Both Peter Black and Lord Bonkers have referred to the problems of public procurement. It is a major problem and one that would have had our Victorian and Edwardian ancestors scratching their heads in bewilderment. Whenever they wanted to build say a railway, they would get an Act of Parliament passed authorising all the necessary work, the finance and land acquisition, appoint contractors and get on with it. This didn’t only apply to new undertakings. A recent TV documentary based round Leeds told us that a local building contractor was appointed to sort out the land and tracks round Leeds Station in the late 1800’s devastated by a fire in Dark Arches. The contractor gathered a huge workforce and had the railway back in business in 6 days. Can you imagine that ever happening today? Yet, when I was young, British Rail often got railways running again in a few days, even after serious crashes.
Just look at the mess surrounding major projects, like CalMac’s new ferries, HS2, Midland Mainline electrification and many more. Constant delays, huge price rises, cancellations. Why is this happening and why do both the UK and Scottish governments accept huge price rises often amounting to a doubling of the price?
Here a comparison with the private sector is apt. If someone wants a house/houses built or if a business wants new offices or a factory, professionals are employed to get the necessary permissions, raise the finance and employ a contractor to do the job. A price and timetable are agreed with the contractor and very often there are penalty clauses for not completing on time and to budget. If a contractor doesn’t do the sums right, then that’s their problem. They can’t, usually, go back and ask for more money. When I was in the USA in the early 70s, motorways had to be resurfaced overnight and there were huge penalties if they were not completed on time. Where is that sort of operation in the UK today?
Yet, somehow, with public contracts, this doesn’t apply. Contractors seem to have carte blanche to announce delays and demand more money, presumably on the basis that it’s only the state and their funds are bottomless. Why are contractors for public projects not held to the same rules as those working in the private sector?
Is it too much to ask for watertight contracts, with agreed timescales for delivery and penalties for not completing on time? If the contractor for a public contract has got their sums wrong, why should the state bail them out? OK, there may need to be some wriggle room for wholly unforeseen problems that the contractor could not possibly have known about, but doubling the price, don’t make me laugh.
We need a public procurement system that delivers railways, roads, houses, green infrastructure, defence equipment and buildings on time and to budget. Yet time and again, ministers come to parliament to announce that another project is to be paused, delayed or abandoned or is running hugely over budget. It really is time that we LibDems gave some thought as to how we would overcome this lamentable state of affairs and quickly.
* Dr Michael Taylor has been a party member since 1964. He is currently living in Greece.
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14 Comments
Mick, you’re correct that we do have a huge problem with managing procurement, and with building things. But I fear you’ve misdiagnosed the causes. Large projects are inherently risky: By their nature you rarely know how building them will go and it’s inevitable things will not go to plan. If you insist on contractors offering guaranteed prices/delivery dates as you suggest then (a) you’ll suddenly find every project costs like twice as much because the contractors will have to factor the risk they are taking on into the price, and (b) for the very largest projects, you won’t find anyone willing to build them because no-one outside the public sector will be able to afford the risk. And you also risk shoddy/unsafe work being done as contractors rush to meet deadlines.
Projects were not all rosy in the Victorian era. They were often built faster than today because no-one worried about doing environmental studies or demolishing people’s homes or having public consultations or doing business cases to make sure the thing was even worth building. But even so, cost and time overruns were commonplace, as well as ‘dud’ projects. Examples: The track for the entire Great Western Railway had to be largely replaced within a few years of being built because the gauge wasn’t compatible with the rest of the UK, while an ‘atmospheric railway’ built from Exeter to Newton Abbot had to be abandoned because the technology turned out to be unworkable.
In order to write a watertight contract, you must know in advance every detail of the project. To do that, you need someone on the client (government) side of the negotiations to effectively do the research and design work before negotiations start. You don’t have to go that far if you parcel out the work as you go but you still need a technical team directly employed or separately contracted in a way that they know which side they are on.
Thank you Michael for a great article. I actually think you underestimate the issue. There are plenty of other public sector contracts that have not been delivered on time and/or exceeded their initial budgets – such as Crossrail/Elizabeth. However, I do think both Simon and Peter have a
Thank you Michael for a great article. I actually think you underestimate the issue. There are plenty of other public sector contracts that have not been delivered on time and/or exceeded their initial budgets – such as Crossrail/Elizabeth. However, I do also think both Simon and Peter have a point. The world is slightly different to the 19th century. My only suggestion for the future is that I think a lot more information about procurement contracts should be published and that would ensure both contractors and politicians are held to account for the contracts agreed. I understand why bidding documents are commercially confidential, but at some stage more information should be published about public contacts that have been awarded – and that is the case relating to procurement contracts for local and regional government, as well as at a national level.
Last time I checked, the UK was not the only country on earth. We don’t need to make comparisons to the 19th century, we can look at what how other countries are doing it.
No doubt some of them still have issues but if the French and Italians can build a fast railway under the Alps for a fraction of the cost of HS2 then there’s clearly something we can learn from them.
@Peter Davies is right. Knowledge and information on the HMG (client) side is much lower than on the supply side. There are several reasons why this is so. Supply vendors use bid teams – in addition to project teams – who maintain high skills levels in estimation and risk management. Delivery specialist maintain high levels of domain knowledge. Both have the tacit knowledge of frequent learning by doing. They are often highly motivated. Skills and education levels are often high.
By contrast public sector (client)) teams have relatively weak skills. Indeed they often hire client-side contractors from the likes of accounting firms and consultancies. Morale can be low, assertiveness can be low. Education and training in the general civil service is a mixed story. There is a high asymmetry of information. These factors are usually identified whenever there is a review of public sector procurement.
There are structural reasons why this does not change. These are not connected to any imperative for better project success. It is not just ministerial whim. Fixing this would probably involve some sort of arms length project office, outside civil service norms.
I am afraid this article is an example of someone applying simplistic solutions in an area of which they are wholly ignorant. Even a cursory study of the various reports into cost overruns into say Cal Mac ferries or HS2 will show you how much more complicated the reasons for the cost overruns are.
Simon,
I’m a bit concerned about your comment which does seem to be rather heavy on condemnation and short on reasoned and explained argument. To me Michael makes valid points for consideration and to claim he is wholly ignorant is simply being unpleasant. I would urge you to reconsider your point.
The one conclusion I have come to from decades of experience of public sector reports on failures is that they are enormously long and complicated for a reason, and the reason isn’t to provide depth of explanation and understanding, but instead to provide depth of camouflage and confusion. In addition, where governmental incompetence or criminality is a possible element, they are often combined with huge delay and prevarication in order to give time for those at the top to have retired and those with an oversight responsibility have got new jobs.
David
Thank you all for your comments. My aim was to encourage a debate and to suggest LibDems might want a policy on future public sector procurement.
Simon McGrath’s comment is below even his low standard of debate. For a number of years I was a cabinet member or Leader of a Metropolitan Borough Council and politically responsible for a number of large public sector procurement contracts, so pardon me if I dispute his comments about lack of knowledge.
If it was just the odd contract that went wrong, then there might not be a problem. The trouble is that it’s not and almost all public sector contracts seem to get mired in cost overruns, delay and cancellation/postponement.
I think the most sensible comments made are about the skills of client teams. British Rail, electricity, gas and water companies before privatisatiuon had skilled procurement teams. That all went away with privatisation and the run-down of skilled teams in the civil service, the NHS and local authorities due to years of cutbacks.
When the new Calderdale Royal Hospital was built under a PFI scheme, the private sector consultants, totally ignorant about hospitals, built a sewer undeneath the main operating theatre with predictable consequences.
The reports on CalMac and HS2 actually show the woeful lack of planning BEFORE the work started that led to cost overruns later.
We need a different approach to Public Sector Procurement that includes a group of dedicated professionals who ensure the job is properly specified, thus obviating the need for delays and cost overruns.
Michael
Those are excellent points. But not ones you made in your article. There you blamed greedy contractors allowed to get away with increasing prices “ Contractors seem to have carte blanche to announce delays and demand more money, presumably on the basis that it’s only the state and their funds are bottomless“
It’s important to note that the civil service is hollowed out and lacking in skills to handle major projects. For a start, if you have specialist skills and experience in Contract Management, Supply Chain Management, Project Management etc then the pay in the private sector is 30-50% higher than the civil service offers. And then civil service promotion favours generalists rather than specialists. But of course politicians think of the civil service as “the blob” and the cause of all problems, and so won’t do anything to retain top quality people in specialist roles.
Partly because of this, our Government spends huge sums on Management Consultants and outside contractors – way more than e.g. the French who have a similar size economy and civil service. This to an extent allows the blame to be outsourced, but prevents the civil service from accumulating the experience and institutional knowledge to improve.
If you want the Government to get better at managing big projects, then we need to pay the going rate for top class project managers, offer career progression paths to retain them, and kick the consultants into touch…..
I would be interested to see what information Michael has on the Midland Mainline electrification. From what information that is in the public domain, it would seem the biggest challenge this project has had is successive governments blowing hot and cold on their commitment and funding of this project. Ie. Its problems are very different to those of HS2 etc.
Remember, this was a project that was going to cost £900m in 2009, be completed by 2020, and repaid in full by 2030 with a strong economic benefit case; unlike HS2…
The reason it hasn’t been completed is wholly down to the actions of Westminster politicians.
@Roland I think that’s pretty much correct, but it’s a bit deeper than that. In (IIRC 2011) the coalition Government announced it would fund a huge round of electrification, including the Midland Mainline. That work started but very quickly started going behind schedule while costs mounted. The likely real reason was that we’d hardly electrified anything for decades which meant there weren’t any teams around with much electrification experience – or even experience in planning out and costing the work, but suddenly we were trying to do loads of electrification. The rising costs caused the Government to get cold feet, and we started to see exactly the problems you point out, with the Government constantly changing its mind. And of course each change of mind forces work to stop and restart adding to the costs. The GWR electrification had similar issues, eventually getting scaled back to London-Cardiff, leaving out Bristol.
I think the real lesson here is we need a steady continuous program of electrification so we’re actually keeping the skills in the industry while making sure the teams always have a reasonable amount of work to do. (I think that’s also an example of how you need to understand the actual reasons for cost overruns rather than just picking on favourite political scapegoats like contracting out).
Many people on this thread have made the same points about the lack of design and planning expertise which leads to big problems and rising costs later on.
Take Midland Mainline. Surely we’re not the only country doing electrification? Yet there seems to be a strange reluctance to employ people who have done electrification elsewhere in Europe or further afield. I am pretty sure that this is the same constraint where UK based skills are lacking on opther area.
Of course many engineers trained in the UK go elsewhere because of the very problems we have been talking about.
Food for thought if we ever get anywhere near government again.