Section 3: Learning From Best Practice Globally
Having identified some of the common causes of high unit costs, long delivery timelines and projects coming in late and/or over budget, we have brought together a series of best practices in the UK and globally to examine how these challenges can be overcome or avoided altogether.
3.1 Need and outcomes
Poorly defined outcome/objectives: Too often there is a failure to work out exactly what the objective is before starting the design process. Frequently, large projects are burdened by so many conflicting aims that they are pre-destined to fail on some of them. This can have significant knock-on effects.
- First, it means the focus is often on the wrong aspects or priorities. A good example of this is High Speed 2 (HS2). The original HS2 Ltd held the following key objectives: improve transport capacity, create the highest ever high-speed rail specification (capable of 400kph), drive regional regeneration, stick to a tightly constrained budget, grow the UK’s construction sector and increase employment. While these are relatively clear objectives, there were too many of them and they were often conflicting. In the end, too great a focus was placed on pure speed, above building capacity along a key transport artery for the UK and improving connectivity between different parts of the UK economy. This created knock-on effects for the design and specification process, with more costly decisions being made in the pursuit of higher speeds. As the National Audit Office noted, “the relationship between savings (with the Department for Transport putting a high emphasis on journey time savings) and the strategic reasons for doing the programme, such as rebalancing regional economies, was unclear”.
- Second, if the objective is not clear from the outset, it can often change during the process. For example, an unclear objective means it is easier to make concessions and change the scope in response to stakeholder feedback, even if there are conflicts. This means parts of the project lifecycle need to be repeated multiple times, significantly increasing costs and time spent.
- Third, the lack of a clear objective also makes it more difficult to build democratic support. People, rightly, want to understand why they may be facing disruption in their local area for a large infrastructure project (as well as understanding the significant time and cost invested by taxpayer-funded entities). Flip-flopping on objectives only serves to confuse and undermine public support, as does being unrealistic about the costs, benefits and time involved.
Incorrect valuation approach: Too often the valuation approach taken focuses on the benefits which are easiest to estimate, even when they may not actually be the primary objectives. This has three impacts which can drive up time and costs:
- First, it can lead to poorly targeted design and specification choices later in the project lifecycle, which reinforce the easy-to-estimate benefits but may not be the actual core strategic objectives. Focusing on speed over connectivity is a common one for rail projects, since valuations can easily estimate time saved but struggle to capture the economic agglomeration impacts of connectivity.
- Second, focusing on the benefits which are easy to value can often lead to a very small or narrow benefit-cost ratio. While the wide strategic case may be convincing, a narrow benefit-cost ratio can often cause political uncertainty over whether a project will progress or not. Hinkley Point C is a good example here. The 2017 value for money assessment (the tests for which were agreed in 2011) did not properly consider scenarios in which fossil fuel prices might rise significantly; nor did it pay sufficient attention to strategic issues such as the UK’s energy security. The result was significant uncertainty over the business case, both at the time and in subsequent years. However, recent developments have only served to make the economic case stronger.
- Third, the lack of a clear cost and benefit constraint can bleed through to poorly defined budgets, which often causes confusion and reduces incentives to keep costs down.
3.2 Options and spec
Lack of alignment of specifications with objectives: Poorly defined needs and outcomes often lead to a lack of alignment between the specifications used and the project objectives. The minimum viable product is often not set out clearly. This means decisions around specifications don’t centre around what is actually needed (as opposed to ‘nice to haves’), leading to misaligned and often unnecessary additions. The decision to design large bespoke stations for Crossrail is an example. These large and, at times, elaborate designs were costly compared to the Docklands Light Rail (DLR) stations, which are far more functional. The bespoke nature also significantly reduced repeatability and scaling. Some stations established large-scale offsite construction of platforms to avoid disruption on site, but this was not joined up across the piece, meaning each station approached this type of construction individually.
Over-speccing and gold plating: A common theme across UK infrastructure is that specifications and standards go beyond what is necessary. This again largely comes back to risk aversion. It can be due to an abundance of caution, often linked to the fragility of public support and the planning approvals process. While it is also usually easier to design assets to go ‘above and beyond’ to pre-empt or respond to planning concerns than to set out a more economical design and defend it. Any risk is seen as something to be eliminated to avoid any potential blowback. Of course, risk is unlikely to ever be fully eliminated and this approach can add significant time and cost delays. Comparing HS1 and HS2 is useful here: given the link to the Channel Tunnel, HS1 adopted the existing French specifications and standards when it came to high-speed rail. This off-the-shelf approach was tried and tested, with materials and construction methods fully understood, as well as plenty of suppliers already in place. Contrasting with this is HS2, which sought to design its own specifications and standards. PWC’s 2016 review of HS2 against international benchmarks found that design standards and specifications could be reduced to be less severe without major risk. For example, the slopes of embankments and the need for extensive piling, as well as the width of tunnels, could be reconsidered to provide lower costs and more efficient construction.
3.3 Planning and sourcing
Planning/consultation: While hugely important in terms of assessing a project’s impact as well as gathering stakeholder viewpoints, the planning and consultation process is often cumbersome. Required feasibility assessments are arduous and unnecessarily complicated and consultations provide multiple opportunities to object, delay and force changes (even late in the process). This means project scopes are expanded in an effort to reduce resistance and risk, resulting in unwieldy designs. This is well documented in the UK: for example, see the Lower Thames Crossing, where costs have already reached £800 million but construction is yet to begin. To put this in context, the planning application alone has cost twice as much as building the world’s longest road tunnel in Norway.
Contracts include the wrong incentives: Contracts in UK infrastructure projects often include the wrong approach to risk management and delivery incentives. There is too much emphasis on using contracts to pass risks along the supply chain, instead of taking shared ownership across the whole ecosystem. Given that contracts can never fully account for all risks and the fact that the ultimate client (usually the government) will always retain a share of the risk, these attempts to pass it on often fail. The Royal Liverpool Hospital is a good example: while contracts attempted to pass on every risk that could be imagined, there was no plan for the collapse of Carillion, the key contractor. The cost and risk then rebounded on the government. Furthermore, when designing and implementing contracts the assumption is that projects will fail. This has resulted in an obsession with anticipating and shifting blame before activities have even begun. Instead, the client and contractors should work together to deliver against a clearly defined outcome, sharing the risks along the way.
3.4 Design and engineering
Regular redesign: Continual rescoping and redesign of projects, sometimes after construction has begun, leads to cost increases and delays. This is exacerbated by frequent amendments following consultations and initial designs created with incomplete information and thus lacking detail. All this is largely driven by risk aversion, once again.
Lack of understanding of engineering risks: Often a desire to begin procurement or construction as quickly as possible means there is a lack of upfront investment to scope out engineering factors. Risks are not properly understood as part of the design package, resulting in exposure to tail-end hazards. Taking the time to properly understand and integrate engineering risks into the design pays dividends later on.
3.5 Delivery and construction
Lack of large construction firms and disjointed supply chains: The fragmented nature of the UK construction sector often means multiple small construction firms are required. This not only increases costs and complexity on individual projects, but also means none of the firms have the incentive or even ability to invest in capital/technology improvements that would benefit the industry at large. For example, the construction of Hinkley Point C involves 3,500 British firms alone – managing such a complex supply chain requires significant time and investment. The Infrastructure and Projects Authority (IPA) does try to provide some guidance on projects coming down the line in the UK, however, it often lacks sufficient information. While a list of projects is published, the exact size and timing of projects is not set out and the list is not updated often (as of publishing it had just been updated, two and a half years after the previous update).
Low tech on sites: Relative to peer countries (e.g. France), the UK can sometimes use inferior processes for on-site work such as scheduling, multi-function teams, sequencing work and capital deployment. Specifically, there is a long tail of less productive firms in the UK. This is out of line with the strength of digital capabilities the UK can offer and leads to missed opportunities to improve innovation and productivity through technology investment and capitalising on economies of scale. Due to sub-optimal contracting and fragmented supply chains, delivery partners are not incentivised to invest in new practices or technologies, as they will bear the burden of increased capital expenditure with little or no returns for improving productivity or delivery across the project. Although there are examples of world-class approaches in the UK, these are not wholly consistent across the sector. Part of the problem is that where there are improvements or innovations in individual firms or on specific sites, there is unfortunately limited sharing of this across the supply chain/industry.
3.6 Operation and maintenance
Lack of alignment/connection between construction and operation: Many countries set up a project lifecycle such that the role for those involved in construction extends into operation. While not always necessary, the existence of at least some type of link bridging different phases can help ensure designs are correct, that there is a consistent understanding of what is needed going forward and also creates incentives to keep costs on budget and delivery on time. In the UK we often see a failure to define responsibilities regarding management of assets post-construction. This creates uncertainty towards the end of the project lifecycle and can remove some of the responsibilities of stakeholders in the pre-operation phases, once they know they won’t be involved with the running of the end product. The UK government has tried to address this with the creation of the ‘Soft Landings’ programme, but it is yet to fully translate into large infrastructure projects (though we are in relatively early days). Additionally there is often a trade-off or balance between the capital expenditure and operational expenditure of a project. This must be understood in order to make decisions on value across the asset’s entire lifecycle. When and where money is spent can make a real difference as to how much value is realised – and when (particularly in net present value terms).
3.7 Lack of portfolio view and strategic objectives
A cross-cutting issue which also often causes time and cost increases for UK projects is the lack of a considered approach and perspective across the portfolio of infrastructure projects. This contributes to a lack of information sharing across projects, preventing lessons learnt from being taken forward and improvements to cascade from one project to the next. Projects are approached in isolation leading to an inability to draw out and apply learnings and skills from one to the next. Often infrastructure projects will cut across each other without a clear understanding of what each project is doing or trying to achieve, or any picture of how they fit together into a broader whole. This can often cause delays and increase uncertainty and can also mean skills and resources are not deployed effectively across and between projects. A strategic view needs to identify objectives, avenues for delivery and opportunities for impact; and everyone needs to be clear on it.
There have been attempts to achieve this in the UK. For example, the National Infrastructure Plan of 2010 was well received. However, the approach quickly fell by the wayside – with no new fleet of nuclear power stations, a quick end to the home insulation and energy efficiency programmes and carbon capture and storage only recently starting to see serious investment.
Looking at the wider problem set, and examples of how these issues have been avoided elsewhere, highlights a common theme. The industry – across both public and private sector – has become dominated by risk aversion. Almost every actor, at every stage, focuses on perceived predictability over efficiency. This has failed to reduce risk but has driven up cost and delays. It has created perverse incentives since no one has the desire or ability to push down costs and time across the project delivery lifecycle. Taking longer and spending more may also, ironically, increase risk. Taken as a whole, these issues can be summarised around six cross-cutting issues:
- The government often sets multiple, conflicting objectives for a project, with only loose budget and time constraints – this drives up cost and time, since it leads to incorrect specification choices which are often more costly or need to be changed and poor design choices which have to be repeated later in the project once the real objective becomes clear. It also confuses the process of democratic approval since the public are not aware of what the project is trying to achieve.
- Risk aversion means designs are frequently changed and are often over-elaborate, with too little attention paid to value or how the project will be built and operated – there is a failure to target the minimum viable product, instead focusing on a design that will avoid any objections. There is also little leveraging of what has worked well elsewhere in the UK or globally. Those responsible for operating and maintaining the asset are not involved in design or construction, resulting in multiple iterations before the asset comes into operation.
- The planning process is too long and complex, with multiple veto opportunities, adding process with little view on cost and time implications – permissions and approvals take far too long. Required feasibility assessments are over complicated. Consultations often take place multiple times with designs changing every time, partly as they seek to cover every stakeholder possible with no reference to which ones are more important. Early engagement can be beneficial, but mainly if it focuses on the ‘mission’ of the project and how it can unlock benefits for the public.
- The current sourcing and contracting approach creates the illusion of risk reduction, but actually often just shifts risk rather than effectively managing it, which creates perverse incentives – too much emphasis is placed on passing risks along the supply chain, masking the location of the risk instead of taking shared ownership of it across the whole ecosystem. Contracts can never fully account for risks. They often miss the actual source of the risk and ultimately the client (usually the government) will always retain a share of that risk – all meaning incentives to keep time and cost down are limited. The emphasis is on perceived predictability over efficiency.
- External pressure to move to construction despite repeated changes means designs are often immature and engineering risks not fully understood – repeated changes to designs (often from the consultation process) and lack of upfront investment in detailing designs, or exploring engineering risks, can drive up costs and cause delays as problems are found later in the process, with earlier stages then needing to be repeated.
- The UK construction industry is fragmented with little incentive or opportunity to invest in capital, skills or technology – many small firms are required to deliver projects; this increases costs and complexity on individual projects and means none of the firms have the incentive or ability to invest. There is no clear strategic objective across UK infrastructure and no real process to ensure lessons are learnt across the piece and that economies of scale are leveraged. This all results in wide variations in productivity across the sector.
Many of these issues occur at the pre-construction stages, setting up infrastructure projects for failure before the first hole has even been dug or stone has been laid.
Section 4: Steps to Improve UK Infrastructure Delivery
These problems are not insurmountable; there are plenty of examples in which the UK or other countries have overcome them. No single country manages to avoid them all, but learning from these experiences can allow us to determine a series of steps which will help improve things in the UK.
No single actor will be able to fix the challenges we face. Given the scale of the issue, this must be a combined effort across the public and private sectors and across different forms of infrastructure. To that end, we have identified nine recommendations, split into three categories, which require urgent action.
Many of these recommendations are interrelated and work together. No single recommendation alone would solve the challenges the UK faces in infrastructure delivery, but together we believe they could revolutionise our approach.