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LBU – Delivering Pan Borneo Highway Sarawak Below Target Cost

Friday, 29 March 2019, Kuching -- In recent days, much has been said about the Project Delivery Partner (“PDP”) model used for implementation of mega project Pan Borneo Highway, with concerns about keeping costs within the agreed target cost capping.

Mid-way into project implementation, Lebuhraya Borneo Utara (“LBU”) as PDP for Pan Borneo Highway Sarawak, is optimistic to be able to achieve some RM2.0 Billion in savings as a result of efficient design, cost and change control management.

Total construction cost is currently projected at around RM15.13 Billion, reduced from the original Target Cost ceiling of RM16.488 Billion.

According to LBU, the total savings arising from design management and optimization alone is around RM553 Million. It is important to note that these savings are made in compliance with the design brief and with no compromise on standards or quality of highway, including design speed.

When other savings are included (mainly due to re-measured quantities based on actual site conditions), the total savings achieved to-date is around RM1.5 Billion.

However, since the Owner, i.e. the Federal and State Governments, has instructed additional works to be carried out, especially with regard to strengthening the pavement structure, the current nett savings stands at around RM1.0 Billion.

A further RM1.0 Billion of savings is expected from allocated contingency not likely to be expended in view of the cost and change control measures undertaken for the project.

Keeping a lid on construction costs is important for the PDP, whose performance is measured against meeting two Key Performance Indicators (“KPIs”). As PDP, LBU is required to deliver the Project within the agreed Target Cost (KPI 1) and by the agreed completion date (KPI 2).

While these KPIs sound simple, yet the task is very challenging. Pan Borneo Highway Sarawak Phase 1 has a road alignment that spans 786km, via 11 works packages comprising 25 road sections, across the length of Sarawak.

The project is to be completed within a brief 5½ years construction timeline till the end of 2021, and with a post-award Target Cost of RM16.12 Billion.

With the PDP model, LBU is incentivised to keep within the Target Cost. Cost overruns will lead to expensive penalties in the form of fee reduction.