What is happening?
After more than three years of Brexit dominating the headlines, the upcoming General Election has inevitably kept the issue firmly in the spotlight of public debate.
Whether the electorate will deliver a decisive instruction this December remains to be seen. Amongst the electioneering noise, though, one thing is clear: public spending is about to boom. With the two largest parties both engaging heavily in the public investment and infrastructure battleground, associated spending is set to reach levels not sustained for at least 40 years.
The lower end of these commitments is an extra £20bn a year; greater even than the equivalent of the entire Crossrail budget being spent in each of the next five years. Whilst details are yet to be released and the extent of the strain this might place on the construction sector, government and others to deliver is unclear, a sharp increase in capital project expenditure looks inevitable.
Why is this significant?
Capital investment in the UK’s infrastructure is surely welcome, but taxpayers will rightly demand value for money. Not least in light of many recent projects missing deadlines and budgets, ensuring this next wave of public investment is spent wisely and delivered with a commercial mind set is of utmost importance.
These plans are of a scale that most of us of working age will not have witnessed. It will require an unusually high level of cross-sector collaboration, knowledge sharing and multi-faceted support from all professional disciplines to deliver successful outcomes. Lessons learned from past experiences must be considered when the potential for value leakage is unprecedented.
What can be done?
Having been fortunate enough to work on some of Europe's largest infrastructure programmes over the last decade, I have come across some recurring themes which, when addressed proactively, can help to get things right first time. This avoids having to ramp up cost reduction and project recovery efforts once things have gone awry and helps to keep public infrastructure projects out of the headlines.
Robust scope & baseline management: Detailed scoping on complex infrastructure projects is notoriously difficult to get right. Change is inevitable so clear target outcomes, an auditable budget baseline and a set of commercial principles to effectively deal with scope adjustments go a long way to preventing runaway budgets.
Clear and commercially-focused contract governance: Ensuring key contracts deliver value requires a detailed understanding of commercial terms, their inherent risks and proactive risk management by all involved in their delivery. Lack of focus in this area can lead to substantial value leakage over the life of the contract.
Bolstered cost verification functions: Delivery pressures and the sheer volume of transactions on large scale contracts mean that inefficient and erroneous charges can often slip through the net.
Leading practice organisations will have a dedicated commercial and cost verification function to shore up this risk area. These functions can pay for themselves many times over through the recovery of historical overcharging and identifying ongoing commercial efficiencies and savings.
Value-adding MI with trusted data: With fast-paced infrastructure projects, the need for accurate and up-to-date information is paramount in order for key stakeholders to make the best decisions.
Manual reporting can be slow, subject to error and by the time it passes through the organisation, its meaning may not be fully-reflective of what is actually happening on the ground.
Input data must be trustworthy and MI should focus on leading indicators to ensure decision-makers have the right information readily available to support effective project delivery.
Co-ordinated assurance strategy: With multiple stakeholders there is a risk that assurance activity becomes duplicative and seen as a hindrance by those on the front line.
An holistic approach to assurance mapping should be followed to ensure ‘assurance fatigue’ is minimised and the value these audits deliver is optimised.
Contract closeout planning - By the time contracts and projects begin to wind down, key personnel have often already moved on to the next initiative. This loss of knowledge places those left behind in a sub-optimal commercial position when it comes to contract closeout.
Margins are crystallised at this point, so a full understanding of your commercial position is essential to ensure obligations are fulfilled at the right level of cost. Ensuring a full exit and transition plan is in place early will help and the most effective teams will have conducted detailed reviews of supplier/ contract performance so that negotiations are carried out from a position of strength.
Where do we go from here?
Whilst by no means an exhaustive list, this represents where I feel rapid progress and significant value can be added based on my previous experience.
There are numerous other areas, in particular with more of a project delivery focus, both through existing leading practice and emerging innovations, which will need to come together in a joined-up way. This will give whoever forms the next government the best chance of delivering its objectives whilst also delivering value for the taxpayer.
If you will be impacted by any of the above and want to know more, including how BDO can help please contact Oliver.