Time overruns in public projects

Public projects tend to be perceived as having substantial cost and time deviations and overruns, i.e., with project final cost higher than forecasted and with project completion after the forecasted deadline. This paper studies the causes for such deviations from forecasts. It focuses on project-related (endogenous) reasons such as the investment amount and the sector of investment, and on (exogenous) reasons of political, legal, regulatory, and economic nature that include a dummy for government majority, a variable indicating the political leaning of the government, a dummy for the new procurement law of 2008, the rule of law and the corruption index, and GDP growth, inflation, along with dummy variables for the financial crisis and the intervention of the Troika.

The paper defines the time deviation as the percentage difference between the forecast time to complete the project and the actual time needed to complete the project. For the analysis, the paper uses a sample of 250 Portuguese public projects with data collected from Court of Audits reports.

The results show that the distribution of time deviation is right skewness. That is, a small percentage of public projects took an exceedingly large amount of time over what had initially been forecasted. The results show that exogenous determinants have a substantial impact on time deviations (particularly the introduction of the new procurement law in 2008, following EU Directives, that substantially reduced the time deviations). Local government projects have longer time deviations than those developed by the central government. Furthermore, there is no evidence in support of the hypothesis that larger projects have longer time deviations than smaller ones.

Click here to go to the paper by Francisco Pinheiro Catalão, Carlos Oliveira Cruz, and Joaquim Miranda Sarmento.