If I look at a pen from the end, it looks like a small circle. If I look at it sideways, it's a long rectangle. But it's the same pen. Politicians want to look at projects from the former point of view, to make them look as small as possible – but engineers look from the side, they see the beginning, middle and end of a project, so they see it's big and expensive.
Engineers aren't involved enough at the early stages when governments are funding massive developments. I'm concerned that governments throughout the world undervalue the contribution that engineers can make at the outset. They think about the construction, maintenance and ultimately the decommissioning. Politicians are much more focused on upfront costs, which can distract from the whole-life value, which is something the ICE has a duty to emphasise.
Steve Norris, undersecretary of state for transport, 1992-1996
There is a collective willingness to accept the best cost and revenue estimates before a project is approved. But I wouldn't call it lying – "well-argued optimism" is a better expression. Civil servants are very good at arguing: they produce an impeccable paper saying what your costs will be. There's no difference between what the public sector does and the prospectuses for dotcom companies.
The Treasury is very dominant in British politics – it's very adversarial, everybody fights them. Does it matter? Take the Jubilee Line Extension – costs escalated from £2.3bn to £3.2bn, but it will be around for 100 years, and benefits both Tube users and the people above ground who enjoy quieter roads. So what if everybody knew we were ganging up on the Treasury to get it approved? The Treasury knew they were being ganged up on.
Margie Jaffe, national official, UNISON
The PFI is no panacea. It doesn't prevent cost overruns, it institutionalises them. We've found out that costs escalate a lot between the appointment of the preferred bidder and signing the final contract.
Optimism bias and cost overruns affect PFIs as well as the public sector. Take one example – the Royal Armories Museum in Leeds – a £14m PFI project that overestimated visitor numbers and overran by £10m. The government paid off the resulting debts and brought it back into public ownership.
Traditional procurement has come a long way in terms of getting incentives and penalties right. PFI should not be seen as the only game in town. The Audit Commission found that conventionally procured schools came in on time and on budget. What UNISON wants to see is a level playing field to allow alternative procurement routes.
John Hobson, former undersecretary, Department of the Environment
Any organisation, whether public or private, has to innovate, and needs its enthusiastic idealists and dreamers, such as architects and sponsors of development. In the public sector, these individuals are usually politicians.
But you also need a degree of management and financial control – this is usually embodied in the finance director, who is paid to be sceptical. Quantity surveyors come into this category. The successful business is the one that keeps these opposing tendencies – the dreamers and the managers – in constructive balance.
To reduce risk, we need an informed client who knows what he wants: detailed preplanning and risk analysis, and a well-organised implementation team. The disciplines of PFI and PPP help to provide this kind of climate. But it is not the private finance as such that does the trick – it is the properly planned cast of mind that it encourages.
Paul Morrell, partner, Davis Langdon & Everest It really annoys me
when Flyvbjerg talks about lying. To tell a lie, you have to know the truth and subvert it. It's not as if people are working out the true cost of a project and then lying about it.
I'm sure deceit is sometimes a factor – construction represents a sizeable chunk of human endeavour, so nobody, least of all a social scientist, should be surprised to find that it demonstrates every kind of human behaviour, from honest effort to outright villainy. I once lost a job because a public development agency asked us to lie about the project's cost, and we refused.
The fact is that public sector projects overrun more than private sector ones. But we're not looking at a huge conspiracy – it's a shortage of skills and data. It's a lot easier to leave something out of a project by mistake than to include it by mistake.
I'm reminded of Pope Pius II when he first saw Pienza cathedral. He told the architect: "You did well, Bernardo, to lie to us about the expense."
Professor Allyson Pollock, chair of Health Policy & Health Services Research at University College London
There have always been cost overruns, but they used to be borne by the Treasury, so the burden was spread out over taxpayers at large. But under PFI, the costs are passed on to local communities that are less able to bear them. For example, there was a £2.5m affordability gap for the PFI schools project in Haringey. The government bailed them out because it was a flagship scheme, but it can't bail out every scheme.
PFI conceals cost overruns, because they occur before the final contract is signed. We did a study of 15 PFI hospitals, and cost increases averaged 200%. The cost of the University College London Hospital PFI rose from £120m to £430m. Surprisingly, the National Audit Office hasn't even looked at this issue.
Paul Maltby, research fellow, public–private partnerships, Institute for Public Policy Research
The Treasury adds a fixed percentage to bids for public sector projects. But it doesn't add anything to the cost of PFI bids. In practice, funds are only made available if you choose PFI – the unlevel playing field means public sector procurement can't compete.
Although there are big cost overruns on public infrastructure projects, the state is not bad at procuring schools. The extra value for money of schools PFIs is quite marginal: between 2% and 6%. You have to be quite sceptical about that, because people only get their project approved if the PFI delivers better value, and you can play around with the risk profile to achieve the figures you need.
Bob White, chief executive, Mace
The size of some cost overruns suggests total ineptitude – the industry shouldn't be this bad. Mostly it's because of insufficient preplanning on the strategic level – to accomplish things you must plan as well as dream. People commissioning major projects often rush to a solution: they ask for a design and once it's produced it's very difficult to change it.
The rest of the project is then spent justifying the prejudices of the first design.
I think bureaucrats make these mistakes out of ignorance, not malice. They just don't understand the risks involved. And the optimism surrounding big, prestigious projects can be infectious. The Millennium Dome was a superb piece of architecture, but nobody had any idea what was going inside.
Andrew Sutton, chief executive, Jarvis Accommodation Services
PFI and PPP have brought an immense amount of financial discipline to public projects. Although we've had our moments of madness, like the dotcom bubble, we're generally a pretty parsimonious lot in the private sector. Private finance delivers greater transparency and risk management. In other words, the third of Flyvbjerg's three legs underpins the other two.
In theory, the government can be more transparent and manage risk better. But in practice, there have been too many years of traditional procurement not working. The missing ingredient is private finance. We need to move away from monument-building and bureaucracy towards good financial sense.
Tony Rocker, infrastructure and government partner, KPMG
PFI transfers risk to people who are best able to manage it. The banks advising PFI bidders carry out sensitivity analysis: they run lots of scenarios, instead of just taking the base case or most optimistic case. When costs overran on the National Physical Laboratory, Laing suffered the consequences – there was no extra cost to the public purse.
A recent National Audit Office study of 37 public building projects showed 22% of PFI projects went overbudget, compared with 73% of pre-PFI projects. And those that went overbudget did so because the department involved wanted extra work.
Andrew Gay, former chief executive, Drake & Scull
Every time this subject is raised the old chestnuts come up, and the Sydney Opera House is ever the leader in infrastructure myth. The reality is that it now exists, and it works for Sydney. A riskless approach would lead to nothing unusual ever being built, which would be sad for mankind.
Having been involved on three great bridge projects, I know that good teams can deliver major endeavours – all three were outstanding successes. Proven technology should always be used, unlike the moving block signalling technology on the Jubilee Line extension, or the roof shells on the Sydney Opera House. And any project that has unclear objectives will fail. Very often uncertainties are created by too many competing egos.
John McCready, head of regeneration, Ernst & Young
It's impossible to forecast usage with any degree of accuracy, so governments have to pump-prime to get projects started. The Sydney Opera House cost a fortune, but it puts Sydney on the map in a way no other project could. If you always relied on the capital markets, you would never have built London – there would be no sewage, no transport systems.
I worked on the Channel Tunnel, and the forecasts were not cooked deliberately to make them too optimistic. The engineers designed the tunnels before they designed the trains, so later there were a lot of design changes for health and safety reasons.
John Stent, managing director, BAA's Terminal 5 programme
It's too easy just to say, "public sector bad, private sector good". Whatever the organisation, you need a proactive and knowledgeable client, long-term relationships with suppliers, and a well-defined end product.
On Terminal 5, the project team has identified five key elements: an open, cooperative procurement strategy; an adequate brief, so people know what they're costing; a mature design before we go into construction; good controls of cost, time and design quality; and an accountability system where everyone knows when they can make a decision alone, and when they should seek higher authorisation.
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