Case Studies: Sá Carneiro Airport Expansion, Portugal

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Project Overview
Sá Carneiro Airport Expansion, Portugal
Project Type: Brownfield
Type of Project Financing: Public
Contract duration: Originally foreseen 3 years for the respective bundle of contracts
Budget: EUR 308M
Project Time Line
1999: project conceived
2000: contract for detailed design and technical assistance to construction
1999: construction begins
2002: baggage terminal completed
2002: access roadworks completed
2002: fire station completed
2004: capacity expansion for the 2004 UEFA European Championship
2006: platform renewal completed

Introduction

The SáCarneiro airport is located in Porto, the second metropolitan area of Portugal. It was built in 1945, became international in the mid-1950s, and underwent several expansions. In 1999, a three-stage masterplan was put forward as a strategic development roadmap. The 1999 expansion corresponds to the first stage of that masterplan. The stage aims to support an increase in capacity up to 6 MPA (million passengers per year), double the operational area capacity, and thoroughly renew the terminal.

With respect to the airside, the 1999 project included a new layout for the platform, the renewal of the runway and the taxiways, the introduction of 35 new aircraft parking positions, and a new fuel supply network. On the landside, the project included separate curbsides for departures and arrivals; new connections to the sewage network; the remodeling of the existing parking area; the construction of a new underground parking; improvement of road access, and a connection to the metro network. The terminal renewal included new departures and arrivals halls, new check-in desks, a major remodelling of the boarding and disembarking flows into two levels, as well as the installation of a pier along the front of the terminal, serving nine parking slots and served by nine jet bridges.

This project was conceived and procured by ANA, the (then) public company that holds the responsibility for all Portuguese airports, as a series of 65 public works and goods and services purchase contracts awarded directly and through competitions. The project suffered long delays and cost overruns, having been awarded in 2000, and delivered in 2007, 4 years later than planned. The airport was operational throughout construction.

The new terminal building won the 2007 European Steel Design Award for Portugal, and the airport has been voted by passengers as the best European airport in 2007 for the ACI International Award, while it has been between the top three between 2006 and 2011.

The Contracting Authority (Public Party)

ANA is the airport infrastructure manager in Portugal, operating the national airports. It was a public company when the Sá Carneiro airport expansion project was procured and built, but recently, in 2013, it was concessioned to Vinci for a 50 year period.

As manager of the Portuguese airports, ANA was responsible for the establishment, management and development of airport infrastructure in Portugal. Implementing the strategic development plan of the Sá Carneiro Airport was their responsibility.

Because it was a public company with exclusively public capital, ANA was subject to public procurement laws.

The new design was subject to national and international standards and regulations. Supervision and enforcement of national regulations is the responsibility of INAC, the civil aviation regulator.

The design was mostly carried out by the contracting authority ANA. Some detailed design was contracted out (structural, water/drainage, gas, electrical, mechanical, and security) to the following companies: AF – Armando Fialho, TalProjecto, ENGIDRO, EACE, Eng. Rodrigues Gomes e Associados.

Construction, services and equipment were contracted to the following companies: A. Cavaco, ABB, ACF, Adrianos, Alves Ribeiro, Bento Pedroso, Abrantina, CDL, Comelmada, Edifer, EDP, Efacec, Engil, Fernando Gaspar, Geopesquisa, Letratec, Mota-Engil, Movex,OFM, Siemens, SIMI, Sinal Impar, Sistavac, Soares da Costa, Soletop, Somague, Sotécnica, Teixeira Duarte, ThyssenElevatec, ThyssenKrupp, Zagope.

Other companies and institutions were involved as consultants (Schipol and NACO), managers and supervisors (GAPOBRA, GPA, PLANEGE, SOGECINCO, AFAPLAN), inspectors (CONUGAL/FASE), auditors (IOAT, European Court of Auditors, General Finance Auditor and Ernest&Young), and evaluators (National Laboratory of Civil Engineering, CONSULPAV, Bureau Veritas – RINAVE).

Sources of Financing

The financing was based on ANA’s own funds (42,8%), EU ERDF funds (6,1%), EIB loan (41,3%) and other loans (9,8%). The airport expansion was part of TEN-T’s Priority Project 8 - Multimodal axis Portugal/Spain-rest of Europe. The III Community Support Framework report for Portugal included the Sá Carneiro Airport expansion as a funded project (24,9 million euros from the European Regional Development Fund).

Users

Airlines and business developers looking to establish themselves at the airport (including commerce and cargo operators) are the users of the airport. Air transport passengers are also users, although they are not charged directly for the use of the airport. The main stakeholders identified for this project are ANA, the airport operator, the airlines flying to the airport, the businesses established at the airport, local public transport companies, local taxi associations, the local government / municipality, population residing near the airport (subject to noise), the local environmental associations, and airport handling companies.

Key Purpose for Public Financing Model Selection

For this project, ANA did not choose private co-finance. As airport operators, they contracted out construction, as that is not their vocation. They were able to finance the project partially with own funds, partially with loans, and with some ERDF contribution. More recently, ANA was the object of a PPP awarded to Vinci for 50 years, for the operation of all Portuguese airports.

Project Timing

The airport was built in 1945, under a different name – Pedras Rubras. In the mid-1950s, it became international following a runway extension to 2400m. During the 1970s, the runway was extended again to 3480m. In 1990, there were major remodelling works, with a new terminal building, new access roads, new parking in the platform, a freight terminal and additional technical buildings for air traffic control. With 1990 renewals, the airport was renamed Sá Carneiro. However, by the end of the decade, at 3 MPA, there were already severe capacity constraints affecting airport performance and its ability to grow. There were too few check-in desks and boarding gates, the baggage handling system did not have enough capacity, there was a shortage of parking, the platform layout was not optimized, the terminal layout was too limited and could not accommodate commercial area demands, and the single curbside access was congested. Facing these challenges, the airport operator brought in a consultant – Schiphol Project Consult – to devise a strategic development plan. In 1999, that plan, which covered marketing, business, land-use and infrastructure, and environment, was put forward as a three-stage masterplan for the airport. The 1999 expansion of the Sá Carneiro airport is the first stage of that masterplan for the airport. Further stages of the masterplan support future traffic growth for the airport.

Project Locality and Market Geography

As mentioned before, Porto is the second metropolitan area of Portugal, with a population of 3,7 million inhabitants, and an increasing population density of about 1580 inhabitants per square km. It has recently become a popular tourist destination listed in many top rankings for city break destinations in Europe. Tourism is one of the forces driving air traffic growth.

Although it is the only airport in the city of Porto, the Sá Carneiro airport is in direct competition with other airports in the region. There is competition for air routes with the Lisbon airport, and the Galician airports in Spain (Vigo, Santiago de Compostela, Coruña).

Procurement & Contractual Structure

65 contracts were involved, most related to construction, design, and construction coordination. There were also several contracts for systems and equipment.

Tendering

More than half of the contracts were directly awarded (54%), however these only represent 11% of the total value contracted. 87% of the total value of the construction was awarded using a public tender. Very few contracts were awarded using limited or negotiated procedures (a total of 7 representing 11% of construction value).

The main reason for using direct award procedures was the urgency due to the traffic peak generated by the UEFA championship EURO 2004. Additionally, 5 public tenders were cancelled with the exclusion of all bidders due to irregular and incomplete proposals, or because all bids were considerably higher than requested. Most of the direct awards were carried out after approaching only one company.

The most important award criteria for public tenders were price and deadline, which contrasts with what actually happened in terms of delays and cost overruns.

Open calls used as award criteria price (from 30 to 60%), deadline (from 13 to 35%), quality and quality control (5 to 40%), and technical support to equipment (30 to 40%).

Restricted calls used lowest price by NPV calculation as the sole award criterion.

Negotiated procedures used price (55%), quality (5%) and equipment (40%) as award criteria.

Direct award procedures used lowest price by NPV calculation as the award criterion, and, in three cases, a 15% to 20% weight on quality.

Contract Structure

The contracts followed three main pricing models – lump sum, fixed price and rental – but no official standards were used. The Court of Auditors concluded that lump sum contracts were not adequate for the project, and that unit cost should have been adopted. The Court mentions a particular contract that was tendered without detailed measurements and still used a lump sum model.

Risk Allocation

As designer and operator, financer and borrower of bank money, and contracting authority of the construction, equipment and rental contracts, ANA took the bulk of the risks associated with the expansion project, as depicted in Figure 1.

Carneiro.png
Figure 1: Risk allocation

Performance

Works inspection for the contracting authority was very satisfactory: 53% of contracts were considered to have performed at an excellent quality level, 29% were considered reasonable, and for 12% there were some issues.

With respect to cost, the project did not perform well: initial budget was EUR 308,2M; final cost was EUR406,9M; the cost overrun was of EUR98,8M, representing 32% of the original budget. This can be attributed to several reasons. Award value was 5% higher than budgeted. The contracting authority had to compensate several contractors for construction suspensions, construction delay, situations that hindered the works and constraints due to the terminal building construction. Claims for additional works were made, and after independent inspection, the contracting authority paid for them. Project changes, namely to deal with the Euro 2004 traffic peak, generated additional costs and required additional contracts. Pricing reviews also caused substantial cost overruns.

The UEFA Euro 2004 championship was awarded to Portugal after the project was underway. To be able to process the peak in demand, some changes were made to the project. These changes were to be in effect temporarily, throughout 2004, and then the project would return to the original design. The Euro 2004 capacity expansion required stopping some of the construction works for the duration of the championship. The latter also generated claims from other contractors involved in the project.

With respect to deadlines, the project did not perform well. There was a 10 month delay in the beginning of works because the environmental impact study was found non-compliant. Contracts were already being awarded at that time, and awards had to be stopped until a new study was submitted and an environmental impact declaration was issued. The final delivery of construction was 4 years later than planned. Even though the project was operating throughout construction, this delay had significant impacts. This delay can be attributed to several reasons. The imposition of level 3 alert after 9/11 made the areas around the pipeline off-limits to construction crews. Construction in those areas was thus delayed. The large number of bids for the terminal building contract, the tender suspension due to delays in obtaining the environmental impact declaration, and bidders’ claims to European courts, caused a delay of about 18 months. The temporary changes and constraints to the project due to the UEFA Euro 2004 championship required stopping some of the construction works for the duration of the championship. Finally, there were operational difficulties in providing construction site space for the contractors in the operating airport, especially since other entities were operating using airport space (customs, handling companies, restaurants and others).

Project coordination problems were also considered a critical factor in this project. There were difficulties in project management and supervision, which could have been accounted for in such a complex project. These were eventually solved after the project governance was changed from a task force model to a central management and coordination body within the contracting authority. Nevertheless, this solution came only 3 years after construction began.

With respect to traffic and revenues, the project has been performing well. In 2007, the traffic goal was 5MPA by 2010. Actual traffic in 2010 was 5,3MPA (6% higher than expected). Traffic is still growing since then – in 2014 it was 6,4 MPA.

Project Outcomes

The main purpose for the contracting authority was to increase capacity to be able to attract further demand – this goal seems to have been successfully achieved.

The Court of Auditors considers the project had a positive impact: the project made the Sá Carneiro airport a reference airport in the northwest of the Iberian Peninsula, allowed for a higher passenger satisfaction, generated international recognition for service quality, improved the region’s economy, positioned the metropolitan area of Porto as a European/World city, and promoted direct and indirect activities, such as the creation of jobs.

Despite the positive impact, the project’s delays and cost overruns make it less successful from a project management perspective.

References

  • INAC (2010). Evolução do Transporte Aéreo no Aeroporto Francisco Sá Carneiro 1990-2009. Civil aviationinstitutereport, August 2010. ISBN 978.989.95680-9-9
  • Tribunal de Contas (2009). Ampliação do Aeroporto Francisco Sá Carneiro. Auditoria temática às derrapagens em obras públicas. Quarto Relatório Vertical. Court of Auditor’s report nr. 06/2009 AUDIT. http://www.tcontas.pt/pt/actos/rel_auditoria/2009/audit-dgtc-rel006-2009-2s.pdf