Megaproject Performance, Value Creation, and Value Distribution: An Organizational Governance Perspective

This study addresses a long-standing debate as to why escalation in capital costs is so common over the lifecycle of ‘megaprojects’ – the project-based, multi-party organizational contexts that are set up to develop capital-intensive, long-lived infrastructure. We ground our study on three case studies conducted with theoretical alertness to a range of factors that need to be considered from an organizational governance perspective. Our findings trace cost escalation to fundamental changes of the project governance structure and concomitant renegotiations of the value to be created and the value distribution. Specifically we link substantive cost hikes to, first, early negotiations to agree a value proposition that unifies a core group of autonomous actors under a shared form of governance. And second, to collective action problems that arise as key nonmarket stakeholders are brought into a polycentric governance structure to encourage cooperation in joint local value creation activities. We also associate cost hikes, although less substantive, to market transactions with suppliers and to bilateral agreements with other nonmarket stakeholders that stay excluded from direct participation in governance-related decisions. We discuss implications to our theoretical and empirical understanding of megaproject behavior and performance.