Bid preparation
85. The Department for Transport cannot afford to
fund every major scheme put forward by every local authority,
and so authorities compete for funding approval. The Department's
Guidance on Major Schemes states that the same appraisal
requirements apply to all schemes submitted, but the level of
detail required in the appraisal will be proportional to the scale
and complexity of the scheme.[144]
The Department is reviewing the formal approval stages that apply
to major scheme decisions, and what information is required at
each stage.[145] There
are currently three stages to the approval process for Major Schemes:
- Stage 1:
Programme Entry (formerly known as 'Provisional Approval')—granted
after a Major Scheme Business Case has been accepted by the Department.
The Business Case includes a value for money appraisal and project
management information which shows that the scheme is affordable
and deliverable to time and budget, with a likely start date within
three years. Programme Entry status confers no guarantee of funding.
- Stage 2:
Conditional Approval—this stage
normally occurs once statutory powers have been granted, but before
procurement has taken place, and the authority has to update the
Major Scheme Business Case to show any changes in design or cost
estimates. Conditional Approval signifies a "firm undertaking
by the Department that Full Approval will be granted subject to
a limited number of conditions,"[146]
namely, that the costs and financial risks do not change.
- Stage 3:
Full Approval—granted only where
firm prices are available, procurement has been completed, and
the balance of risks and liabilities is known and satisfactory.
This aims to prevent significant cost increases after Full Approval
has been granted. Full Approval signifies that the Department
will make funds available and work can commence.
Costs of bidding and preparation
86. The bidding process was heavily criticised by
witnesses. The principal concern was the costs involved in designing
schemes to the level required for appraisal by the Department
for Transport. These concerns were widely held.[147]
The Local Government Technical Advisers Group explained: "Preparation
of the Major Scheme Business Case is in itself an extensive and
expensive process given the associated rigorous appraisal and
assessment process […] efficiencies need to be introduced
to reduce abortive and wasteful use of resources."[148]
Greater Manchester Passenger Transport Executive gave an indication
of actual costs incurred through bidding: "Typically GMPTE
would need to spend £150,000 to £200,000 in the development
of a bus station / Interchange scheme to the level of detail necessary".[149]
West Midlands CEPOG stated: "Preparation costs have to be
found from other budgets and, thus, diminish the amount of funding
available for delivery."[150]
87. The long period taken by the Department to consider
bids was also thought to lead to additional cost increases. Merseytravel
told us that the second and third steps alone of Merseytram Line
1 took 18 months. These kinds of delays can make it "inevitable
that initial costs at scheme development will vary significantly
from the costs at the time of market tendering which could be
3-4 years later".[151]
88. This was demonstrated in the example provided
by Greater Manchester Passenger Transport Executive of the Leigh-Salford-Manchester
busway scheme.[152]
The scheme secured Provisional Approval in December 2000, with
costs estimated at £26 million (at 1998 prices). An interim
decision letter was issued by the Secretary of State in October
2003 but Transport and Works Act powers were not issued until
August 2005, by which time the cost had risen to £42.3 million
(at 2004 prices).[153]
The scheme still retains Provisional Approval but for £26
million as approved in December 2000. In the meantime, the Passenger
Transport Executive has made a considerable financial investment
in the project. They told us: "To date some £4.3 million
has been spent on the scheme but with no certainty that it will
progress to Conditional Approval."[154]
89. The costs of scheme preparation are said to be
increased in some cases by a tendency of the Department to 'micromanage'
the appraisal process.[155]
The Local Government Association told us: "Repeatedly submitting
revised scheme bids at the request of central Government, only
for the entire project to be shelved, is a problem."[156]
Ms Quant of Hampshire County Council indicated the scale of costs
incurred on the South Hampshire light rapid transit scheme at
the Department's request: "We spent […] getting on for
three-quarters of a million between our transport funding being
withdrawn and the final coup de grâce. That was because
the Department made us rework all of the figures."[157]
90. Some local authorities thought that there should
be more financial assistance from the Department to help councils
meet the costs of developing proposals for appraisal. South Yorkshire
LTP Partnership suggested that the Department had passed on to
local authorities more of the risks associated with scheme preparation
to reduce purely speculative bid submissions.[158]
East Sussex County Council thought that 'Programme Entry' status
should indicate a commitment to cover the costs of both preparation
and construction.[159]
Witnesses from Greater Manchester also suggested that Programme
Entry status should represent a presumption that funding would
be made available, unless there were serious cost escalations.[160]
The Minister suggested, however, that it was design changes instigated
by local authorities which led to many of the cost increases,
and that the Department had decided to make local authorities
more responsible for meeting increases in costs from their own
budgets.[161]
91. The Local Government Technical Advisers Group
indicated that there is a tendency by local authorities to submit
a Major Scheme Business Case as soon as possible in order to secure
funds, and that this means authorities submit schemes at a preliminary
design stage when final costs of the scheme are uncertain. This
has impacts later in the process when the Department expects the
authority to meet cost increases.[162]
The appraisal process and funding system need to be looked at
holistically in order that these pressures are resolved properly
and not just moved to other stages within the process.
92. The Department
for Transport needs to ensure that investment is allocated where
it can have the most impact and with as much certainty of successful
delivery as possible. In addition, any local authority developing
a transport schemes has, for its own purposes, to assess it against
various planning criteria to ensure that the scheme design is
optimal and value for money. It is important that this is a rigorous
process. Nevertheless, the existing bidding and appraisal processes
place a tremendous financial burden and risk on local authorities.
The process of bidding should not eat into the transport budget
to the extent that the funds available for actual delivery are
substantially reduced. The Department itself adds to costs when
it prolongs the decision-making process and asks for increasingly
detailed information to be provided. The Department should make
a commitment to streamline the process and move more quickly with
its appraisal and decision making. It should set a target to reduce
the current time taken by at least 25% in most cases. It must
have the necessary expertise available, and must be clear about
the information needed early in the process. At 'programme entry'
stage the Department should take a greater share of local authorities'
scheme development costs. It should stop trying to micro-manage
the process.
ABORTED BIDS
93. We had evidence of an unknown—but large—amount
of money being wasted by local authorities preparing bids for
schemes which never receive full Departmental approval and which
are therefore never implemented. These are known as 'aborted bids'.
Of 38 scheme bids received by the Department between July 2005
and June 2006, initial approval has been granted to 15 schemes;
13 are still under consideration with outstanding issues to resolve;
six are unlikely to be funded within the next 10 years; and four
are expected to be funded but significantly later than the promoters'
preferred timetables.[163]
94. We were told by the Department that the amount
spent annually on scheme preparation was not known because it
"does not routinely collect information from authorities
on how much they spend on the preparation of schemes or bids,
and is not necessarily aware of all such proposals". Further,
since the scale of preparation costs varies significantly both
by the type of scheme and by how far preparation has been taken
forward before a scheme is rejected, they were unable to attempt
an overall estimate".[164]
95. Examples of the level of resources that have
been invested in the preparation of schemes which have not received
funding from the Department are given in the table below. In those
cases where figures have been provided, between five and fifteen
per cent of total scheme costs are spent without the proposal
receiving any guarantee of funding.
Table
4: Examples of expenditure on preparation of schemes which have
not (yet) received approval
