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
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 learned A 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 learned Importance 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 learned Robust 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. www.webtag.ork.uk Chrisa.smith@dft.gsi.gov.uk +44 20 7944 4910
Any Questions?