Early estimates only part of the procurement problem

The UK’s poor procurement practices are highlighted yet again by the news that the £19bn Crossrail project can’t be completed with the money available to the project. Crossrail should have opened in December 2018 but is currently hoped to be completed by the first half of 2022.

Covid-19 related procurement has also recently come under attack but as went to press some extremely positive sounding good news was coming through about the imminent availability of a vaccine against the virus. But we should probably steel ourselves for further disappointment on the delivery front when the procurement and logistics issues of vaccinating an entire population have to be tackled.

Another chapter in the long history of analysing why the UK’s procurement practices are so poor has just been produced by the National Audit Office (see News). This latest examination of public sector procurement pulls together insights from earlier NAO’s work in a search for root causes of common problems.

It highlights that schemes under the government Major Projects Portfolio, of which there are currently 125 at a combined whole life cost of £448Bn, often encounter difficulties, take longer and cost more than planned and fail to deliver intended aims. As we went to press a National Infrastructure Bank that will channel some £600bn of public and private sector money into capital projects over the next five years was due to be announced, which could prove an incentive for government to take action to ensure projects are delivered on time and within budget.

The NAO report however highlights why action is long overdue and how difficult it could be to improve things – culture change is required. A key conclusion is that governments often fail to recognise the inherent uncertainties and risks in early cost and schedule estimates when using them to set budgets and completion dates for projects.

Using early estimates to set delivery targets can backfire as this is held to often incentivise delivery bodies and suppliers to attempt to meet unrealistic expectations, creating overambitious attempts to find cost savings and meet risky schedule targets. Government ambitions to meet its goals too often override a frank assessment of the mounting risks and potential negative consequences of overreaching for a deadline, the NAO says.

The use of ‘cost ranges’ should help and is in fact becoming more widespread on schemes, with the range narrowed as the design develops. Underpinning this there has to be a well defined scope for the project from the outset, along with a process for identifying, managing and costing variations to the scope.

The report also suggests that even the search for efficiencies frequently results in adverse effects, with targets often being set with no solid basis in reality and no detailed plan for how they will be achieved. Unsurprisingly, it is rare for hoped for savings to be realised.

The NAO’s lists a number of giveaways that senior decision makers should be alert to, for early warnings that a schedule is becoming increasingly challenging. This sort of approach was clearly lacking with Crossrail as the first warning that it wouldn’t open in December 2018 as scheduled, was only four months before.

Managing the NAO’s suggested changes will demand a degree of collaboration, transparency and honesty that is not yet commonly found on major infrastructure procurements. Creating it is the challenge for government and industry alike. CL

Nick Barrett