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In May 2009, the Highways Agency (the Agency) signed a 30-year private finance contract for widening two sections of the M25 motorway, and maintaining the entire 125 mile length of the road, including the Dartford Crossing, and 125 miles of connecting roads and motorways. The contract has a present value cost of £3.4 billion. The Agency mishandled this project to address congestion on the M25 at a potential extra cost to the taxpayer of around £1 billion.
The invitation to tender for the contract excluded hard shoulder running as a solution for traffic congestion. We are concerned that a private finance solution aimed at transferring risk to the private sector should have restricted innovation in this way.
The Agency's poor cost estimation meant that it lacked up to date data for the cost of construction and significantly over-estimated the market rate for operation and maintenance over a 30 year period. This undermined the Agency's ability to understand and challenge the bids received, and to compare a private finance solution with conventional procurement. The substantially lower costs quoted by the PFI bidders for operations and maintenance raise significant concerns about the maintenance regime the Agency employs in its other contracts and the value for money being achieved.
The decision in March 2008 to continue with the widening project rather than adopting an alternative cheaper solution was in part made because of the delays in trialling and evaluating alternatives. Hard shoulder running was first trialled in Europe in 1996. It took five years before the Agency announced its intention to trial this technique in 2001 and a further eight years before the Agency started to use hard shoulder running in 2009.
The Agency justified the widening deal through a flawed and biased cost estimation. The Agency now accepts that additional maintenance costs of £193 million used in the analysis should have been discounted to reflect the fact that these costs would be incurred over the 30 year life of the project. Had this been done, hard shoulder running would have emerged as the cheaper option, casting serious doubt on the Agency's decision to proceed with the widening contract.
It took nine years from 2000, when consultants were commissioned to produce a long-term sustainable strategy for the M25, to 2009 for the contract to be signed. Between 2004 and 2010 the Agency spent £80 million on consultants on this project. More should have been done to limit the costly delays to the project and the amount spent on advisers who will have benefited from the drawn out procurement. The Agency lacks the expertise to assess whether its advisers are providing value for money. Large amounts were spent on advice yet the outcome of the procurement has been very poor value for the taxpayer.
On the basis of a Report by the Comptroller and Auditor General[1] we took evidence from the Department for Transport and the Highways Agency on the M25 private finance contract, examining the procurement process and the use of advisers
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