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Continued cost overruns for UK based infrastructure projects - Will we ever learn?

Louis Redding

Sunday I sat reading the usual crop of the weeks papers and other magazines and journals as I relaxed during the morning and of the articles that I focused on I noticed a common theme emerging, that being the significant cost overruns on HS2 and also Sizewell C.  This led me to fire up the computer and after a couple of hours searching for Capital Cost Infrastructure Projects I was dismayed to have my thoughts confirmed that Project Cost forecasting is seldom accurate in many cases and the margin of error is astounding to the point that it suggests that the initial cost model that was submitted first for the Go/No Go Decision, and then Contract Placement is at best proven to be a fiction in many cases.  

For example, McKinsey reports that large projects typically overrun budgets by 80%, and Cycle Construction suggested nationwide overruns average 15-25%. These issues are not unique to the UK, with global statistics showing similar trends. 

Further examples of Project Failures include:

  • HS2: The high-speed rail project has faced significant cost increases and delays, making it one of the most expensive megaprojects in the UK.  The initial estimate was £56 billion, which has since ballooned to £106 billion, with potential further increases, according to Full Circle Continuous Improvement,. Factors contributing to this include rising land acquisition costs, complex engineering challenges, and environmental protests.  
  • Aberdeen Western Peripheral Route (AWPR): This Scottish road project experienced a significant cost increase from its initial budget. 
  • London Jubilee Line Extension: This project was significantly over budget and behind schedule. 
  • Scottish Parliament Building: Initially estimated at £10-40 million, the final cost reached £414 million due to a complex and frequently changing design, poor project management, and underestimation of the scope,
  • Channel Tunnel:
    While a vital link, the Channel Tunnel project suffered from significant cost overruns, with the final cost exceeding the initial estimate by 80%. The project also took longer to complete than anticipated. 
  • The Wembley Stadium Reconstruction: The project started with an initial budget of £326.5 million provided by Australian construction company Multiplex. However, the project ended up costing over £1 billion, making it one of the most expensive stadiums ever constructed.

I could continue to list many projects that I fear that the such a list would be exhaustive.

I therefore pose the question, do Project Cost Models provide any value at all when many cost overruns exceed 100%.  Are financial risk models adequate or even understood?  As professionals working in Project Cost and Control, how do we address these issues, and how do we truly measure the effectiveness of what we do as any such metric is only as good as the data and assumptions used?

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  • (re-writing my previous reply).
    Britain's economy has transitioned to a service-based economy in the last 40 years. Consequently, big engineering firms in the UK now provide "engineering consultancy" services... and very little construction, production or manufacturing.

    Taking Defence as an example. A theoretical private company called "British Dynamics International Systems Ltd" will buy in a solution manufactured in USA or Israel, and then provide an integration service to integrate it into a sovereign platform. This adds huge cost (over-budget) & hugely complex systems-integration challenges (always late) than if the solution was manufactured "in-house"... as might have been the case 40-50 years ago.

    You can copy & paste this example for Rail infrastructure (often bought from Europe or Asia), and other public-infrastructure projects too.

    Providing a consultancy/integration-service is much lower risk than being responsible for the final assembly/construction, or manufacture of a product... and low risk is great for private shareholder value. Is it great value for the tax-payer or national security? No.

    As the Vice-Chair of the YPC, one of the biggest pieces of feedback i receive from British Graduates & Apprentices who work for big engineering firms is... they don't use any of the engineering knowledge they've gained at University or College... their employer only wants them to write Word Documents, Excel Spreadsheets, PowerPoint Presentations... I never hear these complaints from Graduates & Apprentices in South East Asia, India or North America... all their graduates are using MATLAB, Programming Languages, SIMULINK, FEA, etc. They still write technical documentation, but its not their primary focus.

    I'm not totally naive, I'm not saying documentation isn't necessary in engineering... But Britains "service provision & low risk appetite" culture can't help me think we've somewhat lost the plot and not considered why we've been tasked with the project to start with... which is to deliver a final product. When you have sub-contractors sub-contracting to more sub-contractors, each small 3rd party only focuses on its short-term deliverable and never the final outcome.

    So to answer your question  , I think there's a much "bigger piece" here to be addressed than at the Project Cost Controller level. 

  • in reply to Samuel Duffield

    Having just retired from the defence industry, I can say that we avoided importing anything from the USA if at all possible.  America's ITAR (International Traffic In Arms Regulations) rules are so strict and so onerous that it's generally not even worth trying.

    Not only are the products themselves subject to ITAR, but so is any paperwork, such as instruction manuals, repair manuals or training courses.

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  • in reply to Samuel Duffield

    Having just retired from the defence industry, I can say that we avoided importing anything from the USA if at all possible.  America's ITAR (International Traffic In Arms Regulations) rules are so strict and so onerous that it's generally not even worth trying.

    Not only are the products themselves subject to ITAR, but so is any paperwork, such as instruction manuals, repair manuals or training courses.

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  • in reply to Simon Barker

    Hi Simon,

    I don't think ITAR will stop the purchase of defence products from the US (Source: Guardian), only slow down project delivery, adding to delays & project budget over-runs... all "priced into the service" provided by many British engineering firms.

  • in reply to Samuel Duffield

    There's a distinction to be had between 'parts' or a product, and a 'major' product from the US.

    For the latter the ITAR regulations become just a part of the overall project.

    Smaller parts will contaminate the whole product and it's export potential.

    It's worse if you have a dual national (UK-US) where they cannot have any "design" input of any kind as that will also pollute the ownership of the products they 'touch' (and it's the US that gets to decide if their contribution is classed as "design").  

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