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Benefits realization at the operation stage is a widely neglected aspect of sustainable development of construction projects. While it is one of the ultimate purposes of initiating projects, public projects often perform poorly in realizing benefits after being delivered. The purpose of this study is to investigate why public institutional building projects could not realize benefits as expected. Four barriers to benefits realization are identified, which mainly stem from the formalization of public institutional building project management. These are rigid administrative systems, non-autonomous decision-making, strong accountability, and lack of benefits evaluation scheme. This study presents a paradoxical understanding of the role of formalization in ensuring project production and benefits realization of public institutional building projects. While formalization ensures accountability and transparency in the project delivery and production, it undermines the long-run benefits realization after being delivered.