Civils projects can save £3bn a year

Savings of up to £3bn from the cost of the UK’s infrastructure building programme should be found each year from better procurement and reducing over-specification of civil engineering projects, according to a government report.

The report, produced by Terry Hill of Arup, for the Treasury’s infrastructure unit Infrastructure UK, finds that the cost of projects is significantly higher than that for our close continental neighbours, and that savings of up to 15% can be identified.

Under the government’s National Infrastructure Plan, produced in November, it expects £20bn a year to be spent annually on civil engineering projects in the next five years, allowing savings of up to £15bn over the period.

Costs can be reduced by a combination of government, utility and construction industry action, including by introducing more collaborative working, better procurement, and reducing unnecessary gold-plating of specifications. The report finds that the Olympics construction has exemplified how savings can be made, while projects like High Speed One and the Jubilee Line extension show where poor decision-making can allow costs to rise.

The report has been welcomed by ministers at the Treasury, who have asked Infrastructure UK to produce a full implementation plan for its recommendations by the time of the budget in March.

Danny Alexander, chief secretary to the Treasury, said: “We just have to make sure that the rest learn from the best.  By working with industry we can identify ways to save money for them and the taxpayer.  The data gathered through IUK’s investigation has enabled us to identify savings of between £400 million and £800 million from the initial cost estimate for High Speed 2.

“Savings are in everyone’s interests, as it will see the taxpayer get more value for money and will make the UK a cheaper place to do business, promoting growth in the long term.”

Report author Terry Hill said: “We’ve identified an annual saving of £3bn a year. You can imagine what are the projects which are canned or deferred that this will then allow to go ahead. That is the prize, if in the current tight fiscal environment those savings can be released to fund other projects.”

The report identifies five key actions to obtain the savings, which Infrastructure UK chief executive James Stewart said would have to be implemented in the round for the savings to be made. These are:

• Transparency and clarity over a long term pipeline of work to enable industry to invest and innovate with greater security
• Clearer and more transparent governance of projects, making it clear who fulfils role of client, commissioner, sponsor and implementing body, utilising greater leadership skills
• Greater discipline over the commissioning of projects, particularly with regards to keeping the specification in check
• A smarter use of competition in the procurement process, to encourage more integration of the supply chain in the construction industry
• Innovation from industry to reduce direct construction costs

The report also benchmarks the UK against other major European civil engineering projects, finding that the overall cost is anything between 5-50% higher in the UK. The benchmarks found:

• Construction costs in the UK for High Speed Rail were significantly higher. Those projects most directly comparable showed that the Channel Tunnel Rail Link construction costs were at least 23% higher
• Major station development costs indicate that the UK is 50% more expensive than Spain, although UK stations serve a significantly higher peak passenger demand – up to 2.7 times in certain cases;
• UK examples of road projects were, on average, 10% higher than those in the Netherlands, based on the unit costs per lane kilometre. The Highways Agency has identified project efficiencies of 20% were it able to adopt a programme approach to delivery across schemes.

James Stewart added: “Getting more reliable data and benchmarking is key, because if we’re going to invite contractors into the process earlier to get the benefits of integration, you’re only likely to do that if you’re more confident of what the cost should be. We need greater transparency of cost drivers.”

Peter Hansford, president of the Institution of Civil Engineers, said: “Addressing the factors that can drive down the cost of major infrastructure projects could save government and investors billions of pounds - or, more can be built more with the same level of funding benefitting society as a whole.

“Achieving this presents both a challenge and an opportunity and clearly government and industry have equally vital roles play. It is clear to me that the whole industry is fully behind the aims and enthusiastic about making it happen.”