Local authority highways and transportation departments are braced for heavy spending cuts. Damian Arnold reports.
Local authority highways and transportation departments have awarded almost £2.5bn of work in the last 12 months, a steady increase of around £100M on 2008. This market accounts for a big chunk of the construction industry’s workload.
But these departments are on the threshold of huge operational changes in the face of six years of huge budget cuts from the start of the next central government spending review period in 2011.
The harsh reality facing highways departments is that revenue spending will be cut by 25% to 30% and capital funding could be cut by as much as 50%.
“We have to reconsider priorities, cut back on delivery of new infrastructure and maintain the infrastructure we have got.”
Matthew Lugg, Leicestershire County Council
Should the Conservatives win the General Election next spring and prepare an emergency budget within the first 100 days of office, the cuts could be more drastic still. With other services, such as social care and provision for the elderly, expected to be protected, highway budgets are vulnerable.
Director of environment, growth and commissioning at Northamptonshire County Council Tony Ciaburro says that council engineering departments must act now to change the way they operate or look into an abyss in 2011.
“If you leave it till 2011 it will be like arriving at a cliff edge and falling off,” he says. Matthew Lugg, director of highways and transportation at Leicestershire County Council and chair of the local authority body the CSS’s engineering committee, says that councils need to think about postponing long planned new road and junction building. Saving the nation’s existing local roads from oblivion is more important.
“At a time when there is less and less money around, we have to reconsider priorities, cut back on delivery of new infrastructure and maintain the infrastructure we have got,” he says. “We need to look particularly in the light of what happened in Cumbria last month.
“Some of the more ambitious highways schemes in regional funding allocations may have to go. They soak up hundreds of millions of pounds and we need to ask: ‘Is that best use of resources?’ Can we deliver smaller schemes instead or make better use of road space?”
Consultant Mouchel marketing and communications director Ian Parker predicts that with less resource, standards of local authority highway engineering will have to drop. Better services will only be available to people prepared to pay for them.
“Tough decisions have to be made. In some cases, we see councils delivering all their current services to a lower level; in others we see a basic standard of service emerging, with enhanced provision being offered commercially,” he says. Better husbanding of the resources required will be aided by highways asset management plans (AMPs) that local authorities are producing (see feature, page 6).
The plans are expected to become a vital tool in the challenge to convince council leaders that short term cuts in highway maintenance budgets would lead to bigger costs and liabilities further down the line.
“There is a danger of big budget cuts in the short term without fully understanding the implications. Proper planning is vital.”
Andrew Hugill, Atkins
Newcastle City Council, for example, is already using AMPs to demonstrate to council leaders savings made in insurance premiums as a result of efforts to reduce trips and slips on pavements through maintained investment in pavement condition.
Atkins director of central and local government services Andrew Hugill warns of the dangers inherent in cost cutting.
“There is a danger of big budget cuts in the short term without fully understanding the implications. Proper planning is absolutely vital because there is less money now. If you get a decision wrong it will have a much bigger effect.”
Some engineers take the more positive view that the cuts will give an opportunity to make profound operational changes rather than the tinkering around the edges that we have seen in the last few years.
Gloucestershire squeezes efficiencies
The Gloucester Highways partnership between Gloucestershire County Council, Gloucester City Council, Cheltenham Borough Council and consultant Atkins combines the functions of client, managing agent and contractor across local authority boundaries.
This enables co-location of staff and value engineering through early contractor involvement. The previous model was three local authorities with separate managing agent and term maintenance contractors, says Gloucester Highways business manager Graham Wanless.
In the first three years of the partnership, efficiencies of £11.36M, or nearly 10% of the overall highways budget, have been found. These include a £1.12M cut in staff costs in first year and an 8% cut in cost of capital schemes.
The partnership comprises 360 staff − 62% Atkins and 38% public sector. Atkins works on an “outcome-based contract” to 47 performance indicators.
All savings found within the partnership are passed on to the council. “It’s a very, very flexible contract. It is possible to translate savings in an extra couple of schemes,” says Wanless.
“This is about how we as local authorities fundamentally change what we do and the way we do it,” says Ciaburro. “The future is about public satisfaction. Customers will not care whether national indicators say that the state of our roads is X or Y.
“Instead of performing against national indicators we will be delivering what local people want and not what we feel they need and actually it is often the case that what they want is cheaper and easier to deliver.”
Another big change expected to be facilitated by the cuts will be those efficiency savings that have until now been placed in the “too difficult to do” box.
The Gershon Review of 2004-07, which set councils the target of achieving efficiencies 2.5% year on year, led to £21.5bn savings by 2007. The government then challenged local authorities to make efficiency savings of another 3% by 2011.
“There is still a lot to go at. We’ve picked the ripe fruit and we are now moving into the more difficult areas,” says Lugg. Better procurement is key, he says, particularly collaborative working across local authority boundaries to reduce overheads.
“There is still a lot to go at. We’ve picked the ripe fruit and we are now moving into the more difficult areas.”
Matthew Lugg, Leicestershire County Council
He points to the success of the award-winning East Midlands Highways Alliance where nine local authorities and the Highways Agency are expected to save £11M in procurement costs by 2011. There is more scope for standardisation of detail, specification and drawing across boundaries, he adds, especially until now, procurement has been costing around £100,000 a scheme.
Ciaburro agrees. At Northamptonshire County Council he has made savings of £10M in its £50M annual highways budget in the last year alone through “ridding ourselves of duplication”. At least one benefit for departmental heads is that soaring construction inflation has been reversed.
“Are we squeezing our contractors? Yes we are,” adds Ciaburro. “And in all fairness they have recognised that they need to share in the savings that they have made in squeezing their third party suppliers. That’s the real world. Most organisations should be able to find about 5% savings as a minimum or have the benefit returned in kind with more work and other ways of discounting.”
Meanwhile council officers and consultants contacted by NCE agreed that the next few years will see further integration of strategic partnerships between engineering departments and private sector consultants.
EC Harris head of local government Bill Green says that integration into one organisation has already been successfully achieved in local authority property services and corporate back office functions but that highways and transportation departments are lagging behind.
“In transport, highways and infrastructure, more integrated solutions are needed to synchronise client, design and front line delivery teams.”
Parker adds that Mouchel has recently extended its strategic partnerships with Hertfordshire and Lincolnshire County Councils to further integrate engineering design with other services.
“We’ve got to be ready for the enormous housing growth agenda that will require a lot of new infrastructure.”
Matthew Lugg, Leicestershire County Council
“Now we are faced with falling budgets, authorities are looking more and more at opportunities to combine back-office resources like engineering design, IT support, payroll and pension management.”
As this shift continues, Lugg warns against the further erosion of engineering skills within local authority highway departments.
“In the longer term things will pick up and we’ve got to be ready for the enormous housing growth agenda that will require a lot of new infrastructure,” he says. “Inevitably there will be cuts in staff but we should not make the mistake of making arbitrary cuts.
“We have struggled for years to find the engineers and transport planners. It is a big worry that we will stop training and developing people.”