Savings grace: senior county officials map path to avoiding local transport cuts

The Association of Directors of Environment, Planning and Transport (ADEPT) is leading the response to the challenge set by ministers and the public to deliver more for less. LTT 's Lee Baker meets their president, Alison Quant, and junior vice-president, Matthew Lugg to find out how councils can save frontline highways and transport services.

The poisoned chalice of being senior local authority leaders right now: faced with swingeing budget cuts, they are being asked to do more with far less.

The Prime Minister, Gordon Brown, has demanded that local authority leaders meet the needs of “powerful citizens” with “rising expectations” whilst at the same time trimming budgets by billions. And, for their pains, they will have their pay and pensions capped.

LTT met Alison Quant, the president of the Association of Directors of Environment, Planning and Transport, and Matthew Lugg, the junior vice-president, key figures mapping out how to deliver transport services in such a climate.

Given looming budget cuts, LTT wanted to ask Quant, Hampshire’s director of economic development, and Lugg, Leicestershire’s director of transport and environment, how, over the next decade, councils will be able to improve bus facilities, or make sure that local roads are safe to use?

How will they ensure that new homes are well served by public transport, rural accessibility maintained, urban congestion tackled, and carbon emissions curbed?

They stress that reducing the unit costs of contracts is going to be key to doing more with less money. Local authorities spend £7bn a year on maintaining and building roads alone.

“You’re not comparing like-with-like,” says Lugg. “We need greater standardisation of specifications, and a better model contract for term maintenance. Why do we all need our own, in-house standards on the detailing of pedestrian refuges?”

Outsourcing is often hailed as being the answer to driving costs down. For example, the 4Ps, until recently the Government advisor on private financing, urged local authorities to consider new private sector partnering arrangements as a way of achieving efficiency savings. Quant acknowledges that authorities with direct labour organisations (DLOs) currently face falling turnover, given there is less work from both local authorities and the private sector.

“The value-for-money of in-house arrangements is worsening,” says Quant. “However, when the business of a local authority private sector partner goes down, it will put fixed costs up.” She says that a major difference between in-house delivery and a private sector partnering arrangement is that it is “far easier for a private sector partner to respond to rising costs by laying off staff”.

Lugg adds that DLOs allow the local authority client to compare whether or not they are getting a good deal from the private sector. “If you didn’t have DLOs to allow some comparison, then it would be much harder to see whether the private sector are giving you a good deal or not,” he says. “You’d be open to the market.”

The line of the country’s local authority directors, in short, is that savings can be made through any method of delivery. “Sometimes it is the process of changing to a new model that helps to drive out inefficiencies,” says Quant. That said, the directors suggest that certain models appear to offer greater scope for doing ‘more for less’.

Most importantly, they say that, in any partnering arrangement, an intelligent client must be retained in-house. This is why Lugg claims that the Highways Agency’s MAC (Managing Agent Contracts) are not a good model. “By placing the client role within the MAC, they haven’t retained enough expertise to find out whether they’re getting a good price or not.”

Last year, the Highways Agency’s own efficiency savings drive relied on re-negotiating maintenance contracts in order to reduce contractors’ prices by around 15%. Lugg claims that clients should neither let contractors set the price without scrutiny, nor arbitrarily attempt to reduce the price. 

“The client should work alongside the contractor to make delivery more efficient. Simply saying we’ll just ask for a cheaper price isn’t the right approach. It risks a return to the old adversarial approach with contractors,” he says. So whilst Quant says that closer horizontal integration between client, contractor and consultant to remove duplication of effort is “a strong suit,” directors believe that there is a balance to be struck.

Greater trust between councils and contractors would remove the need for, as David Hutchinson, the Highways Term Maintenance Association’s executive director, puts it, “a huge team of people chasing after another team”. However, the directors warn against moving from one extreme of micromanaging to the other of a hands-off approach.

Replacing performance indicators with higher-level outcome-based service measures, as in private finance initiative contracts, may offer a solution, said Lugg. “The client needs to give contractors enough freedom to innovate, to come up with new, effective and efficient ways of delivering.” This is one aim of the Midlands Highway Alliance, a collaborative procurement that is predicted to save 14 authorities £11m by 2011.

The single biggest saving for the authorities is the avoiding of the £100,000 cost of individual procurement every single time they want to build something, with three park-and-ride sites, a pedestrianisation scheme and bus infrastructure improvements, and three inner relief roads lined up.

However, Lugg says the four framework contractors – Tarmac, Carillion, Osborne/Aggregate Industries and Balfour Beatty/Birse – are also given scope to innovate rather than being given rigid specifications, which can allow infrastructure to be delivered more cost-effectively. For example, a safety barrier for the M69 was re-designed by Tarmac so that the same road safety result was achieved for £57,000 less.

Collaborative procurement is “a no-brainer,” according to Lugg, but is something that has not proved easy for local authorities to accomplish. “It took me two years to get this up and running. You have to keep on, banging the drum. I didn’t get the Highways Agency coming to say: ‘do you want to procure things together?’” Even now, with the alliance in place, it is not proving easy for the authorities to agree on standard specifications. Quant agrees that it is difficult, pointing to the joint street lighting PFI that Hampshire, West Sussex and Southampton signed in December.

“All the street lighting engineers said they each wanted different lamps. I had to say: ‘do you really need a specification for that? They need to be identical, so you can get the savings that having a critical mass gives you.”

Joint working like this requires new arrangements to manage the contract, involving more parties than would normally be the case. The leaderships of the three authorities will regularly liaise on the management of the PFI contract. “Working with two other authorities is probably as much pain as I would want to bear”, says Quant.

However, she says that the prize from joint working is great, and that there are many opportunities to be had from scaling-up operations – especially if the local authority itself is offering the service.

Hampshire County Council may build on its success in using local authorities’ trading powers to provide building construction services to other councils by extending it into highway and transport services. The county council continued a partnership formed with Amey to build within the county to provide work for other councils. “We have ended up building schools in London. Once you get the critical mass, you can go for other work.”

Communities secretary John Denham has said that there is “significant room for councils to expand and grow their capacity in municipal enterprise”. This will provide some authorities with a new income stream to help reduce their looming budget gaps.

Quant thinks there is still more scope for the public sector to lead on the efficiency savings agenda, as opposed to relying on the private sector. One option that both Whitehall and town halls  believe can reap significant savings is to merge back-office functions. She says many local authorities have the capability to provide such services for other councils.

“There is a halfway house. If we are pro-active, we can keep some of this in the public sector. We can reduce unit costs, but without then adding on a mark-up.” Already, Nottinghamshire County Council is processing Derbyshire’s parking penalty charge notices.

“Concessionary travel passes for a number of councils could be issued by one authority,” says Lugg. “Regional street works permit schemes could be handled by one authority.” Some areas of work would, however, have to be retained by individual authorities, he says. “I think that authorities would want to keep hold of their own parking adjudication service.”

Lugg is going to the regional improvement and efficiency partnership (RIEP) – the organisations supporting councils to make savings – with a shared services proposal for the East Midlands. The next step will be to develop a business case.

“There is a risk,” says Quant, “that the tsunami that is to come will drive the seeking of efficiencies but reduce the ability to realise them.” Lugg agrees, warning that if “the hatchet falls too quickly, we won’t have the time or money to make savings, and will instead have to make cuts”. They are planning on the basis that they will have three years to reduce budgets by 25%.

“You can’t just do these things overnight, we have to develop business cases,” adds Lugg. Since 2008, there has been £185m available from the RIEPs to invest in making the necessary changes to deliver savings. “Will there still be money available from this source? You have to spend money in order to save money,” says Quant.

These senior county officials have other messages for central government, of whatever political complexion. Commenting on the apparent political consensus that there is a need to build grands projets, Quant says: “We are making the point very forcibly to the Department that if you can’t spend money to maintain what you’ve got, you shouldn’t be building large new projects.

“If you neglect maintaining the roads, you end up spending far more in the long-run, so it’s a false economy.”

Lugg says that in the East Midlands, there has been a longstanding desire to improve the A453. “If the region chooses to prioritise this £150m project, that would mean there was no money for local transport plans. That would be completely unacceptable.”

They do, however, see a continuing need to build new transport infrastructure to accompany new houses, says Quant. “There is still a big housing shortage. We will need to take a long, hard look at how we can build the transport links necessary to deliver growth.” In December, the Chancellor announced a new body, Infrastructure UK, to “help facilitate private sector investment in infrastructure, and help ensure that publicly funded infrastructure is effectively prioritised and delivered”.

But Quant asks: “Will this new body be more about rationing money for infrastructure, rather than about coming up with new financing models to actually get things off the ground?” Their own suggestion is that the user will have to pay. “If there is a charge to connect households to the water mains, why not to roads?” asks Quant.

“If you have a small state, you need new sources of money to build infrastructure.” Lugg predicts new roads being financed by issuing bonds raised against the income generated from such charges, as in Victorian times – only this time, payment would be made by smart cards, rather than cash at a toll booth.

In some cases, however, Quant says that the aim of facilitating economic growth would not, in future, necessarily be achieved by building transport infrastructure. The Government’s ‘Total Place’ initiative, which entails different public bodies, including the NHS, the police forces and councils, pooling money to achieve outcomes in new, non-silo-based ways, is already prompting a re-think.

“Our job as directors is not to provide transport infrastructure, it’s to achieve outcomes: to improve the economy and reduce emissions,” says Quant. “In some circumstances, we might do better to invest in broadband rather than building a new road.”

The recent severe winter weather has shown, she says, “that people are able to adapt their travel behaviour quite dramatically, and carry on doing their jobs. As long as you provide for freight distribution, you might not need as much travel to be prosperous.” The other message from the directors for whichever Government is formed in May/June is that there is waste in Whitehall that needs rooting out too.

Quant stresses: “The Government’s focus is too often on local authority waste, when we think that less than half of each £1 for local transport actually finds its way to the frontline.” Denham said last week that it was “a comforting myth” that inefficiencies stem from requirements imposed by Whitehall.

However, Quant says Hampshire spent £10m on developing a tram system that was thrown out by Alistair Darling, when transport secretary. The county council is now instead bringing forward a plan for a bus rapid transit scheme “in smaller, less costly individual sections. You can find ways to play the system, but we shouldn’t have to do sub-optimal things”.

Lugg points to the duplication of effort for even a £5m local transport scheme. “You spend a lot of time and money assessing a major scheme, then the DfT goes away and gets their own people to assess it all over again.”

Another factor outside the control of local transport authorities is a planning system that means that somebody trying to stop something from being built “almost always can find a reasonable grounds for bringing a legal challenge,” says Quant. Hampshire is awaiting a Court of Appeal hearing in March on phase one of its BRT system.

Another legal battle added an extra £1m to a Winchester park-and-ride site. “An awful lot of money is wasted because processes are not fit-for-purpose,” says Quant. “But when ministers are looking for efficiencies, this never quite comes into the frame.” 

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