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NAO publishes report on the costs of building roads in England

On 15 March 2007, the National Audit Office (NAO) published its report entitled “Department for Transport: Estimating and monitoring the costs of building roads in England”.

The NAO has published the following information about the document: "Building and improving the country’s roads are proving to be more expensive than originally estimated, according to a new report published today by the National Audit Office.

The report looks at the Highways Agency’s investment in motorways and major trunk roads and local authority major roads schemes funded by the Department for Transport. The Department has approved the development of new and existing roads projects, which they had estimated at some £13 billion, between 1998 and 2021. But many schemes are costing more than initial estimates indicated.

Around a third (36 out of 103) of planned motorway and trunk road schemes had been completed by September 2006. These cost on average 40 per cent more than the estimates prepared some years previously but falling to around six per cent more once the initial estimates are updated in line with latest Government guidance to include VAT, inflation and a contingency. The July 2006 estimates of the cost of the remaining 67 schemes indicates a 27 per cent rise above initial estimates.

For local major road schemes, by July 2006 a quarter (20 out of 81) had been completed. These cost 18 per cent more than the initial estimates and the Department’s funding contribution increased by 14 per cent. According to local authority forecasts, the remaining 61 schemes are likely to have a final cost around a third (31 per cent) more than initial estimates, although the Department considers that had these estimates been updated on the same basis as those by the Highways Agency these increases would be much smaller.

Today’s report states that there are a number of factors behind the increased estimates some of which are outside of the Department and the Agency’s direct control, such as the effect of construction inflation and Public Inquiry outcomes. Most schemes enter the roads programme at an early stage with only an indicative estimate of costs, and insufficient information on the design, scope and timing of the final scheme to form an accurate view of the likely final costs. Other reasons for cost increases include underestimates of construction, land and utility costs.

Around a quarter of road improvement schemes due to be started by the end of 2005-06 had not begun by that date. The Department and the Agency have been able to absorb the increases in costs to date because of delays on some schemes and changes to the roads programme but this may change.

The report acknowledges efforts by the Department and the Agency to improve the quality of their estimates of the cost of schemes and the management of costs. They are developing more accurate forecasts for inflation and taking steps to improve the estimating of the costs of land. And the Department now requires a more comprehensive business case from local authorities.

However, it is too early to assess the impact of these changes. They must now act to improve the evaluation of completed schemes and examine costs against budget and the scheme’s progress against timetable so that they have better information to prepare estimates. The Department and the Agency should improve how they work together by better sharing of lessons learned with each other and local authorities.

Sir John Bourn, head of the NAO, said today:

“The Department for Transport and the Highways Agency need to define more clearly the risks to estimates at the point schemes enter into the programmes and the Agency should make sure that they have sufficient numbers of skilled project management and commercial staff”."

Click here for a copy of the report.