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Doing business in the road sector: Reeling in spending

In the last few years the Highways Agency has been criticised heavily for letting costs on major projects spiral out of control.

In 2007 the Nichols Review carried out by consultant Mike Nichols, the National Audit Office and the Public Accounts Committee found that the Highways Agency’s estimating was inaccurate.

And in 2008 alone seven major projects cost some £1.1 billion more than expected, including the A14 from Ellington to Fen Ditton which rose in price from £490m to £944m.

Last year the Highways Agency revealed plans to increase competitive tension between contractors by using an in-house estimating team to set costs for all major projects.

In a similar way to national rail operator Network Rail, the agency formed a commercial team to make use of past project cost data to estimate more realistic prices for jobs, which contractors have to aim for when bidding for work.

By building up a library of its own historic project costs, the Highways Agency hopes to further improve future estimation.

In its latest Business Plan the agency reiterated its commitment to the Department for Transport’s Value for Money delivery agreement with the Treasury, which was established as part of the 2007 Comprehensive Spending Review.

It gave itself a target to deliver cumulative efficiency improvements of £12m by the end of 2009/10, contributing to an efficiency savings target of £144m by the end of 2010/11.

In its Business Plan the agency says: “We will achieve these efficiencies through a variety of activities, including the staged introduction of new maintenance contracts,

by managing down the cost of major projects, and minimising the impact of construction industry inflation through better procurement efficiencies.”

The future

This year the Highways Agency announced it will be developing a Strategic Business Plan.

The document will set out the course and direction for the agency over a three to five year period, helping to inform the next Government-wide spending review.

In its current Business Plan the agency explains: “A Strategic Business Plan will benefit the organisation by re-stating and building consensus on our aim and objectives.”

Fiscal stimulus

At the end of 2008 the Government announced it would try and help boost the UK’s economy using targeted public expenditure.

As part of this, the Highways Agency announced it would bring forward £400 million of its capital budget in 2009/10.

In its Business Plan for that period the agency revealed it would spend some of the money on starting the managed motorways programme, which will see additional capacity brought to the network through hard shoulder running.

The agency also announced it was accelerating the A46 Newark to Widmerpool scheme, for which £100 million has been earmarked.

In the Business Plan the Highways Agency added: “We also plan to bring forward a substantial programme of asset renewal work that will see many individual projects accelerated in all regions.”

Delivering this investment will bring challenges for the entire organisation – including how to keep traffic moving and keeping customers fully informed while there is an increase of construction activity on the network.

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