Redland Green School in Bristol is a very stylish building. It's built on a hill with the structure following the curvature of the landscape. From some angles, it's a bit like a landslide has covered one end.
I occasionally visit Redland Green as part of the Young Enterprise initiative -the school's YE achievers are currently developing a profitable business selling school-branded hoodies and other clothing. I'm always impressed by the central, covered street within the building - it gives one the feeling of being in an open environment, but the temperature control, security and safety of an enclosed space.
But it was a very expensive project - originally expected to cost slightly under £30 million pounds, by the time it was finished it had cost £36.4 million. This overspend was also evident across the larger schools programme. In total, five schools ended up costing an extra £7.9 million to build.
Last July (2007), Councillor Derek Pickup, Executive Member for Children and Young People's Services, told the BBC:
"I find it unbelievable. Redland Green is very concerning and we've been concerned about that for some time. What happens now depends on who's at fault."
An external consultancy company, Grant Thornton UK, ("Advisers to the independently minded") was called in to report on the project, and that report is now available.
The GTUK report will be discussed under Item 9 of the Resources Scrutiny Commission on 22nd February 2008. It doesn't appear that this meeting will be webcast, unfortunately.
It's not a brilliant report, in that it is filled with caveats and exemptions. At one point, GTUK even say
"we are not quantity surveyors and cannot, therefore, comment on the reasons for the cost overruns"
which rather makes one wonder why they were chosen to audit the project in the first place.
Reasons for Failure
But there are some useful points. First off, let's dispense with the off-the-peg excuses. These are the key issues identified by GTUK's audit team:
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[T]here was no formal consideration by the Council of its overall control of the project
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No formal assessment of risk at any time during the project
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[A] PRINCE2 structure was drawn up [,] not implemented but replaced by a parallel system, which was not documented.
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Communication [was] mainly through informal reporting.
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[BDP]'s cost reports did not clearly report the potential total costs on the project.
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No formal consideration of compliance with financial regulations on this project.
Translated out of of consultant-speak, this means:
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The customer didn't know what they wanted.
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No one worried about what might go wrong.
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Management lacked experience.
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Very little was put in writing.
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No one worried too much about the final bill.
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It was all a bit shifty, anyway.
In a sense, GTUK have correctly identified the causes of the overspend. However this identikit list can be applied to every failed project you can think of, whether it be big or small, public or private sector, construction or services.
None of this really helps us understand the core problems. You can if you wish look through the report and see the usual "lessons learned". Better risk management, better project management, more rigorous processes, yadda, yaddda... After a big project goes pear-shaped, these are always the lessons, and they are never learned.
Who's Who
Before continuing with an analysis of the game, we need to talk about the players on the field. Here's a diagram to help:
After the decision was made to build a school, a Feasibility Study was used to justify the Redland site. The department at the council in charge of education (now CYPS) asked the department at the council in charge of property (P&D) to build a school. P&D appointed a consultant to manage the project. The consultant then appointed a Quantity Surveyor (which, interestingly, they partially owned) and a Builder.
During this process, tweaks to the design continued, the Council's Planning department intervened to add to the bill, and negotiations took place to find the cash. PFI credits were used to bait the hook - after all what's the point of building a few small schools when you can have one great big one - and other central government departments supplied more (of your) money. Around this point, the Council's Bank manager probably ordered champagne in anticipation of a very nice fiscal quarter.
Through out this process, the people ultimately in the frame were the Executive Members of the Council for Capital Projects and Regeneration (during build) and Children & Young People's Services.
A Risky Business
I want to pick out one key phrase from the project audit: Cost Certainty .
Following the tendering of the work packages in March/April 2005, the Quantity Surveyor wrote to Property and Finance on 19 May 2005 recommending that the Building Contractor be formally appointed as main contractor as approximately 70% cost certainty had been achieved.
Cost Certainty is one of those lovely little bits of jargon which crops up in local government. Let's say you go to Tesco to do your shopping. As you pick up groceries to put in your trolley, you will notice a price displayed next to each item. If you are so minded, you can make a shopping list and - using your receipts from a previous trip or by referring to the Tesco web-site - you can predict very accurately how much you must spend to get your shopping.
One could say that you have 100% Cost Certainty about your shopping bill. But you wouldn't, because it would sound mad. You would instead say that you have an agreed, fixed, price for each item on your shopping list, and thus an agreed bill to pay at the end.
If you went into Tesco, and each grocery item was labelled with a price range - say a tin of beans was listed as costing between 9p and 40p - and you wouldn't know the final bill until after you'd typed your PIN number at the check-out, then you'd probably go to Asda or Morrisons instead.
Agreeing a price for big projects is a difficult task, in both public and private sectors. Big projects typically come with lots of requirements - perhaps conflicting requirements - as well as tight timescales and complex procurement rules. But it's not as though we started building stuff yesterday. Take a trip to Bristol Museum and, in the Egypt gallery, you will find evidence that humanity has been in the construction business for some time now.
Construction is more complex than shopping, but buying buildings is pretty straightforward. Part of the rationale for seeking out specialists such as quantity surveyors, builders, architects and even consultants is that they can help to make pricing predictable because they have experience of doing similar exercises and know where the traps and pitfalls are to be found. And part of the procurement process is to tender for predictable prices before works starts, the deal being that if the customer can express their needs, the supplier will agree to meet those needs for an agreed, fixed price, or at least an open book pricing system (like an Argos catalogue).
The reason that suppliers are willing to agree to contractually controlled prices up-front is that they - one would hope - are able to control the risks associated with complex work by virtue of their relevant experience and professional conduct. Experience - personal experience from doing a job for a long period or organisational experience from repetition of similar works - is really the only way that a supplier can find the right balance between pricing low enough to win a bid but still covering their own backs and making a profit.
But this contract was let using a legal framework called the New Engineering Contract, which even has its own website. You can buy a set of generic contracts for only £475.00, fill in the blanks, colour in the charts and, hey presto, you're off. There is a catch though, which GTUK did spot:
The drawback to this type of contract is that it only works if the information that has been used to obtain tenders is correct. The contract price is not fixed. If the costs increase because of incorrect tender information then the cost of the project to the client [increases].
Brilliant. Just Brilliant.
Problems ensue with Divers Alarums and exeunt stage left
Afficionados of Parkinson's Law will appreciate the organisation of the project, post tender.
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The Council's Property division appointed a "Principal Project Co-ordinator".
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The "Principal Project Co-ordinator", along with the "Cost Control and Contracts Manager" recommended the Consultants.
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The "Director of Education" accepted the Consultants.
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The "Head of Property and Finance" wrote to the Consultants to confirm their appointment.
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The "Consultants" appointed (themselves) as the "Quantity Surveyors".
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The "Consultants", the "Quantity Surveyor", the "Principal Project Co-ordinator" and the Education department's "Head of Architecture" recommended the "Building Contractor"
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The "Building Contractor" was given the nod by the "Head of Property and Finance"
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The "Principal Project Co-ordinator" and the "Quantity Surveyor" drew up specifications for lots of little bits of the school (work packages) and gave these to the "Building Contractor"
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The "Building Contractor" and the "Quality Surveyor" tendered the work packages to a number of "Subcontractors"
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The "Subcontractors" hired Baz and Terry to shift hods of bricks.
Now this is just the construction. Finding the cash also involved the following people:
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"Strategy Leader for Capital, Assets and School Organisation"
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"School Organisation Officer"
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"Planning Officer"
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"Assistant Director of Education"
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"Resident Quantity Surveyor"
And there were plenty of problems on the funding side:
We are informed by the Principal Project Co-ordinator that after the design and tender stage, the LSC confirmed funding which was significantly less than anticipated. It was to contribute £7.5 million rather that the £9.8 million anticipated. The shortfall in funding fell on the Council. This resulted in a design change to reduce costs and contain the funding requirement.
As an individual, would you partner with another party to do something on a promise for £10 million? Hell, would you take them on trust for £1,000?
The management throughout the project was remarkably light, but one written item dug out by the auditor was the collection of monthly cost reports, which detailed the anticipated overspend. Let's look at the key figures from these reports in a handy graph form:
Now if you look carefully, you may notice that there's a bit of a jump around August/September 2006. Go on, have another look and see if you can spot it. Click on the image if you need a larger version of the graph. In August, the project was reported as £1,163,000 in the red (Cost Report 9). In September, the project was reported as over £4,107,000 in the red (Cost Report 10). What do the auditors have to say about this?
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[8.20] Cost report 9 shows a cost overrun on the original budget of around £1.2 million. Following receipt of cost report 9, the Head of Property and Finance and the Principal Project Coordinator requested the Consultant to review the cost position and to produce a report, which fully projected the anticipated costs to the end of the project. This culminated in a significant increase in projected overspend between cost report 9 and cost report 10.
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[8.21] Cost report 10 shows costs at around £4.1 above the original contract sum. Though it is a matter for a quantity surveyor, it appears to us that the sudden increase in the reported costs indicates a previous under-reporting of the cost position. The Principal Project Co-ordinator requested the Consultant not to send through any more cost reports if the cost position had not changed. Cost report 10 was meant to have included all costs expected to deliver the final project. As a result of this request, cost reports 11 and 12 were not submitted by the Consultant. (My Emphasis)
We'll come back to BDP (the consultants) in a minute, but remember Grant Thornton, the auditors, have already admitted "we are not quantity surveyors and cannot, therefore, comment on the reasons for the cost overruns". Their brilliant insight, from paragraph 8.21 above is worth repeating:
Though it is a matter for a quantity surveyor, it appears to us that the sudden increase in the reported costs indicates a previous under-reporting of the cost position.
Thanks, GTUK. Any news on your report into the strong positive correlation between quantity of fecal deposition by large mammals of the family Ursidae and density of arboreal cover ?
I'm waiting for the output of the Resources Scrutiny Committee before going into more detail about the relationship between the council's officers and the consultant, BDP. The difficulty is that even after reading the audit report it's still not clear why costs were under-reported. Certainly the council did contribute to the overspend due to poor architectural designs and failure to identify necessary works. For example:
[8.52] [...] the Council states that apparently no proper spoil balancing exercise had been undertaken by the design team and there was no plan in place or allowance in the tender for disposing of the considerable quantity of surplus spoil.
I am not making this up. No one considered that if you dig a big hole in the ground, then you will end up with a large pile of soil that must be removed.
What can one say about BDP? Well they must have great legal people. They managed to negotiate a deal where they get paid to run a building contract on the council's behalf, while apparently not having to accept any financial risks. Originally much of the information in this report was withheld from the public because of potential legal action against BDP, so the fact that it is now on the Council's web-site would seem to imply the consultants are off the hook.
There's also no information about whether the Architects and Designers are in the frame for cocking up the structural steel-work. Nor is there any information on whether irregularities in the handling of sealed tenders received from subcontractors will result in criminal action against council officers or employees of the Building Contractor or Consultant.
So, really, the only firm conclusion we can draw from this audit report is that Bristol City Council ought to get a refund from Grant Thornton UK for doing such a rubbish bit of analysis.
Will it happen again?
There are several things we csn do to reduce taxpayers exposure to project risk:
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Think small: Spread the risk by solving problems with lots of small initiatives, rather than huge projects.
- Hire some decent lawyers: there are plenty of suppliers who will undertake high risk programmes at fixed prices (including me), but you need a proper contract to control the relationship.
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Fund the services, don't supply them: If local government must be involved in education, care, waste management and other services then structure them in a way that tax payers can directly reward (and punish) private service providers on the basis of real performance.
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And, of course, Vote Conservative. The city has been run by various branches of Socialism for a generation. It's time for a change.
