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Crossrail proves fixation on cost ‘undermines’ UK projects, ICE claims

3124652 crossrail farringdon sign

The political fallout over delays and cost increases on Crossrail proves that a fixation on costs is “undermining” the wider benefits of UK infrastructure projects, an ICE report claims.

While agreeing that “the government and Greater London Authority are right to be concerned” by the late announcement of Crossrail’s delay and cost overrun, the ICE report concludes that “the government and infrastructure owners must move away from capital cost as the most important metric when assessing project benefits”.

Instead, the ICE report Reducing the gap between cost estimates and outturns for major infrastructure projects and programmes argues that “recognising the importance of whole-life economic, social and environmental value” is more important that fixating on construction costs.

“The tendency to fixate on the upfront cost of large projects, perhaps because the numbers can be extraordinary, and to strip projects of contingency in the hope for cost savings undermines this long-term return,” the report states. “Instead of focusing solely on cost, a good outcome is a project which is well managed, transparent and meets the wider social and economic benefit metrics which justify its need.”

It adds: “Whilst contingency risk should be adjusted as projects mature and there should be a bias against over-providing for contingency, recognising that any capital being reserved is not economically productive, stripping a project of funds solely as a political calculation because of identified, but unrealised, cost savings is short-sighted.”

In fact, the report concludes that the British public is far less concerned about upfront cost as it is about a project’s benefits.

“A fixation on project cost by decision makers, as a measure of success, is not shared by the British public. When asked whether ‘politicians should talk to the public more about the benefits of major infrastructure projects rather than the costs’, 74% of GB adults agreed with this statement,” the report adds.

The same survey found that the public is much more concerned with whether a project regenerates communities (30%), is reliable and cost-effective to maintain in the long-term (27%) and strengthens growth (17%) than whether the overall cost of constructing the project is low (3%).

The report uses the 2012 London Olympic and Paralympic Games project as an example of public perception being swayed by final performance rather than construction costs.

While Crossrail is currently estimated to be just 26.3% overbudget, the Olympic construction project blew its budget by 269%.

Despite costs spiralling from £2.4bn (in 2005) to £8.7bn, the ICE claims that the project is still seen as a success by the general public.

“The infrastructure which enabled the London 2012 games is considered a crowning success. A Comres poll for the BBC a year after the event found that ”two-thirds of the UK public believe that the £8.77bn cost of the London 2012 Olympics was worth the money”,” the report states. “The evolution of the budget and the political and public acceptance of this overspend, compares starkly with attitudes to economic infrastructure like Crossrail.”

It adds: “Whilst the opportunity cost of late opening – and lost fares – must factor, both projects have or will provide boosts to the economy (£9.9bn for the Olympics and £42bn for Crossrail) and will provide social value long beyond their completion dates.”

ICE recommendations:

  • Infrastructure owners should complete scope, design and exploration before work is allowed to start, to avoid scope creep or retroactive changes, taking steps to include contractors in design at an early stage.
  • The government and infrastructure owners must move away from capital cost as the most important metric when assessing project benefits, recognising the importance of whole-life economic, social and environmental value.
  • Principles set out in the Outsourcing Playbook should be mandatory for government infrastructure owners. This includes infrastructure owners undertaking should-cost modelling to help inform their expectations and knowledge of appropriate tender prices during the procurement process.
  • It should be mandatory for all public infrastructure owners undertaking procurement to award contracts based on a cost estimate range, using a should-cost estimate as a reference point, with an amount of contingency allocated appropriate to the level of project maturity.

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