The high cost of infrastructure in the UK compared to its European neighbours has indeed been recognised. The attached 2010 report from HM Treasury finds that: 'The weight of evidence confirms that the UK is more expensive than its European peer group and demonstrates that there are significant opportunities to reduce costs in the delivery of infrastructure.' The report finds that there are many reasons for this, but that most originate in the early project formulation and pre-construction phases. The main factors identified are:
• Stop-start investment programmes and the lack of a visible and continuous pipeline of forward work;
• Lack of clarity and direction, particularly in the public sector, over key decisions at inception and during design. Projects are started before the design is sufficiently complete. The roles of client, funder and delivery agent become blurred in many public sector governance structures;
• The management of large infrastructure projects and programmes within a quoted budget, rather than aiming at lowest cost for the required performance. If the budget includes contingencies, the higher total becomes the available budget;
• Over-specification and the tendency, more prevalent in some sectors than others, to apply unnecessary standards, and use bespoke solutions when off-the-shelf designs would suffice;
• Interpretation and use of competition processes not always being effective in producing lowest outturn costs, with public sector clients in particular being more risk averse to the cost and time implications of potential legal challenges;
• Companies in the supply chain typically investing tactically for the next project, rather than strategically for the market as a whole; and
• Lack of targeted investment by industry in key skills and capability limiting the drive to improve productivity performance.
A 2007 report by the House of Commons Public Accounts Committee looked at the high cost of road construction. The following findings are consistent with pfmkaro's point about the incentive environment for consultants:
'15. The Department [for Transport] and the [Highways] Agency acknowledged that they were reliant on consultants to advise and manage the roads programme and did not have the in-house capacity themselves to check that the consultants were doing a good job or to operate as an intelligent client. In part this was a consequence of privatising the Agency’s road construction units 20 years ago, when most of the Agency’s consulting engineering expertise had left. Consultants were now used when these skills were needed. A key area where the Agency needed to develop its skills was in management of its Early Contractor Involvement contracts. The Agency had 14 employers’ agents, consultants who act as the Agency’s project managers on site and check that contractor estimates and costs are accurate and reasonable. Like other participants in Early Contractor Involvement contracts, they are incentivised on the outcome achieved; but as the Agency pays for their time, there does not appear to be an incentive for them to progress schemes quickly and so reduce delays which are a significant contributor to costs.
16. The Agency accepted that it did not have the right mix of commercial skills and the Agency’s age profile meant that a lot of people would retire in the next five years. This prospect is particularly worrying given that the schemes currently in the programme were acknowledged to be more complex and bigger than those already completed. The Agency agreed that it had a challenge in getting the right people who could challenge costs and who were commercially experienced. It has relied heavily on consultants, and recognised that it needed its own people who could give assurance that consultants were doing a good job for the Agency, especially as these consultants often also work with main contractors on other schemes and so there may be a conflict of interest. The Agency was currently recruiting two in-house commercial staff, although it remained to be seen whether this would give sufficient capacity to boost the Agency’s capability.'
