The cost of the M25 design, build, finance and operate contract (DBFO) rose by one-quarter in one year because of the increase in bank margins sparked by the credit crunch.
The Highways Agency said that the cost had gone up since tenders were received in April 2008, despite falling construction costs and lower interest rates because ‘banks margins have increased’.
The banks were asking for a higher annual fee as compensation for the risks of the loan they were providing, according to the spokesman for the HA.
The £6.2bn private-finance initiative contract required £1.3bn of funding, £925M of which came from commercial banks – including the partly state-owned RBS and Lloyds TSB – and another £185M from the European Investment Bank The M25 DBFO contract provides a fixed price to carry out two sections of widening the motorway to four lanes in either direction, between junctions 16 and 23, and junctions 27 and 30. The Hatfield tunnel on the A1 (M) will also be refurbished.
The contract also includes operating and maintenance services for 30 years, but further funding would be required to introduce hard shoulder running between junctions 23 and 27, and between junctions five and seven. Despite this, the HA said the £6.2bn PFI deal ‘still provides good value for money when compared with conventional procurement of widening works’.
Work got under way on-site between junctions 16 and 23 last week. While the contract award had been delayed by the financial crisis, the spokesman said ‘it was very important that the construction programme was maintained, so the consortium mobilised to start the work in parallel with finalising the funding’.
The aim is for the consortium – consisting of Balfour Beatty, Atkins and Egis – to complete the improvement schemes ahead of the 2012 Olympic Games.
Register now for full access
Register just once to get unrestricted, real-time coverage of the issues and challenges facing UK transport and highways engineers.
Full website content includes the latest news, exclusive commentary from leading industry figures and detailed topical analysis of the highways, transportation, environment and place-shaping sectors.
Use the link below to register your details for full, free access.
Already a registered? Login
