Reducing the gap between cost estimates and outturns for major infrastructure projects and programmes

Whilst setting out a number of solutions for limiting overruns, the paper also argues for a shift in thinking around what constitutes success. Indeed, more weight should be attached to the whole life benefits of projects and programmes – be they economic, social and environmental – as opposed to a fixation on achieving lowest capital cost in delivery.

This paper explores three problem statement areas and makes four recommendations to address them:

Scoping projects

• Scope change, scope creep or incomplete designs often occur once work has commenced.
• Too often designers, risk adjusters and contractors work separately or are not brought together at an early stage.

Recommendation: Infrastructure owners should complete scope, design and exploration before commencement of work is allowed, to avoid scope creep or retroactive changes, taking steps to include contractors in design at an early stage.

Judging success

• Government over relies on cost (and to some extent time) to determine project success and frequently reduces contingency to 'save' money – limiting room for manoeuvre if new information comes to light, or if economic conditions change.
• Scrutiny of projects often focuses on the process of completion against arbitrary budgets and not the wider benefits infrastructure can deliver in the long-term.

Recommendation: The Government and infrastructure owners must move away from capital cost as the most important metric when assessing project benefits, recognising the importance of whole-life economic, social and environmental value.

Estimating and tenders

• Estimates are often set at a fixed price point, before full project or programme scope and complexity are known
• Tenders are approved based on these early estimates and contracts allocated, potentially years before scope and complexity is understood.

Recommendation: Principles set out in the Outsourcing Playbook should be mandatory for Government infrastructure owners, this includes infrastructure owners undertaking should-cost modelling to help inform their expectations and knowledge of appropriate tender prices during the procurement process.

Recommendation: It should be mandatory for all public infrastructure owners undertaking procurement to award contracts based on a cost estimate range, using a should-cost estimate as a reference point, with an amount of contingency allocated appropriate to the level of project maturity.