In a Special Report published in CSW on 25 September, we examined 12 major projects: three each from the defence, transport, health, and work & pensions departments. We chose projects of a range of types, and covering the ‘traffic light’ risk spectrum from green to red. The text below covers one of the four departments: click here to read our introduction and methodology.
DfT proportion of GMMP value: 13%
Number of major projects: 17
Shared Services Futures
MPA 2012 rating: Red
The DfT’s shared services centre ISSC1 began operations in 2007, and is based in Swansea. It has now been handed over to private business process outsourcing firm Arvato as part of a seven-year deal.
ISSC1 is one of the building blocks underpinning the government’s Next Generation Shared Services Strategy – itself a key part of the Civil Service Reform Plan – which seeks to save up to £600m a year by concentrating the delivery of back office functions into a handful of shared services centres.
The Department for Transport (DfT) signed the contract with Arvato in March, hitting its 1 June 2013 deadline for final completion of the deal. All of the DfT’s six executive agencies, four other departments, and an arm’s-length body have agreed to sign up to the centre. And plans appear to be on track for all services to migrate to the new system by October next year.
“Things are going well,” DfT permanent secretary Philip Rutnam tells CSW. It did, however, take a long time to get here: the centre took seven years to develop, and cost more than £100m – an overspend of at least a third. The department’s decision to divest came after its plans to sell ISSC1’s services to a range of other Whitehall departments fell flat: departments were slow to sign up, and without sufficient economies of scale the centre became “too expensive”, as Paul Marriner, the government’s former shared services director, told CSW this year.
In 2012, the NAO examined five shared services centres, and found that ISSC1 created just £1.3m in net savings in 2010-11. Given the huge capital investment, it said, “at this rate it would seem difficult to break even”. And considering how things looked for the ISSC1 last summer, when the assessments were conducted – the Civil Service Reform Plan had made a big thing of shared services, but the shared services strategy itself was experiencing long delays – the project’s red rating may not come as a surprise.
The NAO report also warned that the software systems used had “added complexity and cost”, due to a “lack of scale and usage in some centres, limited standardisation and low levels of automation”. In other words, the centre was failing to realise some of the main benefits of sharing services. Arvato tells CSW that its model will be successful through the “increased standardisation of processes and services”.
A third problem highlighted by the NAO was security. The report said some agencies were unable to use the DfT centre because it was not accredited to use the Government Secure Intranet. But Arvato says the centre is now accredited to provide services on this system, and will also be accredited to use the Public Services Network (PSN).
Some of the NAO’s criticisms were directed at the Cabinet Office, whose Efficiency and Reform Group oversees the shared services initiative. The report said the shared services project was being managed by a Cabinet Office team of just three people, and warned that it would need “considerable senior skilled staff at short notice to direct and deliver this project successfully.” A spokeswoman for the Cabinet Office says the NAO report was “delivered prior to full ministerial agreement to deliver the programme”, and explains: “The team has grown significantly since then to over 30, covering the programme and its component projects.”
Rutnam is confident about the deal with Arvato, pointing out that it includes “all sorts of performance standards and incentives”, and noting that the project is receiving “close attention” from his senior leadership team.
“I never take anything for granted,” he adds. “These are complicated projects, difficult to deliver in the detail required. But we will only get the right result by setting a clear strategic direction, and then following through in detail”.
Thameslink
MPA 2012 rating: Amber-Green
There is no doubt the Thameslink train route is in need of investment: its services, which connect Bedford with Brighton via central London, have been “consistently among the most crowded London routes in recent years”, the National Audit Office (NAO) has found. The service is now undergoing a £6bn improvement programme involving work on tracks and stations, and the purchase of 114 new 10-carriage trains. The new locomotives are scheduled to be in service by the end of 2018, enabling 24 trains per hour to run through the capital at peak times.
The programme began well: the first phase of work on tracks and signalling was completed last year, on time and to budget. However, phase two – the purchase of the trains – has suffered a delay.
When Siemens was confirmed as the supplier for the £1.6bn rolling stock contract in June, the NAO said that the total delay has amounted to three years. However, the Department for Transport’s permanent secretary Philip Rutnam tells CSW that it’s only been about one year: he attributes this to the convoluted arrangements within the PFI arrangement, and the Eurozone crisis. “This is one of the most complex private finance deals ever,” he says, adding that the difficulties of putting it together have been “greater than any of the parties involved anticipated – whether us or Siemens”. The financial aspects of the deal were made more awkward, he adds, by the financial turbulence in the eurozone, which made long-term debt finance “difficult to access”.
Asked what he’s learned during the process, Steve Scrimshaw, the managing director of Siemens Rail Systems, says: “Don’t over-commit, don’t over-promise, be more realistic.” He adds: “I think all parties have been guilty of being a little bit too optimistic. You have to consider there have been 18 to 20 banks, three equity investors, the DfT, its advisers, its lawyers, everybody else’s lawyers, and you have to get everybody moving at the same time. In reality, two years is probably faster than some of the other bigger deals we have concluded.” He also believes that the infamous West Coast Mainline debacle contributed to the delay, by adding a “layer of governance to make sure everything was absolutely right”.
M25 Design, Build, Finance and Operate
MPA 2012 rating: Green
The widening of the M25 – one of the busiest motorways in Europe – has been one of the rare instances in which parts of a major project were completed ahead of schedule. Between 2009 and 2012 a fourth lane was added in each direction between junctions 16 to 23, and 27 to 30 – a combined length of 38 miles. Roads minister Mike Penning announced in June last year that “significantly, these improvements have been completed ahead of the London 2012 Games” – some eight weeks before its planned completion date.
The widening of these stretches of the road are part of a 30-year, £6.2bn ‘Design, Build, Finance and Operate’ (DBFO) contract, and this work’s early finish has contributed to the project’s overall green rating. The contract is in the hands of Connect Plus, a consortium comprising construction group Skanska; infrastructure services business Balfour Beatty; design, engineering and project management consultancy Atkins; and Egis, transport infrastructure project management firm.
The consortium is now undertaking further upgrades between junctions five to seven and 23 to 27. The timely completion of the widening projects mentioned above therefore represents “just one of a number of milestones along the way”, says Department for Transport permanent secretary Philip Rutnam.
A spokesman for the Highways Agency (HA), which is overseeing the contract, attributes its early finish to “strong integrated teams between the HA and its contractors”, explaining that “it’s about the HA team and the contractors’ teams working closely together. Rather than the contractors merely reporting to the HA, they work together and share the same goals.”
The project impressed with its speed, but did it satisfy the other single biggest criteria for cost-effective expenditure: value for money? Not according to the National Audit Office, which concluded in 2010 that the HA could have achieved better value by using a “more agile approach to procurement” and by exploiting the potential of hard shoulder running – a method first tested in Europe in 1996, under which drivers are allowed to use the hard shoulder at times of peak congestion.
Moreover, the report found that by driving the whole procurement process forward more speedily, the HA “could, and would, have avoided the cost effects of the financial crisis”, which added £660m to the price tag.
The HA responds that at the time, hard shoulder running was an “unproven technique, and the decision to widen was taken on the basis of information known at the time”. The spokesman adds that “the two widening schemes represented the most appropriate solution and the best return on investment, both in terms of improving journey times on the M25, and of providing value for money to the taxpayer.”
It is clear that, whilst hindsight might give us a different perspective on some of the key decisions, the HA did a good job of finding and managing a supplier that would do what it had promised, to the price it had quoted, and well before the deadline. And as anyone who’s overseen a construction project will attest, this in itself is a significant achievement.