Infrastructure and construction report

Need for improved infrastructure review process

The Major Projects Advisory Group (MPAG) has made a suite of recommendations with the objective of improving the review process and maximising efficiency in the construction of major infrastructure projects.

In its annual review for 2022, the Major Project Advisory Group (MPAG) states that one of the top challenges for the completion of major infrastructure projects is that of project appraisal. The report calls on the National Investment Office (NIO) to issue an interim advice note strengthening capital appraisal guidance advice on cost forecasting.

In order to ensure maximum efficacy, the report claims that the emergence of best practice for forecasting and de-risking large capital projects will inform the development of this advice note. Where possible, the report says that independent reviews of the projects’ base costs by two separate reviewers should take place, and where possible cost ranges should be included.

Recommendations for improvement

To improve the review process, the report calls for a streamlining of the response document which each department must complete in response to questions from the MPAG on components of their submissions.

This process includes reducing the volume of material submitted and reviewed to improve the process, including a traffic light system of red, amber, and green to determine whether questions from the group on areas of concern were satisfactorily addressed, or whether matters raised to the MPAG have not been satisfactorily addressed following submissions of responses.

Another recommendation by the MPAG is for greater engagement and scrutiny of external assurance reviews. This includes adding a bilateral discussion between MPAG and external reviewers as an agenda item to the full review meetings for proposals and greater consideration of the external reviews submitted as part of the project proposal. The focus of MPAG, the report asserts, should remain on external assurance processes and engagement with relevant departments where challenges arise.

The report also recommends adding external experts from an alternate panel on a rotating basis, which is states will allow the MPAG to “draw from their experience and knowledge for specific projects”.

“When MPAG was established, a small panel of alternate members was formed who may be called upon from time to time to fill vacancies which may arise, or to augment the group in certain circumstance. It is proposed that one member of the alternate panel would be added to the group for each future review,” the report says.

Learnings from reviews

The report states that project building and construction estimates in terms of costs, inflation, and risks, were often outdated by the time the project was submitted to the external assurance process (EAP) and MPAG process. Given the time lag between when a draft preliminary business case is prepared, and when it is submitted to the reviewer as part of the external assurance process (EAP), the report asserts that PBC estimates and forecasts can become grossly outdated in terms of the costs, inflation, and risks include, among other areas, delays to the process seeing increases in cost estimates.

To alleviate this, the report recommends that a summary page outlining the updated cost forecasts should be attached to the PBC submitted to the EAP and the MPAG, as well as setting out details such as base cost, risk analysis, sensitivity, benefit to cost ratios, etc.

The report further states that cost estimates do not always adequately account for risks to the scope and delivery programme and inflation. Early cost forecasts, especially at preliminary business case stage, are inherently challenging, due to the nature, scale, long delivery horizons, and complexity of major capital projects.

The report recommends that sponsoring agencies and approving authorities ensure that investment costs brought to government are as accurate as possible and estimates should be, as far as possible, based on outturn costs of comparable projects.

Wider conclusions

The report says that progress has been made via the introduction of a process which has been put in place to ensure this quick turnaround and this allows the Group time to adequately appraise the project proposals and carry out a comprehensive review.

However, the MPAG also says that this process could be improved further by measures such as streamlining the response document which departments complete, having greater scrutiny of the external assurance review, and adding in alternate experts to the group on a rotating basis.

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