How do you solve a problem like cost overruns? It is a needling question that our industry has been asking for some time, and one laid bare in the National Infrastructure Commission’s (NIC) recent paper, Cost drivers of major infrastructure projects in the UK.
At the heart of the paper, and brought to the fore in the very first sentence, is the view that “infrastructure costs in the UK are too high and they have been so for decades”. That is an opinion shared by many, spoken about widely, and backed up by facts (the paper cites several quantitative analyses in addition to its own findings).
The answer is not simple, let’s be totally clear, and I honestly believe that industry professionals fully acknowledge the need to do better. But there is no denying that this is a narrative we have grappled with for some time.
That being so, this latest NIC paper runs the risk of being just “another report highlighting the problems of old”. But it’s not, of course.
With a different political party at the helm for the first time in 14 years, the newly formed National Infrastructure and Service Transformation Authority (NISTA), and a quoted £22bn black hole in public finances outlined by the chancellor, the opportunity and the need for change is both tantalising and stark. Without change, the government will not be able to achieve its infrastructure goals; that much is simple.
Consider the bigger picture
There can be no denying that, quite rightly, cost has been – and always will be – a key metric upon which infrastructure programmes are judged. But success should not be defined solely by whether a programme is delivered on budget.
More important in many regards are the legacy outcomes; the long-term socio-economic benefits felt by people. Clearly, these go beyond the physical infrastructure and must not lead to a spiralling of costs, but an early crystallisation of what a client wants the outcomes (not outputs) to be allows for a realistic and all-encompassing cost envelope to be established at the very outset.
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Crucially, realism leads to better predictability, and this has to be something that industry drives. Optimism bias has besieged major programmes the world over, with budgets and programmes influenced by political agendas and a subsequent keenness to appease them.
In a double whammy, it is often the bureaucracy of the public sector that creates the indecision that leads to cost and schedule increases; NISTA will need to address this if it is to achieve its aim of rekindling investor confidence.
Better data is vital to achieving this. Capturing, tracking and assessing the wide-ranging benefits of a programme not only highlights value beyond cost, but unlocks a multiplier effect, unearthing new opportunities along the way and ensuring that, for every pound spent, there is something meaningful in return.
Put pre-construction on a pedestal
More effort and clarity upfront has to be a central tenet of the UK’s infrastructure delivery approach. From a cost perspective alone, the NIC paper highlights two industry studies that found over 50% of available cost reductions on a project require action before the delivery stages and the start of construction.
Put plainly, this is because getting a grip of a programme’s challenges and opportunities early on and building them into a consistent and coordinated vision enables the right conversations with the right people at the right time.
One area for opportunity outlined in the NIC’s paper is overcoming “client and sponsorship challenges”. Given the size and complexity of major projects and programmes, as well as the swathe of requirements outside of pure delivery, too often clients lack the capability, leadership and governance to hit the ground running, especially when compared to a comparable business entity.
Clarity on the role that the client will play provides clarity on the value chain required to deliver the expected benefits. And, while the paper sets a blueprint for how the new government (and now NISTA) can shift the dial, this is also a perfect place for industry to make a meaningful impact.
Bringing in the right programme partner early on in the pre-construction phase and treating them as a partner will not only provide the capability needed at this critical juncture, but lay the foundations for a long-term integration and collaboration
This is, in large part, because many of the challenges arise early on in a programme lifecycle, when public sector clients and sponsors are still defining their scope and trying to build a team.
What is more, when the scope is defined, it is usually incredibly wide-ranging, and bringing in the right people quickly across such a breadth can prove difficult. This is further compounded by the variation from client to client; it is a patchwork quilt of approaches, with limited opportunity to learn from each other and drive continuous improvement focused on solving problems for the greater good.
Add to this the common pressure for early outputs and visible progress against mandated KPIs (driven by public and political scrutiny), and we sometimes see rushed procurement processes, focused on getting suppliers in quickly to address short-term goals that give little attention to long-term cost considerations. Investing time earlier in the process to set requirements, plan for the execution and engage those who will deliver to shape solutions are key ingredients for improved performance.
Incidentally, the solution sits within the supply chain. Bringing in the right programme partner early on in the pre-construction phase and treating them as a partner will not only provide the capability needed at this critical juncture, but lay the foundations for a long-term integration and collaboration.
From tried and tested supplier lists, built on years of successful infrastructure delivery, to established PMO tools that drive consistency, value for money, transparency and a single point of responsibility across a programme’s entire lifespan, the right private sector partner can help to boost the client bandwidth and enable a sharper focus on achieving the right results – one of which is on-budget delivery.
Trust and respect
Trust and respect sit at the heart of any effective partnership and, in the case of major infrastructure delivery, must trickle down through the supply chain. To achieve this, traditional perspectives on contracting need to be set aside.
Creating a fair and equitable procurement process that gets the most out of the supply chain is essential to long-term success and drives the value associated with good cost management. Pushing the risk down the chain, holding small suppliers to unrealistic and unreasonable terms, does not get results.
Modern contracting demands a degree of equity, where problems are solved and successes are celebrated together. Sharing risk and building incentivisation into contracts might seem more costly on the face of it, but it motivates suppliers and creates a more stable environment, helping to mitigate issues like insolvencies – which cost everybody.
The private sector is acutely aware of this, having seen many big names go under in the past 18 months. That is why industry has a responsibility to place emphasis on the long-term value of a robust supply chain, properly supported by clients and sponsors. It will save money in the long run.
Andy Beard is Mace’s managing director for infrastructure, consultancy, UK & Europe