Public Administration and Constitutional Affairs Committee
Oral evidence: The Government’s management of major projects, HC 1631
Tuesday 25 June 2019
Ordered by the House of Commons to be published on 25 June 2019.
Members present: Sir Bernard Jenkin (Chair); Ronnie Cowan; Mr Marcus Fysh; Kelvin Hopkins; Dr Rupa Huq; Mr David Jones; Eleanor Smith.
Questions 287 - 366
Witnesses
I: Hannah Vickers, CEO, Association for Consulting and Engineering, and Miles Ashley, Fellow of the Institution of Civil Engineers (ICE) and Director, Wessex Advisory Ltd.
Written evidence from witnesses:
– Institution of Civil Engineers
- Association for Consulting and Engineering
Witnesses: Hannah Vickers and Miles Ashley.
Q287 Chair: Can I welcome our two witnesses to this evidence session on the Government management of major projects? Can I ask each of you to identify yourself for the record, please?
Hannah Vickers: I am Hannah Vickers. I am the Chief Executive of the Association for Consultancy and Engineering.
Miles Ashley: Good morning. I am Miles Ashley. I am a Fellow of the Institution of Civil Engineers, which I am representing, and Director of Wessex Advisory. I was also chair and co-author of “Reducing the gap between cost estimates and outturns”, which was the paper that was presented, and Project 13, and until two and a half years ago I was the Director of Construction at Transport for London.
Q288 Chair: Thank you very much indeed for being with us today. Both of your written submissions have suggested that early communication should focus on the benefits of the project rather than the costs and the completion date, which tends to be what the Minister announces with a great fanfare. How would you respond to the finding that the project benefits are very often overstated?
Hannah Vickers: I think it depends on how you define and measure the benefits. It is very difficult to quantify them and we certainly do not, at the moment, have a consistent methodology for how we do that, so it therefore makes it quite difficult to compare the benefits or the relative benefits of projects across the Government’s portfolio. If you look at the Five Case Model that was applied in the rules of the Green Book, again within that you might look at economic appraisal, but there are very different methodologies on a project-by-project basis. It is quite hard to say in black and white that projects are overstated at the start, because I do not think the data are there at the moment to substantiate that.
Miles Ashley: I think the term over which those benefits are measured is critical. Most infrastructure owners understand the benefits to their business and I think the business case development at an infrastructure owner level is relatively sophisticated. That often does not translate down to how we monitor and focus on benefits at a governance level within programmes. Often those benefits have been significantly understated—so, the Jubilee line extension is a pretty good example. The benefits case for that was at 0.98, which meant we were not even going to get our money back, but it was fundamental to creating Canary Wharf and the new London financial centre that we have seen emerge.
Q289 Chair: Can you expand a bit on that? Does that not discredit the whole benefit-cost ratio analysis system? Why should we look at benefit-cost ratios if they are so wrong or can be so wrong?
Miles Ashley: It is almost a question of trying to understand the complexity of those benefits in an emerging environment. Nobody perhaps foresaw the combination of development need in an environment and the political support for London’s second financial centre in Canary Wharf. It would have been very difficult, I think, at the time the Jubilee line extension was conceived to have fully understood or calculated the eventual benefits of that infrastructure.
Chair: Of course Olympia and York went bust after the Jubilee line extension was announced, so perhaps quite a lot of people did not understand what effect it was going to have. Moving on, Ronnie Cowan.
Q290 Ronnie Cowan: The importance of early planning of major projects has been stressed. We are looking at the review of the gateway process. To what extent has this helped produce better estimates and costs?
Hannah Vickers: Early planning is important, because that is where you determine the benefits. If you spend time in that phase of a project you can get to the bottom of what you value, what you are expecting out of it and how you might prioritise those things. From a design perspective, which is where my members work, that is important, because then you can give them a very clear brief on what it is you value and what it is you are willing to trade off, be it costs or certain elements of the benefits. Getting that right will mean that you are going into the project trying to deliver the right thing rather than trying to deliver the wrong thing and then delivering that better. It is important to spend time at the front end of projects to make sure that you have consensus on what it is that you are aiming to deliver and at that point you can then bring in a lot of the innovation and do some interesting analysis around delivering those benefits. In some cases, particularly as we get more sophisticated with digital transformation, that may not mean constructing anything at all.
Miles Ashley: I think the way in which we approach early stage project and programme development reflects the rather transactional structures that we intend to create. Because we realise that we have to go to a market at some point, we disaggregate design from delivery. We do not involve the people who are delivering those programmes early enough and engage them on their ideas and approach to optimise those benefits. I think where we move away from those transactional arrangements to create an enterprise culture where we integrate design and delivery we are rewarded with much better outcomes. There are some very good examples of that, I think, particularly in the water sector, so the Anglian Water @one Alliance have been working in long-term arrangements with their contractors and consultants. There is a growing understanding of how that approach and data drives better outcomes and lower costs, how there is a relationship between driving for lower carbon outcomes and lower cost. Sometimes we lose the possibility of those advantages in setting up in a single project environment.
I do think there is much to be gained from longer-term arrangements that are governed by a much better understanding of the outcomes that we are trying to create. That is spoken to quite broadly within this paper, “Reducing the gap between cost estimates and outturns” and indeed in the Project 13 work, which perhaps provides a framework for that, which was also supported by the Institution of Civil Engineers.
Q291 Ronnie Cowan: Are there gateways in place before you do any work at all? When building a bridge, before they pour any concrete or start digging up any turf, are there gateways in place to say, “Are we doing this right? Are we doing this right?”
Hannah Vickers: Yes, there should be. If you look at the project approvals and appraisal process there is a gateway upfront where you should unpick the strategic case for the project. I think there is room for improvement in terms of how that is presented, particularly now we are going to have things like the National Infrastructure Commission, which will set out through the infrastructure assessment what the overarching outcome should be for an infrastructure investment. I think there is a need for us to make sure that projects come forward with a clear line of sight—if those are the national outcomes and the policy drivers, how are they then reflected in the strategic case to take forward an individual project?
That should be the very first gateway at which you decide whether or not there is a benefits case for doing the project, before you go anywhere near anything around what the solution might be, whether that is construction, managing the demand in a different way or whether it is a refurbishment project. Before you go anywhere near that, already included in the Treasury’s approval process is this step that you should go through. I think there is a need to look very carefully at getting consistency and better alignment between national policy objectives and those project business cases at that stage and that is what the assurance process should draw out.
Q292 Ronnie Cowan: How do you balance the need to stop and check and the desire to push forward and get on with the project? There must be pressure for you to push forward on the project.
Hannah Vickers: I think some of that is around how you manage the communications, because that can bring that pressure to bear. If, for example, you have a Minister who has already announced a solution before you have gone through that process then immediately you have pressure for it to become a project. I think managing the communications and making sure that those project business cases have appropriate time to be fully developed and explored, not just by the asset owners, but bringing the market in as well, because again you get a well-rounded picture then, rather than having a one-sided view on whether or not a project should proceed.
Miles Ashley: I think it is rare, that idealised position where we are fully engaged with the market before we commit ourselves to time and money commitments that sometimes prove to be difficult, if not impossible, to achieve. Much of our recommendation—it is a repeated recommendation—is that we should reflect that in the public announcements that we make, to give ranges on both time and cost, to promote the benefits that those schemes will achieve and to be much clearer about how we assess those benefits and promote those benefits to the public.
Q293 Ronnie Cowan: In previous sessions we have heard evidence that people get into the gateway and feel pressure from above to say that everything is okay at the build stage—“Everything is okay, my part of the project is absolutely fine. It is not quite there but I think we can work it out in the next stage of the project”—and that then becomes compounded throughout the project. How do we stop that from happening?
Miles Ashley: I think that is a matter of good governance, that not one individual opinion or constraint overrides the constraint for a professional approach to the project. The question is perhaps whether we get the right level and approach to governance within these project environments and with the owner environments to ensure that we put that case forward.
Q294 Eleanor Smith: A supplementary question. I am thinking of HS2, because we are having lots of people saying it should not start, and whatever. Where should it be in the governance and the planning? You say that this is what should happen, but with HS2 going through its problems, which is should not if what you are talking about is what you are supposed to do, how has that come about?
Hannah Vickers: Again, I am not close enough to go into the details of exactly how High Speed 2’s business case has evolved, but if you look at it now you can certainly see what is quantified in its business case compared with some of the benefits that are being articulated—for example, the support that it has received from a lot of the northern MPs, who can see it is going to be an important project for regeneration for their local areas. A lot of those benefits would strengthen the business case for High Speed 2. I know that there are reviews ongoing and my hope is that they will start to draw out this consensus on what it is tasked with delivering and what the benefits are.
Some of them will have started to come to light as you move through the project, but, equally, as long as the business case is fully formed and we have consensus on it I think that that is probably the important milestone to get to with it now, because then you can weigh up the investment and what you get for that investment. That is an important step for it. That was echoed in the House of Lords report recently, which started to indicate that the current business case may have understated some of the benefits that will be delivered by it, so there is an important closing of the loop on that.
Equally, as projects evolve it is important for each gateway to be reviewing both sides of it. So, again, as you move towards the delivery end of it, if you are coming through gateway 3 just before you go for delivery, at that point you can very much be fixated on what the contract costs are, on how much risk is in there and on what the delivery timescales are.
At that point it is equally important to check back and say, “Are we delivering the benefits that we anticipated? Are we still getting the value out of that project?” not just because we are now perhaps more certain about how much it will cost, but equally because we might have moved forward and tied down our cost estimates, but have our benefits gone up or gone down? I think it is the function of both of those approaches that is often lacking in major projects, balancing both of them, particularly because the costs can seem—well, from a proximity perspective, you are about to commit to a very big capital investment, and it is very easy to become fixated on the risk sitting within that when equally the risk might be that you have undermined your benefits case. I think there is an important balance to be had there.
Miles Ashley: The fact we are having a substantive conversation on the benefits of HS2 now perhaps points to the lack of systematic approach that we apply across the industry to making investment decisions. I think also that we lack a systematic approach to tracking benefits as we execute projects. There is a lot of systematic tracking of costs and governance and audit around the cost envelopes within projects, but I often wonder whether the same degree of discipline and tracking benefits and audit are around those emerging benefits that we based our original investment decision upon.
Q295 Kelvin Hopkins: I have high regard for engineers and civil engineers in particular, but do you not have a vested interest in encouraging Government to go ahead with big projects, because it means employment for all of your members? You are not an objective judge from outside, if you like, about these projects, as you have a vested interest.
Miles Ashley: There is a very significant point here about the level of margins that our UK tier 1 contractors are making, which last year was in the order of 0.8%. This industry is incredibly dependent upon consistent decision-making and those effects ripple down to quite small employers who this country is expecting to make an investment and engage with these projects well ahead of their gaining any financial benefit from these projects. I think that making consistent decisions and allowing the industry to invest appropriately is terribly important.
However, I come back to my last point, which was that we should systematically track the emergence of benefits and assure ourselves that that public money is being used in a way that will accrue the benefits that were originally intended when we made the investment decision.
Hannah Vickers: To follow up, you can see how there could be a perceived conflict, but I think that is where your very robust governance comes in, because you do need to be making sure that all parties are represented.
My members would work on the design phase of a project and they could be working upstream before you get anywhere near construction, and if it stops at construction that might not make much difference to them, if I am honest, if they have done that piece of work upfront.
I think it is important to make sure that you have a balanced view on that. We have spoken already about the role of independent assurance, and there are some changes here that I think could help to align those interests. We are doing a piece of work on the future of consultancy and what it is looking at is whether you can imagine where you could get to a stage at which you can automate design. That is probably going to mean that our project-based market is probably going to get smaller as an industry, but what we are able to do, because we will have this plethora of data available to us and new technologies and tools, will mean that we can offer better advice and better evidence to clients on making decisions around their existing asset base and also around upstream planning on projects. I think there is a recognition that if you think about our market we would not necessarily want lots of big projects to go ahead anyway. We are quite mature in that space.
We also work globally, which is different to the contractors, so at the moment, as an example, we are seeing a big downturn in commercial investments because of the uncertainty of the environment here. What that means is that a lot of our members are working overseas. They are working internationally. We are renowned for our international design expertise, so we are not in a position where we need to be forcing through individual projects to secure a pipeline of work. We are in demand, so to speak.
If you were in that specific project level engagement there are things you can do with the commercial environment that align the incentives and the rewards to the delivery of the benefits, rather than the delivery of the project. If you do that then what you are doing is setting yourself up to incentivise the market to bring forward their best evidence and their best ideas and to invest that in the project, taking away the fact that there might not be a construction project coming out of it. What you want to incentivise them to do is to deliver that value that is in the business case, not to construct themselves a pipeline of work. There are some quite simple things you could put in place to do that.
Q296 Mr Jones: You have both commented on the excessive focus on price in the bidding process, which can lead to unrealistically low bids being submitted. What changes do you think could be made to incentivise contractors to put in realistic bids from the outset rather than those unrealistically low ones?
Miles Ashley: I do not think they are putting in unrealistic bids. They are putting in bids against the definition of the project at that time to the best of everybody’s ability. They are answering that rather unsophisticated question, I think, and that is the consequence of that transactional approach.
Of course no plan survives first contact with the enemy and if you are building a complex piece of civil engineering in an urban environment, then you may be three years away from understanding the stakeholder impacts, the interfaces with other complex pieces of information with infrastructure, operational constraints, the political environment, and the market environment. The evidence is, and we laid this out in the paper, that on average those contracts go up by 45% to 50% from bid to outturn. If you refer to the recent National Audit Office report you will find that in some major projects they are going up significantly more. The idea that we are getting any price certainty out of that transactional approach is optimistic at best.
What we are missing in approaching infrastructure creation in that way is the opportunity to create long-term relationships with supply chains that can bring much in terms of what they contribute to achieving infrastructure owners’ outcomes. There are some very good examples of that in practice. TfL went out to the market to ask the supply chain how it could improve on its existing intentions for the bank capacity scheme. If you feed those results back into the original business case there is a 50% increase in value, because they made a significant difference to the operating performance of the infrastructure.
If we can get a new operating model that allows the industry to contribute to those outcomes the evidence is that we can significantly improve on the efficiency of that infrastructure, and if we are improving on the efficiency of that infrastructure then arguably that is a good platform for reducing the cost for the benefits that we are trying to achieve.
Hannah Vickers: I would make a couple of comments here. There is some work happening through the Construction Sector Deal on procuring for value, which I think will start to move this, because it is around trying to broaden out the structure of the procurement process to allow analysis, consistent analysis, across Government projects on the benefit side as well as the cost side. That works well if you have Government clients who are well-informed about how much things are likely to cost and what they are willing to pay for them. Those are the two big enablers in terms of the client side that is required to enable it, and then you can move into this space where you are setting up a procurement process that covers not just competition on cost, which would put an over-emphasis on the market side on that part of the process, and allow them to demonstrate what they can offer and what capability they have to help you manage the project through its conclusion.
Q297 Mr Jones: Does the Government have the capacity to make the assessment that you mentioned there?
Hannah Vickers: There are some examples where they are starting to do this already. If you look at DEFRA, they have introduced something called the Partnership Funding Policy, so they have set out what their willingness to pay is for delivering properties’ flood protection, and that has changed the relationship that they have with the market. It has changed the fact that companies know now what the envelope is they are working within, but it also gives DEFRA the assurance that they are not going to be forced up in terms of what they are paying, because they have this failsafe. We have seen projects stopped because of that as you go through the gateway process, that because they have set out a willingness to pay for these outcomes there have been projects stopped on that basis. That framework is in operation in certain parts of Government already.
Miles Ashley: To add to that, there are quite a few infrastructure owners that understand that they have to move to those long-term relationships if they are going to build rich production performance data to increase the porosity between these organisational boundaries and to provide an integrated governance system that will allow them to get better value out of their supply chains. A number of organisations have adopted Project 13, which is a framework for assessing maturity around that approach. They include the Heathrow expansion programme, Sellafield, Anglian Water, the Environment Agency, and Network Rail, and I think we have seen Highways England as well in their recent bid moving towards these longer-term arrangements.
There is a growing acceptance—this is good news—that infrastructure owners understand that they are not going to be able to achieve what they need to achieve out of those transactional arrangements. Of course building that sort of relationship and that sort of operating model is not possible in all environments. It is only possible in circumstances where you have a long-term programme upon which you can build such an approach. For as long as we see some of these projects as discrete and transactional, these suboptimal outcomes will keep happening to us, and that is the general view, I think, of practitioners across the industry.
Q298 Dr Huq: Can I add some realism? The Garden Bridge is a monumental recent failure; the bulk of the Treasury spend was £30 million from DfT and it is not even directly a transport project. I wonder if some more realism markers could be put in to assess these projects before they fail monumentally.
Hannah Vickers: I think that is that alignment point. We now have the National Infrastructure Assessment. If something is being promoted as an infrastructure project or a project that delivers infrastructure benefits, I think there is a very important line of sight that needs to be drawn between the two. Treasury published a “Transforming Infrastructure Performance” report on this that drew out the need to have better alignment between an overarching infrastructure strategy and having individual projects that are brought forward. I think that part, that focus on benefits and knowing that it is not just a discrete project in isolation, but that it does in some way contribute to an overarching policy objective, is where we need to be increasing the scrutiny and increasing the data. Within that same report they did look at how, through the Infrastructure and Projects Authority, they could establish performance benchmarking data that would help the Departments to move to that level of maturity, which as you say they potentially would not have the capacity to do on their own. I think it is widely acknowledged that that is a challenging area that could be improved.
Miles Ashley: I was going to say we are back to the same themes probably which we have outlined as an institution within the paper, which are understanding the benefits, the procurement approach, and the political environment in which it sits. At some point that needs reconciling and some reality needs to be brought to it, and I think maybe we need to be more systematic in how we approach the early development of those projects.
Q299 Dr Huq: You talked about TfL. In the case of Garden Bridge and Crossrail it seems to have mucked up. Should there not be more regulation over them when they are put in control of central Government?
Miles Ashley: Some things get into the news and others do not. They were particularly courageous to go forward with the bank on a valuation and to engage the market. If you look at their capacity station schemes across London, all of which were around £0.5 billion in aggregate, that programme has come in on time and on budget. I would say that within TfL itself and its capital programme there was a very sophisticated approach to governing those programmes at that time, from 2008 on.
In some of the other instances that you mentioned I think probably you could relate back to why they failed, back to the eight themes that we have included within this paper. One of those, and it has been highlighted by the NAO report, is the way in which they are governed, and that has been a topic of our conversation here this morning, how governance works to make the right decisions to balance benefits with cost and time.
Dr Huq: More oversight, yes.
Q300 Eleanor Smith: The Government’s “Outsourcing Playbook” says that “should cost” models should be used to ensure that contracts are awarded at a realistic price. Is this practice followed consistently?
Hannah Vickers: I would say not yet, but I think there are ambitions to move towards that. Certain Departments are in a position where they can look at “should cost”, particularly for some of their repetitive work, because it is much easier to aggregate your data in that space. I think there are certain Departments that have those data for things that they buy a lot. I think there is more to do, and again this is picked up in “Transforming Infrastructure Performance” around the IPA establishing a benchmarking team to enable this to happen across Departments. Equally I think there is a need to not just be looking at “should cost”, but thinking about that on the other side of it with the benefits, and with consistently measuring benefits and having a view on what Government or Departments are willing to pay for those benefits. That is very much more around how the policy environment changes, how the policy priorities change, but it is equally valid because that is why we have the Ministers and Government in place, to be able to make some of those trade-offs if a particular benefit is important at a certain time. I think there is a need to have a proper system on both sides of the equation to understand “should cost” when that might not be delivering the right thing. The order of magnitude that you look at when you get benefits from an infrastructure project, a 10% increase in cost when supposedly you are delivering benefits of four times the value of the cost, you can get very fixated on that process and miss the bigger picture of whether you are delivering the right thing at all.
Miles Ashley: One of our recommendations within the institution’s paper was of course that the themes within the “Outsourcing Playbook” became mandatory and in particular the “should cost” assessments. Apart from the “should cost” assessments the other real benefit outlined in the “Outsourcing Playbook” is to be realistic about the apportionment and treatment of risk, back to the central point that risk should be placed where it is best managed rather than delegated through a contractual system.
I think the problem in reality with applying “should cost”, and it is a worthy aspiration, are data and in an alliancing enterprise longer-term relationship model, which most of those infrastructure owners are moving to, of course those data builds becomes rich and can be leveraged. In a single project sometimes it is quite difficult to find those comparables that entirely reflect the complexity of the environment in which you are delivering that piece of infrastructure. That is a problem as to how you consolidate that data and where that data should be consolidated and by whom. The IPA probably is a good place to start and has been doing work around that.
The other problem is that these very contractual environments that we have created through these procurement processes do not encourage people to share that data, and therefore that is a further barrier to our getting to the underlying cost data that we need to inform those decisions.
Q301 Ronnie Cowan: The need to distinguish between value and cost has been widely acknowledged in Government guidance on contracts. To what extent has this guidance been beneficial?
Miles Ashley: There was always, I think, within the Green Book guidance and others, a sentiment to ensure that best value was achieved through the creation of infrastructure. I think that platform has always existed. In reality we work within cost envelopes that sometimes prevent us from pursuing ultimate value over the long term, so it is affordability. Secondly I think that we struggle sometimes to understand what value is and what benefits we are trying to create for the constrained finance that we have to create those benefits. There is always a judgment at some point about what ultimate value in the circumstances that you find yourself in is. Are you trying to create value over a 70-year timescale, because you have one chance to knock the building down and restructure a major interchange station, or are you looking for value over the two mayoral political terms, for instance? There is naturally a conflict between those two perceptions of value. I think it comes back to the earlier conversation about how that value is reconciled.
Q302 Ronnie Cowan: Is there a problem with parliamentarians looking for value over the parliamentary period, which once upon a time used to be five years, and these days can be five months and not looking at five, 10, 15, 20 years down the road?
Miles Ashley: I do not think it is a problem as much as a reality of the environment in which infrastructure is created. What I am suggesting to you is that those different perceptions of value need to be reconciled and agreed before that investment decision is made.
Q303 Ronnie Cowan: Is the value being judged over a five-year parliamentary period or is it being judged over a 25, 30-year period? Major infrastructure projects are not going to be judged over a four or five-year period. They are much longer term.
Miles Ashley: I agree with that, but the reality is that there are funding constraints that exist and tend to promote the value that infrastructure can create over the shorter term.
Hannah Vickers: The business cases are typically done over a longer period and I think this is where you have the big benefit of having the National Infrastructure Commissions that are being established, because they can set a longer-term ambition, and what will be important will be when you get that to a project. I think the stability of the business case over political cycles is where you see a challenge, not necessarily the long-term ambition, because you may well have a change in the policy priorities of a new Administration that comes in, and having an open conversation around that and whether that adjusts the business case of a project is quite important to make sure that you are reconciled with the policy priorities as well as the long-term ambitions. I think it would be foolish to think that it does not get impacted, but that should be quite a transparent discussion.
Miles Ashley: Going back over what I am saying, it is a matter of affordability. A single project does not live in total isolation. It is within a portfolio of an infrastructure owner’s total investment. There is that which an infrastructure owner can prioritise and afford to do over that period and what it would ideally wish to do.
Q304 Ronnie Cowan: Are we talking cost or are we talking value to the community that we are building the projects in?
Miles Ashley: Value in terms of the benefits that can be created for the finance that is available over the period.
Q305 Chair: Can you point to examples where you know the Government have accepted the higher bid?
Hannah Vickers: You can see examples in terms of the cost quality methodology. When you normally go through a procurement process you will have a split in terms of the percentage of the marks that are awarded to the quality of the submission and the percentage of the marks that are awarded to the cost of the submission. You can see varying degrees of percentage marks so, for example, you may get some tenders that are awarded on 80% cost and 20% quality, but you can also flip that and be 80% quality and 20% cost. There are frequently Government contracts that are awarded on more of a quality basis. I think where there is room for improvement is in understanding and articulating what that quality is and getting those procurements structured around the right things.
Something that I wanted to bring in as a response to your question is if we got to the stage where we understand what the value is of a project being delivered there is quite a long chain between that and how you then contract with the suppliers in the market. You may have the benefit sitting in the business case, which is your definition of value for that particular project, but beyond that then you have to go through defining what your commercial strategy is, so how big are the packages, who is it that you want to buy in, what are the capabilities, how are you going to deal with risk? You then take that through a procurement process, which is where that cost-quality percentage and how you score comes into being, and then finally you contract and you write your contract for someone to deliver that. In each one of those three stages you have an opportunity to introduce misalignment with the value of the project and that is what we frequently see.
I represent a lot of SME businesses who, because they have quite niche, in-depth capability, are able to in certain circumstances add huge value, but by the time project benefits have been articulated through those three steps typically you will be in a position where they cannot bid or are unable to bid because something in one of those three steps—either the commercial strategy puts too much risk on them or does not identify them as a capability that is required; the procurement process is too onerous for them or sets too high a bar in terms of certain standards they must meet, in terms of clients they might have had before; or the contract terms put them in a position where they are asked to sign up to things that as a small business they cannot sign up to—means you will be asking them to bet the entire business. There is a big opportunity to get much better alignment through those three stages and get that value and the people who can deliver that value engaged on the right projects. I think that is the real challenge that we face at the moment through Government procurement.
Q306 Chair: That is a very interesting and full answer. We will come to how risks are managed and how smaller businesses can bear the risk of taking a bid, but I think the most interesting thought that you brought in to that answer was about where a business has a capability or a technology or something to contribute to a project that has simply not been recognised as needed in the project. Can you expand a bit more on that and how should the contracting authority be alert to the evolution of the requirement in the light of the conversations with the contractors?
Hannah Vickers: Yes, absolutely. So you do not know what you do not know, and I think it would be foolish to assume a single client could understand all the capabilities in the market and particularly how they are evolving, because we are changing at quite a rate at the moment. I think that is where the importance of market sounding comes in, and I see an increasing role for organisations like mine in being engaged by clients at an early stage when they have bottomed out what it is that they value and what it is that they think the risks are around the project. At that point engaging the market to have a two-way conversation on those will help you identify potentially capabilities that will deliver on benefits that you did not even know existed and to get a fully-rounded view of the risks, because they will see the risks differently, whether thatt is the risk to their business or what they can see across multiple clients. There is a big market sounding piece that is an opportunity that we are just not using at the moment.
Miles Ashley: Yes, it is not just about risk; it is about opportunity that is not seen in that transactional procurement process. I think that is particularly important as we step into a new world where physical infrastructure in this country is maturing and we are going to drive more capacity out of that physical infrastructure through the application of technology. The digital highway programme, Highways England’s smart motorway programme or Transport for London’s northern Victoria line are all about an investment in technology to get 30% more capacity out of the existing infrastructure. I think optimising that will be about the conversation that we have with the marketplace and how we explore possibilities for technology to change the use of physical infrastructure to get better throughput.
You asked earlier whether I have seen contracts go to anything other than the lowest bidder, if I paraphrase. I think that is rare and I think that is rare because of a slight delusion in this idea between 70% quality and 30% price or 60:40. The reality is, and most of the market believes this, that there is far less separating a technical submission between the bidders than there is separating a price submission. The net effect of that in reality is that price will always win in that bidding environment. While they understand that they have to present a strong technical case, I think that nobody believes anything other than that price leads on that. We do not have any data on that, so we do not have any—
Q307 Chair: Can I just interrupt that for a second? What we heard in a previous inquiry about contracting and subcontracting is that what Departments tend to do is they draw a quality threshold and they vet all the bids across the quality threshold, and then it is a shootout on price. The idea that there is a balancing, maybe it is different with major projects, but if it is, how does it work that there is a balancing—so, this one costs a bit more but we are getting this extra benefit? I have never seen any evidence of that, even in really big projects like aircraft carriers. What tends to happen is that the Government takes the cheapest bid and nudge themselves privately and say, “We can add this on and that on at a later date but we will get this under the wire and the Treasury to approve it”.
Miles Ashley: We do not have any evidence for it.
Chair: There is plenty of anecdotal evidence.
Miles Ashley: Evidence could be compiled, but what I would report—we involved many across the industry in producing this paper, and the paper specifically refers to this point—is that despite the fact that these procurement processes are often presented as being heavily technically weighted, in reality they are fundamentally price-driven.
Chair: Thank you for that. That is useful.
Q308 Kelvin Hopkins: How well does the Government understand the markets in which they contract and the impact of their approach to contracting? If you could give some illustrative examples, that would be helpful too.
Hannah Vickers: There are pockets of good practice, particularly where you have repeat clients, which can obviously build up a picture of the market that they are buying from. The likes of Highways England falls into this category where they know what they are buying, they know their suppliers and they have learnt from previous experiences. They do not always get it right, but they are quite willing and there is a willingness, because they are a long-term client as well, to have a conversation on both sides if they do get something that is not quite right. There are pockets of excellence.
What I think we are really missing at the moment is that there is not a cross-government view across the Departments where they buy from the same suppliers, almost a view of what their portfolio risks are at a Government level. There is no industry and Government strategic engagement forum where you can have that high-level discussion between what is happening in the market, what the risks are in terms of capacity and market conditions, and how those are evolving versus what the Government are looking at buying from the market. That does not exist. I think that is an oversight and we should look to try to establish something in that space.
It would benefit both sides because it would give better visibility across Government clients. In your little bubble, you might not see something that is seriously affecting another Department that might be coming your way. Equally, you could then look at how you balance things like the capacity and the skills requirements across the Government portfolio for certain specialist skills that might be in demand. You could effectively create a pipeline of projects across multiple Departments that would follow on from each other and allow you to provide a long-term pipeline of work for certain specialist capabilities within the industry. That level of conversation and sophistication in terms of the Government portfolio of infrastructure and construction projects is not there at the moment, so there is a big opportunity there.
Q309 Kelvin Hopkins: Isn’t the reality that there is a desperate hole in the middle of Government where there should be high-powered expertise, particularly on the engineering side, not pressured by commercial interests but representing the public interest by going to projects and saying, “That is not right. What are you doing here?” In getting objective judgments from the Government, the Government should be dependent on not just information coming from commercial interests, consultants or whatever, but their own in-house capacity to make judgments about these things in the public interest? Isn’t that missing?
Hannah Vickers: It is something that would be beneficial and this is where I think there is a challenge with the current structure of the Infrastructure and Projects Authority. It tries to be both an expert supporter of projects but also an independent assurer of projects, and that is a challenge. Historically, we had Infrastructure UK. It had that expertise to be able to be on the side of looking at delivery risks without being affected by the impartiality of needing to be able to take an independent view. I think that that is an important capability, but equally there is much better use of business associations. I am not accountable to any one consultancy firm and I have very good visibility about what is happening with my members, what their risks are, how their environment is changing, and that is all really valuable information that we need to find a way of getting in to Government to be able to have a proper conversation around that.
Miles Ashley: As we put this paper together, there was a very clear message back from respondents to say that while it was improving there was a gap in capability at the centre of Government. There was short-term posting as well. Ultimately, it is an area rich with behavioural economics. We did a lot with UCL when we were looking at Project 13 and it is about how the cause and effect of any particular approach to procurement or contract will impact on what is sometimes a many tiered marketplace. In order to understand that, Government needs the expertise at their heart to understand how those systems work and how commercial organisations possibly two tiers down will be driven by the reality of the commercial situation in which they find themselves.
Q310 Kelvin Hopkins: I have to say I have long friendships and associations with a number of engineers, civil engineers, signal engineers, track engineers and so on, from the railway industry in particular. They tell me that sometimes the commercial interests do not want to know about difficulty. Even Government do not want to know about difficulty. They want to have a project that they can sell to the public or that companies can sell to Government, but they do not want to hear an engineer saying, “That does not work. What are you going to do about that?” That is the sort of thing that they do not want to hear—genuine engineers who know their stuff from long experience, telling them things are wrong.
Hannah Vickers: I think that that comes down to the point at which you engage those engineers in the project’s lifecycle. If you are not engaging them until the point at which you have decided on what the solution is, how much it is going to cost and when it is going to be delivered, you are doing away with a lot of potential expertise you could bring to bear to make that a much more robust project. That is a really pertinent point.
Miles Ashley: Back to the same theme, which is longer-term alliance relationships across supply chains, infrastructure owners and Government allow access to expertise and better communication and porosity across those organisational boundaries that get you to a better, more honest, more beneficial, value-driven answer, to the extent that we see projects as specific isolated cases and drive them through transactional relationships, this will keep happening to us. That has been said and observed for many decades.
Kelvin Hopkins: Thank you. I could go on but I have had enough on that one.
Q311 Eleanor Smith: Just to pick up on Carillion, which collapsed. You talked about small businesses. On the fact that Carillion was big and could swallow up all those small and medium-sized businesses to say that it would do a project, how do you feel? Small businesses, as you rightly said, can only do certain parts but they cannot do the other parts, and this is where Carillion came in and claimed to be able to do everything. How can we get those businesses involved in those projects? That is what it is about, isn’t it, bringing in those workers, those businesses, and small businesses being able to bid for those projects? Is that what you meant by the benefit side of it when you were talking as well?
Hannah Vickers: Yes. Where they will become interested in being engaged in a major project is where they have a niche capability that can really impact on something that you value. Having a clear understanding of what the benefits of the projects are would help to signal to the market and, if the clients are working in collaboration, help to draw out where there is a specialist capability. Although it might be small in volume in that you will only ever have a very small contract with them, in terms of value it could add through risk mitigation. It could be something as simple as you know on a major project you have really challenging ground conditions so you need a specialist geotechnical ground conditions engineering firm to help you understand and mitigate that. You might only ever have a very small contract with them, but in terms of their impact on the benefits delivery on the value of the project, it could be huge and even on the cost side of it mitigating the risks.
This is what the commercial strategy phase of projects should be focusing on: looking at the benefits, and having a clear view of them; and having a clear view of where the risks are. Between those two, you can then through market sounding draw out exactly what niche capabilities you might need. That becomes really important then for how you design your procurement process so that they are able to enter into that and you are not asking them to do multidisciplinary things that they cannot do.
Then when you get to a contract you recognise that you are contracting with a small firm and you are not asking them to do things like take unlimited liability or an excessive level of liability on a major project because they are only very small and they would not be able to get professional indemnity insurance. All of those are hurdles that you can navigate your way around, but again that is the role of organisations like mine.
I have something that I would like to share with the Committee in about a week’s time that we are publishing on trying to identify what those barriers are to help. Some of them are really simple things like a couple of contract conditions that straight away would rule out, even if they were the best fit in the world, an SME company from contracting on a Government project. Trying to get that process better aligned is what would really unlock that. It is not universal because clearly on a major project Government are not going to want hundreds of contracts with individual SMEs. There is going to be a balance between needing something that is a larger, multidisciplinary organisation supplemented by some specialists.
Miles Ashley: I think that it has become easier for SMEs to engage with major projects. There have been a number of portals established by major projects that have allowed SMEs access to those opportunities. I mentioned those organisations that had adopted Project 13 and we are moving towards longer-term relationships with their supply chain. They in particular have developed different approaches to ensuring that those specialists are in long-term relationships with them, direct relationships that will enable them to draw down on their expertise and leverage their input into major projects as and when they need them. Necessarily they are flexible relationships but sometimes people argue that procurement legislation gets in the way. In reality, if organisations have the intent to engage SMEs on flexible arrangements, they are very rarely prevented from doing so.
Hannah Vickers: I might disagree slightly in that I do not think the situation is improving. We benchmark every year with our members how much time they spend on bidding and various things. The amount of time that they are spending on bidding and doing procurement exercises is increasing.
Q312 Eleanor Smith: I know that is a fact because I have talked to SMEs who have said that themselves.
Miles Ashley: Yes, I think that is right. The amount of bidding is significant for most SMEs, including mine, and very expensive. If you have an SME or you are involved in one, trying to measure that investment to get involved in projects is a difficult balance. It is a significant investment.
Q313 Mr Jones: You have mentioned several times the need to move from a transactional approach to procurement to a partnership approach. What changes would be required in the civil service to see this spread across Government and not simply Department by Department?
Miles Ashley: There is no impediment to establishing those relationships other than how requirements are promoted and general governmental attitude. Where infrastructure owners have sought to move into those longer-term relationships, the major problem is putting that case forward into an environment that is used to acting in a transactional manner. Those organisations have not been prevented from doing so by any legislative impediment.
Q314 Mr Jones: It is an attitudinal change?
Miles Ashley: I think it is.
Q315 Mr Jones: How would you effect that?
Miles Ashley: I think that it is simply a matter of referencing the full-scale working models that we already have. If you look at the Anglian Water @one Alliance, the relationships that Highways England is moving to, what Thames Water has done, the long relationships that TfL has put in place, there are plenty of examples of infrastructure owners moving into the space of creating long-term relationships with a range of suppliers, enabling the integration of those suppliers and reaping the benefits. Anglian Water has some pretty impressive performance statistics just around the data that it has managed to derive from the relationships that it has driven: cost reductions over time of 25%, much more reliability, much better safety performance figures and, importantly, a significant reduction in carbon consumption, which following the Paris agreement we are going to as an industry have to find a way through, trying to put in place procurement approaches that do respond to that need to reduce carbon.
Q316 Mr Jones: That is a pat on the back for Anglian Water, but who should be taking leadership of this process so that this becomes the default position that we move from transactional attitudes to partnership attitudes? Who in the civil service do you think should be taking leadership there?
Miles Ashley: The Infrastructure and Projects Authority is often at the centre of these conversations. I think that it has been good at engaging with the wider industry, particularly through the Infrastructure Client Group. There is better communication among clients. There is better communication between the Infrastructure Client Group, as an example, and the Infrastructure and Projects Authority. We are already moving to a realisation between Government and infrastructure owners that these longer-term alliancing relationships are a better platform for getting the outcomes that perhaps we now need.
Q317 Mr Jones: Is it a concern, however, of yours that a less transactional approach might lead to less value for money? In other words, you have the strong transactional approach that does tend to impel your negotiating counterpart to come up with better value for money. Is that a genuine concern?
Miles Ashley: I think that it is much easier to sell a transactional approach, particularly in a political environment: tough on cost, tough on the causes of cost. The evidence is that when we create these non-transactional, longer-term, outcome-driven, properly governed, data-rich environments, we always get better value out of those relationships time and time again. Infrastructure owners who are prepared to take that step to create those environments, to promote that argument against the strength of a transactional approach, are consistently rewarded by better performance and better relationships with their supply chains.
Hannah Vickers: It is not a universal answer though. That is the challenge. If you set up a long-term alliance, you are then excluding certain bits of the market potentially from coming into your supply chain. There is a balance to be had and the work of the Infrastructure Client Group with the Infrastructure and Projects Authority going forward should be focusing in more detail on where that is applicable. Obviously it has worked well with Anglian Water, where it is an asset owner and it has a defined group of assets that it is looking after. Other clients have different risk profiles. They have different benefits that they are trying to achieve. There is a need to look at each case while recognising that if you can determine the characteristics in some cases a partnership is helpful.
At the moment, there is specifically some interesting tension occurring in Government around how they procure with the establishment of Government Commercial Function and Crown Commercial Service. Historically, Government arm’s length bodies would have procured their own works. Now there is starting to become a centralised procurement directorate, which is establishing these long-term frameworks that Government Departments can then use to buy services and construction works through. That is quite an interesting development and would warrant further unpicking around some of the accounting rules. For example, if you are a permanent secretary in a Department you are accountable for your delivery and your financials, but if your procurement is being run elsewhere out of the Cabinet Office, how do you square that circle? That raises some quite interesting governance challenges if you are looking at centralising procurement and potentially taking it a further distance away from the asset owner. There is something there to unpick. We are at risk of potentially going backwards if we do not get that right.
Where that is playing out internally in Government, you see quite a lot of frameworks that do not seem to have a good programme of work behind them because you have a framework established that does not really have the backing of the Government Department to then put work through it, which again damages the reputation of Government as a procurer with industry. You will spend a lot of money bidding to get on to a framework and then find out that there aren’t anywhere near the levels of work that you anticipated coming through it. There is a better need for alignment of the procurement frameworks being set up across Government at the moment. From a market perspective, that does not look well-aligned.
Q318 Chair: I think that we are slightly wandering off the point. We all know that collaborative relationships are much more enjoyable than transactional relationships. Therefore a good collaborative relationship is likely to produce a much better result because there will be sharing, trust, understanding, all the good things that make nice things happen. You have mentioned the accounting rules. The accounting rules tend to make civil servants risk averse and it is very interesting, Mr Ashley, that the examples you give of non-transactional relationships in contracting are all outside Government Departments. What is it that goes on in Anglian Water or the Highways Agency that is not happening in a Government Department? How much is that about attitude and behaviour, not just about capability?
Miles Ashley: The first question there was we all recognise that collaboration is more enjoyable. I don’t think what we have laid out in Project 13 as any more than a machine for productivity. Being a participant in one of those environments is a very demanding place to be and has been so within TfL or Anglian Water or any of the examples that I gave. TfL exists in a politicised environment. It is a utility. I believe that some of the examples that I have given, while they are outside of the departmental environments that you allude to, it is perfectly possible to recreate those sorts of relationships in those environments.
Chair: Would you add anything to that?
Hannah Vickers: I do not think it is impossible. I know that the Environment Agency has just awarded a collaborative framework itself, so I do not think that there is anything that necessarily stops Government Departments doing that. There is a case to be made internally in making sure that there is appropriate transparency within the Government Departments to be able to procure in a more collaborative way. That does not have to be that sophisticated. It does not have to be a fundamental shift. While the examples that Miles has quoted are big, long-term, fully integrated alliances potentially on one contract, there are ways to be more collaborative through the procurement and the contracting processes that are much simpler, much more applicable perhaps to Government Departments and to a majority of what they buy.
Q319 Chair: You have just put your finger on it. You say there is nothing to stop Government Departments acting much more collaboratively. Why don’t they?
Hannah Vickers: There is a need to develop the systems and the procurement processes and the people who buy so that they know how to do that.
Q320 Chair: As soon as you go back to systems, it makes as sound as though it is just a different kind of transaction.
Hannah Vickers: It can be just a different kind of transaction but—
Q321 Chair: What we hear from contractors is they say, “We would like to have a proper conversation with you about this” and the Department says, “Oh no, it is not proper for us to discuss that. We have to go through this procedure”. They take refuge in procedure and process because they know that is what will be judged by the Public Accounts Committee.
Hannah Vickers: There are ways to manage that and that is the importance of this early market sounding work. In my job, I have to be very careful about what we can and what we cannot do under competition and markets law, but you can do an awful lot in terms of market sounding as long as you publish it and as long as you are doing it freely, openly and it is all recorded. As we are developing that offer as a business association, we are seeing public sector clients coming to us and asking for help with that. There is probably a little bit on both sides in that you need to develop the offer and be very clear that that is the right side of the law to be able to offer that to the clients at an early stage. If you are doing that as one particular business and it is not going to be published and you do not have the right rules around it, I can see why Government Departments might say, “Not for us, thank you”.
Q322 Chair: In fact, the framework of the process is necessary to provide confidence, is that right?
Hannah Vickers: Yes.
Q323 Chair: If the frameworks are unstable or inadequate, then you will not have the confidence to be more forward and trusting?
Hannah Vickers: Yes, and at the right point in the lifecycle, because if you are in a procurement process or you are in contract negotiations, it is far too late to have a proper, meaningful discussion because a lot of the decisions have already been made. That ship has sailed. You need to be in upstream of that to shape how that then forms: how should you procure, what are the contracts, what are the conditions in that contract? Get that sorted and then you are just pressing the button on a process.
Q324 Dr Huq: The Government have been prioritising improving capability in areas to do with project management in particular when contracting out commercial interests. How much difference have you noticed as a result of this change in direction?
Hannah Vickers: I think you can see that the project management capability has stepped up, but in isolation that does not necessarily deliver better projects. What the majority of the market will see will be the people who engage with them from a commercial perspective. A successful bidder will get through to then be able to work with the project team and say they are brilliant, they are leading the project, they understand the business case, they are very collaborative, they have a lot of the behaviours that Miles identifies, but that is only a very, very small part of the market. The market’s perception I think is that there is still more to be done around the commercial capability.
If you take a step back and look even further at engineers in general, the engineers that work managing the assets in their own departments, I think that they have been left behind in terms of their upskilling and their capability. You will see them almost being outranked, so to speak, in terms of the capability of the project professionals who come in, pick up a project and then have all of the systems and the capability behind them to drive this project through, when at the centre of it should be the owners and the engineers in that space who are going to be the people who take over the asset, operate it and will realise the benefits over its lifecycle. I think that there is definitely an imbalance in capability in that space, and the bit that faces the market, the commercial capability, does not seem to have developed at the same rate.
Miles Ashley: Much more focus on project management capability. The problem of course is integrating engineering delivery and operation. Where there is improvement to be had, it is about a broader awareness of how benefits are created in that operating environment. What you are trying to achieve is a business change for an infrastructure operator and owner and it is vital that we pursue that opportunity of trying to put capable people into that mix. It is not just a question of training. It is a question of getting the right mix of people within that community. I think that there is a lot more we can do to get the right capabilities within that community.
Q325 Dr Huq: You talked about arm’s length operations. You also have not just public money disappearing in these projects but often charitable. Like the Garden Bridge: £43 million of public money was spent but then also about half as much or a bit less of charitable donations from people thinking they were getting stuff. Should there not be better safeguards for both of those two and is it more lax when it is an arm’s length charitable vehicle rather than a commercial project?
Hannah Vickers: I don’t know enough about the detail to be able to comment on the difference between the two. There is definitely a need to make sure that you have a governance structure that has the right capability. Obviously charitable funding has certain conditions. It has the Charity Commission governance attached to it. In projects where you have multiple funding streams it is really important that you have the governance that reflects that. That is probably the best feedback I can give in that space. Certainly, that is going to become increasingly common because I think that we will start to see more multidisciplinary projects that have multiple funding streams coming into them. You can see the interdependencies already between the different networks that we have and how energy will work with transport when we have electric vehicles, things like that. We will start to see more multidisciplinary projects, which will give us a challenge in integrating those funding streams and making sure we have the governance to be able to robustly deliver them.
Miles Ashley: We have pointed to best practice in terms of the UK Corporate Governance Code and suggested that that gap analysis is not often carried out within a projects environment, whereas a FTSE100 business would have to test itself against those principles and protocols. We already have a good model for what good governance looks like. The question is whether we apply it often enough in a projects and programme environment.
Q326 Dr Huq: What are your views on the Major Projects Leadership Academy?
Hannah Vickers: I think that it has done well in terms of upskilling project managers with generic project management skills. There is definitely a need for a specialism, so to speak, when you come into different types of projects because managing a great Government digital transformation project is going to be entirely different with its risk profile than managing a big construction project. There is much greater opportunity in that regard to have secondments between industry and Government. That would be really valuable as an addendum to the Major Projects Leadership Academy. You will have lifelong civil servants going into that. At some point they need to come out and spend some time in industry where they are going to be delivering projects in that particular sector. I think that that would be an enhancement to it.
Miles Ashley: The Institution of Civil Engineers does not have a view, but would respond that there is not enough investment in skills and training across the industry, both in the public and private sector. Particularly in the private sector, with margins at 0.8% among the major tier 1 contractors, then the opportunities are limited for very significant investment in that area and possibly unsustainable.
Q327 Dr Huq: Where, if any, are the most significant remaining gaps in civil service capability?
Hannah Vickers: I have mentioned already that the commercial version of procurement is a big challenge. As an example, you could have somebody coming in to procure a major construction project that was procuring tyres. Last week I had that reported to me from a member firm, again entirely different market, entirely different risk profile, entirely different contract conditions and impact on the businesses compared to buying professional services.
Miles Ashley: We have highlighted a lack of experience and understanding of the supply chain. We have highlighted a lack of experience and understanding in benefits management and how that could be more systematic. I think that manifests itself quite often within the procurement process and the commercial arrangements that are structured with the supply chain.
Q328 Dame Cheryl Gillan: Can I go back to the original question from Dr Huq? Where do you think that Government have been prioritising improving capabilities in project management areas? How can you judge whether Government are improving when you have these arm’s length bodies? There is this terrible tension between a Department and somebody who is earning big bucks on the back of a Government contract. How do you dig down into that performance of the Government Department and the capabilities when it is concealed by people who have a vested interest in making sure that that project continues?
Miles Ashley: All of those projects of course have quite sophisticated assurance systems around them. The IPA has its own assurance approach of trying to understand the underlying performance of those projects, but I do not think that other than that assurance approach there is a systematic measure.
Hannah Vickers: It is understanding not just individual drivers, but drivers of the organisations. That is that piece around how you get the commercial environment set up right so that you do not have those tensions. My comments in relation to the project management capability are because you can start to see an improvement in the maturity of the conversations that are happening between the Government and the clients when you are in a project.
Q329 Dame Cheryl Gillan: At the very basic level of project management, at a departmental level, you would expect the Department to have laid out the business case and have the cost-benefit analysis. What would you think of a project where the management of an arm’s length body then appeals to the contractors to make the business case for the project? I am referring specifically to HS2, as was reported recently in the specialist press in your area that the management of High Speed Two Limited had been appealing to contractors to boost up the project and come out with the good arguments for the business case because they felt that the project is slipping and losing its position.
Miles Ashley: I think that there is a distinction to be drawn here between asking your contractors to make the business case and to promote the business case. I think that this was one individual who gave a presentation to those contractors where they were suggesting that those contractors should promote the existing business case of HS2.
Q330 Dame Cheryl Gillan: Do you think that is right and proper for somebody who is in receipt of public funds to such a high degree that it runs into the billions, where we do not actually know how many billions have been spent on it so far? Is that proper?
Miles Ashley: We had a conversation earlier of course about systematic understanding and tracking of benefits. We have had a conversation about how we approach the derivation of benefits in a consistent way across the industry. Ultimately it is a matter of public opinion and the YouGov survey that is contained within this report of course suggests that the public want to hear about the benefits of the programmes in which their country is investing and are less interested perhaps in getting a cheap outcome. In fact, 74% of them want their politicians to talk more about the benefits of those cases. I think that request to the wider HS2 community to talk more about the benefits case for HS2 was an attempt to promote HS2 to the public and no more or less than that.
Q331 Dame Cheryl Gillan: At a time when the timetable has slipped dramatically and the costs are rising stratospherically?
Miles Ashley: I am not involved in HS2 so I cannot comment on where the costs and timetable sit on HS2. That is a matter for HS2 and how they are managing risk with the Department.
Q332 Kelvin Hopkins: To pursue that point a little, I have recently come across some information as to why the costs of HS2 will increase stratospherically. It is to do with the civil engineering, and the engineers are being ignored again. We have seen a world in the last 20 or 30 years where projects that used to be run by engineers are now run by project managers, many of whom do not have skills in engineering. If you go back to the collapse of Jarvis, we saw a situation with project managers inside Jarvis of which one classic example was a senior manager who had no engineering experience, no engineering skills, no educational skills at all. He started life as a nightclub bouncer but he finished up as a senior manager in Jarvis. Of course it was Jarvis that was implicated to an extent in some of the railway accidents that took place at that time and it eventually went bankrupt. These project managers do not like nit-picking engineers who tell them where they have it wrong.
Anyway, if I could go on to my question, it is about the Government highlighting the reduction in the rate of churn among senior responsible owners of major projects. We have seen a good deal of churn, I have to say, in HS2 as well. To what extent is churn still a major concern?
Hannah Vickers: I want to start by saying I agree with your point around engineers being valued, but that speaks to engineers being able to understand both the benefits and the risks of the project. While project management is a certain skillset, there is definitely a need to have that engineering skill at the top table when you are leading these major projects. I completely second that, although it was not a question.
In terms of the churn, that is really only a problem where you do not have the robust governance structure in place. The delivery or not of a major project should not come down to any one individual being in a post. It is more important to have that balanced skillset and a robust governance structure than it is to have one individual who is there, because the requirements of the project might change as it moves through its lifecycle. At one point you may have somebody who is very delivery focused. When you start to move into commissioning you may need to have somebody who is leading it with a view to being able to hand it over successfully to those who are going to own and operate it. Given that these projects are of very long duration, there has to be an expectation that some of the leadership will change. The important learning point is to understand the governance and make sure that you have that balanced capability that does include things like engineering skills at the top table all the way through the project and they do not get delegated during the delivery phase.
Q333 Kelvin Hopkins: Yes, but this churn often means senior, experienced engineers who could do the project moving off to fields new somewhere, especially when they think something is going wrong with the project and they do not want to be blamed if it is because a project manager has forced them to do something. They are being replaced by young people straight out of university who may be civil engineers but without the experience, and then they move on as well. Isn’t that what is going on?
Hannah Vickers: I would not say that is necessarily a theme. It is important to make sure that you do have that consistency of expertise. We have seen cases where engineers have not done well leading projects and we have seen cases where project managers have done well leading projects. I think that it is about having that balance of capability. You are right in that you do need to make sure that you have a fully competent team. That is certainly something that we are going to see more scrutiny on and more effort as far as industry is concerned when we look at the Hackitt review and some of the recommendations coming out of that around competence and how you determine, value and demonstrate competence of individuals, which should then start to read across into what we do with our infrastructure projects.
Q334 Kelvin Hopkins: I do not want to damn all project engineers. Some are very senior civil engineers and others are structural engineers as well, but we have seen some serious problems.
Miles Ashley: Can I have a go at that? Over a 10-year programme, it is quite likely that none of the individuals who commence that programme will be there or in the same role at the end of the 10-year period. Slavery having ended in the 1860s, it is very difficult to conceive that you could or would want to force people to stay over such extended periods of time.
That then draws questions about the quality of the governance, the structure of governance and the assessment of governance within these programmes. Going back to the UK Corporate Governance Code and how I think governance perhaps is more important than single point leadership within these programmes, I also think that we understand that capability management across programmes can be more systematic and can provide a more systematic answer to how we drive capability through those programmes and develop it over that perhaps 10-year period.
Q335 Kelvin Hopkins: My succeeding questions are about the same thing. Successful delivery of major projects is reliant on there being sufficient skills in the private sector—and you have said you do not expect people to stay—as well as within the civil service. To what extent is this a concern? You are suggesting that it is not really a concern, whereas I am worried about that.
Miles Ashley: No, I think it is a concern. The concern is how we attract younger people into this industry. I cannot remember what the current average age of an engineer is, but it is certainly into the early 50s, so until very recently I have been a young engineer. I think that that is tremendously concerning, both for diversity within our industry and attracting younger people in our industry, providing role models so that people can understand how they might see themselves within our industry. Unless we do that, and succeed in doing that and setting out a vision of a bright stable career for them within infrastructure, then I think it will be a serious risk for creating infrastructure going forward.
Q336 Kelvin Hopkins: How much is this about pay as well? This is my last question: the big bucks are to be had in management, big projects, the railway industry, wherever, not pursuing engineering skills. Do we need to pay our engineers a bit a more and perhaps promote them into these senior positions more than we do?
Hannah Vickers: There are two points at play. One is that we are doing a piece of work at the moment looking at emerging professionals and what it is that they expect from their employers. They do not come into civil engineering for the pay, nor I think would we ever be able to pay them the same as the civil engineering graduates who go into law or management consultancy. The reason they pick to join Arup or Mox or BuroHappold is the values of that organisation. They get to work on interesting projects. They get to work on the environment. Those are the sorts of things. I think it is a bit of a job to do to shift how we market the industry around it not just being focused on being an engineer but on what being an engineer enables you to do.
My second point is one on business models. The current business model for engineering consultancy is that you are paid by your client for the hours that you spend on a project, so you will bill your hours. That has a very significant impact on the culture in the organisations because they become very focused then on staff utilisation. What you want is all your engineers to be very busy.
Again, I think looking at where we need to get to in future in terms of the business model, we need to get to a business model that rewards us for what we are able to do with our data and our software and the outputs and the outcomes of what we do rather than our being paid for the inputs. That in itself would have quite a significant impact because it would mean that you could bring in engineers and give them more time to develop, because there would be less pressure on them to be out doing fee-earning work. That in itself, married with the expectations of emerging professionals coming into the industry, makes engineering as a career hugely attractive.
Q337 Kelvin Hopkins: Longstanding in-house staff developing skills in their chosen field of civil engineering, surely they cannot be replaced by consultants and you do not know precisely how good the consultants are. They can sell their services. Isn’t it important to build strong in-house skills in Government, in the private sector, wherever, and make sure that the job is done right at every level?
Hannah Vickers: Yes. Let me just explain my point in a bit more detail. What you want is the very best engineers making the most use out the data and the software tools that they now have available to them that they would not have had previously. So rather than having lots and lots of engineers being sold on utilisation, what you want is to have your engineers being highly skilled and making the most of the technology and things that are available to them. I do not think it is about replacing engineers with anybody else. I think it is about developing the very best engineers and giving them the tools that they need to do their job and making sure that they are rewarded for that and for being highly skilled rather than for existing, where you are selling them on their utilisation and on wanting an army, when you do not, you want highly skilled engineers doing their very best.
Q338 Eleanor Smith: This question is to you, Hannah. Your submission suggested the different Departments take different approaches to things like contracting or risk management. There are ranges of cross-government bodies designed to promote a consistent approach. To what extent are these having a discreditable effect?
Hannah Vickers: The cross-government parties referred to are the Infrastructure and Projects Authority and the Government Commercial Function. Government Commercial Function is still relatively new, so we are yet to see how that develops. I think the Infrastructure and Projects Authority has set out some very bold commitments in its “Transforming Infrastructure Performance” report about getting consistency in data, in risk management and in procurement across the Departments and basically trying to almost bring up the average to a consistently high level, so taking where some Departments are doing well and trying to move that across to some of the other Departments. I think that is quite a bold ambition, as does the Construction Sector Deal.
Both of those have made quite big commitments. From a market perspective I would suggest that the Construction Sector Deal appears to be making more progress because they have been working in collaboration with the markets to try to develop some consistent best practice, whether it is a tool, a guidance note or a form of contract that can then be applied across Government Departments. That is where we are seeing more progress through the procure for value stream that they have. The IPA has set out some bold ambitions so we look forward to seeing the impact of those on the Government Departments.
Q339 Chair: Going back to that point you made about small businesses unable to carry the burden of risk, what is the answer to that problem so that a small business’s capabilities are available to contracting parties but they are not frightened away by the risks?
Hannah Vickers: There are two levels to this. There are some specific contract terms such as including an unlimited liability clause, which is uninsurable. If there is an SME and you signed up to that, you would be betting your whole business and should a claim arise from the client’s perspective they would struggle to get any recompense anyway. There are some basic almost hygiene factors that would straight away put off an SME. Then there are others around how you structure the procurement exercise and how big a package you ask them to take on.
Again, it is making sure that if you are wanting to attract SMEs you are able to break it off into a bite-sized chunk where they have the capability to mitigate the risk that you are asking them to take on. If you were asking them to take design risk, for example, you ask them to take design risk for you as a client, you do not then try to sell that on and get them to take the design risk for the contractor who might decide to redo the design during the construction phase. I think there are some very specific things that clients can do to help that and just understanding how the market reacts to risk.
There are some things that to a client would be quite benign, but to a small firm are huge. When you have that conversation—and we recently had one with Highways England and they were great. They put something in and we said, “Do you realise it would do this to the SMEs on your framework?” They had not. We had the conversation and they were able to balance it and say, “No, we would not want you to take that risk. That was not our intention”.
Q340 Chair: When Government contracts with big contractors it is recognised that those big contractors very often deal with the contract through a special purpose vehicle in order to limit the liability on their balance sheets. Why aren’t smaller businesses allowed to do that?
Hannah Vickers: It depends what you are asking them to contract for. They are covered by their professional indemnity insurance and that is usually to a very reasonable level in terms of the value of the services that they are providing. It is only when you go something beyond that—so this is how the market is structured currently—that it causes a problem for them. More often than not it is when you have excessive requirements rather than real requirements that you have that challenge. For an SME to start setting up a special purpose vehicle to deliver on one contract that might be worth £10,000 is going to be overly burdensome, whereas if you are a contractor and you are doing that for a contract that is £10 million, that is a different level of engagement, isn’t it?
Q341 Chair: Why do civil servants or public authorities think that putting unlimited liability clauses into contracts with small businesses is worth very much because if the business is small, then what risk is the Government shedding? They think they are being frightfully clever by putting these unlimited liability clauses into contracts, but how much risk does it reduce for the Government?
Hannah Vickers: No. It does not and some of it is—
Q342 Chair: So why do they do it?
Hannah Vickers: They do not even think they are being clever, they just do not know. When you go back and you say, “Did you realise that this is what would happen?” very often they will renege on it and say, “No, we did not think that that was how the market would respond to it”. I think there is a very basic education point and it comes back to the point I made earlier when you have someone who was buying tyres last week who is now buying a construction project or a design for a project.
Miles Ashley: Providing that risk in the marketplace is often extremely inefficient and often extremely ineffective. I think back to some of the long-term arrangements that we structured at Transport for London and the only real way to get SMEs properly engaged in those arrangements is to take that risk back. There were advantages for that. You retained visibility of that risk and you can start more effectively to manage that risk.
Hannah Vickers: There is a wider problem that is relevant to businesses of all sizes, that you cannot transfer risk. You try to put it in a contract to give it to somebody, they are going to charge you for it. You are much better off acknowledging that and saying, “Look, this risk might happen. If it happens it is going to hit me as the client. What I want to do is get the right people around the table to help me mitigate that risk and incentivise them to help me mitigate that risk. I am not paying you to take it. I am saving money and not putting your business at risk either.”
Miles Ashley: The rises in contract from bid to outturn are included within this paper. In fact, although it might look good in a contract, in actuality we are not buying out that risk in any case.
Q343 Dr Huq: Just as an example, £43 million went in the Garden Bridge, with £21 million on contractors despite the land not being secured, so it was all sort of the wrong way around, and £9.5 million was spent on designer fees so then—
Miles Ashley: A lot of money was done thinking about that project, which did not go ahead. You know, load transfer through Temple Station and all the stakeholder work so—
Q344 Dr Huq: Apparently it did not even balance this bridge with all the stuff that would have been on it, so as engineers you could have spotted that, I am sure.
Miles Ashley: I do not know about that, but it is a very inefficient way to carry on, isn’t it, to decide you are going to do a project and then decide you are not going to do the project?
Dr Huq: The wrong way round.
Miles Ashley: You can spend a lot of money between those two decisions.
Q345 Dr Huq: Apparently somebody bid £3,200 in a charity auction for a game of table tennis with the person who is likely to be our next Prime Minister, Boris Johnson. There is a campaign to have that repaid from his pocket because it is taxpayers who have had to stump up for that. Anyway, my question—
Miles Ashley: That is a long way outside my area of expertise, I am afraid.
Q346 Dr Huq: You could not make this stuff up, could you? Hannah Vickers, you have said in your submissions that risks and issues are often conflated. Could you expand on what you mean by that?
Hannah Vickers: Yes. I think there is a piece understanding that a risk could be a positive thing in terms of how you manage it. It sort of comes back to the point we were making in that a risk then becomes an issue but having a risk is not necessarily a bad thing if you get the right partners to help you mitigate it. It is trying to balance the fact that people think risks on a project are inherently bad things to be transferred away, and if you treat the risk properly as a risk or something you might turn into an opportunity, it does not necessarily need to come to being an issue. It is that perception that risk is bad and therefore needs to be cascaded out away from the client that is a false economy, as we have heard.
Miles Ashley: My experience is that transferring the risk out leads to a lack of focus on mitigating that risk at the right point in time.
Q347 Dr Huq: Subcontracted?
Miles Ashley: Yes. Just because you have transferred it does not necessarily mean it does not continue to exist and it takes management focus away from seeing the status of that risk and the mitigation action behind it because somehow you have brought that risk out, but in reality it is very difficult to transfer it.
Q348 Dr Huq: Should there be a more joined-up oversight mechanism then when these things get dispatched in different directions?
Hannah Vickers: I think it comes back to about understanding upfront what your risks are and using that as a basis for your commercial strategy and who can help you mitigate them because that is important. Also transferring the risk out leads to a very litigious working environment.
Again, if you look back at some of the benchmarking we have done with our SMEs they can spend up to 10% of their time trying to settle disputes where people are trying to unpick retrospectively where they thought they had transferred the risk and then something happened or they moved the goalposts and therefore they had not transferred the risk as far as the contract was concerned. Again, even if you just reduced that slightly immediately, you then free up a lot more time and money within the businesses to be doing things like training and developing your staff or investing in research and development.
It does not take much to shift the balance on that, but if what you are having to do is fight tooth and nail just to get your cash flow as an SME it is not a very positive working environment.
Miles Ashley: I would go back to this point on governance. I think it is fundamentally at the heart of the purpose of governance to understand how that risk is being managed in light of the overarching benefit that the project is trying to achieve.
Q349 Mr Fysh: I want to follow on from that. In the Government guidance it states that risks should be attempted to be managed where they happen. I just wondered, following on from what you were just saying, whether there is a difference when that is being done in the private sector rather than within the Government sphere. Is that done more appropriately within the private sector or is it just shifted, as you were describing, in a similar way on to subcontractors within the private side of the industry?
Miles Ashley: I think it leads to a cascade. If you take a transactional approach to procurement and you are trying to transfer as much risk as you can, then consequently supply chain layers below that will try to transfer that risk out. It is a kind of inevitable consequence of that process.
The other consequence of that process is that you lose visibility of that risk and you lose the ability therefore to manage it effectively from a client perspective. Yes, that is the overarching guidance, isn’t it? Risk should be placed where it can be best managed, but often I think that does not happen in any systematic way. There is not a very systematic analysis early on of how to place that risk through the supply chain. We talked about governance capability in commercial particularly earlier. I think there is a perception that lowest price, lowest risk is a good outcome. Often that transpires not to be the case.
Q350 Mr Fysh: Yes, and it works its way all the way down the chain, as you were saying. Are there are examples within the private sector, for example, or in other countries of systems of procurement that do a good job of working out where the risk needs to be managed and making sure it is not offloaded down the chain?
Miles Ashley: I would probably refer you back to the examples that I mentioned earlier, which is that the intention behind those more governed alliance outcome-driven relationships is to deal with risk in a more rational effective way and therefore you get consistency of outcomes, you get better operating value, you get lower costs and better carbon outcomes and that is consistent.
Hannah Vickers: I think it is quite an opaque statement, just going back to your very first question about risk being best-placed. That in itself does not say a lot. Well, it does but if you were to say that risk is allocated to the person best able to manage it, I fundamentally disagree with that because you cannot allocate risk and expect someone to take it on without having a cost associated with it. Particularly on major projects, they are so complex that you are not going to be able to isolate a single risk and give it to somebody and say, “Therefore nothing else will impact on that risk and therefore you will be accountable”. I think that is quite a challenge.
To contrast that with private sector clients, I would say in terms of how they contract they are better at avoiding some of the obvious errors around contract terms, things that have that disproportionate impact, so they are typically better skilled in that space. With the opportunity of being able to incentivise your suppliers to help you mitigate long-term risks they typically do not have the incentive for that. If you are a developer you can have the most sophisticated procurement in the world but your time horizon is to the end of the development site and therefore you do not have any interest in engaging your supply chain to help you deliver something that has better performance during its lifecycle. I think there is a big opportunity there for Government to take the lead on that over and above the private sector, but it is not going to get there while it is still making the basic challenges.
I wanted to add an example of where there are some public sector projects and clients that do this well. Highways England—this is a very simple example of risk mitigation—introduced a cross-programme level risk pot. Basically what it had was lots of contracts with different contractors to work on the same stretch of motorway doing different jobs. What it wanted to do was to basically get them to work nicely together and not impede each other or cause problems because of the way that they were interacting. It was able to overlay across individual contracts a performance-based almost reward pot so that you got the contractors collaborating. They timed their works. They helped each other, because if one of them had a problem it was going to impact on everybody.
Just simple things like that can make a difference. You do not need to go full-scale embedded, all on the same contract alliance. It can just be simple things like that that can just shift that culture and behaviours among the suppliers so that they are working together. You had very big competitors on that job who were thinking very carefully about how they worked their programmes together so that they all got a successful outcome.
Q351 Ronnie Cowan: What is your impression of the extent Government goes to assess projects after they have been completed?
Hannah Vickers: This is interesting and is an area where there is scope for a lot more publicly available data. There is a need to have consistent evaluation, but certainly you do not see that evaluation and data feeding back through what happened in an asset’s lifecycle into making future project decisions and future policy decisions. Potentially, because we have the ability moving forward to integrate that with a lot more customer data that is going to become available through digital transformation and more powerful modelling tools, I think there is huge opportunity to take an individual project, look at how it integrates back into the asset system and then fully evaluate the benefits that that delivers when it is part of a networking operation. I think historically there would have been data constraints with that, but also just our ability to be able to measure that in real time was not there. There is talk of the national digital twin of our infrastructure network, things like that that—
Ronnie Cowan: The national digital?
Hannah Vickers: Digital twin. It is effectively a digital model of the infrastructure networks. If you can imagine when you have completed a project, it then goes back into operation and if you are monitoring that operation as part of a live digital network you can see whether the benefits that you anticipated, whether they are in energy saving, whether they are in capacity improvements, are being realised because you are monitoring the live network, which—
Q352 Ronnie Cowan: So we are working towards that?
Hannah Vickers: Yes.
Q353 Ronnie Cowan: Are we doing any of that just now? Are we learning any lessons?
Hannah Vickers: I think there are lessons around the project delivery process, which then feed back in through things like the Major Projects Leadership Academy. Where I do not think we are learning is on the benefit side of it and the benefits realisation. I think that is the opportunity.
Q354 Ronnie Cowan: What about the collapse of Carillion? Have we learned anything from that?
Hannah Vickers: I mentioned earlier there have been some commitments through things like Transforming Infrastructure Performance through the Construction Sector Deal, which are a step in the right direction, but until they start seeing fundamental change and embedding that change around how Departments have a relationship with the market, it is difficult to say if the lessons are being applied.
Miles Ashley: I think analysis post-project is pretty sparse and it is a difficult challenge to understand how the information that is available would be consolidated and made available to others as they step into their challenge. I think the natural home for that is probably the IPA. There is better emerging data, some publicly available. As I said earlier, if you are operating in a transactional environment it is often quite difficult to get under the surface of that information and get to the granularity that you need for it to be informative, particularly around commercial cost, the risk, the programme.
Q355 Eleanor Smith: What data should the Government be collecting on major projects that they do not currently collect?
Hannah Vickers: I think there should be a more structured and systematic way of collecting data on the benefits and the performance of projects rather than just on the costs. We have been working on something around the five capitals, which provides quite a simple framework for industry to understand. It is almost a translation framework between Government policy ambitions and what industry can deliver. Something like that being embedded through the business case with a clear taxonomy of calling the same thing the same thing would be a huge step forward in terms of the data collection.
Miles Ashley: I think we touched on this when we were talking about the “Outsourcing Playbook”—your earlier question—and I said one of the difficulties in practice is how you would prosecute those shared cost analyses in an environment where that data is not systematically collected or available. There is no common standard for the collection of that data. There is no one place where it should be consolidated and there is no system for accessing that data. I think that presents us with a significant opportunity to work together and I think more so as these alliance arrangements take hold across infrastructure and as that data becomes more easily available outside of the normal contractual restrictions. I think we have more work to do there.
Q356 Dr Huq: Last but not least, what involvement do contractors and subcontractors typically have in the post-completion evaluation of projects?
Hannah Vickers: I speak for design engineers rather than contractors. That is who I represent. They would usually get engaged around the project management process, so how was it in the project. I do not think very often they are brought in five years on, “How is the design performing?” That is something that they might do for their continued professional development and they will go back as design engineers and think, “If I had done that differently would it have been better?” but I do not think that is systematically done with the clients. No, it is very much more, “The project is finished, let us have a review of the project management process”.
Miles Ashley: Sorry to bang on, but I think it is much easier to undertake in an alliancing arrangement simply because you have those open book arrangements and visibility of data. Quite often in more orthodox single project relationships there is quite a lot of contractual sweeping up to do between the tier 1 contractor and the subcontractors. That prevents, at that stage, open discussion and that might persist for quite some time before those contractual settlements take place and you are able to have a more open dialogue, and by that time the moment has probably passed. The answer to your question is I think that is quite limited from a contractor’s perspective.
Q357 Dr Huq: Are they involved in post-mortems when these things do not get delivered? They are probably quite pleased—the phantom ferry contract with Seaborne Freight, or whatever, £21 million of building work for a bridge where no brick was laid or anything. They are probably quite—
Miles Ashley: I think they are involved in those post-mortems. What I am saying is that I think the quality of that dialogue is often impacted by the fact that there is a contractual situation to reconcile.
Q358 Kelvin Hopkins: Just on this point about post-completion, post-mortems, if one likes, we have seen Crossrail go badly wrong at a late stage. I was told this was going to happen three years ago by associates in the industry particularly because there were three different signalling systems across one railway line. Are we going to see a full report to find out what went wrong, why it went wrong and perhaps even hear a mea culpa from someone?
Miles Ashley: I think there has been a National Audit Office report, which was done soon after the announcement. It will point to some of the things that are included as the eight reasons for why projects go wrong within the paper that the institution has presented to you. In particular it will point to design change, the political environment where it existed and the leadership and governance of that programme. I do not think that that is a surprise and the analysis is probably there for all to see. It is very difficult for me to add any further to that.
Q359 Kelvin Hopkins: We have seen some staff, senior people, move on—the churn problem again—people perhaps moving away when they can see things going wrong, get another job in Australia or wherever because then they are well out of the situation when it all goes badly wrong. Isn’t that the sort of thing that happens?
Miles Ashley: I have to say my experience of working in the industry over 30 years is that it is an industry where in the main people take tremendous accountability for what they are involved in. Normally you have to drag them kicking and screaming away from the problem that they are engaged in. I do not think that that is an industry-wide problem that people move away because they can suddenly see that this job is going to become challenging.
Large projects are consistent in that they are complex and if you are living in the middle of them they are very challenging and very demanding. Most of the industry is happy and committed to be engaged on those programmes and my experiences of people show a great degree of commitment to solving those challenges.
Kelvin Hopkins: I could go on, Chair, but I have had enough.
Q360 Chair: That is the interesting thing about Crossrail though. Who will evaluate why so many people knew it was going wrong or the costs were going to be much higher long before it became public, long before Ministers were told or long before the board was told?
Miles Ashley: I imagine there will be further analysis and I imagine in the world that we live in, where e-mails are sent regularly, what was and was not will be a matter of record.
Q361 Chair: Yes, but that is kind of the numbers and the process. I am asking what in your view makes people behave in the way that they do not tell the truth or they do not feel it is in their interest to tell the truth?
Miles Ashley: I think since Enron and Cadbury there has been much introspection on what good governance looks like. I have referred a couple of times to the UK Corporate Governance Code, which most FTSE100 businesses have to subject themselves to. I think contained within that UK Corporate Governance Code is some extremely valuable guidance and principles as to how governance should work to avoid such circumstances and it talks of—
Q362 Chair: But that makes it all the more inexplicable because the governance code tends to concentrate on, “If you comply with these principles” but then why do people not comply with those principles? That is the interesting question, isn’t it?
Miles Ashley: The question is do they understand that those principles need to be complied with to enable good governance? Secondly, who is monitoring and assuring that those good governance principles are in place? I think historically we have depended within major projects on great leaders, but I think probably going forward and in response to the National Audit Office’s observations we probably need to focus rather more closely on what great governance looks like within programmes.
Hannah Vickers: It is around aligning incentives at an organisational and individual level within that governance. I think when the National Audit Office reports on Crossrail that will be interesting.
Q363 Chair: It is interesting you used the term “great leaders”. I do not know if you intend irony when you use those two words because it is not much of a great leader if nobody tells that great leader the truth.
Miles Ashley: Yes, we could talk a lot of leadership. I was referring to the objective in making those appointments and structuring the leadership around projects. The intention was great leadership.
Q364 Chair: But in successful projects where the truth has always been told, typically the one that comes to mind is the Olympic Delivery Authority, it was an active leadership to enable people to tell the truth about that—
Miles Ashley: I entirely agree.
Q365 Chair: Who is going to look at Crossrail through that lens?
Miles Ashley: I cannot pre-empt that analysis, which will almost certainly take place. You asked me why it could have gone wrong and my personal view is that we need to focus on very good governance in accordance with the best practice laid out in the UK Corporate Governance Code in these environments if we are going to address some of the issues that you infer.
Q366 Chair: But isn’t corporate governance not just about compliance with codes, but good governance reflects good leadership?
Miles Ashley: My point is that a lot of those necessary behaviours and approaches, accountabilities, separation of duties, are covered by that UK Corporate Governance Code. It sounds dry but there is a rich tapestry of best practice contained within that governance code.
Chair: Thank you very much, both of you. You have given a very full session to us. We have a lot of material to draw on there and we are very grateful for your evidence. Thank you very much indeed.