Infrastructure project final costs average 80% above bid prices

Aaron Morby 1 year ago
Share

Infrastructure project outturn costs are running nearly 80% higher than winning tender prices, according to new project data.

 London 2012 games is considered a crowning success, yet the games cost over three times the original budget.  The evolution of the budget and the political and public acceptance of this overspend, compares starkly with attitudes to Crossrail at 26% over budget
London 2012 games is considered a crowning success, yet the games cost over three times the original budget. The evolution of the budget and the political and public acceptance of this overspend, compares starkly with attitudes to Crossrail at 26% over budget

An influential report from Institution of Civil Engineers, which publishes the fresh figures from 25 projects, warns that the sector is facing a twin market failure.

A combination of unforeseeable cost increases driven by both external and project risks and low contractor margins, depressed by fears of not winning major project work, has stifled innovation, skills and sustainability, warn senior engineers.

The regular failure to deliver to budget has prompted calls for mindset changes among clients about cost envelopes during early project planning, more detailed scoping and much fairer allocation of risk with contractors.

The report is published as contractors planning to deliver HS2 main civils packages are locked in talks to agree on final bid prices near original cost estimates.

A leading infrastructure contractor supplied figures for projects awarded between 2009 and 2018 on the proviso it remained anonymous.

Only one project was delivered within the original tender price, with project costs swelling by 80% on average above the original contract value on the rest

The ICE emphatically rules out excessive profit taking, pointing out pre-tax margins in construction fell from just under 3% in 2013 to an average of –0.9% in 2018.

Miles Ashley, Chair of the report’s Steering Group, said: “Industry and government need to work smarter, find ways to reduce the disparity between forecasts and outturns, but also to change the narrative and ensure the wider public, the end users, are also aware of the whole-life benefits these incredible infrastructure projects are bringing to them.”

Recommendations


  • Infrastructure owners should complete scope, design and exploration before work starts to avoid scope creep or retroactive changes, taking steps to include contractors in design at an early stage.
  • The Government and infrastructure owners must move away from capital cost as the most important metric when assessing project benefits, and recognise the importance of whole-life economic, social and environmental value.
  • All public infrastructure owners undertaking procurement must award contracts based on a cost estimate range, using a should-cost estimate as a reference point, with an amount of contingency allocated appropriate to the level of project maturity.
  • Principles set out in the Government Outsourcing Playbook should be mandatory for infrastructure owners, this includes infrastructure owners undertaking should-cost modelling to help inform their expectations and knowledge of appropriate tender prices during the procurement process.

Report: Reducing the gap between cost estimates and outturns for major infrastructure projects and programmes

Latest news

BAM to make 150 staff redundant

Drop in demand set to impact 2021 revenue
13 hours ago

“Builders stars of the economy” as construction rebounds

Latest buyers survey shows sharp turnaround in output as lockdown eases
19 hours ago

Flannery trials first electric tele at HS2 site

Skanska Costain Strabag JV to roll out more machines across HS2
18 hours ago

Morgan Sindall stars in £250m Glasgow Uni framework

University confirms nine construction partners
5 hours ago

Barratt uncovers weak concrete frames at seven high rises

House builder faces £70m bill to remediate high rise flats
22 hours ago

McAleer & Rushe starts £68m Birmingham resi tower

37-storey build to rent tower forms part of £120m Exchange Square 2 scheme
20 hours ago

CPUK went down owing suppliers more than £9m

Construction Partnership UK Limited brought down by bad debts and Covid-19
22 hours ago

Wates resumes full pay for all staff not on furlough

Chief praises staff for great professionalism in the most challenging of conditions
4 days ago

First net-zero carbon London office project approved

Mace advising on £160m project to expand and retrofit former BT HQ
23 hours ago

Interserve to start £27m Oldham school job

Work starts this month on Saddleworth secondary school
20 hours ago

Construction start date for latest Manchester resi scheme

Work to begin early next year at Bowler’s Yard
21 hours ago

£120m rescue package for stalled arts sites

Cultural rescue programme to restart work on theatres, galleries,museums and cinemas
1 day ago

Canary Wharf Contractors could cut 100 jobs

Another round of redundancies as projects come to an end with no replacements in pipeline
4 days ago

Tower crane lifts end long climb to work for operators

Laing O'Rourke trials mast climbing lifts for tower crane operators at London site
4 days ago

Keep the industry updated by joining the Enquirer Directory

Membership lets construction know you are open for business now or in the future
2 years ago

Government agrees £30m bailout for rebar giant

Emergency loan to Celsa secures rebar supplies to construction
4 days ago

Plans go in for 2,200-home Oxfordshire garden village

Sustainable scheme will also include new schools and manufacturing space
5 days ago

Winvic raids Graham Construction for civils boss

Rob Cook joins as civils and infrastructure director at Winvic
5 days ago

Work with the Enquirer to help your post Covid recovery

Promote your business now to grab a bigger market share as construction bounces back
3 weeks ago

HS2 rebids £300m overhead power system

Bidding starts for first overhead lines powering trains to operate at 360km/h
5 days ago

Sisk seals £150m Santander campus in Milton Keynes

Biggest building contract signed off during restricted covid working
5 days ago

Builder wanted for £35m Forth Bridge tourist attraction

Contract to build bridge walkways and viewing platforms to be awarded before the end of 2020
5 days ago

JCB powers up first hydrogen fuelled digger

JCB in race to lead the world on hydrogen-powered plant
5 days ago

Construction site death rates on the rise

Latest HSE figures show 40 construction fatalities last year
6 days ago

Construction firms urged to claim millions in tax rebates

Research and development tax credits available - find out if you can claim
5 days ago

Plans in for £150m South Kensington Tube station scheme

Native Land and TfL advance scheme to revamp west London Underground station site
5 days ago

Hotel plan for Lincoln department store aproved

Town centre House of Fraser will be demolished for a 150-room hotel
4 days ago

Site canteens to re-open under latest guidelines

Latest Site Operating Procedures guidance allows limited 1m-plus distancing with risk reduction measures
6 days ago

Kier eyes rights issue as debt rises to £440m

Debt rises again as Kier feels impact of Covid-19
6 days ago

Willmott Dixon unveils plan for 5% staff cut

Private builder seeks voluntary redundancies as revenue set to drop 20%
6 days ago

Contractor services