Highways agency could have saved £1.1bn by considering alternatives

The Highways Agency spent over £80m on consultants in procuring the £3.4bn M25 road-widening project, and ended up seeing costs rise by £660m because of failing to do a deal at the right time.

A highly critical report by the National Audit Office, published today, says the Highways Agency also failed to properly consider procurement alternatives and other possible schemes, which could have saved it up to £1.1bn.

The 30-year PFI project was eventually awarded to a consortium of Balfour Beatty, Skanska, Atkins and Egis in May 2009, six years after it first decided to go ahead with the project. The report finds that an 18-month delay in the procurement of the project meant the deal was finally signed at the height of the credit crunch, forcing costs up by £660m.

It said the Agency was too reliant on consultants, with the £80m bill representing 7.5% of the capital build cost of the project. £45m of this related to technical advice, of which £24m was on design, and the agency has not reviewed these costs to see if they offered value for money. It found: “The Agency’s reliance on advisers has built up over time and in part reflects insufficient commercial and technical skills within the Agency. The Agency risks advisers controlling projects and having little incentive to transfer knowledge back to the Agency.”

In addition the NAO said the agency didn’t give proper consideration to using hard shoulder running at peak times, instead of a full road-widening programme. This could have saved anything between £400-1.1bn it said.

In general while it said it conducted the actual procurement in a competent manner, it failed to properly assess alternatives.

It recommends: “Departments need to explore all reasonable options thoroughly, and include a full evaluation of the benefits and disadvantages of credible options. Large or complex procurements may take a number of years to complete. Departments should, therefore, allow themselves flexibility when advertising procurements to consider emerging technologies which may prove to be value for money, taking account of both costs and benefits.

Amyas Morse, head of the National Audit Office, said the project “could have achieved materially better” value for money.  He said: “The Agency should have adopted a more agile approach to procurement, recognizing the potential for making savings using an alternative method of relieving congestion, hard shoulder running. The Agency should have kept its contracting approach open to allow the use of this method.”

Margaret Hodge MP, chair of the Committee of Public Accounts, said: “Unfortunately, the Public Accounts Committee has considerable experience of scrutinising imperfect major infrastructure projects. Looking at the NAO’s report on the project to widen the M25, I see many familiar problems. Both I and my colleagues will have some tough questions for the Highways Agency when it comes before us in a few weeks time.”