Conclusions and Recommendations
1. After widening the scope of the NRTS project
and finding that the telecommunications industry had little interest
in commercially exploiting the NRTS systems, the Agency changed
the rationale for a PPP.
Some projects do change in scope during their developmental stages
and this change can affect the choice of procurement route. When
this happens, the procuring authority should conduct a full review
into the value for money of its options.
2. The Agency invited expressions of interest
from potential bidders too early. During
the 17-month short-listing period, two well qualified potential
bidders dropped out and the Agency reissued its invitation to
re-stimulate the market. For market stimulation to work well,
an authority needs to know what it requires and what it can afford,
so that the procurement process can go forward effectively. The
time between advertising a project and short-listing bidders should
be no more than a few months.
3. This Committee has expressed concerns in
the past about the spurious precision of some Public Sector Comparators
but, in this case, the Public Sector Comparator cost was a single
figure estimate, rather than a range, which is not good practice.
The public sector comparator included a point estimate of £85
million for risk, equivalent to 26% of the non-risk adjusted price.
In calculating this risk adjustment, the Agency did not include
any explicit allowance for events turning out better than expected.
Procuring authorities should always estimate ranges, not single
figures, for comparators.
4. The procurement took five years to complete,
rather than the original estimate of 21 months, and the procurement
process cost five times the original budget.
The Agency never had a clear idea about the time and cost needed
to complete the procurement. In every updated forecast, the Agency's
revised budget and timetable were optimistic, often by considerable
margins. Senior Responsible Officers (SRO) need to be wary when
their project teams repeatedly report small increases in the budget
and slippages in the timetable. SROs need sufficient evidence
to judge whether costs and timetables are under control and they
need to exercise their authority to review the project's progress
if these delivery risks look significant.
5. The Agency did not deploy effective controls
over the work of its advisers. The Agency
had two staff overseeing a monthly average of £250,000 of
expenditure on advisers. These individuals had insufficient time
available to implement effective controls to ensure that advisers
conducted their work efficiently. In future, the Agency should
provide enough staff to ensure that its management controls function
as intended.
6. The procurement was marked by careful and
thorough production of the bid documents and the draft contract.
The Agency decided that, if it were to produce a contract that
clearly established and set out the obligations of the parties,
each provision had to be considered in detail. This thoroughness,
together with access to bidders' pricing models, strengthened
the Agency's bargaining position during the preferred bidder stage
and contributed to a £2 million fall in GeneSYS's bid price,
without substantial changes to the allocation of risks.
7. There were no incentives included in the
advisers' contracts that expressly encouraged them to work efficiently.
Authorities should incorporate incentives into contracts with
advisers that encourage performance, while preserving the importance
of the relationship that exists between client and adviser.
8. NRTS provides new opportunities for the
Agency to give road users more detailed and helpful information
than has been possible in the past, but also the potential for
giving confusing messages. The Agency
should consult with road users, their representative bodies and
other stakeholders to ascertain whether the NRTS-based information
that it provides best meets the needs of road users.
9. The ultimate test of the value for money
of NRTS will be the benefits that it delivers via linked Highways
Agency projects to manage the strategic road network.
The Agency values these benefits at £2,800 million, but this
is dependent on the programme of associated projects proceeding
in full and being delivered on time and to cost. The Agency should
conduct a review of the cost and benefits of the NRTS and associated
projects half way through the 10½-year life of the NRTS contract.
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