The June 2010 Budget announced that IUK would carry out an investigation into how to reduce the cost of delivery of civil engineering works for major infrastructure projects, chaired by Terry Hill of Arup. This investigation is being led by IUK in collaboration with wider government, the Institution of Civil Engineers and industry. The investigation will report by the end of 2010.
It has already identified that, across the whole of the EU, only in Sweden, Denmark and Norway is civil engineering more expensive. There are opportunities to achieve sustained reduction in the costs of delivery and maintenance of infrastructure, IUK says, by increasing certainty of the investment pipeline, removing wasteful process and strengthening the capability of those involved in procurement and the supply chain.
It adds: “Whilst many of the factors identified by IUK have been recognised in previous studies, there has not been sufficient concerted effort by government and industry in the past to make the changes necessary to resolve them. The current fiscal environment and drive for efficiency provide an opportunity to ensure that, this time, the necessary actions will be taken... The challenge is to make investment go further by reducing the costs of infrastructure construction; by removing wasteful process and strengthening the capability of those that procure projects; and by supporting the supply chain. “
Key emerging findings from the investigation blame the high cost in the UK on several factors. The report lists these as:
- Standards and regulation compliance: In the UK there is a complex web of planning, consents, regulation, process and standards, which absorb time and add considerably to cost. While these systems are designed to protect the rights of citizens and ensure high quality, safe infrastructure, the cost impact is considerable and is exacerbated by a risk-averse culture that can lead to over specification, excessive assurance, monitoring and scrutiny throughout the delivery process.
- Stop-start investment: Lack of certainty of budget commitment to programme investment reduces efficiency, suppresses innovation and has a negative impact on industry’s appetite to invest in the UK. Where the private sector is given greater clarity of the pipeline, costs have been reduced. Significant savings have been delivered in the utilities sector as a result of the private sector being able to offer greater continuity in the pipeline for infrastructure renewal and investment. Potential exists to achieve increased savings in the roads programme and to extend the benefits to other areas, including more publically funded infrastructure programmes. The savings generated by creating greater certainty over maintenance and renewal programmes could be used to bring forward capacity-enhancing projects.
- Poor commissioning: Poor practice in commissioning is a major cause of inefficiencies in the specification, design, procurement and construction phases. The public sector in the UK does not generally discharge its role as commissioner and procurer of infrastructure effectively. Ill-defined stakeholder accountability in the pre-construction phases leads to unnecessary reworking during construction. The commissioning and procurement processes appear to be more efficient in the private sector, both for bespoke projects and renewal programmes; especially where economic regulation has added to the downward pressure on costs and encouraged innovation. An example of this is the development of standardisation and off site fabrication in some parts of the water industry.
- Fragmented supply chain: The private sector construction industry for infrastructure in the UK is not structured to optimise efficiencies and maximise productivity through the supply chain. The UK construction industry for infrastructure has tended towards a relatively large number of smaller construction companies acting as main contractors by comparison to its European peer group. The various technical trades and suppliers tend to exist as separate companies engaged through sub-contracts, rather than being part of a vertically integrated supply chain. This fragmentation of the contracting industry contributes directly to low skills development, training and productivity that add to costs of construction.
- Contractual approach: The UK generally adopts a more contractual approach to infrastructure projects and programmes compared to other countries, which can lead to perverse behaviour particularly in tough market conditions, where low prices achieved under competition may be increased at outturn as a result of claims. There is concern that behaviour in the current economic climate may result in a return to an adversarial culture.
IUK acknowledges that most of these factors have been recognised in previous studies but changes have not been successfully implemented. IUK said: “The challenge is to change behaviours within the public and private sectors by realigning incentives and providing an environment within which savings can be achieved. IUK will be considering the detailed measures associated with each of the areas identified for action to deliver the identified cost saving benefits for UK infrastructure projects and renewals programmes.”
IUK is developing recommendations for achieving cost reductions in the infrastructure sector and will publish these with its report. Where these have common themes with the wider public sector construction programme IUK is working with the Construction Client Board, chaired by the Government’s Chief Construction Adviser, to agree how to effect change consistently across the public sector.
The consultation and evidence gathering phase of the investigation is in its final stages. The investigation is now completing its analysis of the evidence and developing its conclusions and recommendations for achieving cost reductions in the infrastructure sector. It will publish these with its report by the end of 2010.
Table: Overview of emerging measures for consideration
|Objective||Areas for potential action|
|To increase the certainty and continuity of pipeline for committed projects and renewal programmes||
Explore opportunities to extend investment programmes across regulatory review periods.
Enable other public sector and regulated commissioning bodies to commit to longer term programmes and set cost reduction targets.Through alliancing and partnering agreements encourage greater investment by private sector contractors in trade skills, innovation and supply chain development.
|To create clearer distinctions between the roles of commissioner, client, funder, and delivery agents||
Develop measures to implement effective leadership and governance so that key decisions vest through individuals or bodies capable of discharging their function as a ‘single controlling mind’.Incentivise unified management of costs, risks and contingency between stakeholders.
|To instil greater discipline to commissioning of infrastructure projects and programmes||
Encourage greater use of outcome based specification and the removal of unnecessary prescription of standards to encourage innovation.
Introduce greater objective challenge of the specification of requirements and budget costs.
Explore the benefits of separate management of contingency budgets outside of the promoter or delivery body, particularly on larger one-off infrastructure projects.
Improve the availability and transparency of asset condition and benchmark data, including cross-sector access to UK and international benchmarks.Consider the opportunities to derive better value for money from a portfolio management approach to risk transfer, for example in contingency budgets, project insurance and cost indexation.
|To develop smarter ways of using competition||
Encourage the use of effective competition and procurement to realise cost savings through the whole supply chain and minimise wastage in the procurement process.
Develop mechanisms to encourage greater alignment of interest between contractors and clients in reducing costs.
Continue to encourage increased early contractor involvement.Where appropriate, encourage further standardisation of contracts, including payment and incentive arrangements.
|To reduce the direct costs of construction||
Develop measures to improve productivity, for example through site project management, supervision and skills.
Encourage standardisation, the use of off-site fabrication and other means of improving efficiency.
Review the way in which standards and regulations are applied with a view to developing more efficient means of ensuring safe and high quality construction.
Support the development of better structured and incentivised partnering between supply chain providers.Improve the standardisation and processes around change control under the current preferred standard forms for infrastructure and consider ways to avoid escalation of a ‘claims culture’.