I have received a report from Mike Nichols, Chairman and Chief Executive of the Nichols Group, on the Highways Agency major roads programme.
In July 2006 the Highways Agency advised me of increases in its cost estimates for schemes in the Targeted Programme of Improvements (TPI). I was concerned that these estimates could be unreliable, since in the majority of cases costs had not been finally agreed with contractors. I therefore commissioned Mike Nichols to undertake an immediate review, with the following terms of reference:
“To review the Highways Agency's approach to cost estimating and project management, and to make recommendations, including on how the Agency should best assess, monitor and report on risks to its cost estimates.”
Mike Nichols has now delivered his report to me. He has confirmed that estimates have increased above initial forecasts, largely on schemes which are not yet in construction. The biggest single factor is higher than expected inflation in construction prices. He notes that estimating is inherently difficult for schemes with expenditure spreading over 10 or more years ahead, and that the majority of the forward programme by value is at stages of development when estimates are inevitably uncertain. Importantly, he has made it clear that he is not saying that the Agency is paying more than it should do for its schemes; rather, the main concern is future delivery.
He has made a number of recommendations for improvements in the development and management of schemes, so that the large forward programme of investment can be successfully managed. He has suggested restructuring the roads programme into phases; improvements to the governance arrangements between the Department and the Agency; and improvements the Agency should make in estimating, risk management, procurement and delivery capability. I accept his recommendations and will ensure that priority is given to their implementation.
The Nichols report will make a valuable contribution to the successful development and delivery of the forward programme. I am placing copies of the report in the Libraries of both Houses.