Transparency data

A66 Northern Trans-Pennine project accounting officer assessment (October 2022)

Updated 27 November 2023

Background

This statement has been completed in compliance with HM Treasury (HMT) guidance for schemes in the government major projects portfolio. It seeks to demonstrate that issues of regularity, propriety, value for money and feasibility have been properly considered at key stages in the business case process.

The update is made at outline business case (OBC) stage with the project’s full business case expected to be completed in 2023, when an updated accounting officer assessment will also be issued.

Introduction

The A66 is a key local, regional and national route for east-west journeys in the north of England. The aim of the project is to complete the dualling of the A66 between the A1(M) at Scotch Corner and the M6 at Penrith, increasing the effectiveness of the route, reducing incidents and creating a more robust and resilient route. The A66 carries high levels of freight, with 25% of the traffic being heavy goods vehicles.

At stage 3 in National Highways’ (NH) project control framework, the project cost has increased following further design development and stakeholder consultation to produce a consentable scheme. This increase in cost has had a material impact on the value for money (VfM) assessment.

Strategic case

The strategic case for improvements to the A66 centre on the ability to provide more reliable, safer and efficient strategic and local connectivity in the north of England, supporting economic growth and the Northern Powerhouse commitments and aspirations, as well as strengthening union connectivity.

The case for change ‘dualling of the remaining single sections of the A66’ remains strong. The A66:

• provides freight connectivity across the union and global markets
• underwrites strategic, regional and national business connectivity
• is essential for levelling-up and economic growth in the northern regions
• provides access to major national tourism areas
• is an enabler for the government’s energy security strategy

Delivering the A66 as part of Project Speed provides insight into how government major construction schemes can be delivered faster, realising benefits sooner.

The lessons from acceleration form a key part of the strategic case for the A66. Through early delivery, the improvements in journey time, journey reliability, route resilience and general connectivity will feed through to businesses quicker. This will bring earlier productivity gains and will support economic recovery.

Early delivery, including bringing forward enabling works, will also create or sustain construction jobs (and attendant secondary employment) earlier than otherwise.

Environmental considerations

The dualling of the A66 faces significant environmental challenges due to sections of the works impacting on areas of outstanding natural beauty (AONB), sites of special scientific interest (SSSI) and areas of national archaeological significance.

Mitigating measures are being pursued to manage environmental impacts, with an associated increase on the overall cost of the project. This includes exploring how the scheme can deliver biodiversity net gain.

Regularity

The A66 is a named project within the road investment strategy 2 (RIS2). The department’s spending review settlements in both 2020 and 2021 allocated funding to the project. The project is expected to complete during roads period 3 and will therefore fall within funding for the road investment strategy 3 (RIS3).

Affordability

Due to a cost increase, the shortfall in allocated funding is expected in part to be met by drawing on headroom elsewhere in the RIS2 portfolio. The scheme will also be prioritised within plans for RIS3.

The cost increase is a consequence of increased costs for development, land and construction (enabling works). This includes design evolution to take into consideration views from stakeholders and to address environmental concerns, which have informed a robust consentable development consent order (DCO) submission. The DCO has now been accepted for examination.

There is also a significant increase in land costs due to design changes following statutory consultation and a revised land evaluation. The new cost includes 15 months of front-loaded construction activity, achieved by the 4 delivery integrated partners (DIPs) running several schemes in parallel, helping reduce exposure to future inflationary pressures.

There are opportunities and efficiencies that could bring costs down, including value engineering.

Inflation

The UK has seen significant recent increases in the rate of inflation. Inflation is included in the project as agreed with HM Treasury (average annual rate of 3.8% across roads period 2 (RP2)). NH is working to reduce the impact of inflation, including frontloading construction activities and early procurement of materials.

Propriety

The A66 project is being progressed by National Highways’ major projects team, in accordance with the National Highways project control framework (PCF). A stage gate assessment review (SGAR) is held at the end of each PCF Stage, with independent assurance reviews (IARs) at set milestones.

The scheme is working to the HMT Green Book and European system of accounts and within the standards set out in Managing Public Money.

The scheme was added to the government major projects portfolio (GMPP) in Q3 2020 to 2021 and is subject to the additional assurance mandated by the Infrastructure and Projects Authority (IPA).

The management of funds is reviewed through internal (National Highways) and departmental oversight, and scrutiny provided by the company’s investment decision control process, the department’s Investment, Portfolio and Delivery Committee (IPDC) and the HM Treasury approval process (TAP).

National Highways, DfT and HMT governance approval was obtained between December 2020 and February 2021 for the accelerated delivery milestones. NH, DfT and HMT approval for the new scheme cost was obtained between May and August 2022. The scheme is reviewed every 6 months by IPDC.

Value for money

At the end of stage 3, the updated adjusted benefit cost ratio (BCR) is at 0.90, resulting in poor value for money (VfM).

It should be noted that the BCR calculation removes the effect of inflation (as required by the Green Book), therefore the inflation saving seen in the outturn cost estimate as a result of acceleration is factored out of the BCR.

A reduction in cost is likely to have a positive impact on BCR to bring it to above 1.0. There are opportunities for cost reduction in the next stage of the project that are likely to positively impact on the BCR and VfM assessment. NH is also working to capture all benefits as part of developing the full business case.

Feasibility - including risks arising from deliverability, contractual or financial issues

The project follows National Highways’ Project Control Framework process and is currently at the end of Development Phase Stage 3 (preliminary design). It has been through Stage Gate reviews at each of the previous stages achieving:

• SGAR 1, green rating in December 2018
• SGAR 2, green rating in February 2020
• SGAR 3, green rating in June 2022

The latest independent assurance review conducted by the Infrastructure and Projects Authority, gave the project an amber rating. The review team commented that the project is well run and an exemplar in a number of areas, including stakeholder management.

Accounting officers’ conclusion

The latest cost increase presents affordability and value for money concerns, which NH and DfT will need to continue to work collaboratively to resolve.

Despite these concerns, there continues to be a strong strategic case for dualling on the A66. The A66:

• provides key freight connectivity across the union and global markets
• underwrites strategic, regional and national business connectivity
• is essential for levelling-up and economic growth in the northern regions
• provides access to major national tourism areas
• is a critical link for the government’s energy security strategy

The project will also deliver on NH’s strategic priorities including improving journey times, route resilience and safety on the network.

Overall, I am satisfied that the decision to continue with the A66 is consistent with the requirements of managing public money, for the reasons set out above.

Bernadette Kelly

Principal Accounting Officer, Department for Transport

26 August 2022

Nick Harris

Accounting Officer, National Highways

25 August 2022