The Basis for Decisions on UK Major Transport Projects

1. The Basis for Decisions on UK Major Transport Projects Chris Smith UK Department for Transport

2. Overview of presentation • Outline of the way transport is organised in the UK • Brief discussion of heavy rail • Brief outline of evolving UK policy framework & lessons learned • Outline of steps in planning process for major projects • Overview of basis for decision making • The New Approach To Appraisal (NATA) • Value for Money (VfM) • Some details of particular importance • Future developments in methods • Lessons learned

3. Types of major projects • The strategic road network • Responsibility of the Secretary of State for Transport • Managed by the Highways Agency (HA), part of the Department for Transport (DfT) • The local road network and local public transport • Responsibility of, and managed by local highway authorities (LAs) • Major schemes usually DfT funded • Heavy rail network • Largely privatised – Network Rail, train operating companies • Significant element of funding from DfT

4. Heavy Rail • Planning process is different from that for road and other public transport • Reflects the structure of the rail industry in UK • Operational and engineering considerations a major factor • But there are many similarities • Project identification driven by wider land use planning considerations • Projects appraised within the NATA framework • Modelling, cost benefit analysis, environmental assessment processes generally consistent – variations reflect nature of rail • Ministerial decisions informed by VfM analysis – provides cross modal consistency • Differences not discussed in rest of presentation

5. UK Policy Framework • An evolving process • 1998 Roads Review established HA’s Targetted Programme of Improvements (TPI), Multi-Modal Studies (MMSs) and NATA • MMSs identified further projects to be added to TPI and, to a limited extent, to local authority plans and for rail • First round Local Transport Plans (2000) identified LA major projects • Ten Year Plan established 10 year funding package • 2004 ‘Future of Transport’ extended that to 2014-15 • Regional funding allocations process introduced 2005 • for HA schemes of regional importance, • LA roads and pt – • aspiration to include regional rail • Highlighted use of NATA and VfM in decision making and prioritisation

6. Planning process – to programme entry • Problem identification • Regional planning process for HA, some LA • Local transport planning process for LA • Review of possible options to provide a solution • HA/LA • Modelling, CBA, environmental assessment, stakeholder involvement • Prioritisation within Regional Funding Allocation (RFA) • Regional bodies • DfT VfM assessment, decision by Ministers on whether project should enter programme • DfT officials, Ministers • For LA projects, acceptance of case for project, intention to provide funding • For HA projects, conditional commitment to delivery

7. Project process – to Public Inquiry • Detailed design • LA/HA, usually employing consultants • Further modelling, CBA, environmental assessment, stakeholder involvement • Early contractor involvement (ECI) for HA • Obtain legal powers • Usually involves a Public Inquiry • Independent inspectors – report to SoS • Objectors test technical case for scheme • Key driver for quality, robustness

8. Project process - to opening • Decision by Ministers leading to implementation • For HA, SoS announces decision based on Inspectors report • For LA, DfT re-examines business case, gives firm committment to fund, subject to cost • Revised scheme appraisal • Procurement and implementation • Risk of cost increases may still stop scheme • ECI reduces this risk and speeds up this step • Further appraisal may be needed • For LA schemes, full approval by DfT required before construction begins

9. Basis for Decision Making • For LA major projects, Business Case covers: • Strategic fit with local, regional and national objectives • Appraisal and value for money • Ability to deliver • Sound financial basis • Sound procurement strategy • These are also key issues for HA major projects

10. Appraisal • New Approach To Appraisal (NATA) • Study process • problem • solutions • preferred option • Appraisal summary info • Appraisal Summary Table (AST) • local objectives/problems • supporting analyses

11. The Appraisal Summary Table (AST)

12. The AST Described • Five objectives, 23 sub-objectives – • Aim to cover 3 dimensions of sustainability: economic, environmental & social • Impacts assessed qualitatively, quantitatively &, where possible, in money terms • Purpose • A concise summary of project impacts • To enable decision makers to assess overall value of project

13. Value for Money (VfM) • Decision makers not comfortable with judgmental assessment based on AST • Concern externally that elements not valued were not given adequate weight • VfM aims to combine all impacts in systematic manner • Leads to standard VfM categories • VFM analysis carried out by DfT, based on AST

14. VfM – the details • Value for money categories • High - where benefits are at least double the costs • Medium - where benefits are between 1.5 and 2 times costs • Low - where benefits are between 1 and 1.5 times costs • Poor - where benefits are less than costs • Our stated policy is to generally fund, subject to affordability • most, if not all, projects with high vfm • some, but by no means all, projects with medium VfM • very few projects with low VfM • no projects with poor VfM

15. VfM – discussion • VfM is NOT the same as a Benefit to Cost Ratio (BCR) • Assessment of benefits and disbenefits includes the • Those transport benefits and costs usually included in the BCR, • Combined with the best available evidence on impacts that are difficult but tentatively possible to value, such as greenhouse gases (CO2), landscape • And a judgemental assessment for impacts that can’t be valued, such as heritage, severance

16. Costs • Cost increases are a key issue for DfT • Forward planning driven by the availability of funding • Cost increases cause difficulty for DfT financial planning • Cost increases also reduce the VfM of projects • So DfT have focussed increased attention on cost estimation, including • Quantified risk assessment (QRA) • Allowance for optimism bias (OB) – high at early stages, reducing later • Aiming to keep overall costs (base estimate + QRA + OB) fixed

17. Distributional issues • Limited coverage within NATA • Through ‘willingness to pay’ approach to cost-benefit analysis • As a supporting analysis • Project process • Projects identified by regional and local bodies • Regional bodies prioritise projects for funding within regional funding allocation

18. Transport Economic Efficiency

19. Public Accounts table

20. ‘Willingness to pay’ in CBA • Willingness to pay means that benefits to users include taxes, fares • Must identify compensating impacts on • Transport providers • government • For multi-modal studies, impacts by mode • could readily provide splits by purpose, income groups (depending on model) • Provides useful, if coarse, info on distributional impacts

21. Improving the process • Overall process likely to change • To improve control of costs • To speed up delivery • Closer integration of heavy rail, especially with respect to appraisal process • Rolling programme of improvements in modelling and appraisal • Valuation of impacts • Reliability • Wider economic impacts

22. Valuation of environmental impacts • Done for noise – guidance February, 2006 • Global emissions nearly complete – guidance within weeks? • Local air quality – need to sort out some snags • Landscape – primary research initiated • Physical fitness – guidance drafted • Journey ambience – project specific: crowding on rail, for example

23. Reliability • Important for modelling and appraisal • Two key issues: • Impact of schemes on reliability • Value for improvements in reliability • Research in UK and Europe on both topics • Some progress in UK • On appraisal of motorway and dual carriageways • For urban networks - maybe

24. Wider economic benefits • Work has focussed on market imperfections • Agglomeration • Imperfect competition • Increased employment and productivity • Standard appraisal methods capture most economic benefits • but wider economic benefits not always trivially small • Positive benefits more likely than negative

25. Lessons learnedA good analytic framework • Helps to separate strong projects from weak • Reduces scope for benefits optimism • Helps to defend project against critics • Can be costly and time consuming (especially modelling) • Need to identify ways of summarising information for decision makers

26. Lessons learnedImportance of consistency • Encourages comparison across wider range of options • Across modes • Between different promoters (HA, LA) • Ensures a more balanced approach to all projects • Makes a complex process more transparent for decision makers and for stakeholders

27. Lessons learnedRobust cost estimates • Essential for decision making • And for managing the overall budget • Important to allow for change as the project develops • But not to allow costs to drift upwards

28. Any Questions? www.webtag.ork.uk Chrisa.smith@dft.gsi.gov.uk +44 20 7944 4910