4Project Planning, Approval and Assurance
19.We were told that the early planning of major projects is a major determinant of whether they are completed on time and on budget. Professor Bower of the MPA told us that “a project that starts badly never recovers”.25 A report by the NAO singled out poor planning for criticism. It said that “projects did not appraise options against realistic alternatives, made unrealistic performance projections, and could have used piloting and testing more effectively”.26
20.Governments appear conscious of that and have put in place extensive assurance and appraisal processes for major projects.27 Before a major project can proceed, a business case must be drawn up outlining the need for the project, options for delivering it, and the risks it might entail. Before it can commence, HM Treasury assesses the need for the project, whether a range of options have been appraised, the commercial viability, its cost, and the robustness of the delivery plans.28 Before this stage, project plans can undergo a Project Validation Review (PVR), where the IPA advises the project team on project development. As the business case is developed, it can go through further Gateway reviews. The IPA has also established an Early Development Pool to support the initiation of major projects and try to ensure they are “set up for success”.29 These projects would then graduate to the GMPP once they are more established.
21.There is clearly an extensive focus on appraising project plans before they commence. Yet, projects still appear to overrun their budgets and their schedules all too frequently. To some extent, this can be attributed to the complexity of many major projects. These are often ambitious, complex and unique projects. Not all eventualities can be predicted, and a degree of risk is inherent. The written submission from HKA Global Ltd graphically illustrates the range of things that can go wrong in a single project.30 Professor Bower of the MPA suggested that project cost and completion dates should be given in a range, in recognition of that inherent uncertainty and to better manage public expectations.31 The Infrastructure Forum noted that Government contracts for delivering projects are also insufficiently flexible to allow for this risk and said that ranges for both cost and time should be used.32
22.However, Professor Flyvbjerg, of University of Oxford’s Saïd Business School, notes that errors in predicting cost and time for project delivery arising from this uncertainty are almost always underestimates whereas a lack of predictive capability should also result in overestimates.33 Instead, he suggests those with an interest in the project proceeding have an incentive to minimise the predicted cost and time of a project, whilst maximising predicted benefits, in order to give it the best chance of proceeding. It underpins his iron law of megaprojects: that they overrun on cost, time and underdeliver the anticipated benefits.34
23.One of the purposes of the scrutiny and assurance process is to ensure that opportunities for “spin” of this kind are minimised. That scrutiny is conducted by the IPA and HM Treasury, neither of which would typically be involved in a project’s initiation and would be unlikely to have the sort of interest in a project proceeding that Professor Flyvbjerg identifies. Yet, we heard that projects still overrun their costs and schedules.
24.In some instances, political pressure can result in projects being announced, sometimes accompanied by a budget or completion date, before proper appraisal has taken place.35 Professor Bourne, of Cranfield University and a theme leader for Project X, suggested that political decisions can ensure a project proceeds, regardless of its business case.36 Similarly, Nick Davies of the IfG noted the pressure that ministerial enthusiasm could bring to bear on the approval process:
Once certain decisions have been made, it can be difficult to cancel a project. Individual ministerial careers can be bound up in getting projects through; sometimes you do not want to be the person who has rocked the boat.37
25.Robust pre-approval scrutiny of project business cases is essential. The Government has acknowledged that and there is a comprehensive system of pre-commencement scrutiny now in place. It seems, however, that political imperatives can subvert this scrutiny. It is entirely appropriate for Ministers to initiate projects. But if political pressure is sufficient to override this early scrutiny process, this will significantly impact on the successful deliver of major projects.
26.Another factor contributing to cost and schedule overrun that was highlighted to us was the way in which the Government manages relations with the firms contracted to deliver them. The highly transactional approach to contracting taken by Government, prioritising cost minimisation and the aggressive transfer of risk was a theme we noted in our report on sourcing public services in the wake of Carillion’s collapse, and it was also highlighted in evidence to this inquiry.38 Ashley Miles from the Institution of Civil Engineering (I.C.E.) was one of those particularly critical of the transactional approach to dealing with the private sector. It was, he suggested, missing opportunities to engage constructively with the private sector at an early stage of project development. And, highlighting the sizeable cost overruns routinely seen on projects, it was failing to deliver cost reductions.39
27.The Government produced an Outsourcing Playbook this year to improve how it manages its commercial relationships. This includes guidance for officials on early engagement with the prospective contractors, promoting a greater understanding of the market into which they are contracting and the implications of contracting decisions on it, and a greater focus on realistic, rather than lowest possible, pricing through the use of “Should Cost” models.40 These are welcome measures.
28.However, it was suggested that the Government could go further in developing productive, collaborative relationships with its contractors. The I.C.E. and the A.C.E. both advocated a move from a transactional approach to contracting to an “enterprise approach” of the kind developed by the Project 13 initiative. This has at its core a shift from viewing major project delivery as a chain of discreet tasks that can be contracted for, to viewing project delivery as a “shared enterprise”. Rather than a linear, series of transactional relationships running from client to contractor to sub-contractor, the project is managed as a network of collaborative relationships that might see, for instance, sub-contractors more integrated into project decision-making.41
29.The Project 13 initiative is still work in progress and there are limited examples of its collaborative approach to contracting from which to evaluate its strengths and weaknesses. It is notable that the IPA has been involved in the development of the Project 13 initiative, which suggests that the possibility of a change of approach to contracting is being considered in Government. Nonetheless, even whilst advocating a less adversarial and more collaborative relationship between Government and its supply chain in delivering projects, Hannah Vickers of the A.C.E. noted that such an approach may not be appropriate in all circumstances. It would, for instance, impact on competition in the long term as a collaborative relationship with one contractor will mean that others are excluded from entering the supply chain.
30.We have been critical of the transactional approach the Government tends to adopt in its commercial relationships, at the expense of the quality of personal relationships and trust between contracting parties. An exclusive focus on minimising costs and aggressively attempting to offload risk has neither yielded value for money for taxpayers nor resulted in genuine risk mitigation. There are clearly benefits to a more collaborative approach. However, the circumstances under which this can take place and those where the benefits of a more conventional, transactional approach might be more appropriate are not yet clear to us. This is an issue that, should our successor Committee return to the subject of major projects, it could usefully inquire further.
26 NAO Delivering major projects in government: a briefing for the Committee of Public Accounts Session 2015–16 HC 713 p. 14
28 The so-called Five Case Model for assessing project business cases is set out in HM Treasury The Green Book 2018, paras 3.5–3.18. See also The Infrastructure and Projects Authority (MMP0014) para. 32
29 IPA Annual Report 2017–18, p.4
33 B. Flyvbjerg “Survival of the Unfittest: Why the Worst Infrastructure Gets Built—and What We Can Do About It” Oxford Review of Economic Policy Vol. 25(3) 2009, p.349–51
34 B Flyvbjerg “The Iron Law of Megaprojects” in B. Flyvbjerg (ed.) The Oxford Handbook of Megaprojects (Oxford University Press). Megaprojects are the largest major projects, typically costing in excess of $1 billion.
38 PACAC After Carillion: Public sector outsourcing and contracting Seventh Report of Session 2017–19 HC748
40 Government Commercial Function The Outsourcing Playbook 2019
41 See Infrastructure Client Group From Transactions o Enterprises: A new approach to delivering High Performing Infrastructure ICE March 2017
Published: 5 November 2019