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Review of Major Capital Projects in Scotland: How Government Works

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Review of Major Capital Projects in Scotland: How Government Works Review of major capital projects in Scotland How government works Prepared for the Auditor General for Scotland June 2008 Auditor General for Scotland The Auditor General for Scotland is the Parliament’s watchdog for ensuring propriety and value for money in the spending of public funds. He is responsible for investigating whether public spending bodies achieve the best possible value for money and adhere to the highest standards of financial management. He is independent and not subject to the control of any member of the Scottish Government or the Parliament. The Auditor General is responsible for securing the audit of the Scottish Government and most other public sector bodies except local authorities and fire and police boards. The following bodies fall within the remit of the Auditor General: • directorates of the Scottish Government • government agencies, eg the Prison Service, Historic Scotland • NHS bodies • further education colleges • Scottish Water • NDPBs and others, eg Scottish Enterprise. Note: Prior to September 2007, the Scottish Administration was generally referred to as the Scottish Executive. It is now called the Scottish Government. When dealing with the earlier period, this report refers to the Scottish Executive. Recommendations for the future refer to the Scottish Government. Acknowledgements: Audit Scotland prepared this report for the Auditor General for Scotland. This study was managed by Jim Martin, supported by Gareth Dixon, under the general direction of Barbara Hurst, Director of Public Reporting (Health and Central Government), Angela Cullen, Assistant Director of Public Reporting (Central Government) and Dick Gill, Portfolio Manager (Central Government). Ernst & Young was engaged to work with Audit Scotland on the review of project case studies and the review of project appraisals. We have had the generous support of the Scottish Government, Scottish Prison Service and Transport Scotland and the other bodies whose projects we examined and surveyed. Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. It provides services to the Auditor General for Scotland and the Accounts Commission. Together they ensure that the Scottish Government and public sector bodies in Scotland are held to account for the proper, efficient and effective use of public funds. How Government Works: Review of major capital projects in Scotland Contents Summary Recommendations Recommendations Page 2 Page 17 Page 34 Capital investment in the public sector Part 3. Projects currently in Appendix 1. 43 major capital is significant progress projects completed between 2002 Page 18 and 2007 Summary of Key Messages Page 35 Page 3 Key Messages Appendix 2. 104 major capital Part 1. Introduction The costs of some current projects projects currently in progress Page 5 have increased since initial approval Page 37 Page 19 There continues to be significant Appendix 3. Model of good project capital investment in the public sector Most projects at the delivery stage management practice are not experiencing increases in cost Page 40 All major investment projects involve significant risks Most current projects are on track to Appendix 4. Audit Scotland meet contract timescales methodology Good project management is Page 41 essential to deliver major capital It is too early to assess the quality of projects to cost, time and quality current projects Appendix 5. Study advisory group Page 6 Page 25 Page 43 About this report Part 4. Lessons for the future Page 8 Page 26 Part 2. Projects completed between Key Messages 2002 and 2007 Page 10 Management and governance within individual projects are broadly effective Key Messages Page 27 Overall, the achievement of cost and Project set-up and planning are key to time targets improved as projects the successful delivery of projects progressed Page 28 Page 11 The approach to estimating costs Most projects were delivered within, needs to improve or close to, contract price, despite Page 29 early estimates being too low Page 12 A sound approach to procurement is vital Most projects experienced delays, Page 31 particularly compared with initial forecasts Good governance and experienced Page 14 teams have contributed to successful project delivery Most completed projects have Page 32 delivered the expected assets Page 15 Better coordination and challenge across the Scottish Government may Few completed projects have been improve investment planning and evaluated to demonstrate benefits control Page 16 Page 33 Summary The scale of investment means that good decision- making about the capital programme and good management of individual projects are vital. Summary Capital investment in the public £5 million and £85 million each – awarded, as plans are more sector is significant with a combined value of £.4 billion. certain and risks clearer. Two-thirds of projects were 1. Public investment in infrastructure • Fifty-eight smaller projects – covering completed within five per cent touches most aspects of Scottish life. all government portfolios, valued at of the contracted cost and within It provides new and upgraded facilities, less than £5 million each – with a ten per cent of the contract time. such as roads, railways, hospitals, combined value of £0.5 billion. Most current projects reviewed schools, museums, prisons and major IT also appear on track to meet the projects. Between 00 and 007, the 3. The scale of investment means that contract cost. Scottish Government and its agencies, good decision-making about the capital non-departmental public bodies (NDPBs) programme and good management of • Most completed projects have and the NHS completed 4 publicly- individual projects are vital. successfully delivered the funded major capital projects valued at required roads, hospitals and £811 million (Appendix ). 4. In May 008, the Scottish other assets, and all current Government proposed the further projects are forecast to do so. 2. There are currently 04 major development of the Scottish Futures However, few projects have projects valued at £4.7 billion in Trust initiative. This includes plans to been evaluated to demonstrate progress (Appendix ). Most of these provide a focal point for coordinated that they have delivered the are in the transport and health sectors public sector infrastructure planning expected wider benefits which (Exhibit ). There are: and investment. If approved and originally justified the investment. implemented, this coordination may help • Nine large projects – seven transport address our recommendations below. • Project management and and two health projects – with a governance arrangements of combined value of £.8 billion. The Summary of key messages individual projects are broadly value of these projects ranges from effective. However, the quality £120 million to £69 million. • At project approval stage, the of project appraisals could be early estimates of cost and time improved. Initial cost estimates • Thirty-seven medium projects were too optimistic for many also need to better reflect risk – mainly in the transport, health and major projects. Performance and uncertainty, and consider a justice sectors, valued at between against cost and time estimates range of inflation scenarios. is better after contracts are Exhibit 1 Major capital projects by government portfolio Portfolio Completed projects Projects in progress Projects examined by 2002-07 Audit Scotland Number of Actual cost Number of Estimated Number of Estimated or projects projects cost projects actual cost £m £m £m Finance and sustainable growth 0 98 50 ,57 8 ,46 (mainly transport projects) Justice 12 213 11 50 4 8 Rural affairs and environment 33 5 5 49 Health and well-being 11 58 8 77 86 First Minister 32 7 127 78 Education and lifelong learning 8 77 5 8 Total 43 811 104 4,676 20 1,995 Source: Audit Scotland We define a major project as having a capital cost of £5 million or more. We have defined small, medium and large projects as less than £5 million, £5 -00 million and over £00 million respectively. 4 • There is a case for better cross- They need to ensure better and functionality). Evaluations government coordination of assessment and quantification should consider performance capital investment programmes, of risk and uncertainty, and against cost, time and quality including consideration of should include a specific risk targets. the capacity and capability of allowance, optimism bias suppliers and contractors. allowance and take account of • set a clear plan with regard to the construction cost inflation in need for independent gateway or Summary of recommendations early cost estimates similar reviews at key stages in projects The Scottish Government should: • develop an appropriate procurement strategy which • collect information on all projects considers all procurement and get explanations for cost, routes, competitiveness and time and quality changes, and capacity within the construction lessons learned. It should report industry. Ensure that risk performance publicly. management strategies explicitly consider and mitigate the risk • strengthen strategic direction of changes in scope after the and investment planning contract has been awarded through a senior, government- wide, investment coordination • make more use of tools and challenge function available to assess and confirm both the quality of design and • ensure robust procurement environmental sustainability to strategies and cost estimates get the best of benefits
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