Do we have credible costing methods for major projects?

Lord Berkeley, chairman of the Rail Freight Group and member of RTM’s editorial board, questions the methodology of estimating costs on major projects, including Great Western electrification.

For some time I have been strongly critical, not just of Network Rail’s ability to produce realistic costs for projects, but to justify them on the basis of past experience, and to deliver them on time and to budget

This Public Accounts Committee ‘Modernising the Great Western Railway’ report is a good start but I fear not the end for this project, since the outturn cost for Great Western electrification on a like-for-like basis could be over £4 bn. 

There are similar problems with HS2 Phase 1 where, using the Realistic Cost Estimates and data from other projects in a structured way with the Rail Method of Measurement (RMM) written by QS Michael Byng and commissioned by Network Rail, we gave evidence to the HS2 Lords Select Committee that the likely cost of their Euston to Old Oak Common section was over £8bn. This was not challenged by HS2 – as they did not appear to have any credible costs themselves.  

In January, during Committee Stage of the HS2 Bill, I quoted Michael Byng’s Calculation that, using the same RMM suite for the whole of the Phase 1, the cost would be £54bn rather than the £24bn quoted in a Written Answer to me on 21 December 2016. How can the first 8km from Euston, albeit with an expensive station, possibly be one third of the cost of the whole 200km of Phase 1, which also includes expensive tunnels, stations, junctions and viaducts?

So, I conclude that neither Network Rail nor HS2 have a credible methodology of estimating costs of projects; it is extraordinary that they can go ahead with HS2 Phase 1 without any justification or response, based on the RMM Suite and costs from other projects, that their costs will be double their quoted figure. 

Has the Treasury given the DfT a blank cheque for HS2 Phase 1? ‘Similarly, Network Rail must quickly get a grip of their costing methodology by fully and quickly implementing the RMM Suite that they have commissioned.

Lord Berkeley will be writing further on this topic in the April/March edition of RTM.

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Lesf   06/03/2017 at 15:41

Clearly we do not have a reliable method of estimating, otherwise projects would not routinely finish up costing vastly more than the estimate. Where projects are completed to budget it's often because the budget was increased to meet the actual cost! The GWML electrification people complained that no-one told them about underground services in the way. On any new project, you find the u/g services and the cost of moving them BEFORE asking the government to commit to £1bn expenditure. Are we to go through it all again with HS2?

Lutz   06/03/2017 at 20:47

It is refresh to hear from someone whom is asking basic questions and coming up with the same doubts as myself. I hope Lord Berkeley pursues his questioning further, and I look forward to hearing more on his opinions.

Chris M   06/03/2017 at 23:38

So, Lord Berkeley continues to make out that all UK rail infrastructure projects are completed late and go over budget. GWML electrification is indeed a fiasco, for multiple reasons which have only started to become public. Lack of prior planning seems to have been a major factor. Yet recently I give you: 1) Reading station rebuilding, with a massive flyover, complete resignalling and several new chords. 2) The Norton Bridge relief scheme (6km of new electrified railway). 3) The Hitchin flyover (3km new electrified railway). All completed on time and on budget weren't they? HS1 wasn't a problem either was it? Crossrail is now 80% complete and appears to be on time and budget (using the same DFT costing methodology as HS2). So will Lord Berkeley prove to be a wise old sage, or a clueless buffoon? We will get an answer in just a few months, when the seven major construction contracts for HS2 phase 1 will be awarded. If Lord B is right about phase 1 costing a whopping £54 billion those contracts will attract no credible bidders - because the maximum value HS2 is willing to pay is based on the costs presented to Parliament with the hybrid bill. I will be watching closely....

Pessimism Bias   07/03/2017 at 13:33

The contracts would need to come in at or below the base estimate, not the one which includes optimism bias. Whether the optimism bias allowance will be reached depends on many things but I have a high expectation that it will be exceeded as the client and the design appears to be incompetent and the contractors will be doing their best to exploit the deficiencies.

Jerry Alderson   07/03/2017 at 16:13

To the list from Chris M, in East Anglia we can add the Ipswich Chord (Bacon Factory Curve), Cambridge island platforms, Peterborough platforms etc. Admittedly the last two were built down to a price: Peterborough's new island platform has no canopies. But...Cambridge North station has leaped from £25m to £50m as soon as Network Rail took charge of it, and very little of that overspend has gone to make it fit for passengers. Small waiting rooms on platforms. Tiny toilets. Only two of 12 carrianges will be next to a canopy. What Network Rail lacks (perhaps its suppliers as well) is consistency.

Peter   08/03/2017 at 12:48

For sure HS2 do not have a methodology, other than to throw everything in to justify the project, such as working time 'saved' by getting there quicker, as we cannot work on the train (??). Take away these spurious things and you begin to get nearer to the true costs.

Oliver   10/03/2017 at 10:30

HS2 clearly does not have a credible costing system as it continues to maintain that it only costs 9% more to build a 400kph line compared to a 200kph line. Heaven help us if it would cost over £50,000 million to build a classic line of a similar length to HS2 based on the current estimate which many commentators think will be far exceeded.

Bill S   04/04/2017 at 22:24

This is a pitch for the RMM and its Author which has some merit however their were many other contributors to the RMM in the entire NR estimating team and over 100 UK companies. The RMM is a good standard but others exist such as the SCC Codes in North America. The main reason for cost overuns are the funding methods. All to often sponsors would argue that the true cost of a project would destroy the business case therefore the low number is used. The second issue is expansion of scope after the original estimate GWML is an excellent example of this in no way does the original scope match the current scope. Estimating has improved and can go further the RMM is a good start however defined scope and change control are required throughout the process. Giving a project a name and value is meaniless without a clear scope definition. This why these projects inflate before taxpayers eyes. My end to this comment is dont blame the Estimator they know the business better than most people in the industry.

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