National Infrastructure Commission’s Report on Cost Drivers of Major Infrastructure Projects in the UK

In October 2024, the National Infrastructure Commission (NIC) released a comprehensive report examining the persistent issue of high – or ‘soaring’ - infrastructure costs within the UK. It comes at a pertinent time given the new Government’s ambitious infrastructure goals, as confirmed in its Autumn Budget.

The high costs of HS2, Hinkley Point C and Lower Thames Crossing have all continued to hit the headlines, over concerns about value for money and the country’s ability to deliver infrastructure projects within budget and on time. An issue not uncommon to major construction projects worldwide.

The Lower Thames Crossing was first proposed in 2009 to ease congestion on the Dartford crossing. More recently it has come under scrutiny.  It is now expected to cost £9bn and take six years to build if it goes ahead.  Responding to a Freedom of Information request earlier this year, National Highways revealed that £295m has been spent on the application process, with overall spending in excess of £800m before works have even started.

The NIC report identifies four interrelated factors that act as barriers to the consistent delivery of projects on time and on budget:

1. lack of clear strategic direction;
2. challenges with project clients and sponsors;
3. inefficient consenting and compliance; and
4. constrained supply chain.

These factors are explored below.

A full version of the NIC report can be found here.

Lack of Clear Strategic Direction

The NIC report criticises the absence of a long-term and stable infrastructure strategy for the UK, which has led to a volatile public capital investment environment. Specifically, the report identifies a failure of successive governments to provide a clear strategic direction and stable policy environment which can promote industry confidence to invest.

The report highlights that long term planning facilitates two primary advantages:

A stable investment environment

Where contractors have sight of a long-term investment programme, they know they can expect to deploy their resources efficiently over many years, encouraging investment in skills, machinery and processes to raise their productivity. This is true whether or not one project is the same as the next.

Benefit of programmatic pipelines

A programmatic pipeline refers to a systematic and automated sequence of processes that guide the planning, design, execution, and delivery of similar types of project - for example, projects relating to the modernisation and de-carbonisation of railways.

The pipeline enables contractors to continuously improve, ensuring subsequent projects can be executed with greater efficiency and to a higher standard, as opposed to an intermittent, stop-and-go method.

An analysis of rail electrification projects in Germany and the UK (with little visibility of proposed investment beyond the next few years) reveals the substantial benefits of consistent investment as part of a wider strategic plan.

Client and Sponsorship Challenges

 The NIC report highlights the critical role of clients and sponsors to a project’s success. It identifies various challenges for sponsors (i.e. project funders) and clients in delivering infrastructure projects, which can drive up cost, including:

The overlapping role of sponsors and clients

Where objectives set by project sponsors change, or when sponsors become ‘over-involved’ in delivery once a project’s objectives are set, costs can be driven up. This is often driven by a lack of clarity between the role of the sponsor and the role of the client.

Typically:

• project sponsors should focus on ensuring project outcomes are met and
• client should be responsible for project execution.

In practice, what is commonly seen is a tendency for sponsors / sponsoring departments to see their role as providing additional assurance on the details of the client’s work, rather than ensuring strategic outcomes are being met.

It is important to set out each party’s respective role clearly, and at the start of the project.

Client recruitment and retention

This is a particular issue in the public sector where there tends to be a challenge recruiting and retaining staff with the expertise needed to deliver complex projects.

Whilst the private sector has more control over the means to retain staff, in the absence of a clear pipeline of work, there can be a reduced incentive to invest in employee skill enhancement.  

Importance of early-stage design

Rigorous concept design in the early project stages, as let by the client, is fundamental to a successful project. A well-informed client is well placed to navigate the trade-offs between outcomes and cost during tender which can influence the trajectory of a project.

The report highlights the need for an intelligent and informed client, who:

• understands the outcomes it must achieve;
• is prepared to invest the time needed into planning how it will achieve the outcomes set; and
• who understands that, regardless of procurement structure, they will ultimately be responsible for the overall risks of delivery.

This is a central theme that emerges from the report.

Inefficient Consenting and Compliance

The report discusses the persistent problem of complex consenting and compliance processes.

Whilst planning and compliance frameworks are crucial for securing democratic approval for infrastructure projects, there is concern that the complexity of the system is causing delays (and adding cost) without improving outcomes.

Average consenting time over the last decade has doubled:

For example, comparing the durations of the public and governmental consultations prior to lodging a planning application:

Concerns around consenting red tape has presented in patterns of risk-adverse behaviour. For example, parties appear to be adopting expensive design changes to appease parties opposing consent applications.

Further, belts and braces approach to consenting applications are commonplace and add time and cost.

For example, the Development Consent Order (required for a Nationally Significant Infrastructure Project, under the Planning Act 2008) for the Lower Thames Crossing:

• had an estimated cost of £267m
• ran to nearly 63,000 pages.

Constrained Supply Chain

As a product of the above factors, the report identifies the construction sector’s failure to invest in its capacity for the future.

One of the key issues identified: the highly fragmented nature of the United Kingdom’s construction market e.g.:

• Tier One contractors in the UK tend to rely on sub-contractors to deliver projects rather than maintaining their own permanent work force.
• There are around 23,000 companies in the UK’s civil engineering sector, with almost 90% of those companies employing fewer than eight people.

Whilst some level of sub-contracting has its benefits, highly fragmented systems can create additional risks and inefficiencies for projects – for example, time spent establishing ways for working with other parties rather than building on already established, common work practices.

Significant barriers to improving labour productivity include:

• the highlighted absence of a trusted pipeline of future work, and
• procurement processes that fail to reliably recognise the potential for risk reductions or productivity gains from innovation.

If firms have the confidence to invest, the Construction Leadership Council have suggested productivity in the sector could be boosted by 25 per cent!

Construction sectors worldwide have seen an influx of innovations aimed at improving efficiency. For example:

• modular construction (where we have seen insolvencies in the absence of a sufficient pipeline of work);
• 3D printing;
• wearable technology such as smart helmets to present data (such as plans) for people working on site, without requiring the user to look away from their usual viewpoints.

Key takeaways 

The key theme that underscores all factors identified as barriers to the consistent delivery of projects on time and on budget is the impact of government and the importance of it as a strategic enabler. The report calls for a national infrastructure strategy that provides a clear direction and stable policy environment to promote industry confidence.

Whilst many will welcome the announced investment into some of the previously uncertain infrastructure projects made in the Autumn budget, we are still seeing the can kicked down the road for others such as the controversial Lower Thames Crossing, with a decision postponed until, as the earliest, May 2025.

As a step toward addressing this issue, a new National Infrastructure and Service Transformation Authority (NISTA) was unveiled in October 2024 (a merger of NIC and the Infrastructure and Project Authority).

NISTA will be responsible for leading on strategic planning of major infrastructure projects, as well as on their delivery and is due to release a report on the Government’s new 10-year national UK Infrastructure Strategy by spring 2025.

Although NIC is not the first to tackle the problem of high infrastructure expenses, the changes recommended by previous studies have not been implemented widely or with the necessary consistency. It remains to be seen if this report will mark a significant shift. However, the establishment of NISTA seems a promising start.