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

Louis Redding said:

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.

Cost overruns are universal, but the UK does appear to have a particular problem with very high costs, there's been a number of reports comparing major UK infrastructure projects to comparable European countries, particularly in industries like rail and transport, finding UK costs are substantially higher than competitor countries. There does seem to a problem in the UK with how we deliver these major projects, and obviously long term it's a big problem for any country if it cannot build infrastructure in an efficient way because a country falls into relative decline as its infrastructure falls behind, impacting competitiveness and quality of life. 

It's the kind of topic where we really need the engineering institutions like the IET to get involved, what is it about the UK engineering and project landscape which is causing this lack of competitiveness?  What role does the way we engineer projects, the standards and regulations we follow and the costs they reasonably, or unreasonably or disproportionately impose, play in those poor outcomes?

Philip Oakley said:

Also, wasn't there an article in the E&T magazine a while back about the London Olympic delivery project that did (per article, obviously) deliver on-time. Such are real DEAD-lines.

It hit the dead-line, but it blew the budget, to put it mildly. Original estimate was £2 Billion, out-turn was around £9 Billion, so +350% !

I saw it referenced in a good example of using historical actual project costs as a way of checking the reasonableness of project estimates, taking the actual costs for a number of previous Olympics, adjusting for inflation and exchange rates, them using it as a simple benchmark. The original £2 Bn estimate stood out like a sore-thumb, it was far below the actual costs of previous Olympics, obvious that it likely to be unrealistic. 

On the 1st April 2022 construction firms had to start paying the full tax duty on diesel and start using white diesel, instead of red diesel. 

That change has increased the cost of all the projects being mentioned by millions of pounds. 

TurboGen said:

The original £2 Bn estimate stood out like a sore-thumb, it was far below the actual costs of previous Olympics, obvious that it likely to be unrealistic.

That would appear to be part of our political [people] problem, which isn’t addressable by engineering alone.

We like our cake, and we like eating it. (The wedding cake isn't the marriage ;-)

(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 Louis Redding , I think there's a much "bigger piece" here to be addressed than at the Project Cost Controller level. 

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.

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.

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").  

Louis Redding said:

do Project Cost Models provide any value at all when many cost overruns exceed 100%.  Are financial risk models adequate or even understood?

Yes, they do. The "value" in many project cost models is dupe the taxpayer into thinking that a proposed government led/funded/regulated megaproject is good value for money.

Models are dependent on assumptions and presuppositions. What is classed as a financial risk for the taxpaying public is very often an financial opportunity for banks, developers and politicians.

This is classic Principal-Agent Problem dynamics. Unless the risk-model takes into account the a) misaligned incentives, b) information asymmetry, c)  limited accountability of the agent (government and its affiliates), and identifies clear controls on how to manage them on behalf the principal (public), it's not worth much.