The report says that the savings can be achieved by government working with industry to improve procurement, raise productivity, simplify processes and promote innovation and better industry integration.
The report concludes that:
- there is a lack of certainty over long-term workflow
- the UK over-specifies and applies unnecessary standards
- strategic investment is constrained because industry is fragmented
- blurring of decision-making roles make governance inefficient
- competitions are burdensome and stifle innovation
- a lack of data limits capability to set challenging targets.
The report looked to mainland Europe for benchmarking and found several examples of construction being more expensive in the UK:
- examination of high speed lines across Europe indicated that the construction costs in the UK were significantly higher. Those projects most directly comparable showed that CTRL1 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
- benchmarking of eight road projects between the UK and Netherlands indicated that UK examples were, on average, 10% higher 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.
The evidence of the Steering Group of industry leaders found scope to reduce costs in the delivery of UK infrastructure by:
- eliminating peaks and troughs in the infrastructure investment pipeline
- improving client leadership, streamlining project governance and procurement
- reducing unnecessary prescription, standards and third party requirements
- improving asset management and benchmark data
- developing smarter ways to use competition
- encouraging industry to invest more in innovation and skills.
Investigation Steering Group chair Terry Hill, who is also member of IUK's Advisory Council and head of Arup's global transport market division, said: "I am delighted to have received such strong support during this investigation, not only from government ministers and IUK, but also from colleagues in the infrastructure industry and from the Institution of Civil Engineers. Achieving the potential benefits of £2-3 billion per annum requires a sustained and multi-faceted approach from government and industry.
"Evidence from the investigation suggests a high degree of consensus that efficiency improvements can be achieved and that the infrastructure construction industry will respond positively to client side improvements in planning, commissioning and procurement of projects and programmes. Clients will respond in turn to improvements in industry by becoming more efficient and transparent."
Treasury Ministers welcomed the plan saying it could promote growth by freeing up more money for infrastructure investment, as well as helping keep water, gas and electricity bill costs down for consumers by reducing costs for utility companies.
Chief secretary to the treasury Danny Alexander said: "One look at projects like the Olympics, where over £600m has been saved, shows that the UK can deliver big infrastructure projects on time and within budget. 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 £400m and £800m from the initial cost estimate for High Speed 2 [railway].”
The government is now working to finalise a prioritised programme for implementation to be announced by Budget 2011.
Lord Sassoon, commercial secretary to the treasury, said: "I am most grateful to Terry Hill and colleagues for their work in preparing this report. It is very significant that the construction industry has been an integral part of what is fundamentally a cost-cutting review. That is because they can see this work as helping to create a step change in the way infrastructure is delivered in the UK. This should lead to a stronger UK construction chain - and a UK construction industry that is even better placed to complete globally."
A copy of the report and its key recommendations can be found at http://www.hm-treasury.gov.uk/iuk_cost_review_index.htm
INDUSTRY REACTION
Richard Lambert, CBI director-general: "Investment in infrastructure will be essential for economic recovery in the UK. This important report clearly sets out how waste can be reduced in the delivery of construction projects, allowing subsequent savings to therefore be reinvested. The CBI Construction Council welcomes this and wants to play a leadership role in developing a more integrated supply chain. Construction needs to rise to the productivity challenge, while increasing efficiency and innovation. At the same time, the Government must ensure the visibility and continuity of the infrastructure project pipeline, and foster competition and reward success when it procures. This is an important opportunity for change that could boost our productivity and improve the nation's finances at the same time."
Paul Skinner, chair of Infrastructure UK: "There are real opportunities and benefits for industry in bringing greater clarity and accountability into the roles of clients, contractors and funders of major infrastructure projects. This requires greater discipline in the way projects are structured and also the development of smarter ways of driving competition and encouraging innovation. The programme will provide a double benefit: not only will it enable taxpayers to get more for less and minimise the impact of investment on utility bills, but also the resulting efficiencies will support the growth agenda by encouraging industry to invest in innovation and new ways of working."
Ian Tyler, CEO of Balfour Beatty and a member of the Steering Group: "I welcome this report and am encouraged by the commitment that has been demonstrated by contributors in both public and private sectors to arrive at these conclusions. Many of these challenges are well known, but have not been tackled. There is now a real opportunity for Government and industry leaders to work together and find ways to reduce costs and stimulate economic growth for our industry and the UK."
Peter Hansford, president of the Institution of Civil Engineers and member of the study Steering Group: "I am please that ICE and industry was able to come together with Government to contribute to this report. By bringing together leaders in the infrastructure world - across transport, energy, waste and water - we were able to develop a cross sector approach to identifying and addressing the factors that can drive down the cost of major infrastructure projects. I very much welcome the outcome and look forward to continuing our dialogue with Government to help implement the actions."
Paul Morrell, chief construction adviser, Department for Business, Innovations and Skills: "Infrastructure is a critical element of our plans for growth in the UK economy. This report complements the findings of the report recently published on the Low Carbon Construction by the BIS Innovation and Growth Team and demonstrates the potential for a joined up approach to the ways in which we deliver construction in the UK."
Investigation Steering Group members
- Terry Hill (chair): Chairperson, global transport market, Arup
- Humphrey Cadoux-Hudson: managing director nuclear new build, EDF
- Lucy Chadwick: director of rail and road projects, Department for Transport
- Stephen Dance: head of public sector markets, Infrastructure UK
- Peter Hansford: president, Institution of Civil Engineers
- Phil Holland: executive vice president projects, Shell
- Chris Newcome: director, Anglian Water
- Paul Morrell: chief construction adviser, BIS
- David Pitchford: head of major projects, ERG
- Ian Tyler: chief executive officer, Balfour Beatty
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