THE PROCUREMENT OF THE NATIONAL ROADS TELECOMMUNICATIONS SERVICES
Committee publishes its Forty-sixth Report, Session 2007-08
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Highways Agency's case for using a PPP contract to deliver the improved motorway communications system was doubtful, because it failed to take full account of the possibility that costs under a conventional public procurement route might have been lower than expected. It did, however, transfer a number of substantial risks to the private sector and the project was delivered on time.
"The procurement process itself was conducted with great attention to detail, contributing to a fall in the bid price paid by the selected bidder, GeneSYS, and no ground was given on the balance of risks. But the process dragged on for five years, rather than the two originally expected. An early casualty was competitive tension when well-qualified potential bidders opted out of the competition.
"Public bodies taking forward projects as large and complex as this should learn lessons from the lack of effective control which the Highways Agency exercised over its external advisers. Agency staff had no time to check what the advisers were doing to earn their money. And the advisers had no performance incentives applied to their work. They ended up costing £15 million, five times more than expected at the outset.
"The National Road Telecommunications Services promises great things in terms of giving drivers detailed, real-time information about traffic jams and delays. The Highways Agency must use the system to improve its management of motorway traffic, while keeping a close eye on the costs and benefits of the system and associated projects. Our Committee recommends that the Agency conduct a review halfway through the 10-year life of the contract."
Mr Leigh was speaking as the Committee published its 46th Report of this Session which, on the basis of evidence from the Highways Agency, examined the procurement of, and potential benefits from, the National Roads Telecommunications Services.
The strategic road network in England, consisting of 4,800 miles (7,700 km) of trunk roads and motorways, is managed by the Highways Agency (the Agency), an Executive Agency of the Department for Transport. Since 1998, the objective of the Agency has been to reduce traffic congestion through improved traffic monitoring and travel information.
In September 2005, the Agency signed a 10-year Public Private Partnership (PPP) contract for the National Roads Telecommunications Services (NRTS) with GeneSYS Telecommunications Ltd. The contractor agreed to upgrade, operate and maintain the telecommunications systems along the English motorway network. The deal was structured so that upgrading and operating the systems were part of a PFI type contract, but the Agency could also order changes to the systems from a pre-priced schedule of additional services. The eventual life time cost of the contract therefore depends on the number and value of additional services ordered from GeneSYS. At contract award, the Agency expected that the contract would cost £385 million (present value in 2004 prices).
The Agency aimed to complete the procurement in 21 months for a cost of £3 million. The actual procurement took over five years to complete and cost £15.5 million in advisers' fees. Most of the additional time and cost was incurred in meeting the Agency's requirements for high quality bid documents.
Following a false start to the tendering process, subsequent loss of interest by good potential bidders and the early withdrawal of two out of the four short-listed bidders, the Agency had just two bidders interested in the project. One of these bidders, however, consistently bid considerably more than the other, and after prompting by the Agency withdrew just before selection of preferred bidder. The Agency managed to avoid deal drift during negotiations with the remaining bidder, and secured contractual arrangements close to the terms it wanted. At contract award, the Agency's estimate of the cost of the Public Sector Comparator (PSC) (£415 million) was marginally more than the PPP deal (£385 million). The PSC included an allowance of £85 million for risks, but the calculations underpinning this allowance did not follow best practice. The Agency also justified the PPP approach because it transferred the risks of major cost and time overruns inherent in large telecommunications projects, which are not a core Agency expertise.
From October 2007, following a two-year upgrade of the telecommunications systems, the new services became operational and benefits for road users from other Agency projects dependent on the NRTS are beginning to be realised.