By David Williams
19 November 2010
The Highways Agency has been criticised for losing more than half a billion pounds through procurement delays to a Private Finance Initiative contract for the M25 motorway.
A report published by the National Audit Office today found that the agency’s £3.4bn contract with Connect Plus could have been £660m cheaper had it stuck to its original deadlines.
Auditors said that the timetable for the contract, to widen sections of the motorway and maintain it for 30 years, slipped by 18 months during the procurement process, with contracts eventually signed in May 2009.
This increased the cost of the contract because it subjected the deal to the effects of the credit crisis, which made raising finance from banks much more expensive.
The NAO noted that only £100m of the extra costs could be clawed back through refinancing, and there was ‘no certainty’ this would occur.
It also expressed concern that the Highways Agency was ‘overly reliant’ on external advisers, which cost £80m – or 7.5% of the £900m capital cost of the contract – which reflected ‘insufficient commercial and technical skills’ within the body.
The agency also came under fire for sticking to its original plan of widening the M25, even when evidence became available in late-2008 suggesting that using the hard shoulder instead could have brought better value for money.
A conventionally procured hard shoulder scheme could have saved between £400m and £1.1bn, the NAO said, but the agency had closed off the option by that point.
NAO head Amyas Morse said: ‘The Highways Agency’s PFI project to widen the M25 could have achieved a materially better value-for-money outcome.
‘The agency should have adopted a more agile approach to procurement, recognising the potential for making savings using an alternative method of relieving congestion, hard shoulder running. The agency should have kept its contracting approach open to allow the use of this method.’
The Department for Transport said it would respond to the report in due course.
