Channel Tunnel Case

Managing Change - Prof. Dr. Josef MittmannFachhochschule DortmundUniversity of Applied Sciences and Arts

Case Study The Channel Tunnel

May 26th, 2008

Mingyi SuElvin Bayramov

Christoph J. SzczecinaHenrique A. Lima de Faria

Christoph, Elvin, Henrique, Mingyi

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1. Historical Context

2. Engineering

3. Organizational Transitions

4. Financial Developments

5. Case Study Answers

Managing Change - Channel Tunnel Case Study

• Historical Context• Engineering• Organizational Transitions• Financial Developments

• Case Study: Answers

Content


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2. Engineering





Historical Context

1802 Albert Mathieu put forward a cross-Channel tunnel proposal.

1880 A railway tunnel by Watkin, the chairman of the South

Eastern Railway

1883 The work stopped after an injunction had been served against

Watkin

1887 Watkin became `Channel Tunnel` Company


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2. Engineering





Historical Context

1914 -18

WW I

During World War I the 1800 m. tunnel was used for military

purposes

January 1974 A UK–France government backed scheme that started in 1974

was cancelled.

February 1986 The Treaty of Canterbury was signed allowing the project to

proceed.

June 1988 First tunnelling commenced in France.

December 1988 UK TBM commenced operation.


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2. Engineering





December 1990 The service tunnel broke through under the Channel.

May 1994 The tunnel was formally opened by the Queen and President

Mitterrand.

Mid 1994 Freight and passenger services commenced operation.

November 1996 A fire in a lorry shuttle severely damaged the tunnel

November 2007 High Speed 1, linking London to the tunnel, was opened.

Historical Context


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2. Engineering





Attempts and Proposals• In the 1830s Frenchman Aimé Thomé de Gamond

• In 1865, a deputation led by George Ward Hunt,

• In 1881, British railway entrepreneur Sir William Watkin and French Suez Canal contractor Alexandre Lavalley . Work started at both sides.

• On the English side a 2.13-metre (6.99 ft) diameter Beumont-English boring machine dug a 1,893-metre (6,211 ft), on the French side a similar machine dug 1,669 metres (5,476 ft) from Sangatte

The Beumont - English boring machine


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2. Engineering





Attempts and ProposalsAs a result of meeting between the leaders of two countries FOUR submissions were proposed by promoters, in 1985:

1. A rail proposal based on the 1975 scheme presented by Channel Tunnel Group/France–Manche (CTG/F–M),

2. Eurobridge – a 4.5 km span suspension bridge with roadway in an enclosed tube

3. Euroroute – a 21 km tunnel between artificial islands approached by bridges, and

4. Channel Expressway – large diameter road tunnels with mid-channel ventilation towers


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2. Engineering





Geology

• Strait of Dover

• The closest distance 33 KM

• One of most important Straits in all over the world


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2. Engineering





Geology


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2. Engineering





Geology


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2. Engineering





Tunneling

• The second undersea Tunnel in the world (Seikan Tunnel in Japan) • The major risk for underwater tunnels

•major water inflow • Folkestone, Kent in England and Coquelles France• Long 50.5 Kilometers


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2. Engineering





Tunneling

EuroRoute: a bridge/ Tunnel scheme. Road tunnel and Rail tunnel. Cost: $11 -14 Billion

Channel Tunnel/France-Manche: Double rail tunnel , Cost: $5.5 Billion


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2. Engineering





Tunneling

Channel Expressway: twin very large bored tunnel, two-line express way and train track. Cost: $2.9 Billion

Eurobridge: a bridge for motorway and a Railtunnel. Cost $11.5 Billion


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2. Engineering





Tunneling

7.6-metre (25 ft) diameter rail

tunnels

4.8-metre (16 ft) diameter

service tunnel

A tunnels: Passenger Trains, and Freight and shuttle Trains

B tunnel: service tunnel


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2. Engineering





Engineering


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2. Engineering





Railway design and rolling stock

• Locomotives ( Brush – British

company and ABB - Swiss/Swedish

Company

• The passenger railcars

(Bombardier – Canadian company)

• Railcars for carrying freight vehicles

(Breda and Fiat – Italian company)


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2. Engineering





Engineering


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2. Engineering





Problems in Engineer Sector

• Problem of machine, increased 7% cost (1988)• Machines shut down on British side (1988)• Enhanced safety features (1989)• Problem on the passenger railcar (1991) • Air cooling system (1991) • Delay delivery of the systems acceptance

certificates and rolling stock


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2. Engineering





“The project was not properly designed in advance by Eurotunnel, and they

developed a habit in the early days of asking for the best of everything, whether

or not it was needed".

Problems in Engineer Sector


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2. Engineering





Project Start

October 1985:

• Highly centralized • Nationally based twin structure • Each general director keeps control of

almost all activities on his channel side

Transmanche-Link

Translink JV

Balfour Beatty Construction

Costain Tarmac Construction

Taylor Woodrow

Wimpey

Transmanche Construction GIE

Bouygues

Lyonnaise des Eaux-Dumes

Societe Auxiliare d’entreprises

Spie Batignolles

TML Consortium(Transmanche-Link)

October 1985


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2. Engineering





Project Start

Transmanche-Link

Translink JV

Balfour Beatty Construction

Costain Tarmac Construction

Taylor Woodrow

Wimpey

Transmanche Construction GIE

Bouygues

Lyonnaise des Eaux-Dumes

Societe Auxiliare d’entreprises

Spie Batignolles


October 1985


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2. Engineering





Tunneling Phase

February 1988:

• Evolutionary decentralization • Five Directorates:

– Construction France– Construction UK– Common Services– Engineering– Transportation Systems

Chairman

Chief Executive

General DirectorUK

General DirectorFrance

ConstructionDirector

Project CommonServices

Tunnel

Terminal

Isle of Grain

Administration/FinanceDirector

CommercialDirector

Project ServicesDirector

Human Relations & External RelationsDirector

Quality AssuranceDirector

EngineeringDirector

EngineeringGroup

Transportation SystemsDirector

Transportation SystemsGroup


Tunnel

Terminal


February 1988


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Tunneling PhaseChairman

Chief Executive

General DirectorUK

General DirectorFrance


Project CommonServices

Tunnel

Terminal

Isle of Grain

Administration/FinanceDirector

CommercialDirector

Project ServicesDirector

Human Relations & External RelationsDirector

Quality AssuranceDirector

EngineeringDirector

EngineeringGroup

Transportation SystemsDirector

Transportation SystemsGroup


Tunnel

Terminal


February 1988


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2. Engineering





Fitting Out Phase

December 1989:

• Unified management structure • Devolving civil responsibilities to

Construction Groups• Disbanding Engineering Directorate• Operations grouped under

Construction Managing Director• Introduction of Technical Advisor to

Board

Chairman

Chief Executive

InternalAudit

Director

QualityAssurance

Director

CommecialDirector

TechnicalAdvisor to TML

Board

FinanceDirector

Construction ManagingDirector

LegalDirector

AdministrationDirector

Transportation & Engineering Man

Director

UK DirectorConstruction

France DirectorConstruction

ConstructionGroup UK

Building / CivilDesign

Tunnels

PrecastFactory

M & ESupervision

ConstructionGroup France


Tunnels

PrecastFactory

M & ESupervision

Transportation Systems &Engineering Group

Transport SystemDesign

Rolling StockDesign

Rolling StockProcurement

Transport SystemsContracts

Commisioning

Transport SystemProcurement


December 1989


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2. Engineering





Fitting Out Phase

Early 1991:

• Coordination problems between Transportation System & Engineering Group and Construction Group

• Devolvement of all M&E responsibilities to Construction Groups

Chairman

Chief Executive

InternalAudit

Director

QualityAssurance

Director

CommecialDirector


Board

FinanceDirector


LegalDirector



Director





Tunnels

PrecastFactory

M & ESupervision



Tunnels

PrecastFactory

M & ESupervision



Rolling StockDesign



Commisioning



December 1989


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2. Engineering





Chairman

Chief Executive

InternalAudit

Director

QualityAssurance

Director

CommecialDirector


Board

FinanceDirector


LegalDirector



Director





Tunnels

PrecastFactory

M & ESupervision



Tunnels

PrecastFactory

M & ESupervision



Rolling StockDesign



Commisioning



December 1989

Fitting Out Phase


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Commissioning Phase

March 1993:

• All operational aspects subordinated to Managing Director Operations

• Abolishing of Construction, Transportation and Engineering Groups

• Introduction of Tests On Completion Director and Commercial Directors: Dispute Resolution and Transport Systems

Chairman

Chief Executive

InternalAudit

Director

QualityAssurance

Director

CommecialDirector


Board

FinanceDirector

Head of LegalAffairs

Corporate & External Affairs

Director

Commercial Director: Dispute

Resolution

ExecutiveDirector

Managing Director

Operations

Commercial Director: Transport

Systems

CommissioningDirector

Fixed EquipmentCentral Director

Rolling StockDirector

UK OperationsDirector

French OperationsDirector

Tests on Completion

Director


March 1993

French Operations

UK Operations

UK Operations

French Operations


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2. Engineering





Chairman

Chief Executive

InternalAudit

Director

QualityAssuranceDirector

CommecialDirector


Board

FinanceDirector

Head of LegalAffairs

Corporate & External Affairs

Director

Commercial Director: Dispute

Resolution

ExecutiveDirector

Managing Director

Operations

Commercial Director: Transport

Systems

CommissioningDirector

Fixed EquipmentCentral Director

Rolling StockDirector

UK OperationsDirector

French OperationsDirector

Tests on Completion

Director


March 1993

French Operations

UK Operations

UK Operations

French Operations

Commissioning Phase


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Financial Arrangements

Two different projects

Chunnel – the railway connecting France to England

Eurostar – the only high speed rail for the area


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• Costs about $80 to drive from London to Paris ($35 gas and $45 tolls)

• Eurostar is not cheaper, but much faster

• Flight tickets are more expensive, but faster then the Eurostar

• TransManche Link (Cross Channel Link) - TML – 5 banks and the 10 construction

companies

Financial Arrangements – Chunnel


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£10,153 billion 2007 cost of constructionCost overrun around 80%



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Financial Arrangements – Eurostar


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Projected budget - £3,5 billion

1996 – TML raised only £250 million

1987 – extra £800 million (US stock crash)

1989 - £1,2 billion lawsuit by TML against Eurotunnel

1989 – change on door cost £35 million

Until 1994 Eurotunnel raised £6,8 billion and planned extra £800 million

Full project cost around £10,153 billion



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Financial ArrangementsFinancial Arrangements – Eurostar


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1995 – Suspend interest payments (£1,5 million a day)1996 – fire causes more loss

1997 – debt restructure, £8,7 billion generates loss of equity of Eurotunnel

1999 – feasibility study proved that the project was still not profitable



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• Eurostar investment - £15,6 million • Loss in 2003 - £1,33 billion• Loss in 2004 - £570 million

Financial Arrangements – Eurostar


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Thank you very much for your attention

Any Questions left?

Serdecznie dziękujemy

Muito Obrigado

Mного ви благодаря Muchas Gracias


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References1. ``THE CHANNEL FIXED LINK : LE PROJET DU SIÈCLE`` - Graham M.

Winch, November 19982. http://www.wikipedia.org3. http://www.itc.nl/~ingeokri/newsletter/summer98/newpage1.html4. „The channel tunnel“ – Lieutenant Coloned, Leslie Allen Veditz, USA Air

forece

http://www.itc.nl/~ingeokri/newsletter/summer98/newpage1.html


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1. In what ways did factors from the external environments influence the client, and shape the

establishment and behavior of the project coalition?

France and Britain have been in need of affordable means of transportation since the 18th century, but politics have always been on the way of the Eurotunnel. It is not possible to talk about his case and not talk about change management. The entire project was full of surprises like the US stock market crash in 87 got the company $1,5 billion over the night; investor pressure for a fixed price in order to reduce their risk; ICG interferences (the safety issue regarding the door and the reduction of the maximum speed of the freight trains to 130km/h); hitting bad ground during excavation generated difficulties between the managers (external help was used to conciliate the parts).

Case Study - Questions


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2. Describe governance of the project coalition. In your opinion, how appropriate was the choice of

the three different incentive structures in motivating TML and its supply chain?

55 years of concession, no regulation of the fares charged and a commitment not to support any other link with public funds or guarantees for the life of the concession were the way that the Franco-English government found to promote the channel tunnel project. They had to draw the attention from independent investors, and it worked, TML decided to undertake the project even though the project had to be entirely financed with private funds without any government guarantees.



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3. Conduct a stakeholder analysis of who benefited from the fixed link’s construction.

Governments UK & France: The Channel Tunnel promotes the trading connection between the countries and improves living conditions by cheaper and faster transport for both sides. The construction as well the tunnel operation improves employment in the respective regions.

Citizens of Europe: Better living conditions, Employment, Improved regional economy

Logistic Companies: Promoted trading connection

Channel Operators: Business interest

TML & Contractors: Business interest



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4. How and why did the organization design of TML change over the life cycle of the project.

1988: The initial nationally based twin structure of TML evolutionary decentralized into five Directorates as soon as the project went on site.

1989: After completion of the tunneling phase a unified management structure appeared. Operations responsibilities were grouped under Construction Managing Director. Disbanding Engineering Directorate and devolving civil responsibilities to Construction Groups. Due to difficulties within UK senior management a technical advisor to TML board was introduced.

1991: Cultural problems between “office” and “site” arose. Transportation System & Engineering Group was responsible for design of mechanical and electrical installations while M&E departments within Construction Groups were responsible for supervision. This led to coordination problems and devolvement of all M&E responsibilities to Construction Groups.

1992: With beginning of the commissioning stage Construction and Transportation Systems & Engineering Groups were abolished and operational aspects were subordinate to a single Director of Operations.



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5. What lessons can be learned from this account for the management of future large infrastructure projects?


• Try to avoid the large international construction project, if the involved countries are without a common state interest. In this kind project, politic elements will be the most important critical reason, which will prevent or terminate the project, even in one country.

• Must have sufficient government support, if it is possible, government should be involved in the project as one of shareholders. Furthermore, must keep a close communication with government.

• Before starting the project, all shareholders should have a common interest and detailed understanding about the project.

• Must have a long term plan (long term project), aborative R & D, advance design and an effective organization structure, in order to avoid changes and reduce loss during implementing project.

• Coordinate the partners, subcontractors and investors. And build up a effective communication system

• Risk, change management

• Eliminate unnecessary changes


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6. On what basis can the project be considered a success?

As we know, the Eurotunnel was constructed in order to have a cheaper and faster transport connection between UK and France and finally improve the living standards of European people. For such a great advantage of it, the project can be considered as a success.



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7. On what basis can the project be considered a failure?

The project can be considered a failure if we take into consideration the following aspects: it lost 6 months revenues due to delay in opening; its service were disrupted by technical problems; this had an impact on the market and damaged customer’s confidence; it encouraged the ferries to compete vigorously and prices fell well below expectations.


Channel Tunnel Case

Documents

case study answers

external relations director

uk operations director

uk director construction

devolving civil responsibilities

french operations director

external affairs director

rolling stock director