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Margins safe from civils costs investigation

Consultants and contractors’ profit margins look set to escape scrutiny in Infrastructure UK’s (IUK) investigation into the high costs of UK civil engineering projects, NCE has learned.

Study leaders told NCE that while they sought to bring down overly high costs of UK civils work they believed margin tightening would not offer substantial savings.

“I really don’t think the industry has any worries as far as margins are concerned,” said Arup former chairman Terry Hill.

Hill now leads Arup’s transport market. He was speaking at this week’s formal launch of the IUK investigation where it was confirmed that he will head up its steering group.

He is also a member of the IUK advisory council.

“We’ve already seen margins going down and I don’t think there’s much more fat in them,” he added.

“We’ve already seen margins going down and I don’t think there’s much more fat in them”

Terry Hill

IUK chief executive James Stewart agreed and said that profits and fees were not the problem.

“I don’t think anyone believes it’s about margins,” he said. “Everyone agrees there is a problem and you hear lots of different reasons for the problem.”

ICE senior vice president Peter Hansford, who will chair a study reference group that will feed in to IUK’s work, added that investigating margins was not a priority.

“It’s not intended to be about margins,” he said. “A lot of it is going to be identifying unnecessary processes - such as in planning and procurement - so we can get things planned and built more quickly.”

However, Hansford suggested that those leading the investigations otherwise had a “pretty open mind” about the eventual culprits behind high costs.

“We haven’t got preconceived ideas of where it’s going,” he said. “That’s why we’ll be calling for evidence and input from the industry at large.”

Hill also said that rather than margins, the focus of the investigation will be on procurement, standards and regulation and plant, labour and materials.

The coming weeks will see Hill and Hansford populate their respective teams but the process of gathering information has already begun.

This will take the form of both quantitative and qualitative research, but all were keen to stress this would not be based on anecdotal evidence.

“It’s not anecdotal,” said Hill. “But it is about using informed professionals’ experiences.”

Research underway

Quantitative research is already underway by academics at the universities of Reading, Salford and Loughborough.

This is likely to be similar to the work that had been completed on the cost of high speed rail for the previous government, which suggested that building such a line from London to Birmingham would cost between £15.8bn and £17.4bn (NCE 11 March).

A letter from the ICE to industry, sent on Monday, called for early views “particularly in relation to sources of empirical evidence relating to the factors driving higher costs in the UK”.
The letter is co-signed by ICE director general Tom Foulkes and Stewart and said that more formal invites for contributions would be made soon.

One of IUK’s key priorities is to release early findings to inform and influence the autumn’s spending review ahead of its full release at the end of the year.

“It’s all about demonstrating that the UK is a good place to do business in,” said Hansford.

IUK said its investigation would not be linked to, but would complement, similar ongoing work, including a Department for Transport study by Sir Roy McNulty. This is examining total costs involved in the delivery of rail infrastructure and the Department for Business, Innovation and Skills’ Low Carbon Construction initiative.

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