Memorandum by the Civil Engineering Contractors
Association (TYP 33)
BACKGROUND
The Civil Engineering Contractors Association
(CECA) is the representative trade association of civil engineering
contractors operating in England, Scotland and Wales. It has around
250 member firms, of all sizes, that are responsible for at least
three quarters of all the civil engineering work carried out in
those three countries. Total civil engineering workload is currently
worth around £13 billion a year.
New construction, improvement and maintenance
of infrastructure networks for all forms of transport account
for around 45 per cent of total civil engineering workload. CECA
and its members therefore have a very considerable stakeholder
interest in any Government statement on transport policy or expenditure
plans for investment in or maintenance of transport infrastructure.
In the past there have been many changes in
transport policy, and in expenditure plans for transport, which
have led to large fluctuations in civil engineering contractors'
workload. The clearest example involves investment in motorways
and trunk roads in England during the 1990s.
The 1989 White Paper Roads for Prosperity
doubled the number of major projects in the English strategic
roads programme, to around 330, worth an estimated £5 billion.
Annual public capital expenditure on the programme, and on capital
maintenance of existing roads, then rose to over £2.1 billion
in 1994-95.
By the end of the decade, however, following
a succession of cuts beginning in 1994, the 1998 White Paper A
New Deal for Roads in England set out a "Targeted Programme
of Inprovements" (TPI) with just 37 major schemes worth £1.4
billion to be started in the next seven years. The annual level
of public investment was more than halved to only a little over
£0.9 billion in 1999-2000.
Fluctuations like these militate against improving
the efficiency of the civil engineering industry, and raising
the value it delivers for its clients' money. They also make it
more difficult to attract young people into careers in the industry,
and to retain experienced engineers, other construction professionals,
and skilled operatives.
By comparison, the Government's 10 Year Plan
for transport, launched in July 2000, appears to offer the civil
engineering industry a reasonable assurance of first an increased
then a sustained high level of work on the nation's roads and
railways. CECA accepts that it was never an absolute assurance,
and that there would be adjustments from time to time, arising
from biennial reviews carried out in parallel with successive
Comprehensive Spending Reviews. It has been led to believe, however,
that these would be relatively minor, and the broad shape of the
Plan would not be changed. From the civil engineering industry's
perspective, therefore, the 10 Year Plan represents a most welcome
development, helping it to plan its investment in human resources,
equipment and technology.
ASSUMPTIONS
The Sub-Committee has indicated that it wishes
to examine the assumptions on which the 10 Year Plan is based.
CECA would not claim to possess all the competences
necessary to judge all the assumptions underlying the Plan. However,
when it was first issued in July 2000 the Association studied
not only the main text, but also the Background Analysis which
provides more detailed information, and it concluded that the
key assumptions were reasonable on the basis of the information
on transport, environmental conditions etc, and the economic forecasts,
then available.
There will always be scope for improving forecasting
techniques, and in this connection CECA has been pleased to learn
that various previously separate forecasting models for the demand
for different modes of transport have now been integrated by the
relevant staff of the Department of Transport, Local Government
and the Regions (DTLR).
CECA would point out that very many of the Plan's
more detailed assumptions depend on an underlying forecast of
the rate of growth of the economy, which is the principal driver
of demand for both passenger and freight transport. It may appear
now, as a result of world economic slowdown, that the assumed
average annual rate of growth of UK Gross Domestic Product in
the first five years of the Plan, 2.5 per cent, could be revised
slightly down, but not by as much as would have any significant
implications for the Plan.
Also under the "Assumptions" heading,
it is indicated that the Sub-Committee is interested to receive
opinions as to whether the expected number of congestion charging
and workplace parking levy schemes will be implemented, and when.
CECA considers that it is premature to challenge the targets set
in the Plan at this stage, given that it does not assume any such
scheme would be implemented before 2004-05.
The Sub-Committee is also asking whether the
skills and capacity are available to deliver the improvements
suggested in the Plan. This is a question of considerable importance
to the civil engineering industry, which needs to consider not
only its own capabilities to undertake the volume of work implied
by the Plan, but also those of its major transport infrastructure
clients, including the Highways Agency, local authorities, and
Railtrack, to identify future work programmes, particularly for
major projects, and develop them to the point at which they are
ready to procure the services of contractors to carry out the
work (and, for an increasing proportion of all jobs, to undertake
the detailed design).
CECA remains confident that, provided the initial
increase in demand for its services is gradual, and the on-going
level of demand in the medium term is consistent, and provided
also that the industry works closely with its major clients to
avoid waste of scare resources, particularly in the use of engineers
(as is clearly envisaged in the recent Procurement Strategy documents
from the Highways Agency), the civil engineering industry will
be capable of playing its part in delivering the Plan.
In the short term, it has been more concerned
about the capacity of clients, following the reductions in their
staffs accompanying the cuts in expenditure on both investment
and maintenance of transport infrastructure in the late 1990s,
to bring forward additional projects at a rate sufficient to require
the higher levels of expenditure, particularly on major network
enhancements projects, envisaged in the Plan.
IMPLEMENTATION
The questions that the Sub-Committee is asking
in relation to implementation of the 10 Year Plan are mostly concerned
with the future funding of investment in transport infrastructure
and equipment.
CECA has observed, and indeed has been given
direct assurances, that the Government's commitment to the 10
Year Plan remains as strong as when it was first launched. There
seems to be no reason why, despite economic growth being slightly
slower than anticipated, and also despite claims on the public
purse that could not have been foreseen when the Plan was launched
(eg foot and mouth disease, and the war on terrorism), the Government
should have any difficulty in financing its originally envisaged
share of the £180 billion of expenditure.
However, it presumed that almost half of all
the fixed investment, or around a third of the total of spending
including resource expenditure on maintenance, administration
and subsidies, would be carried out by the private sector. At
the time the Plan was first published, this appeared to be feasible.
Now, however, prospects appear somewhat different, particularly
for investment in the national rail network, but also where strategic
roads and local transport are concerned.
Events surrounding the collapse of Railtrack
have clearly had a significant adverse effect on the attitude
of potential private investors out with the railway industry Where
those that are already stakeholders in that industry are concerned,
however, including principally the Train Operating Companies (TOCs),
there are other important matters to be resolved, including in
particular the award of new franchises to operate services on
those main lines most in need of modernisation. It is not to be
expected that TOCs will be willing to invest substantially, either
in new rolling stock or infrastructure, without the assurance
of long franchises.
CECA is reluctant to say more than this about
railway industry investment projects ahead of publication by the
Strategic Rail Authority (SRA) of its Strategic Plan, due on 14
January 2002. It is hoped that this will clarify the situation
in respect of both the ordering of major network enhancement projects,
and financing vehicles.
Where private investment in roads is concerned,
including both strategic and local roads, there is no shortage
of potential private sector partners within the civil engineering
industry, including existing Design, Build, Finance and Operate
(DBFO) concessionaires, and smaller-scale firms or consortia willing
to undertake smaller projects. If their interest is to be maintained,
however, it is essential that there should be an early indication
of additional projects that clients, including both the Highways
Agency (HA) and local authorities, regard as suitable candidates
for private financing.
In the English strategic roads sector, CECA
understands that the HA will very shortly initiate the process
for selecting a concessionaire for the North Kent DBFO package.
After that, however, there are no more major strategic road schemes
in the Agency's TPI that have been marked as prospective DBFO
schemes. At local authority level, where the Government is looking
to encourage more private financing solutions, the attitude of
most authorities is at best ambivalent.
Against this background of uncertainty, CECA
would suggest that it is not possible for anyone to answer the
Sub-Committee question has asked whether "the balance and
phasing of investment across funding areas (is) correct".
Clearly there are some considerable doubts, which the Government,
with the assistance of bodies including the SRA and HA, must seek
to resolve as soon as possible.
The Sub-Committee asks specifically for views
on the impact on the 10 Year Plan of the programme of multi-modal
studies of some of England's most serious transport problems that
was launched following the 1998 integrated transport and roads
White Papers.
It is clear that the HA—and the DTLR also,
which is ultimately responsible for approving major road schemes—has
up to now been looking principally towards the conclusion of these
studies for the next tranche of major schemes to be added to the
Agency's TPI, which the 10 Year Plan sees as containing 30 trunk
road bypasses and 80 other improvements at junctions where there
is growing congestion.
In all, around 40 schemes that were included
in the Agency's strategic roads programme prior to 1998 were referred
for re-consideration in the context of multi-modal studies. Up
to now, however, decisions have been reached on only five of them,
as several of the studies have slipped behind the timetable envisaged
in the Plan, which looked for all 11 "Tranche 1" studies
to have reported by the end of 2001.
Particularly following the acceleration of starts
of a number of the major road schemes in the 1998 TPI, CECA has
been concerned that slow progress with the multi-modal studies
threatens a hiatus in the award of contracts for major road schemes
that would lead to a downturn in work in this sector in around
two years time. For some reason that has never been fully explained,
the Plan has a slight dip in public investment in strategic roads
in 2005-06. CECA fears that, unless more schemes are approved
very soon, there will be a larger dip before that.
It has been suggested in a number of quarters
that, if there are delays in identifying additional major schemes,
there might be a reallocation of resources towards smaller schemes,
perhaps at local level, which could be brought forward more quickly.
CECA views this possibility with some concern, because of the
possible implications for the balance of demand for and supply
of engineers. As a general rule, a number of smaller schemes costing
a given amount will require the services of more engineers than
a single major scheme costing the same amount.
TARGETS
As with the key assumptions, so also with the
main targets set in the 10 Year Plan, CECA considered that they
appeared reasonable at the time they were announced, but they
may be improved over time given better information and forecasting
techniques.
What is also very relevant in this connection
is the evolution of regional transport strategies and local transport
plans, which may make it possible, over time, to sub-divide by
region at least some of the national targets set in the Plan.
In CECA's view, however, the new transport planning régime
is not yet sufficiently well established, particularly at regional
level, to consider setting regional targets for several years.
INTEGRATED TRANSPORT
POLICY
As is recalled in the Notice announcing the
Sub-Committee's inquiry into the 10 Year Plan, it is designed
to deliver a series of improvements to transport services that
will deliver the Government's integrated transport policy as set
out in its July 1998 White Paper A New Deal for Transport.
When the Plan was launched in July 2000, there
were a number of ways in which it clearly did not conform to the
integrated transport policy, not least by its exclusion of air
and waterborne transport, pending publication of "daughter"
documents to the 1998 White Paper setting out policies for those
two modes of transport.
As far as other matters identified by the Sub-Committee
are concerned, however, such as the balancing of transport investment
policy with social and environmental policies, and of policies
for those different modes of transport including cycling and walking
that are covered by the Plan, CECA's view is similar to those
which it has expressed earlier in respect of both key assumptions
and main targets set out in the Plan. It appeared that the 10
Year Plan, as published in July 2000, was broadly consistent with
the integrated transport policy launched two years earlier, but
there will always be scope for refinement as knowledge and forecasting
techniques are improved.
As for the European dimension, CECA has not
yet studied the European White Paper, but is considering it currently
with a view to submitting a response by the end of January. However,
in its own Transport Policy 2000 the Association urged strongly
that transport policy in the whole of the UK must take into account
the broader European framework
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