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'Flawed' M25 PFI to cost taxpayer an extra £1bn

MPs this week accused the Highways Agency of taking a “flawed and biased” approach to tackling congestion on the M25 through the use of a privately financed widening concession.

They said that the approach will cost the taxpayer an extra £1bn over the next 30 years.

In a report published this week, the Commons Public Accounts Committee says that the Agency committed a technical error in its cost assessments when it was working on plans to tackle congestion on the motorway.

This incorrectly justified a road widening contract, ruling out a cheaper hard shoulder running solution. 

The committee said it disagreed with the Agency’s claim that the £3.4bn contract for the first two sections of work on the motorway was value for money.

It said that the Agency “restricted innovation” by ruling out hard shoulder running in the invitation to tender to widen the first two of four sections of motorway from three lanes to four lanes in each direction.

These are section 1 between junctions 16 and 23 in the north west portion of the orbital motorway and section 4 between junctions 27 and 30 in the north east. The contract also includes maintaining the entire 201km length of the road, including the Dartford Crossing, and 201km of connecting roads and motorways.

In recent years the Highways Agency has increasingly used its Managed Motorways programme of hard shoulder running schemes to combat congestion.

It has acknowledged the benefit of hard shoulder running and dumped the idea of widening the 44km of the M25 that make up sections 2 (between junctions 5 and 7 in the south) and 5 (between 23 and 27 in the north) from the £6.2bn M25 PFI in favour of the method.

Committee chair Margaret Hodge said that the decision to stick with widening for the first tranche was substantially influenced by a “technical error” in the Agency’s cost estimates. A figure of £193M was used in the calculation of the costs of hard shoulder running for the 30 year project, but this should have been discounted to take account of inflation and future interest rates.

The committee also found that the Agency lacked up to date data on the market rate for operations and maintenance over a 30 year period.

This led to it over-estimating the cost of the contract and undermining its ability to “understand and challenge the bids received”.

The Highways Agency’s cost estimates for the bid were up to 43% higher than the responses from contractors to the PFI tender. Highways Agency chief executive Graham Dalton told the committee on 16 December 2010 that its estimates were based on existing Managing Agent Contractor contracts and did not account for the difference between that type of arrangement and contractors taking a 30 year view of a contract as a privately financed concession.

“Routinely, we just take a four or five year look ahead, or get rates for the type of work,” said Dalton.

The committee also criticised the Agency for taking nine years from commissioning consultants for a long-term strategy for the M25 in 2000 to signing the PFI widening contract in May 2009. This delay led to the contract being signed in the credit crunch, which resulted in £660M of extra financing costs.

The Agency awarded the 30 year private finance contract to the Connect Plus consortium comprising Balfour Beatty, Skanska, Atkins and Egis Road Operation UK. The committee found that “more should have been done to limit the costly delays to the project and the amount spent on advisers” as more than £80M was spent on consultants.

In a statement issued in response to the report Dalton said it noted the conclusions, adding simply that it would act on its recommendations.

“Meanwhile, widening of the M25 in Buckinghamshire, Hertfordshire and Essex is progressing to time and under budget and will be completed before the opening of the Olympic Games in summer 2012,” he said.

Sustainable transport group Campaign for Better Transport roads and climate campaigner Richard George said that the Highways Agency had been given a “blank cheque” for the M25 work.

“It is great people are waking up to just how much money the Highways Agency wasted on this deal,” he said. “But the problem goes much wider than the M25. Ministers are moments away from committing hundreds of millions to the Mersey Gateway Bridge, another unaffordable PFI scheme. It is time the Government stopped issuing blank cheques for these ill-considered road building plans and started investing in sustainable, affordable transport.”

 

Readers' comments (4)

  • Luke O'Rafferty

    I had no idea that Government were issuing black [sic] cheques. Thanks for informing me NCE.

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  • Apologies - we have amended the typo

  • If the application of a net present value discount to 193 million over a period of 30 years on a 3,5 billion contract value, particularly in the case of a total estimated saving of 1 billion, was considered such a big deal someone needs to re-evaluate their consderation of risk and value. 30 years of traffic growth will surely see a requirement for additional lanes at a substantially higher future cost.

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  • If a decision was taken to proceed with hard shoulder running in M25 should have been put to local planning bodies and it would have faced much objection. Cost of more intense supervision, lower speed limit and the limits to future expansion would counter against such a course of action

    Graham Dalton made a very well argued case for Electronic Motorways at a ICE Thames Valley Branch presentation in 2009 January where he spoke of his view of the Motorways the coming fifty years.

    Going by the opposition he met from experienced professionals who are regular users of M 25, I would say that more road users would prefer the comfort of a hard shoulder in a vital orbital route round the London in a time of increasing Left hand Driving HGV presence. Moreover the hard shoulder provides the potential for additional capacity of 5 lane hard shoulder running on a future day if continuous growth of traffic.

    I cannot help thinking that the our respected Parliamentary Committees heavily weighted possibly with accounting profession give extra weight to rather crude approximate tools developed for economic analysis like net present value and benefit cost ration. Do we allow for continuing higher value we place on our leissure time that will be eaten up taffic congestion, the added complexity of arranging maintenance activities in if M 25 became anelectronic motorway.

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  • Paul and Lionel - a discussion has been created in NCE's transport forum - "Is road widening really a waste of money?" http://www.nce.co.uk/is-road-widening-really-a-waste-of-money/13.thread

    Continue the debate!

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