National Audit Office Auditor General Keynote: A review and recommendations - Part 1
A different approach to major infrastructure projects
In January the Comptroller and Auditor General of the UK National Audit Office (NAO), Gareth Davies, gave his annual keynote speech to Parliament. This year the speech was titled ‘Improving Productivity Could Release Tens of Billions for Government Priorities’.
The NAO is not part of the Civil Service, and is independent of Government; its role is to support Parliament in holding Government to account and to help improve public services by conducting audits and publishing their findings. They have the statutory authority to audit and report on the financial accounts of all government departments and other public bodies and examine and report on the value for money of how public money has been spent.
In his speech, Davies set out the five key areas of ‘financial opportunity’, where improved efficiency and productivity could unlock tens of billions of pounds, which he argues could be used in the current challenging fiscal environment for other Government priorities and initiatives. These five areas are:
Major infrastructure projects
Asset management
Procurement
Digital transformation
Reducing fraud and error
The first four of these five in particular are subjects that we at Curshaw are passionate about, hold expertise in, and work on with clients on a daily basis. Working at the intersection of between public and private, our goal is to create and manage engagements that deliver value for all. We strongly agree with the NAO that improved productivity and efficiency in these areas will unlock tens of billions of pounds. Crucially, we also believe that doing so is eminently achievable in a way that is value adding, sustainable and equitable.
In this series, we dive into the detail on each of these areas in turn, giving our view on the windows of real opportunity and how a collaborative and a long-term approach to commercial engagements, upon which delivery in all these areas depends, can deliver value for all.
PART 1 - A different approach to major infrastructure projects
Davies’ keynote speech specifically highlights HS2 and the New Hospital Programme, describing them as ‘mega projects’. This is broadly defined as initiatives which:
‘Are arguably too large for the risks to be manageable by the relevant departments…’; and
‘have overall budgets of many tens of billions and project lifetimes spanning decades’.
However, in the case of HS2 it could be argued that this first point was recognised, and led to the creation of HS2 Limited, a separate entity responsible for delivery, owned by the Government, with oversight from the Department for Transport, HM Treasury and the Cabinet Office in the form of the Infrastructure and Projects Authority (IPA).
This approach has not prevented enormous budget and time overruns and led to recent headline-generating tough political decisions about the extent to which the project delivers on its initial objectives. This in turn had led to significant sunk costs, such as the compulsory purchase of property and land in areas through which no new train tracks will now be laid. Potentially a significant risk to the delivery of the original benefits outlined in the business case, on which the initial decision to proceed was made.
We would argue that it’s not just the ‘mega projects’ Davies references that require a different approach. The significance of the role of the private sector in the delivery of any major infrastructure cannot be understated. This is both from the point of view of private sector capital, and capacity and capability. A diverse and healthy range of potential providers is key to a competitive marketplace, enabling successful and effective delivery that achieves real value for money.
The UK must be seen to be an attractive place to invest and do business, in an increasingly competitive global market. This covers both direct investment into specific projects and programmes that are based on a partnership-style model, such as the recent tender published by an NHS Trust for a ‘Strategic Estate Partner’ to build and finance new ambulance hubs and Emergency Operation Centre facilities, but also indirect investment into the skills, capacity and expertise of companies. This relies on both a clear indication of Government intentions over the long term, as well as a reliable and stable environment in which these plans are made and then enacted. This provides the certainty required for an accurate forecast on the attractiveness of long term investment, upon which major infrastructure projects rely.
Additionally, whatever one’s political views of private sector involvement in the delivery of public goods and services, there is an unavoidable reliance on private sector supply chains and delivery capability in any major infrastructure project. Equally important is the role of the public sector in effectively designing, procuring and managing the contracts for these goods and services in a robust yet collaborative manner, avoiding the extensive costs that accompany disagreements about delays or cost overruns, or the misaligned allocation of risks in relation to which party is best able to manage and mitigate them.