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OM in the News: How the Panama Canal Project Collided With Reality

June 26, 2016
Construction on the new locks in August 2014. They were supposed to be completed for the original canal’s 100th anniversary that year

Construction on the new locks in 2014. They were supposed to be completed that year.

The New York Times is at its best when it tackles journalistic investigation, as it did with its front page, 5 page feature called “The New Panama Canal: A Risky Bet” (June 23, 2016). The article is the perfect way to introduce the critical topic of project management (Chapter 3). It is the tale of an intense 2-year competition, and how Sacyr, a Spanish company in severe financial distress, learned that its rock-bottom bid of $3.1 billion had won the worldwide competition to build a new set of locks for the historic Panama Canal.

What can go wrong in a massive project like this–or like so many of the others we note in Chapter 3’s Global Company Profile featuring Bechtel (which lost the bid they thought they had wrapped)?  Here are just a few answers: (1) disputes over how to divide responsibilities; (2) executives who did not fully grasp how little money they had to complete a complex project with a tight deadline; (3) a multicultural team whose members did not always see things the same way; (4) work stoppages, porous concrete, a risk of earthquakes, and at least $3.4 billion in disputed costs (more than the budget for the entire project)!

For more than 100 years, the canal has been a vital artery nourishing the world economy. The new locks were sold to the nation and the world as a way to ensure that the canal remained as much of a lifeline in the hyperglobalized 21st century as it was in the last. But 7 years after the contracts were signed, and the locks declared ready for use, the expanded canal’s future is cloudy at best, with its safety, quality of construction and economic viability in doubt. The bid by the winner was 71% lower than that of Bechtel. Shocked Bechtel executives were incredulous, saying Sacyr “could not even pour the concrete for their bid amount.”

Classroom discussion questions:

  1. Where did the project go wrong?
  2. What ethical issues did the project managers face?
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