The challenges of minimising the gap between what an infrastructure project is forecast to cost and what it will actually cost was the subject of discussion at an ICE and DfT roundtable this week.
ICE and the Department for Transport (DfT) this week held an industry roundtable to discuss how infrastructure delivery can be improved, to more closely match estimates and outturns, while shining a spotlight on the benefits major projects bring.
It was agreed that as long as margins remain thin, the sector will lack resources to improve through investment in innovation and skills.
Attendees also expressed concern that fixating on driving down upfront cost detracts from a more important focus on long-term thinking and achieving a much wider set of benefits from infrastructure networks.
ICE and DFT Reports
This discussion follows the release of two recent reports - ICE’s “Reducing the gap between cost estimates and outturns for major infrastructure projects and programmes” and the DfT’s “Lessons from transport for the sponsorship of major projects”.
Both reports look at how delivery of major projects can be improved so that estimates more closely match final project costs, something crucial to maintaining confidence in how public money is spent.
DfT sets out five themes that encompass a total of 24 lessons learnt from major transport projects. These include the need to take ‘decisive action’ when schedule or cost tolerances are likely to be breached or ensuring clear accountability for systems integration at the outset of a project.
ICE has taken evidence from leading sector and client organisations to identify and explain where the challenges are, set criteria to outline what a ‘good’ outcome is and map out actionable steps which can improve delivery.
The challenge with second-guessing the unknown
It's difficult to get forecasting right on major infrastructure projects, and the further out from delivery a project is, the harder it becomes. Nine out of 10 projects with a value of over $1bn go over budget or over deadline around the world.
Hundreds, even thousands, of construction workers, engineers and multiple companies work together over years, if not decades, to deliver major projects. During this time, any number of factors can affect material costs, labour availability or the requirements a project needs to meet.
With a cost increase of nearly 270%, the London 2012 Olympic and Paralympic Games stand out as an example of the difficulties of forecasting.
The 2005 estimate of £2.37bn ended up as a £8.77bn outturn – but there are two lessons to learn.
A recalculated budget in 2007, when exploration was complete, came in on target and the public consider the project a success – 74% say they would welcome the Games back, and there was a £9.9bn boost to the economy.
Unforeseen circumstances and changing technology will affect projects. Who could have foreseen Brexit when Crossrail was given the go-ahead in 2007? Will planned road projects have to be redesigned to accommodate wireless re-charging or ensure connectivity for connected and autonomous vehicles?
Taking action and shifting the success narrative
Knowing the unknown isn’t something that can easily be planned for. What is in the control of project managers and policy makers is how they manage costs and improve processes.
It's also crucial to re-define success to ensure the infrastructure we build retains value and realises the intended social, economic and environmental benefits.
A focus on outcomes has public demand; 74% of GB adults told a YouGov poll for ICE that they want to hear more about the benefits of major infrastructure projects.
The same poll found just 3% of GB adults think that the most important issue is that the overall cost of constructing a project is low, with 30% highlighting the need for communities to be regenerated.
ICE’s paper recognises the need for a shift in narrative, setting out that clients and the government should move away from lowest capital cost as the most important metric when assessing major projects. The focus must be on delivering infrastructure benefits, supported by a cost case which delivers the multipliers which underlined the project to begin with.
The paper also makes the case that completing scope, design and exploration before committing to work will help to avoid expensive retroactive changes. Making ‘should-cost’ modelling and other reforms set out in the Outsourcing Playbook mandatory would aid government clients in making better procurement decisions.
Finally, providing a cost estimate range, based on a should-cost model, would help to build in flexibility to the budget and leeway to incentivise contractors who deliver below estimate.
Delivering for the public
Some say that the sector is losing the trust and confidence of key clients, including the government. That's a challenge the sector must take seriously, and it needs an appropriate response.
By focusing on the benefits infrastructure brings to communities, towns and cities, and taking a critical look at where the construction sector can improve, public confidence that they will get the infrastructure they need should start to improve.