The Treasury last week commissioned an investigation into the cost of civil engineering works for major infrastructure projects.
It said it was building on “existing evidence” of “potentially high costs” of UK schemes compared with the rest of Europe.
The investigation will be led by Infrastructure UK (IUK), the Treasury body set up in December last year to drive increased investment in UK infrastructure.
IUK said it had asked the Office of Government Commerce and chief construction adviser Paul Morrell to scrutinise costs.
“It has come to our attention that it appears to cost more − up to double − to put infrastructure on the ground in the UK than it does in Europe,” said IUK chief executive James Stewart.
He cited examples including the proposed High Speed 2 scheme, which, when benchmarked against similar schemes in Europe, appears to be twice as expensive.
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“We’ve tested the HS2 case with the ICE and industry − not one person says it’s not more expensive in the UK,” he said.
Research submitted to business secretary Lord Mandelson in December, revealed that the productivity of UK engineering construction projects varied from the average by up to 30%. The European Commission’s latest study on construction prices ranks the UK the fifth highest.
IUK chairman Paul Skinner said that it was important to tackle this imbalance because it was vital for UK to be appropriately measured against the European market.
“We want to ensure that what we do with infrastructure in the UK is benchmarked,” he said. “Places like Australia, Canada and New Zealand have set up something similar [to create a benchmark] and we’re in dialogue with them.”
“We want to ensure that what we do with infrastructure is benchmarked”
Paul Skinner, IUK
Stewart denied that the move was a snub to the engineering industry. Instead, he said that the conversations over costs had all been held directly with industry, including those with the ICE.
“It’s accepted [within industry] that costs are much higher [in the UK]” said Stewart. “The ICE has expressed great interest in what we’re doing.
He added that IUK’s Advisory Council was formed with the intention of creating close connections within industry − PPP Arbiter Chris Bolt, former Arup chairman Terry Hill and Carillion chief executive John McDonough are among the council members.
Industry bodies said that they welcomed the investigation, which is expected to publish its findings by the end of the year.
“We are delighted to be playing an active role with the Treasury in IUK’s National Infrastructure Framework, particularly the investigation into the cost of civil engineering works for major infrastructure projects,” said ICE director general Tom Foulkes.
“We are very pleased that IUK has raised the issue by committing to looking at the costs associated with civil engineering projects.”
Nelson Ogunshakin, ACE
“At a time when the UK needs to attract very large volumes of private funds into its infrastructure networks, we cannot let a perception take hold amongst potential investors that the UK is an unnecessarily expensive place to deliver projects”.
The Association for Consultancy & Engineering (ACE) said it welcomed further examination of associated costs.
“The ACE has long argued that reforming procurement processes so that they are as efficient as possible will reduce waste and costs to the UK taxpayer,” said ACE chief executive Nelson Ogunshakin.
“We are very pleased that IUK has raised the issue by committing to looking at the costs associated with civil engineering projects.
The ACE is currently doing work in this area and, on its completion, will be more than happy to work with IUK and any other interested parties. We hope that sharing our findings will help to work towards more efficient procurement.”
Green investment bank to prime infrastructure investment
Infrastructure UK (IUK) this week unveiled plans for establishing a Green Investment Bank (GIB) to stimulate investment in infrastructure, with an emphasison low carbon energy and transport schemes.
The announcement was made alongside chancellor Alistair Darling’s Budget statement and includes plans for an initial £2bn investment.
“Half will come from the asset sales, including the Channel Tunnel Rail Link (High Speed 1), with the rest matched by private investment,” said Darling.
“This equity will unlock billions more of finance from the private sector. The fund will focus first on investing in green transport and sustainable energy, in particular offshore wind power, where Britain is already the world-leader.”
However, IUK was keen to stress that it had not yet allocated funding to offshore wind projects. “We tried to look at where the gaps are likely to occur,” said IUK head of finance Andy Rose. “We think it is one excellent example of where an equity gap might occur the soonest.”
IUK chief executive James Stewart said offshore wind was one area where equity would be in short supply because it had a high risk profile thanks to its “relatively immature technology”.
It is anticipated that it will take up to 18 months for the asset sales which will fund the bank to go through. “We will not invest £1bn in month one,” said Stewart, which, IUK said would not pose a problem, because the equity gap for offshore wind projects was likely to appear over the next three or four years.
IUK will manage the establishment of the GIB.