What is infrastructure?
The National Infrastructure Commission (NIC) defines economic infrastructure as energy, transport, water and wastewater, waste, flood risk management and digital communications. The government also includes social infrastructure such as schools, hospitals and housing in some infrastructure policies and publications.
However it is defined, infrastructure plays a crucial role in a country’s economic welfare. A reliable source of energy allows companies to function more efficiently; a transport network enables producers to move goods to consumers; and the provision of schools provides the foundation for more highly skilled workers of the future.
>> Download the full commission report: The long-term plan for construction
>> Also read: ‘Long-awaited’ infrastructure pipeline receives muted welcome from industry
Better-quality infrastructure allows an economy to be more efficient, improving its productivity and raising its long-term growth rate and living standards.
Infrastructure in numbers
Between 2006 and 2020, most public sector investment in infrastructure came from central government. Over 85% of this investment has been spent on transport.
In its second National Infrastructure Assessment, the NIC laid out the task before future governments to fix infrastructure over the coming decades. It said £30bn a year is needed from the taxpayer, with a further £40bn to £50bn a year from the private sector. This level of investment, the commission said, should be sustained until 2040.
The struggles with infrastructure and planning
In a progress report published in March 2023, the NIC said progress on key infrastructure objectives had been slow, adding that there had been “negligible” advances in improving the energy efficiency of UK homes, the installation of low carbon heating solutions and securing a sustainable balance of water supply and demand. Meanwhile, an under-resourced planning system is holding up projects.
Sticking to the plan
Speeding up the planning process for major infrastructure projects is vital to achieving net zero, improving climate resilience and boosting economic growth. The government recently announced steps to do this for nationally significant infrastructure projects (NSIPs).
The ambition to get decisions on major projects made within two-and-a-half years, down from the current average of over four years, is to be welcomed.
The government must finalise a new set of clear, updated national policy statements for energy and transport. The industry and investors will be watching so as to be sure that the government moves from commitments to action.
One of the industry’s biggest worries about cancelling the phase of HS2 from Birmingham to Manchester was the damage it would do to the global investment community’s confidence in the UK. Political commitment and consensus are vital if we are to make headway on the NIC’s recommendations in the decades to come.
We must have the staying power to stick to long-term plans, to spare us the cost increases that come with a stop-start approach and to give investors greater confidence in the UK.
We must also accelerate and expand the devolution of power and funding to local leaders, who are best placed to identify their infrastructure needs and economic opportunities.
Pipeline of work
Construction is the engine behind the changes we need to see but the industry is fragile, hampered by inflation and insolvencies, and the scale of the challenge is immense – made more difficult by tight taxpayer budgets.
A clear pipeline of programmes and funding is needed to build confidence and maintain a supply chain which can deliver on ambitions. Timely publication of construction pipelines is needed as soon as possible.
There is a growing consensus that we need to see long-term commitment, so that the industry can have the confidence and resources that it requires to deliver to its full potential. Without this commitment, the consequence will be a reluctance to invest in R&D and other drivers of productivity and performance. This is an industry that continues to struggle with skills shortages.
Political parties should “fix” major infrastructure investments for an 18-month period before and after elections to ensure market certainty
There needs to be a shift in mentality from the government and a commitment to take a longer-term view which looks beyond election cycles and the next fiscal announcement. Political parties should “fix” major infrastructure investments for an 18-month period before and after elections to ensure market certainty, the Civil Engineering Contractors Association has urged, which is something the commission would endorse. It would give stability, certainty and pipeline visibility and allow key decisions to be taken on schemes during periods of political purdah.
Thinking beyond election cycles will put infrastructure in a much better place to flourish and fulfil its potential for the benefit of the country as a whole. This was the reason why the National Infrastructure Commission was set up – to support governments in taking a long-term view – but governments need to be prepared to plan for balancing short-term fiscal and long-term costs to support economic growth. The biggest cost risks on infrastructure are from late change and political changes. Late changes to years of planning and implementation can lead to significant costs to the public purse if they affect the scope of a job or its requirements.
Improving procurement
Unlocking the full potential of the construction sector requires closer collaboration between the government and the industry. For its part, the industry needs to increase productivity, create better work and improve the wellbeing of its people. Governments need to provide clarity on the infrastructure pipeline they want delivered.
Procurement is labyrinthine and pedestrian and there is too little collaboration on design to drive delivery efficiencies and value for money. This, in turn, can create barriers to innovation and leads to high transaction costs across the industry which do not represent value for money.
A “delivery partner” approach between client and contractor would do much to encourage better long-term decision-making with a focus on people, sustainability, digital and modern methods of construction. Tender and project documents need to be vastly cut down in terms of size and frequency. Clients can remove red tape and bureaucracy, while constructors can manage scaling-up, resourcing and skills and be incentivised for programme improvements.
There needs to be a proper strategic planning network to bring together housing, energy and water infrastructure to help tackle the net zero challenge. But the commissioners have said that while the planning process must be made more efficient and speeded up, this cannot be done at the expense of quality and detail –otherwise schemes run the risk of storing up problems further down the line.
Improving the government as a client
There was a strong feeling among the commissioners that there would be value in the government reinstating the position of chief construction adviser. This role should be in work across government departments, and crucially should not be a lobbyist, but somebody who can work within Whitehall to make the government a better client, so that decisions are not short-term and merely based on cost.
The adviser could co-ordinate action, take long-term decisions and could also ensure the government uses its influence and purchasing power to require positive outcomes, such as for net zero or digital adoption, as a requirement.
There needs to be closer collaboration between the government and the industry at the early design stages to drive delivery efficiencies and value for money.
Budgets and what to do when they escalate
Going over budget is often caused by a lack of foresight and insufficient care when calculating the budget, setting out a project procurement strategy and in the preparation of contract documents. All of this can be avoided in the early stages of a project.
Having incorrect or poor-quality tender information is a major problem and can set up a scheme for going over budget. Tenders need to be concise and relevant in order to allow the procurement team to get to the key information required.
Successful projects have been known to create panels of experts who can be seconded to schemes when required and share knowledge more widely
The problem of schemes going over budget is not unique to the UK. For example, California’s high-speed rail project was supposed to have cost $33bn in 2008 when it was first approved but in March 2023 the figure was put at $128bn, itself a rise on the $105bn predicted in 2022. The latest increases have been put down to “inflation/escalation, enhanced scope definition and greater contingency for risk”. Anyone working in UK infrastructure will recognise these issues.
Squandering a fortune is never good for any project, or those working on and leading them. Planning is critical and so is learning from other projects. Infrastructure projects in the UK need to be able to attract highly skilled people with relevant experience. Successful projects have been known to create panels of experts who can be seconded to schemes when required and share knowledge more widely.
The infrastructure experts we spoke to called for better communication and transparency, particularly on costs.
What is success?
Given the size and scope of the projects in question, it is also important to acknowledge that there are lots of ways to measure return on investment.
A project that is completed on time but that does not work well cannot be considered a success. The Elizabeth line was delayed and over budget, but since opening in May 2022 it has carried more than 230 million passengers, with around 4.2 million passenger journeys now taking place each week. On average, ridership on the line is over 600,000 journeys each day, with around 700,000 daily journeys now being seen in the Tuesday to Thursday period each week.
Many industry insiders have called for risk on projects to be managed more collaboratively. Taking a hit on a single big project can jeopardise a firm’s financial health. If all the risk is shifted over to builders, they will naturally seek ways to cover or hedge them through higher bid costs, additional contingencies, costly insurance policies or adversarial contract management. This approach too often leads to disputes, delays and failure.
Clients should treat all the different partners as team members. Inviting them to work together to solve complex issues during delivery allows all the parties to focus on finding ways to keep the project on schedule and within budget.
The ethos behind the Project 13 initiative, (an industry-led response to infrastructure delivery models that fail), which encourages participating organisations to share their learning and experience, should be adopted more widely across the industry. This model brings together owners, partners, advisers and suppliers, working in more integrated and collaborative arrangements. That way, participating organisations build up long-term relationships and are incentivised to deliver better outcomes. Ultimately this approach could help the UK get the new infrastructure it needs to keep pace with the rest of the world.
Recommendations
1. The government should reinstate the position of chief construction adviser to work across all the big-spending departments and ensure central government programmes of work are based on long-term, value-oriented decisions.
2. Future governments should deliver on the recent commitment to ensure planning decisions on major projects are made within two-and-a-half years.
3. The industry needs a clear pipeline of infrastructure programmes alongside realistic funding to give contractors confidence of future workloads and time to prepare.
4. Major political parties should agree to “fix” major infrastructure investments for an 18-month period before and after elections to ensure market certainty.
5. There needs to be closer collaboration between the government and the industry at the early design stages to drive delivery efficiencies and value for money.
6. There needs to be an improvement in the quality of tender information, making them more concise and relevant.
7. All infrastructure delivery models should take a collaborative approach to risk, which ultimately helps a project run more smoothly.
Download the full report below
