"The Highways Agency’s PFI project to widen the M25
could have achieved a materially better value for money outcome.
This was partly because the slowness with which the project was
taken forward subjected it to the cost effects of the credit
crisis.
"The Agency should have adopted a more agile approach to
procurement, recognizing the potential for making savings using an
alternative method of relieving congestion, hard shoulder running.
The Agency should have kept its contracting approach open to allow
the use of this method."
Amyas Morse, head of the National Audit Office, 19
November 2010
A National Audit Office examination of the Highways Agency’s PFI
contract to widen the M25 as a way of reducing congestion has
concluded that it could have been materially better value for
money. The slowness with which it was taken forward resulted in
higher financing costs in the credit crisis. Moreover, the Agency
was slow to investigate a potentially cheaper alternative to
widening.
An 18-month delay in preparing and finalizing the widening
procurement meant that the contract was let in May 2009 at the
height of the credit crisis. This increased the net present cost of
the deal by £660 million (24 per cent) to £3.4 billion. The case
for PFI was less convincing than the Agency thought owing to
shortcomings in its cost estimation process.
The Government had announced in 2003 its intention to reduce
congestion on the M25. The Agency was starting to carry out trials
at that time of an alternative, potentially cheaper solution of
hard shoulder running (allowing drivers to use the hard shoulder at
times of peak congestion), first tested in Europe in 1996.
Today’s report to Parliament recognizes that, at each stage of
the widening procurement, the Agency assessed the value for money
of the project based on the information it had available. However,
had the Agency investigated hard shoulder running earlier and been
more flexible, it could have seriously considered the savings
potential that hard shoulder running can offer together with any
effect on benefits.
The NAO estimates the savings from a conventionally procured
hard shoulder running solution might range between £400 million and
£1.1 billion. The Agency, however, doubted the technique’s
suitability for one of the sections of the M25 being widened which
has high traffic flow and whether operation and maintenance savings
could be achieved through conventional procurement. The slow
progress on testing hard shoulder running, and the Agency’s
commitment to widening, meant that the Agency limited its options.
As a result, it did not give itself the opportunity to secure a
better price for the taxpayer. The Agency is now using hard
shoulder running on a number of major roads.
The full expected congestion-reducing benefits of the M25
widening project depend on the completion of techniques for
managing traffic demand. Despite starting to consider these in
2003, the Agency is still testing their viability in 2010 and does
not expect results until May 2012. This creates risks to
maintaining the long-term benefits of the project and its potential
value in cutting congestion.
Publication details:
HC: 566, 2010-2011
ISBN: 9780102965544