1. While the Agency's management information systems enable it to examine spending on planned maintenance schemes on a job-by-job basis, there are significant gaps in its knowledge about what it gets across its whole network in return for our money. For example, while it knows that spending on planned maintenance represents 17% of its budget, it does not know with any certainty how much is spent on resurfacing across the network and what area has been treated for this amount. Worryingly, it is therefore unable to explain why the cost of road renewals per square metre resurfaced, has increased at a rate in excess of general price inflation and by how much.[2]

2. The Agency has access to information which it could use to get a better understanding of costs and to drive them down, but acknowledged that the degree and pace with which it has picked up on that information was disappointing.[3] Prior to 2007, it knew how much it was spending on each project, but it was only in 2007 that it made it a contractual requirement for contractors to break down the costs by each activity.[4] The Agency acknowledged that it needs to better understand each contractor's costs base and plans to use the information at its disposal to set challenging and demanding target costs, to estimate costs for its bid propositions and more generally to have better control of the numbers.[5]

3. One way in which the Agency could make more effective use of management information is to use it to assess the performance of different contractors and to drive down costs in the areas where they are higher. The Committee were concerned by the wide variations between Highways Agency Areas in the unit costs of particular types of job. For example, the average costs of resurfacing ranged from £17-£35 per square metre, and the cost of thin surfacing materials ranged from £63-£101 per tonne (September 2008 prices).[6] The Agency said that some differences can be explained, for example the higher cost in resurfacing in the south east of England, may be because it is much further from the sources of the materials used than other Areas and the cost of haulage makes up a significant proportion of the total cost.[7] The Agency acknowledged however, that having unit cost information available would help it to identify and challenge contractor's costs where they were higher than expected.[8]

4. The Agency took the view that procurement competitions and the prospect of a contract extension after five years are the key tools for driving costs down and delivering performance improvements, but while the current economic climate appears to be working in the Agency's favour, we do not believe that relying on these tools alone is enough.[9] Since 2001, the number of suppliers reaching the price competition stage of procurement has reduced and the supplier base for MAC contracts is becoming smaller.[10]

5. The Agency reports that, more recently the market for MAC contracts has become more competitive and, for the competitions in progress in November 2009, more bidders were meeting the quality threshold, and the prices bid were keener than had been offered in the past, with a 15% reduction in prices last year. Early indications from the current round of procurement suggest further reductions in price.[11] This is encouraging, but the market will change again and so the Agency needs to encourage contractors to drive down costs.

6. Evidence in the C&AG's report of costs rising within contracts is therefore worrying. In four out of five Highways Agency Areas visited by the National Audit Office, the amount paid for cost reimbursable activities had increased significantly since the first year of the contract.[12] Variations in requirements after tender award have also added significantly to the costs of routine maintenance paid for by lump sum, which are, in theory, fixed at the time of tender.[13]

3   Q 21 Back

4   Qq 1-3 and 8-9 Back

5   Qq 6, 22 and 24 Back

6   C&AG's Report, paras 3.5 and 3.6, Figures 14-17 Back

7   Qq 4, 25 and 26 Back

8   Q 27 Back

9   Qq 13 and 16 Back

10   C&AG's Report, paras 1.18 and 1.19; Ev 13 Back

11   Qq 31 and 81 Back

12   C&AG's Report, paras 1.10 and 2.12, Figure 8 Back

13   Q 33; C&AG's Report, para 2.13, Figure 9 Back