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Jury’s out on Treasury project cost cuts drive

“Aspirational” ideas to tighten up public procurement draw cautious industry response.

Government plans to drive down infrastructure costs received a cautious welcome from contractors and consultants this week.

They said plans to tighten up procurement, project accountability and risk assessment were well intentioned, but still had to be put into practice.

Treasury body Infrastructure UK launched the proposals last week as part of a plan to drive £3bn of cost out of public infrastructure projects annually.

But many elements of the plan will not be implemented until later this year and work on proposals to improve project cost estimates and tighten up contingency funding has yet to start.

Aspiration and intention

“Much of the plan at this stage is based on aspiration and intention, and only when progress toward these immediate goals is reported on next year, will it be possible to tell if the government is truly committed to helping industry deliver the savings that can undoubtedly be made,” said Civil Engineering Contractors Association (CECA) national director Rosemary Beales.

IUK’s plan features a raft of “granular” and “micro” activities for 2011 and beyond, to realise savings identified in last December’s Infrastructure Cost Report and reduce construction costs by £2bn to £3bn each year (NCE 13 January).

Critically, timescales have been set for when all the activities must be completed, and progress will be reviewed annually. This will make it clear who is accountable for failure to deliver.

Responsibility for acting on any failure to deliver falls to a Joint Programme Management Board chaired by chief construction adviser Paul Morrell. It will report directly to Cabinet Office minister and efficiency tsar Francis Maude.

The first report will be published in March 2012.

Political support

Putting Maude in ultimate charge of delivering the plan is intended to ease growing industry concerns that the initiative lacks heavyweight political support.

The key elements of the Implementation Plan are:

  • Mandatory Starting Gate reviews. These will ensure that all major project client teams are set up with clear lines of accountability and will objectively challenge specifications and budget cost estimates. These reviews will be introduced immediately through a Major Projects Authority (MPA) to be set up between IUK, and the Cabinet Office’s Efficiency and Reform Group, and a new process dubbed the Integrated Assurance and Approvals Process (IAAP).
  • A charter between the construction industry and the government that sets out behaviours expected in future relationships. This will be introduced next month.
  • n Geographically based pilots to improve the governance and planning of local road schemes and other infrastructure work such as flood defences (see News p12). Specific pilots will be identified this Spring.
  • To aid workload planning, the government will publish a two-year rolling forward programme for investment every quarter. This move was announced in last month’s Budget and will start in the autumn.
  • Standardisation of contracts around the NEC3 form will be considered and a decision made in the autumn.
  • An initial review of the appropriateness of the Treasury’s optimism bias in managing cost contingencies on major projects will be carried out. This will happen by September.
  • New competition and procurement models will be introduced by December to encourage innovation.
  • Standard principles for the structuring and management of contingency and risk will be developed in collaboration with the High Speed Two project and London Underground. These will be established by December.
  • IUK will set up an infrastructure data group to run pilots to extend the use of benchmarking for setting cost targets on Highways Agency, Environment Agency, Network Rail and London Underground projects. It will report in December.
  • ICE President Peter Hansford, Network Rail investment projects director Simon Kirby and chief scientific advisor Brian Collins are to act as champions for key components of the plan (see box). They will be focal points for academia and industry professional and trade bodies, IUK said.

The first task for the champions is to get the industry to sign up to the charter by the end of May.
It will set out priorities for reform and behavioural change in client and supply chain practice, including improved transparency and certainty, grouping projects into more efficient longer-term programmes, allowing for earlier and integrated supply chain involvement in innovation, and seeking best whole life outcomes rather than the lowest cost.

“Investment in the UK’s infrastructure is running at about £40bn a year. We must ensure that we use public funding more efficiently,” said commercial secretary to the Treasury Lord Sassoon.

He said the reforms provide “measures that will unlock these savings, redefining the way in which government, regulated utilities and the construction industry do business together.”

Cautious welcome

Contractors and consultants welcomed the plans, but cautioned that aspiration still had to be turned into delivery.

“There are a lot of good ideas contained within the Implementation Plan, in particular the move to develop a visible long-term project pipeline,” said Beales

“Involving contractors earlier in the procurement process will also allow them to utilise their expertise in the field to help to cut out overheads and lower costs and prices,” she added.

The Association for Consultancy & Engineering (ACE) agreed.”IUK’s implementation plan will be a welcome signal to industry. The challenges that the UK’s critical infrastructure face requires a step change in the way we manage and deliver major programmes. However, we must not waste this opportunity for change,” said head of policy and external affairs Michael Hall.

“Industry looks forward to working with the government and its agencies to help turn these reforms into action.”


Who will implement the plan

Three groups and champions have been established to push key components of the IUK reforms. ICE President Peter Hansford, as chairman of the Infrastructure Stakeholder Steering Committee, will oversee these groups. More implementation groups may
be formed in the future if they
are required.

The three groups are:

  • Infrastructure Client and Procurement Group

Led by Simon Kirby, director of investment projects, Network Rail
it will encourage more effective use of competition to realise cost savings and growth through the supply chain. It will also encourge waste minimisation in procurement processes. The group will also promote procurement approaches and contract forms that properly consider clients’ risk appetite and commercial capability.

  • Infrastructure Data Group

Led by chief scientific advisor professor Brian Collins. The government will work with the Infrastructure Data Group to establish a top-down approach and protocols to assure the robustness of departmental asset and condition records. Through the group the government will develop a means to capture post project cost information and improve access to international data via the Construction Sector Transparency initiative.

  • Infrastructure Industry Group

Led by Bam Nuttall chief executive Steve Fox. This group will
work with the government to improve industry efficiency and reduce costs. Recognising the need for industry innovation, this group will examine how supply chain integration, procurement approaches and contracting models can increase productivity and growth.

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