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One of the first actions of the coalition government was to launch an investigation into the cost of delivering infrastructure projects in the UK, led by Infrastructure UK (IUK). ACE contributed to the investigation both by submitting its own evidence and as part of the coordinated information gathering processes that took place.
In December 2010, IUK published its findings. While it did not find one single overriding driver of higher costs, IUK identified some key contributing factors, including: stop-start investment programmes and lack of visibility of pipelines of work; insufficient scoping of projects before work begins; and ineffective use of competition processes. Many of these factors were highlighted by ACE in its evidence to IUK.
IUK’s implementation plan is centred on six work streams: pipeline; governance and assurance; commissioning; competition and procurement; industry supply chain integration; and data.
Pipeline visibility and certainty
Proposed for 2011/12:
A rolling two-year pipeline of public infrastructure and construction projects will be published from autumn 2011
The government proposes to develop new programme delivery funding and approval models to be developed with the Highways Agency and the Environment Agency. IUK will also work with regulated utility providers to align work planning and funding cycles, including with Defra and Ofwat to look at smoothing the water investment cycle
A limited amount of inter-year spending flexibility will be permitted to incentivise improved planning of works
Other actions will be identified from the McNulty Rail Value for Money Study.
Future measures will examine the enabling of extended commitment to programmes where value for money outweighs funding flexibility requirements. There will also be further incentives to encourage cross-programme efficiency.
Having visibility of the forward pipeline is essential to enable the supply chain to invest strategically in its capabilities. It will also provide a welcome degree of certainty amid the ongoing economic uncertainty. One might argue that the pipeline ought to be longer; however, this is a welcome step in the right direction. The stop-start profile of investment is a major impediment to engineering firms, particularly in the water sector where pressures on margins and skills are intense. ACE keenly awaits the detail of Ofwat and Defra’s respective reviews and proposals.
Effective governance and assurance
Proposed for 2011/12:
Implementation of the Major Projects Authority’s Integrated Assurance and Approvals Process
Checklists of key features of success for major infrastructure projects
A review of the appropriateness of current guidance and practice for the application of optimism bias in budgeting for publicly procured projects
Pilot opportunities to improve the governance and interface between local highways projects and other infrastructure investments
Future measures will require departments to clearly define and publish governance structures for major projects. There will be alternative models for structuring risk and contingency management. New guidance and/or mechanisms will ensure that capital delivery and sustainability interests are aligned from an early stage.
ACE believes that the effective management of risk helps to minimise additional costs and reduce the likelihood of damaging breakdowns in working relationships. We would also encourage recognition that the wholesale transfer of risk onto the supply chain is not an effective way of reducing costs. The government is likely to have a significant challenge in ensuring that the various layers of the public sector buy-in to this new approach.
Commissioning
Proposed for 2011/12:
Greater objective challenge to the specification of requirements and cost estimates
Promotion of the use of outcome-based specifications
Reduction of duplication, redundancy and inconsistency in standards
Further details will be published of proposed incentives to encourage departments to adopt best practice principles for objective challenge, along with further guidance and models to promote sustainable whole-life outcome-based specifications.
The emphasis on whole-life outcomes is a welcome recognition of the limitations of “lowest headline cost” as a means of assessing value for money. This is likely to need a significant amount of skilling-up, particularly within public sector procurement teams. Too often, procurement of complex projects and professional services is treated in a similar manner to the purchase of goods. A greater exchange of expertise between public clients and supply chains is therefore essential in building client capacity.
Competition and procurement
Proposed for 2011/12:
New model competition and procurement processes
New guidance on the selection of effective procurement models and contracting options
Greater risk-based assessment of competition and procurement options, with more focus on innovation, cost and performance outcomes
Recommendations for further standardisation of contract forms.
Future activities will focus on: addressing overly-complex competitive dialogue processes; producing supplementary Green Book guidance on risk-based assessment of procurement options; examining potential policy blockers to further improvements in procurement models; developing competency frameworks for addressing client capacity; and producing a standard form template for public sector alliancing.
One difficulty in implementing best practice in procurement is achieving buy-in throughout the public sector. The complex structure of private clients often means that good intentions can be lost in translation. Myriad bespoke contract terms are a significant barrier to effective procurement, and ACE advocates the use of recognised standard forms of contract with minimum alteration. Likewise, meaningful collaboration and capacity-sharing in the public sector would be a positive step toward lasting efficiencies. However, ensuring that this message is accepted throughout the public sector is likely to be the government’s biggest challenge: there will always be arguments around exceptional circumstances.
Industry and supply chain integration
Proposed for 2011/12:
Establishment of a Joint Programme Management Board
Publication of a charter to establish the basis of joint work to promote integration and collaborative working
Incorporation of collaboration into procurement models
Challenging of industry to invest in resources to deliver cost-effective solutions
Examination of whether alternative European models for project insurance can be introduced into the UK
Future measures will be announced to promote an efficiency and integration programme across the supply chain, including “buying clubs” and plant pools. Further work will also be undertaken on alternative insurance models and the scaling of performance bonds.
Commitments to improve project insurance are welcome. ACE has long advocated reforms of the way that liability is managed, particularly in complex projects; project-based insurance would go some way to limiting the impact of project failures and keeping insurance costs under control. It remains to be seen how integration can be promoted across the supply chain. However, this can be influenced to a degree by the procurement process itself.
Infrastructure data
Proposed for 2011/12:
Requirement of departments to maintain a database of current and forward projects in a consistent reporting format
A programme to improve the quality of data held in relation to economic infrastructure
A top-down approach to protocols on asset and condition records
Extended use of benchmarking in target setting
New means to capture post-project cost information and improve access to international data
Future measures will include high-level key performance indicators of asset reliance and condition; linkages will be made with contractual incentive and performance mechanisms.
Access to robust data is fundamental to understanding the true cost base of UK infrastructure. It is also essential to measure the impact of efficiency improvements. ACE argued for the development of a mechanism to align the collation and dissemination of infrastructure data, and we are pleased that this has been taken on board.
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