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Tough road for hard bargaining

Highways Agency chief executive Archie Robertson is taking control of his £1bn a year projects programme to tackle cost-cutting criticism.

HIGHWAYS AGENCY chief executive Archie Robertson is taking personal control of his £1bn per year major projects programme to tackle cost estimating criticisms head on. Is the situation really that bad?

'The Highways Agency has lost budgetary control of the targeted programme of improvements (TPI). If overruns continue at the current rate, the cost of yet-to-be-completed TPI road projects would be 50% higher than originally estimated. This is a very serious matter, and Mr Robertson, as Agency chief executive, must take personal responsibility for ensuring that an increase of this magnitude does not occur.' That was the damning verdict of the transport select committee's July 2006 report into the workings of the Highways Agency. It followed a hot six months for the Agency after a Liberal Democrat parliamentary question ushed out that major road projects - particularly those that entered the TPI before April 2003 - are running rampantly over budget.

Archie Robertson has acted, first by axing his major projects director Keith Miller (News last week) and now by taking personal control of the TPI (see News). Rarely has the advice of a select committee been taken so literally.

Robertson's approach is borne out of a realisation that he needs some serious commercial nous to run his £1bn a year major projects directorate.

He has already confessed to the transport committee that 66% of cost increases relate to construction, with 22% coming from changes in preliminary costs, 20% coming from 'inadequate early estimates and increased scope' and 15% coming from additional risk and contingency allowances. Just 4% of the cost overruns are put down to the much-quoted construction industry in tion rate or programme slippage.

But this does not tell the whole story. Schemes entering the TPI after April 2003 are broadly on budget, and this is not just down to the Treasury's introduction of 'optimism bias' to swallow up some of the uncertainties. Thanks to the open-book accounting of Early Contractor Involvement (ECI), the Agency is nally beginning to build up a costs database.

The Agency can point at the three ECI schemes delivered to date, which have all come in signi cantly below optimism biasadjusted budget.

And target cost setting is getting tougher. The ECI model now sees an initial target cost set on the basis of a mock tender produced by a non-bidding contractor, before that is honed down further by 'budget commentaries' from tenderers.

As another contractor puts it:

'How can it get much tougher than it is now?' But with Robertson at the helm, it may get a lot tougher yet. Behind the smooth public persona, he has already built a reputation as a ruthless operator behind the scenes.

So roads contractors may do well to look to Network Rail, where the similarly silent but deadly John Armitt began by slashing margins and demanding 30% ef ciency savings.

Robertson may have taken a while longer to get going but the effect may be the same.

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