UK: Government Reports On Review Of Infrastructure Costs

Last Updated: 26 April 2012
Article by Angus Walker

Today's entry looks at the government's steps to drive down infrastructure costs.

The government is concerned that infrastructure costs more to develop in the UK than elsewhere. Back in December 2010, it launched an 'Infrastructure Cost Review', which was going to try to find 15% savings on the cost of infrastructure projects on average by 2015. The analysis of the existing situation on page 5 certainly rings true, e.g. 'If the budget includes contingencies, the higher total becomes the available budget'.

A plan to cut costs was promised by March 2011, and was duly published that month. Next, in June, came a brief 'charter' setting what the government would do and expect industry to do.

Yesterday, the government has published an update on how the implementation plan is getting on. It is quite dense and some of the links to other documents don't work (e.g. para 2.6 - the link should have a hyphen in it and is to the wrong document anyway), but here is a summary that I hope is more digestible. The review has six components.

'Pipeline visibility and certainty'. This is the problem that the programming of infrastructure is too short term, stop-start and not well known enough. According to a survey from February this year, confidence in the pipeline of infrastructure is growing. Lists of funded projects will continue to be published, and the Cook Report on ownership and financing of highways will not only look to be implemented but the principles may be extended to other sectors.

'Effective governance and control of costs'. This is a perceived lack of leadership skills, particularly for government projects, together with cost estimates being too high that then become a self-fulfilling prophecy. Up to 350 civil servants are to attend a Leadership Academy to address the first issue. On the second, the practice of including 'optimism bias', a blanket percentage for contingencies to reflect that costs are often optimistically low, recommended by the Treasury 'Green Book', looks to be going out of favour. Instead, each cost is to be subject to a risk analysis earlier, which tends to make the overall figure lower. The Green Book is to be revised by the end of this year.

'Specifications and technical standards'. The issue is that projects are setting their own standards for components rather than adopting common standards. Doing the latter would mean that the components could be procured off the shelf and from more suppliers more cheaply. The example of lifts and escalators for Crossrail and London Underground is given, and an Industry Standards Group will attempt to halve the number of bespoke standards.

'Competition and procurement'. The survey mentioned above concluded that procurement practice has yet to change in the way the government hopes. Again, procurement processes are too bespoke, wheels are being reinvented. They also take much longer than in mainland Europe particularly when it comes to involving contractors early, which we don't do as much or as early. A procurement 'routemap' is to be published and applied to the 40 priority projects.

'Industry and supply chain sustainability'. Smaller companies in the supply chain for major projects do not know enough about what projects are in the pipeline and how they can get involved. 'Industry days' and 'meet the supplier' events are encouraged, but need to be more consistent and involve more than one developer, e.g. all the forthcoming projects involving tunnelling should club together.

Finally, 'Infrastructure data'. This is really about learning from how projects actually turned out compared with the estimates, and getting hold of that data. I can see difficulties in obtaining it due to embarrassment at overruns.

Driving down the cost of infrastructure is clearly a desirable aim provided that it does not discourage the provision of infrastructure in the first place. The six 'components' above seem to cover the problem, although the cost of planning and authorising infrastructure seems to be beyond the remit of the review, and must surely be an additional factor.

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