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Construction firms lobby government over roads funding

Contractors are holding crunch talks with the government on funding models as the industry gears up for crucial government announcements on plans to boost the flagging roads sector.

Construction firms are asking the government for both a short-term funding boost and clarity on the long-term future of road financing, ownership and maintenance in the run up to the autumn statement on 5 December.

Construction News understands announcements could include £200 million in funding for repair and maintenance work, to be spent from savings within government in the past year. 

The focus on road management could mean major opportunities for contractors beyond traditional construction.

Transport minister Stephen Hammond is believed to support wide-scale roads building and told an Association of Consultancy and Engineers parliamentary reception this month there would be several roads announcements as part of the autumn statement.

Prime minister David Cameron put roads at the top of the political agenda in a speech at the CBI’s annual conference on Monday, where he pledged to cut the time taken to upgrade roads by half.

The government subsequently announced pilots for quicker construction of four road schemes worth hundreds of millions.

Construction companies will have their chance to quiz construction minister Michael Fallon, who will speak to the CBI construction council next week.

Contractors managing roads

Morgan Sindall managing director Graham Shennan told CN that his firm is in discussions with both government and “potential partners” on road privatisation.

He pointed out that the firm already works in partnership with Vinci and Balfour Beatty, who “have got a lot of that capability”.

Skanska executive vice-president and head of infrastructure Bill Hocking said the company is looking forward to £200m of new spend for smaller schemes and road maintenance, and would be “very interested in competing” for PFI roads.

He added Skanska is taking a cautious approach to ownership, but that long-term management, under a PFI-type model, has worked well for them overseas, adding that the A14 lends itself to such a model. 

Industry’s lobbying comes as questions continue over the future structure of the Highways Agency, with the government believed to be giving strong consideration to a regulated asset-based model while also looking at more public private partnerships.

A contractor source told CN: “There is a general desire to build roads within the government, they just don’t know how to do it because they have not got the money – but they are keen to see a big road-building programme.”

CBI director for business environment Rhian Kelly said: “All the main contractors are interested and attending various events with government. They want to know what’s happening and are pushing the government for details.”

The Connect Plus consortium, made up of Balfour Beatty, Skanska, Atkins and Egis Road Operation UK, has a 30-year DBFO (design, build, finance, operate) contract to manage and improve the M25 and its critical arterial link roads.

Vinci and Ferrovial already manage roads in France and Spain, where tolls are common.

Long-term partnerships

Aecom transportation director Paul McCormick said there is a need for “longer-term contracts that will be better for the economy” and will mean contractors can “offer a much better deal” to the client.

He said the key will be government “market tests” to assess the best deals, and looking at going from a regionally-based approach to a route-based one.

He added: “They have all been pushing it…Balfour Beatty, Amey, Carillion are all pushing for longer term maintenance contracts - that also gives their shareholders value too.”

Gary Healey, associate director at Turner and Townsend, which is on the procurement and advice framework for the Highways Agency, said: “I think that’s definitely a move that’s being made – obviously with the Connect Plus work on the M25 as a test base for that model. 

“I think more contractor involvement is the right move.”

He said he would expect to see more schemes on the M1, M3 and M4.

In March the prime minister commissioned a study to look at ways of attracting private sector involvement in the road network, which is expected to report back within weeks. The CBI called for a regulated asset base model in September that would be administered through a governing body to replace the Highways Agency.

Work certainty

However, there is believed to be debate within the government about how to ensure occasional road users are not charged the same amount as high frequency users such as freight operators.

Central to the changes would be certainty of work, a ringfenced budget and more public private partnerships.

It is thought the RAB model won’t be enough to build strategic roads and that an option is to ringfence more money and do PPP models.

Ringfencing funding:

Mike Llywelyn-Jones, chairman, roads sector interest group at Association for Consultancy and Engineering, said government should make decisions about future schemes but ringfence 10 per cent of the budget in pre construction.

He said pre-construction work typically takes around 75 per cent of a road project’s lifetime but only uses around 10 per cent of the budget and that ringfencing finance for the pre-construction stage would make a comparatively large difference, by enabling momentum to be maintained on each project from gateway to gateway. 

He said that this would:

  • Greatly reduce the need for decisions to be reviewed in new political circumstances, and hence for work to be re-done
  • Provide improved continuity of work for consulting engineers, leading to business confidence and staff retention/recruitment
  • Give contractors more certainty in the nature and timing of road projects coming to market

He said: “The most important thing of all is certainty of work and a ringfenced budget. The problem at the moment is that companies have short-term budgets to hit and have to make the decision to either lay people off or look at projects overseas.

“It would be better even if the amount was smaller but guaranteed. It would be better than the big scheme which everyone gets excited about and it never happens.

“The reason [ringfenced financing] is so important is that it keeps momentum up on schemes. You see schemes stall and companies have to redeploy their team and cannot get them back when the projects start again.

“If a scheme is stalled for three years then it might look strange in the political climate when it comes up again so then everything has to be reviewed and that costs time and money.”

They added that PPPs had the benefit of companies involved taking whole life costs into account as they would want to plan the future of the road for 25 years in a way to minmise the overall cost.

Mr Hocking suggested the Highways Agency could end up as a hybrid of part government body and part regulator.

Mr Healey also said the HA is now talking about the next generation of contracts, with a greater focus on collaboration and early contractor engagement, improving behaviours and “doing things quicker”, while looking at how to share best practice.

He added: “If I was a contractor now I would be demonstrating that I could work effectively both with the HA, but also with the supply chain.”

Mr Shennan said he is looking forward to “quite a number of [contract] awards” in the road sector “fairly soon”, where networks are “not at peak efficiencies”.

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