Watchdog calls for tighter controls over roads costing

21 March 2007

The National Audit Office has urged a better steer to local highway authorities on cost estimation, contracting and project management after the costs of the local road programme spiralled by £0.5bn.
The spending watchdog found that, as with the Highways Agency’s targeted programme of improvements, the main contributor to cost hikes was increases to construction costs because of higher-than-expected inflation. The Highways Agency has revised upwards the 2.5% rate it had assumed to 5%, given continuing rises in the prices of oil and steel and the 2012 London Olympics.
The 61 local road schemes have increased in cost by 31%, from £1.4bn when initially estimated, to cost just under £1.9bn. However, the cost underestimates would have been lower if they had been retrospectively revised to take into account new Treasury guidance on ‘optimum bias’. The Highways Agency’s schemes had risen in price by 27%, even once initial estimates were revised to take the new advice on optimism bias into account. The probe – launched after the Liberal Democrats called for the reasons for the hikes to be investigated – found that estimates for the cost of buying land and compensating owners, design and preparatory work and diverting utilities were also often inaccurate.
A separate review into the reasons for the HA’s cost estimates – branded ‘unreliable’ by ministers – by Mike Nichols, recommended improvements in estimating, risk management, procurement and delivery capability. The NAO had found a lack of good practice guidance available for local authorities. The DfT does not prescribe the figures for construction inflation councils should use, preventing ‘more realistic estimates’. It also urged increased dissemination of post-project evaluations of local road schemes.
Sir John Bourn, head of the NAO, said: ‘The DfT needs to define more clearly the risks to estimates at the point schemes enter into programmes.’ The report suggests that early contractor involvement contracts, first used by the HA in 2001, have possibly improved estimates, with final costs, on average, 11% higher than estimates. But it says it is ‘too early’ to say whether the contracts have led to better value for money. Graeme Fitton, chair of the County Surveyors’ Society finance committee, said: ‘We can’t control inflation, and couldn’t have expected rates of nearly double figures. But the Government could reduce delays that increase cost overruns by streamlining the approvals process, and streamlining public inquiries.’ •

Estimating and monitoring the costs of building roads in England.

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Watchdog calls for tighter controls over roads costing

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