stakeholders” (Müller 2009, p. 4).

A problem in public administration is the lack of expertise in tendering, commissioning, and supervising the construction companies involved in such a complex project, let alone the lack of in-house experience in project planning and management (Müller 2020). The supervisory board of the Berlin BER Airport which at the time was made up entirely of politicians, rejected the commissioning of a consortium of experienced private-sector companies on the grounds of cost because they did not want to abandon the self-imposed (but in retrospect completely unrealistic) cost and schedule targets. This effect, known in the literature as “optimism bias” (Flyvbjerg 2021), can often be observed in politically motivated decisions. Political influence was also decisive for the large-scale project, from the decision on the location to the construction planning and the division of the construction lots. The regional parliaments of Berlin and Brandenburg, for example, wanted to strengthen regional businesses and secure the loyalty of voters. “Breaking the project up into multiple lots in 2007 made it more complex and costlier and resulted in significant delays. The managing and controlling process for the new airport was thus compromised from the outset” (Müller 2020, p. 254).

In the course of the project, there were always opportunities to take countermeasures from within the project itself through parliamentary inquiries or external expert opinions. However, the Supervisory Board had no expertise in monitoring such a major project with the corresponding risks: “All in all, ignorance and unfounded optimism of sponsors and the airport's management trumped thoughtfulness and appreciation of risk. The possibility of failure was not taken seriously … Adequate time and cost contingencies were not included, resulting in cost-driven decision making that put the entire project on a slippery road” (Fiedler and Wendler 2015, p. 44). The German Reform Commission for the Construction of Major Projects has therefore strongly advocated bringing more third-party expertise into major projects, such as the Berlin BER Airport, regularly monitoring cost and schedule performance and risks according to recognized industry standards, and ensuring greater transparency about the real status of the project. Furthermore, collaborative planning tools, such as Building Information Modeling (BIM), are to be given greater consideration in the realization of public projects, as this is state-of-the-art in privately realized projects or other industry sectors (Wagner 2020).

Since the public administration is primarily accustomed to spending annual budgets and paying less attention to the profitability of the investment and the short-term liquidity and long-term debt ratio of the company, risks also exist here in the case of large projects. “Only after the delayed opening in 2012 did the board elevate the Chief Financial Officer to the management board … Project controlling and project documentation was subject only to self-regulation … Financial control was initially lacking” (Müller 2020, p. 256). Unthinkable in a privately owned project, the three shareholders of BER Airport assumed a 100% guarantee for the total debt of initially 2.4 billion euros. Loans guaranteed by the public sector are virtually risk-free for the lender. Moreover, they are exempt from the provision of equity capital under banking regulations. “As a result, the feasibility of the project, the design of a robust project delivery governance including customary checks, and the typical contractual requirements of lenders that aim to avoid the cost and time overruns were of no economic interest to the lenders” (Fiedler and Wendler 2015, p. 29). However, this is what is now causing significant financial problems for FBB, as the airport's income during the pandemic has fallen far short of expectations, and it is also unclear whether the airport will be able to operate profitably in the future. Currently, the three shareholders, therefore, have to inject taxpayers’ money on a large scale to save FBB from insolvency (Gemünden and Wolf 2020).