The Cost Drivers of Major Infrastructure Projects in the UK

The National Infrastructure Commission’s 2024 report, “Cost Drivers of Major Infrastructure Projects in the UK,” highlights a critical concern: infrastructure costs in the UK are significantly high. The report delves into the root causes of these costs and offers strategies to address them, thereby aligning with government ambitions for sustainable economic growth, competitiveness, quality of life and climate resilience. This article synthesises the report’s findings, focussing on the main issues affecting infrastructure projects to provide construction professionals, employers, contractors and project owners in the UK with a comprehensive understanding of the challenges and opportunities within the sector.

“Infrastructure projects in the UK have been plagued by high costs, with notable examples including High Speed Two (HS2), Hinkley Point C and the Elizabeth Line.”

Overview of Cost Challenges

For decades, infrastructure projects in the UK have been plagued by high costs, with notable examples including High Speed Two (HS2), Hinkley Point C and the Elizabeth Line. These projects have often been perceived as poor value for money, failing to meet budgetary and timeline expectations. The report highlights that whilst nuclear power stations, high-speed rail and rail electrification face particular cost challenges, these projects are not seen as performing well against international benchmarks. It is said that the UK has a “long tail” of poorly performing projects that can learn from more successful domestic and international examples.

Potential for Cost Reductions

Industry insights suggest that optimising design and adopting efficient construction methods could reduce project outturn costs by 20-40%. System-wide implementation of said opportunities could translate to cost reductions of 10-25% across a portfolio of enhancement projects. Given the increasing demand for infrastructure to support net-zero emissions, economic growth and climate resilience, the time to implement these cost-saving measures is now.

The NIC has, in its report, outlined four main stumbling blocks in the delivery of major infrastructure in the UK.

Lack of Clear Strategic Direction

One of the primary barriers to cost-effective project delivery is the lack of a clear strategic direction from the government. Successive administrations have failed to provide a stable, long-term infrastructure strategy with committed funding, undermining industry confidence and investment. The report highlights the need for a national infrastructure strategy that identifies long-term needs and prioritises projects with clear funding commitments. Such a strategy would enable stable investment environments and programmatic pipelines, allowing for continuous improvement and cost efficiencies.

Client and Sponsorship Challenges

“The UK’s construction sector is highly fragmented, with small firms facing productivity challenges.”

Infrastructure clients and sponsors play a critical role in project success. However, disjointed accountability and unclear roles between clients, sponsoring departments and HM Treasury have led to strategic incoherence, delays, and increased costs. The public sector faces challenges in retaining skilled client expertise and creating an environment conducive to learning and innovation. In contrast, it is said that private sector clients, with more autonomy and flexibility in recruitment, are generally better equipped to manage procurement and achieve desired project outcomes.

Inefficient Consenting and Compliance

The UK’s consenting and compliance processes are overly complex, leading to unnecessary costs and uncertainty. The average consenting time for major infrastructure projects has doubled over the past decade, with unclear standards and risk-averse behaviours driving up costs. The report calls for reforms to streamline the planning system, reduce delays, and improve clarity on standards to facilitate more efficient project delivery.

Constrained Supply Chain

The lack of strategic clarity and a coherent investment programme has hindered the construction sector’s capacity to invest in future capabilities. The UK’s construction sector is highly fragmented, with small firms facing productivity challenges. A clear strategic direction from the government is essential to enable the sector to invest in skills, innovation and productivity improvements.

Conclusion

The National Infrastructure Commission’s report offers a comprehensive analysis of the systemic issues driving high infrastructure costs in the UK. Addressing these challenges requires a coordinated effort between the government and industry, focussing on clear strategic direction, effective client and sponsor management, streamlined consenting processes and a proper and robust supply chain. By tackling these root causes, the UK can realise the potential for lower-cost and more efficiently delivered infrastructure, supporting the nation’s economic, environmental and social objectives.

The report notes, that efficiency can only be improved in the construction of infrastructure projects if other changes in the system are also made at the same time. Government must provide a clear strategic direction and long-term funding to enable investment. Leading from this, we should see continuous improvement and pipeline effects which will deliver visible efficiencies at construction stage. In addition, clients and sponsors must get better at managing the project risks and trade-offs up front, including avoiding setting a budget too early before ensuring that the desired outcome is deliverable within the desired budget. Finally, it has been discussed widely that procurement reforms (with the new Procurement Act 2023 coming into force on 24 February 2025) cannot come soon enough. If we continue to crush the industry with unrealistic pricing expectations, we will never achieve our long-term goals.

Source: Watson Farley & Williams

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