Insfrastructure Bill [HL]

Written evidence submitted by Civil Engineering Contractors Association (IB 01)

The Civil Engineering Contractors Association (CECA) welcomes the opportunity to respond to the above named call for written evidence.

CECA provides the voice for those companies large and small who create, improve and maintain the UK’s vital transport and utility networks. Our membership of more than 300 companies together delivers an estimated 70-80 per cent of all infrastructure construction work carried out nationwide. Our industry supports the employment of around 200,000 people with annual activity worth up to £25 billion.

While CECA is supportive of measures within the Bill to improve UK infrastructure, we have focused our submission to this evidence call on proposals to upgrade the strategic road network, which if implemented, will secure long term economic and social growth across the UK.

We trust that you will find our comments helpful and that they will be taken into consideration.

Infrastructure Bill: Roads reform measures

1. In May 2013 CECA published the findings of an independent research report commissioned from the Centre for Economics and Business Research on the economic benefits of infrastructure investment. Notably, the research found that for each £1 billion increase in infrastructure investment, UK-wide GDP increases by a total of £1.299 billion [1] .

2. We therefore believe that it is essential that our industry works with Government, the Devolved Administrations, local authorities, and all political parties to deliver the infrastructure the UK needs. By doing so we support growth in our economy, reduce congestion across our infrastructure networks, develop a wider, more competitive skills base, and ensure future capacity needs are met as we transition to a low carbon economy.

3. CECA is especially supportive of proposals to transform the Highways Agency into a Government-owned company, along with the development of a committed five-year investment strategy.

4. These changes will result in greater efficiency in the way the agency operates, maintains, and improves the strategic road network to the benefit of all road users and the public purse.

 

5. Significant benefits and efficiencies will arise as greater visibility of future project pipelines will be available to the supply chain. Long-term knowledge of this investment will inform suppliers of the likely volume of work coming to the sector, allowing them to invest strategically, rather than tactically, in training, plant, equipment, and research and development. More details of these benefits are given in Appendix 1 below.

 

6. Yet visibility is not the sole factor that underpins such strategic decision-making. Allied to this must be the confidence that the pipeline of investment will not change. A volatile forward programme of investment will dissuade investment as suppliers lose confidence, leading to a reversion to a more tactical, ‘stop-start’ approach.

 

7. Even with an apparently committed five year programme, not transforming the Highways Agency into an arms-length body could still leave it a target, should future Governments decide cuts to spending are required. Our industry has significant experience of situations where political expediency, rather than long-term strategy, has resulted in programmes being curtailed. An example of this would include the cut-backs experienced at the start of the recent downturn, which led to an estimated 10,000 employees losing their jobs – workers that are now vitally needed to deliver future activities on the network.

 

8. The supply chain, however, has confidence that the creation of a Government-owned company would significantly reduce the likelihood of this happening, providing additional certainty to the market. While the proposed model does not prevent changes to the Road Investment Strategy, it does ensure that doing so is a decision that cannot be taken lightly, and would be subject to consultation prior to any amendments taking place.  

 

9. There are further concerns that, if the Highways Agency were merely provided with an element of additional flexibility rather than transformed into a new Government-owned company, this would be interpreted negatively by the market. A lack of policy certainty from within Government would undermine the very confidence that any five-year funding settlement would seek to bring.

10. Addressing concerns of all those impacted by roads must be a priority, which is why we are working closely with the Highways Agency, the Department for Transport, and other industry bodies to consider ways to mitigate the impact of our sectors’ activities on other stakeholders. The project forms part of an existing work stream aimed at delivering a world class highways supply chain to deliver the next generation of road building and highways maintenance.

 

 

Appendix 1. Key benefits associated with pipeline visibility.

 

1. Better resource allocation: By developing an understanding of likely demand, suppliers can invest intelligently in plant and equipment, allocating often limited resources to those areas that will best position the supplier to respond to these demands.

2. Improved skills / recruitment management: With greater visibility suppliers would be able to invest in the skills that their workforce will need to meet future demand. Equally, recruitment can be focussed upon those skills required for this future work. We believe that improved visibility leads to increased training opportunities and job creation, helping our members play their part in reducing unemployment.

3. More stable workforce: With a better understanding of both the amount and types of future workload, suppliers can manage their workforce better. This reduces occurrence of the problems of ‘hot markets’ which can result in poaching of those with in-demand skills, driving up costs. Additionally, it also cuts back on the need for large scale and costly redundancies when workloads reduce.

4. Ability to enter into long-term purchase agreements: Current short-term visibility of investment programmes mean that both clients and suppliers may not have the confidence to enter into long-term purchase agreements for commodities and services, as it is impossible to predict future demand. Were greater clarity available, such agreements could be established, lowering unit costs and therefore delivering greater efficiency.

5. Encourage innovation: The construction industry would benefit if it were better able to develop new solutions and products to improve quality and reduce cost. Part of the reason that such innovation currently does not take place is a lack of clarity over whether investment in research and development would pay dividends through sales of the resulting improved products and services. With greater pipeline transparency, suppliers will have more confidence to invest in such research based on the likely future market for the results of this innovation.

6. Early identification of feast/famine situations (regional, sector, specialism/procurement or delivery): Prior to the recent downturn, there was considerable evidence that a major driver of escalating costs was the issue of workload shortages and surpluses. As noted above, shortfalls lead suppliers to lay off staff and shut operations, while work surpluses lead to resource shortages and thus spiralling costs. Greater forward visibility of the programme would help identify likely ‘pinch’ and ‘slack points, whether this be in a region, a sector or specialism either at procurement stage or during delivery. This will then allow for the programme to be modified to mitigate this effect.

7. More effective response to procurement: Poor procurement practices contribute to significantly reduced efficiency in construction. Often procurement takes place to a timetable that leaves the industry little time to respond. Giving suppliers greater notice of when procurement would take place, would ensure their bid teams were in place earlier and adequately resourced, producing more competent bids that will lead to more effective delivery.

8. Create opportunities for collaborative procurement: By creating visibility of the forward construction pipeline, clients can identify (either within their organisation or across the industry) opportunities for bundling of projects to drive greater efficiency.

9. Ability for suppliers to make early business decisions: An early understanding of the specification of a project provides a supplier with the opportunity to decide early on whether or not to put resources behind targeting a specific opportunity. Those suppliers that do so will be better placed to respond to the work when it comes to the market, while by taking the early decision suppliers who decide to avoid a project will save on the costs of tracking projects that turn out to be non-starters.

10. Foster environment for greater early supply chain engagement: Early certainty about a given project opens up the opportunity for a client to seek guidance on its development from the supply chain, either formally through an Early Contractor Involvement-style contractual approach, or through early market engagement (workshops/seminars). Such an approach has repeatedly been identified by suppliers as a key driver of greater efficiency.

11. Support the development of integrated teams: As well as early engagement, early visibility will also help suppliers to identify projects where they will be asked to work together in integrated teams. If this information is available early, it will afford a greater opportunity for supply chain members to consider who they might wish to work with, allowing them to establish robust integrated teams with adequate notice prior to competition.

12. Early identification of project pitfalls: Through early visibility and engagement with the supply chain, the industry can use its experience to offer guidance on potential problems with the ‘buildability’ of projects, which may not have been apparent to the client team.

13. Encouragement of a whole life approach: We believe that the provision of better funding certainty will encourage any investment to be planned on a whole life cost basis. Our members feel that short-term funding visibility leads to a focus on driving down capital cost savings at the expense of potentially better solutions. Increased pipeline visibility would play a substantial role in addressing this.

December 2014


[1] Securing our economy: The case for infrastructure. CECA and CEBR, May 2013. http://www.ceca.co.uk/media/103459/ceca_cebr_report_-_securing_our_economy_the_case_for_infrastructure_-__may_2013.pdf

Prepared 17th December 2014