Delivering value from government investment in major projects

Government departments still have few incentives to commission and carry out high-quality evaluations of major projects. High quality evaluation is an important means of providing evidence about what works, transparency about what value a project has produced, and making the case (or not) for further investment. As we pointed out in our May 2022 report on the use of evaluation and modelling in government, in 2019, only 8% of £432 billion of spend on major projects had robust impact evaluation plans in place, and 64% of spend had no evaluation arrangements at all. The Evaluation Task Force is currently updating the 2019 analysis of how much evaluation of major projects now takes place and there is still room for improvement. In our May 2022 report we also pointed out that the same barriers such as a lack of political engagement and a lack of incentives for departments to produce evaluations had persisted since 2013. HM Treasury says it still has more to do to address these barriers, but that the time that it can take for value and benefits to be realised and the time it takes to carry out an evaluation can be barriers. HM Treasury does not, however, consider the cost of evaluation to be a barrier. Recommendation 2: HM Treasury and the evaluation task force should develop a plan that addresses the root causes of why evaluations are not routinely carried out and how to incentivise departments to carry our more high-quality and independent evaluations.

There are signs of improved cross-government working but government still struggles to establish effective governance and accountability arrangements on the most complex projects where multiple departments are involved. In our February 2024 report on cross-government working in general we concluded that “effective cross-government working is fundamental to delivering government’s 6 Delivering value from government investment in major projects priorities but there is a lot of work to do”. This is particularly so for complex major projects, which often contribute to the objectives of multiple government departments and involve a number of organisation in delivery. There are examples of good practice, such as the East-West Rail project’s growth board that brings together local and central government, and the No 10 Delivery Unit can also be effective in bringing departments together to deliver cross-cutting priorities. For some projects it may be more effective to have an organisation outside of the project delivery team accountable for delivering value. Development corporations such as those established to deliver regeneration benefits at Ebbsfleet for High Speed 1 and the Queen Elizabeth Olympic Park for the London 2012 Games have been effective. But bringing together the right stakeholders to deliver value does not come naturally to government departments and this remains a challenge. Ensuring that appropriate individuals sit on project boards is also important to provide challenge to project teams, support delivery and ensure that value is delivered. Recommendation 3: HM Treasury and the Infrastructure Projects Authority should: a) analyse what governance structures and incentives work well to encourage cross-government working; and b) issue guidance on how government departments can apply the right approaches that reflect the objectives and complexity of their projects including for delivering value once a project is complete.

Government departments and the broader economy lack the necessary skills and capacity to deliver the government’s ambitious portfolio of major infrastructure projects. The UK’s projected spend on infrastructure projects over the next five years is very high—unprecedented, according to the IPA—with the UK building more than it has ever built and in a range of sectors including roads, rail and energy. With global competition from other countries with massive investment projects such as Saudi Arabia, there is a risk of skills shortage to deliver such an ambitious portfolio of investment. Skills shortages in specific trades such as welding are already being seen but design and project management skills are also in short supply. Failure to build market capacity could result in higher prices for scarce skills. Too little of the right skills in government has led to an overreliance on the supply chain, particularly in technical and engineering disciplines. The IPA says that nearly 1,000 accredited project professionals have now passed through the government’s major project leadership academy and that it has an ambition to get another 1,000 accredited professionals through the programme by the end of March 2025. However, that is only a small proportion of the 16,000 government project professionals that need to gain accreditation. Recommendation 4: Alongside their response to this report HM Treasury and the Infrastructure Projects Authority should write to the Committee with an analysis of risks to the government’s portfolio of infrastructure projects caused by the lack of skills.

The IPA’s plans to improve the quality of government’s cost estimates of major projects have taken too long to implement. We have examined many projects Delivering value from government investment in major projects 7 where early cost estimates have proved to bear little resemblance to what a project will ultimately cost, and there is optimism bias in nearly every project we look at. Funding packages are often agreed, and projects approved before projects have reached sufficient maturity. High Speed 2 is a prime example of a budget being set well before plans were sufficiently mature. The IPA says that departments should be using ranges of potential costs until a project is sufficiently mature to finalise a funding package. Lack of cost-estimation capability in government means that departments end up too reliant on suppliers to determine what a project will cost. The IPA has produced cost-estimation guidance and developed a cost-benchmarking hub to provide better data to improve cost estimation. However, the IPA does not expect departments to populate it with their project cost data until later this year and currently does not intend that the benchmarking hub also includes information on the value and benefits that projects produce. Recommendation 5: Alongside their response to this report, the Infrastructure Projects Authority and HM Treasury should write to the Committee setting out how they plan to incentivise departments to populate the IPA’s benchmarking hub with accurate and consistent information on the actual costs and benefits of their projects.

Government departments do not routinely learn lessons from their own projects or those of other departments, so are missing opportunities to improve effectiveness and efficiency of future projects. Applying learning about what has been successful in major project delivery can bring great efficiency and reduced costs, particularly where standardisation of design is possible. Schools, hospitals and prison building programmes are starting to apply digital methods of design and off-site fabrication and to apply the approach of ‘design one, build many’. Of course, the success of this approach would require the supply chain to have enough of the required skills and capacity. There are government forums for the sharing of lessons about what works well in project delivery, such as the IPA-chaired Government Construction Board. However, learning across government departments still does not occur systematically, and departments must think more broadly about lessons in maximising long-term value, rather than just about lessons in delivering similar projects. The IPA acknowledged it could do more to challenge departments to learn from one project to another. Our February 2024 report on cross-government working also highlighted a lack of routine data sharing between departments and poor arrangements for sharing best practice and learning. Recommendation 6: Alongside their response to this report, the Infrastructure Projects Authority and HM Treasury should write to the Committee outlining their plans for embedding cross-government learning for future major projects. 8 Delivering value from government investment in major projects 1 Identifying, delivering and evaluating value from major projects

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Infrastructure and Projects Authority and HM Treasury.1

High quality evaluation is an important means of providing evidence about what works and transparency about what value a project has produced. In our May 2022 report on government’s use of evaluation and modelling, we stated: “Without the right incentives, improvements to oversight and culture, and addressing challenges such as sharing data, decisions will continue to be made without being informed by a robust evidence base. This can put value for money unnecessarily at risk.”7 5 Qq 4, 25, 29, 65; C&AG’s Report, para 27 and Figure 2 and 4, pages 18–19 and 22–23 6 Qq 4, 31, 64; C&AG’s Report, para 2 7 Committee of Public Accounts, Use of evaluation and financial modelling in Government, Fourth Report of Session 2022–23, HC 254, 27 May 2022 10 Delivering value from government investment in major projects The C&AG’s 2024 report provides examples of the importance of evaluation to enable government departments to understand how they can deliver better value from their major projects. The Diamond Light Source’s 2021 study into the scientific, technological, societal and economic benefits of the facility contributed to the evidence base and input to future funding requests. An evaluation of the London 2012 Olympics, meanwhile, demonstrated how it had been able to implement sustainable procurement on the programme.8

There are too few evaluations of government’s major projects. As we pointed out in our May 2022 report on the use of evaluation and modelling in government, in 2019, only 8% of £432 billion of spend on major projects had robust impact evaluation plans in place, and 64% of spend had no evaluation arrangements at all. HM Treasury told us that this figure is too low and that it is not acceptable for departments to have no evaluation arrangements in place. The IPA told us that most departments have gaps in terms of their evaluations but that the Ministry of Defence has particularly significant gaps. The Evaluation Task Force is currently updating the 2019 analysis of how many projects in the Government Major Projects Portfolio have robust evaluation plans.9

In our May 2022 report on evaluation, we pointed out that the same barriers to departments doing more evaluations had been in place since 2013. These include a lack of political engagement and a lack of incentives for departments to produce evaluations. HM Treasury told us that it still has more to do to address these barriers. It told us that departments have the desire to demonstrate what they have delivered for their investment. However, the time it can take for value and benefits to be realised, as well as the time it can take to carry out an evaluation means that evaluations are not always carried out. In particular, these issues of timing do not always match with the political cycle of, for example, elections and spending reviews, which can mean that departments are not incentivised. HM Treasury told us that because the cost of an evaluation is small compared to the cost of delivering a project, it does not consider cost to be a barrier.10 Cross-government working

Although it is often the case that a single government department has ultimate accountability for delivery of a major project, it is often the case that multiple departments as well other stakeholders and organisations will be involved in delivery and in ensuring that value is delivered. Indeed, success depends on many organisations working together to create a shared vision through delivery and beyond. The C&AG’s report includes examples of where this has gone well. These include the developer’s masterplan for the Greenwich Peninsula which had widespread support from stakeholders including local authorities and the operator of the O2 Arena, and the Hartree Centre’s involvement of industry and academia in forums focused on getting value from the facility.11

For some projects it may be more effective for an organisation outside of the project delivery team to be accountable for delivering the value from the project. On two of the projects referred to in the C&AG’s report development corporations were set up by 8 Ibid; C&AG’s Report, paras 10–12, 15, Figure 3 9 Qq 32, 44–45; Committee of Public Accounts, Use of evaluation and financial modelling in Government, Fourth Report of Session 2022–23, HC 254, 27 May 2022 10 Qq 32–37, Committee of Public Accounts, Use of evaluation and financial modelling in Government, Fourth Report of Session 2022–23, HC 254, 27 May 2022 11 Q25; C&AG’s Report, paras 20–24 Delivering value from government investment in major projects 11 government to ensure that regeneration benefits were realised. The Ebbsfleet Development Corporation was set up to accelerate regeneration of the area around Ebbsfleet International Station and the London Legacy Development Corporation fulfilled a similar role in relation to the area in and around the Queen Elizabeth Olympic Park. HM Treasury told us that such approaches can be helpful.12

In our February 2024 report on cross-government working we concluded that “effective cross-government working is fundamental to delivering government’s priorities but there is a lot of work to do to make it more than just a ‘nice to have’”. However, the IPA told us that ensuring that stakeholders are involved at all stages still does not come naturally to departments, despite the fact that it is required as part of the national infrastructure planning process and is key to the success of a project.13

The IPA gave us examples where the involvement of stakeholders has been working well. For example, the East-West Rail project’s growth board that brings together local authority and government department and the A303 and Lower Thames Crossing projects have built support from controversial projects. The IPA also told us that the establishment of the No 10 Delivery Unit has been effective in bringing departments together to deliver cross-cutting projects and priorities. A presence on project boards from those outside the main delivery department can also bring alternative perspectives. Including independent non-executives with appropriate experience that matches the stage of the project on project boards is a good example and can help to provide challenge to project teams, support delivery and ensure that value is delivered.14 12 Q4; C&AG’s Report, para 23 13 Qq 25–26; Committee of Public Accounts, Cross-government working, Twelfth Report of Session 2023–24, HC 75, 13 February 2024 14 Qq 17, 22–29 12 Delivering value from government investment in major projects 2 Progress with project delivery capability Project delivery skills

As set out above, in March 2023, the value of the Government Major Projects Portfolio in terms of total whole-life costs was £805 billion. With major projects in the transport and energy sectors and programmes or projects to build new schools, hospitals and prisons, the UK’s projected spend on infrastructure projects over the next five years is very high. According to the IPA, which oversees major projects and infrastructure investment for government, the scale of investment is unprecedented, with the UK building more than it ever has.15

However, the IPA told us that it is already seeing evidence of current and future skills shortages and stiff competition from other countries with their own major investment programmes for scarce skills. The IPA gave specific examples of skills shortages in trades such welders for building frigates on behalf of the Ministry of Defence in Rosyth on the Firth of Forth, and steel fixers for the major civil engineering projects the government is delivering. However, there is also evidence of shortages of supply contractor management teams to fill the demand for contractors, with the same teams bidding for different projects. Saudi Arabia is one example of a country investing massively in its infrastructure. IPA told us that a design company with several hundred designers recently left the UK market to work on Saudi projects. The IPA told us that it is unclear whether the UK has enough capacity to deliver but there are likely to be pinch points, with the risk that increased demand for scarce skills could increase costs. The IPA told us that it is important that government does what it can to increase market capacity and that it has carried out a market analysis of capability and capacity. The IPA told us that it is also important that the speed of government investment matches the development of the market to minimise inflationary pressure.16

The IPA told us that there remains a lack of project management skills in the civil service and that there are particular shortages in technical and engineering skills. This lack of skills places too much reliance on the supply chain for those skills, which can place government departments in a weak position because it means departments cannot act as an intelligent client. Improving project management skills in government could also help to mitigate risks from there being shortages in the supply chain. The IPA told us that there are signs of senior responsible owners being better able to respond to the challenges of the IPA. The IPA mentioned a programme for moving projects from a red rating to an amber or green rating, stating that 70% of ‘red’ projects move to amber or green within twelve weeks. More project professionals are also gaining accreditation via the government’s major project leadership academy but there is still a long way to go and there is a particular need for skilled professionals in senior positions. Of 16,000 professionals required to gain accreditation, the IPA told us that 1,000 now have accreditation and that it has an ambition to get another 1,000 accredited professionals through the programme by the end of March 2025.17 15 Qq 9, 74–75; C&AG’s Report, para 1 16 Qq 74–75 17 Qq 45–53 Delivering value from government investment in major projects 13 Cost estimating

We have examined numerous projects over the years where cost estimates have increased significantly over the life of the project. Optimism bias in government is a significant factor in nearly every project we look at. Another, related, factor is a tendency in government to approve projects before they have been developed sufficiently for there to be confidence in the accuracy of the cost estimate. High Speed 2 has been a case in point. In our February 2024 report on the High Speed 2 programme, we stated that HS2 Ltd had estimated that the cost to complete Phase 1 between London and Birmingham will be £49 billion to £57 billion (2019 prices) and could rise by a further £8 billion to £10 billion due to inflation since 2019. This is substantially higher that the budget of £44.9 billion that was set in 2020. The IPA told us, and HM Treasury agreed, that departments should be using ranges of potential costs until a project is sufficiently mature to finalise a funding package. But, although HS2 Ltd is now using ranges of potential costs, the IPA noted that plans for High Speed 2 had only reached maturity level of 10% when the final business case—the point at which projects are approved to begin construction—was approved.18

Lack of cost-estimation capability in government means that government is reliant on suppliers to government defining what a project will cost. The IPA told us that cost estimation is an important skill and one that government departments need to be much better at. HM Treasury told us that the challenge of estimating cost accurately for developing business cases and for spending reviews is an area that government still has not cracked and that better transparency about cost estimates can be helpful. The IPA has produced guidance on cost estimating and told us that it will be important for departments to move away from reference-class forecasting—applying costs from previous projects that are similar to those in your project—because that can miss important unique aspects of your project. The IPA also told us that it has developed a community of cost estimators across all 19 government departments and a cost-benchmarking hub to provide better data to improve cost estimation. More extensive use of standardisation and use of data and digitalisation of project designs could help produce more accurate estimates. However, the cost benchmarking hub does not yet have the data to make it useful and effective as a tool. The IPA does not expect departments to populate it with their project cost data until later this year. The IPA told us that including information on estimates of benefits could also be useful in the future but it does not currently intend to use the benchmarking hub for this purpose.19 Learning from previous projects

Applying learning about what has been successful in major project delivery can bring great efficiency and reduced costs. The C&AG’s report, and other lessons learned reports like it, as well as those produced by this Committee are useful resources for government to find out what works. The C&AG’s report used examples of long-completed projects that have been broadly successful in generating value to identify observations and lessons that could be useful for departments.20

The IPA told us that increased standardisation of design of some projects can be a helpful way to learn and apply what has worked well. The IPA told us that the schools, 18 Qq 70; Committee of Public Accounts, HS2 and Euston, Tenth Report of Session 2023–24, HC 67, 7 February 2024 19 Qq 39–43; 66–67 20 Q1; C&AG’s Report, paras 1–8, Figure 1 14 Delivering value from government investment in major projects hospitals and prison building programmes are starting to apply digital methods of design and off-site fabrication and to apply the approach of ‘design one, build many’. Such an approach can bring cost savings and improve learning. However, this brings with it challenges because the programme of investment needs to have the scale to make it cost- effective to apply the process of standardisation.21

In our February 2024 report on cross-government working we highlighted that a lack of routine data sharing between departments and poor arrangements for sharing best practice and learning. Learning lessons from major projects can, however, be a challenge because of the nature of some projects. It may not be immediately clear, for example, what projects can learn from such specific projects as the Millennium Dome, the London 2012 Olympics, or the programme to maintain a nuclear deterrent. That said, comparison with such projects is still possible if departments are clear about their strategic objectives and identify similarities between projects.22

The IPA told us it could do more to challenge departments to learn from one project to another. The IPA did, however, point to areas where learning is improving in government. For example, the IPA chairs the Government Construction Board, where lessons about what works well in project delivery are shared, and the IPA is preparing materials for departments on what good looks like. The government has also recently produced a report on lessons from the Crossrail project. The IPA told us that non-executive directors and governance boards of major projects can bring helpful learning and insight. The IPA cited the example of the board for the Sizewell C project to build a new nuclear power station, where he is the government non-executive Director.23 21 Qq 9 - 13 22 Q 3; Committee of Public Accounts, Cross-government working, Twelfth Report of Session 2023–24 23 Qq 16; 21–24 Delivering value from government investment in major projects 15