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Infrastructure UK highlights £3bn savings potential

The government could save £3bn a year on building and maintaining infrastructure by working more closely with the construction industry, according to Infrastructure UK’s (IUK’s) final report into the cost of civil engineering.

Revealing its findings IUK chief executive James Stewart criticised the use of optimism bias for escalating the price of infrastructure. “This is the trend: you set an affordability envelope - the cost of the project plus contingency - and basically every pound of that gets spent,” he said. Instead the IUK study team urged industry to move to a model similar to the Olympics where the contingency budget is managed independently.

Treasury secretary Danny Alexander agreed. “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,” he said. “We just have to make sure that the rest learn from the best.”

IUK has laid out a number of efficiency improvements that could reduce the cost of building and maintaining infrastructure by 15%. These include working with businesses to improve procurement and raise productivity, simplifying some processes and promoting innovation.

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.

Danny Alexander, Treasury secretary

However, Stewart emphasised that much work had been going on behind the scenes to make clear the responsibilities ministers have in creating a change. One of the key issues would be resolving uncertainty over long-term workflow and removing barriers caused by unnecessary technical standards.

IUK also said that the fragmented market made it difficult to make strategic investments, while a lack of data made it difficult to set targets.

Investigation steering group chairman and leader of Arup’s Global Transport market Terry Hill said: “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.”

Stewart said that the UK could learn from Europe’s approach to standardised design. He pointed to the Madrid Metro, which has relatively standard stations along its route, versus London Underground’s Jubilee Line, which has very individual stations along its route. Hill explained that some of the latter’s are seen as works of art rather than simply functional stations.

A high degree of consensus that efficiency improvements can be achieved

Terry Hill, Arup

The report states that comparisons of major station development costs indicate that the UK is 50% more expensive than Spain.

In the short-term, the report said it was likely that the greatest efficiencies will be delivered by targeting renewals and repetitive programme-based infrastructure investment, in particular by removing some of the obstacles that have prevented some infrastructure sectors (notably road, rail and flood management) from replicating the scale of efficiencies delivered in regulated sectors such as the water industry.

The report cites evidence from the Scottish Government’s long-term road maintenance contracts, lasting up to 10 years, that indicates that significant savings can be achieved through giving contractors a pipeline of work that incentivises investment in year-on-year improvement, for example by reducing labour cost through improving productivity by 20%. The Rijkswaterstaat in the Netherlands generated similar savings of 20% in roads, by extending contract terms from one to two years to five to seven years and by bundling more maintenance activities together in the same contract.

Infrastructure minister Lord Sassoon said he believed that if the changes were made the UK construction industry would be “better placed to complete globally”.

The government is working to finalise a prioritised programme for implementation to be announced in next year’s Budget.

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 evidence of the Steering Group of industry leaders found the following 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

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