Why capital projects overrun after the contract is signed

The award is not where the money goes

Most attention on a capital project goes to the award. Three contractors are compared, a number is agreed, and the project is considered bought.

Very little of the overrun happens there. It happens in the months afterwards, in decisions nobody logged as decisions: a foundation detail that changed, a delivery date that moved, a scope of work that turned out to assume something the site does not have.

Each one is small. Each one is agreed in a phone call or a site meeting. And almost all of them are priced after the work has been done.

A capital project has none of the usual protections

Category buying is safe because it repeats. You have a contracted price to check against, a catalogue to buy from, a qualified supplier list, and a history of what the same thing cost last time. Any one of those catches a bad number.

A capital project has none of them. You buy it once. There is no price history, often no true like-for-like second quote, and no previous version of this scope to compare against.

So the protection has to come from somewhere else. It comes from how carefully the package is written, who is allowed to quote for it, and what happens when the specification changes — because it will.

Where the money actually leaks

Ask a project manager where a completed project lost money and the answers are consistent:

• Scope changed after the contract was signed, and the commercial impact was agreed informally.
• Site conditions turned out differently from the survey, and the remedy was priced by the only contractor already on site.
• Commissioning, spares and training were left out of the main package and bought separately at the end, with no competition.
• Currency and freight sat with the buyer without anybody deciding that they should.
• The contractor was late, and there was no agreed consequence, so the cost of the delay landed on the project.

None of these are procurement failures in the usual sense. Nobody paid over the odds at the award. The money went afterwards, one reasonable-sounding decision at a time.

The control that matters most

If you fix one thing, fix this: every change to scope gets priced and approved before the work starts.

It sounds procedural. It is the whole game. A change priced before the work is a negotiation between two parties who both still have something to decide. A change priced afterwards is an invoice.

That means deciding, in advance, who prices a change and who approves it. Not the project manager on their own, and not by email. If a change is worth doing, it is worth ten minutes of somebody looking at what it costs.

What "committed" should mean while the project runs

Ask most organisations what a project has committed and the honest answer is: whatever finance can reconstruct at month end from invoices received.

That is a report on the past. What a project manager needs is the number as it stands right now — every awarded package, every approved change — so that a decision can be made while there is still budget left to protect.

Committed cost should update when a package is awarded and when a change is approved, not when an invoice arrives. It is a different figure from spend, and it is the one that tells you whether the project is still affordable.

What to put in place before the next one

You do not need a new system to start. You need four decisions made before the project begins rather than during it:

• Break the capital approval into the packages you will actually buy, each with its own scope, budget and approver. One large number hides a dozen decisions.
• Qualify the contractor list before anyone is invited to quote. Insurance, safety record and financial standing, collected once, up front. This is the step most often skipped and most often regretted.
• Agree the change route in writing. Who prices, who approves, and the rule that work does not start until both have happened.
• Tie any release of money to a milestone somebody has verified. In that order, what you paid for always matches work that was checked.

None of this is exotic. It is the discipline that category buying gets for free from repetition, applied deliberately to something that only happens once.