Improving the Strategic Roads Network – the M1/Westlink and M2 Improvement Schemes
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Improving the Strategic Roads Network – The M1/Westlink and M2 Improvement Schemes REPORT BY THE COMPTROLLER AND AUDITOR GENERAL 4 November 2009 Cover Photograph: Westlink road improvements Report by the Comptroller and Auditor General for Northern Ireland Ordered by the Northern Ireland Assembly to be printed and published under the authority of the Assembly, in accordance with its resolution of 27 November 2007 Improving the Strategic Roads Network – The M1/Westlink and M2 Improvement Schemes BELFAST: The Stationery Office £5.00 This report has been prepared under Article 8 of the Audit (Northern Ireland) Order 1987 for presentation to the Northern Ireland Assembly in accordance with Article 11 of that Order. KJ Donnelly Northern Ireland Audit Office Comptroller and Auditor General 4 November 2009 The Comptroller and Auditor General is the head of the Northern Ireland Audit Office employing some 145 staff. He, and the Northern Ireland Audit Office are totally independent of Government. He certifies the accounts of all Government Departments and a wide range of other public sector bodies; and he has statutory authority to report to the Assembly on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. For further information about the Northern Ireland Audit Office please contact: Northern Ireland Audit Office 106 University Street BELFAST BT7 1EU Tel: 028 9025 1100 email: [email protected] website: www.niauditoffice.gov.uk © Northern Ireland Audit Office 2009 Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes Contents Page Summary 2 Overview 2 Study scope and methodology 2 Key findings and recommendations 3 Part One: Roads Service secured a competitive deal and the DBFO Package 1 8 Project is expected to deliver significant benefits The Regional Transportation Strategy 2002-12 identified investment priorities 8 and considered potential sources of funding The publication of the Strategic Investment Programme enabled Roads Service to 9 consider a Design, Build, Finance and Operate approach The Outline Business Case proposed three schemes for Package 1 aimed 10 at reducing congestion and increasing traffic speeds The original specification of Package 1 was extended after the 10 Outline Business Case Roads Service identified value for money savings of £27 million if the PPP 11 option was selected, but the calculations lacked precision Roads Service secured a competitive bid following a series of evaluation 13 exercises and negotiations The final phase of the Project was completed in May 2009, some three 15 months ahead of the original programme A major flooding incident at the Broadway Underpass occurred in August 2008 16 Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes Part Two: The procurement of the DBFO Package 1 Project was well 20 managed by Roads Service Despite some slippage, the overall procurement timeframe compares very 21 favourably to the average PPP project in England The project was well managed with sufficient governance structures in 21 place and a clear allocation of roles and responsibilities at all levels A Central PPP Unit was established and private sector technical, financial 24 and legal advisers were commissioned and integrated into the Unit Procurement costs were controlled, however the full costs associated with 25 the Project were unavailable for review A clear process for evaluating bids and setting assessment criteria was 26 established Part Three: Roads Service has secured a value for money deal through a 30 competitive process The use of a variant bid helped Roads Service identify the financing 30 structure that could deliver best value for money The combination of finance sources raised for Package 1 was a first for 31 Northern Ireland The contract commits the Northern Ireland public sector to paying 34 £508 million over the thirty years of the contract The payment mechanism transferred risk to the private sector by making 35 all payments to the Operator availability based Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes Contents Appendices 1. Summary of key dates for Road Service Package 1 up to 38 Contract Signature 2. Examination of the Roads Service’s calculation of economic benefits 40 3. Summary of Value for Money (in NPV monetary terms) 41 assessment 4. Summary of findings in relation to the reasons for the flooding 42 of the Westlink underpass in August 2008 5. Summary of Internal Audit findings 43 6. The different characteristics of bank and bond financing 44 Glossary 46 Photographs courtesy of Roads Service Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes Abbreviations BAFO Best and Final Offer C&AG Comptroller and Auditor General DBFO Design, Build, Finance and Operate DFP Department of Finance and Personnel EIB European Investment Bank HGV Heavy Goods Vehicle NAO National Audit Office NIAO Northern Ireland Audit Office NPV Net Present Value OFMDFM Office of First Minister and Deputy First Minister OGC Office of Government Commerce OJEU Official Journal of the European Union PAC Public Accounts Committee PFI Private Finance Initiative PPP Public Private Partnership PSC Public Sector Comparator SIB Strategic Investment Board Summary Broadway underpass 2 Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes Summary Overview £186 million in Net Present Value2 (NPV) terms. This is 26 percent less than the cost 1. In September 2001, the Department for estimated by Roads Service of procuring Regional Development (the Department) the project through traditional means. published its Regional Development Strategy. A key priority of the Strategy was 3. Package 1 was financed from two main to facilitate the efficient movement of freight sources which included bonds, issued by and to manage access to the motorway a commercial bank and a long term loan, system. The Westlink was specifically sourced from the European Investment Bank identified as requiring a priority upgrade (EIB)3. Both these sources accounted for 80 to reduce the impact of congestion per cent of the total finance required and and facilitate through traffic and freight were a first for Northern Ireland. movement, particularly that associated with the ports of Belfast and Larne. 4. In May 2009 the final phase of Package 1 (the widening of the M2 2. The Strategic Investment Programme for from Sandyknowles to Greencastle) was Northern Ireland, launched as part of completed, some three months ahead of the Budget announcement in December schedule. Roads Service explained to us 2002, enabled Roads Service to that following the completion of testing identify ‘packages’ of strategic highway and the clearance of any outstanding improvements that could be delivered works, a “Completion Certificate” will be through a Design, Build, Finance and issued. This will then trigger the start of a Operate (DBFO) form of contract1. formal evaluation assessment which will Following a competitive bidding process include a review of benefits and outcomes involving four bidders the DBFO Package 1 of Package 1 and evaluate the extent to Project (Package 1) agreement was signed which its original objectives have been in January 2006. Package 1 provided delivered and the extent to which value for for improvements to the M1/Westlink, money has been achieved. provision of slip roads on the M2 at the Antrim Hospital and widening of the M2 from the Sandyknowes to Greencastle Study scope and methodology junctions. It also covers network maintenance which includes the M1 from 5. This report examines the procurement Sprucefield to Belfast, the Westlink and phase of Package 1. In particular it the M2 from Belfast to Dunsilly, which considers whether Roads Service has covers 59.5km of motorway. The total cost secured a good deal for Northern Ireland of Package 1 is estimated to be £508 and examines: million over the 30 years of the agreement (assuming an inflation rate of 2.5 per • the option chosen, i.e. Public Private cent a year), equivalent to approximately Partnership (PPP) over traditional 1 The DBFO approach is a form of Public Private Partnership (PPP)/Private Finance Initiative (PFI) Project, whereby a selected private sector company, using specified public sector guidance, designs, builds, finances and operates a Project for an annual unitary payment. Legal ownership of the facility remains with the public sector throughout the contract, with the private sector interest in the Project being based solely on the contractual rights to operate the Facility. 2 The Net Present Value (NPV) compares the value of a pound today versus the value of that same pound in the future, after taking inflation and return into account. 3 The European Investment Bank is owned by the European Union and is a long-term lending bank. Improving the Strategic Roads Network - The M1/Westlink and M2 Improvement Schemes 3 procurement and considers whether We also engaged two local University this choice was the most economically academics4 to complete a review of the advantageous (Part 1 of the Report); Package 1 Financial Models and Business Cases. Our report does not examine • the project management whether the Project is an operational arrangements within Roads Service, success, but considers whether the Project including the use of its financial, is likely to deliver value for money. As technical and legal advisers (Part 2 of explained in paragraph four a benefits the Report); and realisation management process will follow. • the funding arrangements chosen for the Project along with the payment Key findings and recommendations mechanisms in place (Part 3 of the Report). 8. Work began on Package 1 in January 2006 and the final phase of the 6. During construction of the improvements project (the widening of the M2 from to the Westlink, heavy rainfall resulted in Sandyknowles to Greencastle) was the flooding of the Broadway Underpass completed in May 2009, some three (the Underpass) in August 2008.