The Highways Agency: Getting to grits with contractors

"The basic point is that the Agency does not know enough about what it is getting for the taxpayers’ money it spends on maintenance across its whole network. Without a better understanding of the costs of network-wide activities – such as resurfacing – it cannot hope to drive those costs down”

So said Edward Leigh, Chairman of the Public Accounts Committee (PAC), who today released a report about the Highways Agency (HA), which identifies key areas of improvements. As the quote above highlights, the HA need to hold contractors up to the true costs of projects to ensure that the taxpayers - and motorists in particular - will receive value for money.

Following quintessential principal agent theory the central issue of delegation of administrative power to a road contractor is lack of information held by the HA. This can prove particularly problematic in terms of contractors delivering projects that are reflective of their true costs. The PAC however identified that detailed information about the contractor’s costs is held by the HA. The problem is that it is too often not fully utilised by the agency.

Consequently contractors are not measured on how closely they deliver to the true cost of a programme, and hence efficiency improvements are hindered. Furthermore there is discrepancy between contractor costs for very similar jobs between agency areas.  In short the highways agency need to challenge job processes more effectively than they have been doing.

The lack of effective management of road projects is exemplified by many road contracts that have ran over budget. The TPA Government Overspends report highlighted that road transport projects included within the report were running, on average, 13.1 percent over budget. The net figure for these overruns stands at £404 million.

The extent of overruns may suggest that roads deserve less of the disappearing transport budget. However, road spending in 2007-08 was £8.3 billion yet passenger kilometres totalled 749 billion. The rail budget was marginally smaller at £8.2 billion, however passenger kilometres was around 13 times smaller at 59 billion. Road can therefore carry more passengers for a given amount of public spending. And if the HA took the PAC’s recommendations on board, efficiency savings could deliver even more value for taxpayers’ money on roads than it currently does.

The HA therefore needs to ensure that road retains its competiveness in transport policy. This will be done be through effective management and holding contractors to account for their costs. Motorists pay £30.3 billion a year in Fuel Duty and Vehicle Excise Duty so it’s only fair that these taxpayers receive value for their money.

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