QUESTION-1: Diagnose the performance of the Eurotunnel project on the dimensions of budget

schedule and project quality .What were the reasons for this performance.
Solution:
Budget Schedule
Starting Budget schedule
1-Building the tunnels + special shuttles +terminals cost = pound 4.8 Billion
2-In the absence of any major technical uncertainties a cushion of 25% was deemed
3-Total of pound 6 Billion to be raised
4-Out of 6 billion, 1 billion was to be sourced from equity and the remaining pound 5 Billion
From Syndicated loans from banks
5-No third party Guarantees but the influential arranging banks managed to obtained strong letter of
intent from more than 30 banks to under write the loan of more than pound 4 Billion
6-Seed capital pound 50 Million was put together by banks & construction companies
7-It was planned that the residual equity capital would be raised from a public offering in the first
half of 1987 after obtaining the syndicated loan
8- The credit agreement with the bank was neither negotiated nor committed by the time
Uncertainties against assumption
1-Political environment was uncertain in the light of the impending general election in the UK
2-The ground condition for Drilling turned out to be much more difficult then assumed by TML and
increased in cost and delay for TML
3-Design specification of Pedestrians door changes from 60 cm to 70 cm which cost a delay of 9
months and pound 45 million also defamed the TML as irresponsible attitude
4-Assumptions about interest and inflation rates turned out to be grossly wrong
Amendment Proposed in Budget
1-In 1990 Eurotunnel announced that in order to complete the project it would need pound 9 Billion,
50% more than the figure announced in Nov 1987 . Pound 600 million to be raised by equity and
pound 2.4 Billion to be financed by Syndicate banks. However some of the small bank with drew the
support for loan this time
PERFORMANCE EVALUATION
Due to the above reasons and uncertainties in budget schedule and under estimation of budget
(pound 2.8 Billion) and allocation the Eurotunnel was delayed by 1 year and started 0n 2 June 1994
QUESTON-2- What were the contracts and their characteristics in the project .What Role did they
play in the success or Failure of the project
Solution:
Treaty agreement between French government and UK government and concession provided to
CTG-FM
1-The estimated construction time was seven years
2-No government financial guarantees were offered
3-CTG-FM was given the authority to define its own commercial policy, but was assured that there
would be no competing fixed link before the end of 2020 without its approval.
Three types of contract were awarded by TML (CTG-FM) for Projects
1-Tunneling
2-Terminal & fixed equipment
3-Rolling Stock
Characteristic of Tunneling contract
1-Required TML to design and construct the tunnel and associated structure
2-TML would retain 50% of savings if the works were completed below target cost .If the
target cost exceed however TML would pay 30% of the cost of overrun to a limit of 6% of
the target cost
Characteristic of Terminal and Fixed equipment contract
1-Payment was on Lumpsum basis any saving or cost over run would be absorbed by TML
alone
Characteristic of Rolling stock contract
1-In addition to sub contracted price TML would charge on a basis of cost plus 12% of the
value of the procured item for supervising the bidding and implementation
Damages and Penalty under Control
For any delay beyond the final completion deadline TML was liable to pay pound 350000 per
day for first 6 months and after that pound 500000 per day


Dispute Resolution team
To resolve potential conflicts in contractual matters, the creation of a disputes panel was
stipulated in the contract with four members Three from a technical engineering
background and a commercial lawyer as the chairperson
Due to the improper clarity of scope of work in contract there was a big confusion started
between Eurotunnel and TML .Which leads a delay of year as well as improper cost
calculation .The conflict has been settled in court to continue the project which hampered
the project pace and sanity. Hence we can say due to improper contract formulation it was a
failure to achieve the target on deadline due to confusion and was escalated by a year