Thinking in numbers: at the heart of national infrastructure
16 February 2021: Kathryn Cearns OBE, amongst her many other appointments, is a Non-executive Director of Highways England. She also chairs Highways England’s Audit and Risk Committee and is a member of the Department for Transport Group Audit and Risk Committee. She was on the Crossrail board and is now the DfT special representative on the Elizabeth Line Committee, which has governance oversight of the project. How does accountancy thinking enhance major infrastructure projects?
Net zero, social objectives and connectivity – as well as quality cost and safety – are words that are entrenched in national infrastructure delivery. But what do they mean in the context of actual national infrastructure programmes and how does it help to have a chartered accountant at the heart of them?
Cearns has earned her leadership stripes in financial reporting and audit roles, as well as in public sector advisory positions, and is well versed in talking about national infrastructure projects from a personal perspective in terms that chime with chartered accountants.
“Infrastructure is a long-term game,” she states emphatically. “Any major project takes a really long time from inception to delivery. And the time from inception through to actually putting a spade in the ground is often at least 50% of the project.”
Of course, governments change, and an infrastructure project can span several administrations so there must be a balance struck between the continuity of these long-term projects and the public interest and politicians’ democratic rights to determination. A system has been established to manage this balance.
“For both rail and road, we run on five-year investment cycles,” says Cearns. “There’s a decision about funding for that five-year period with an expectation about what should happen and how the money will be spent during that period. And that gives the delivery body, like Highways England or Network Rail, more freedom to operate within that longer-term context.”
She points out that even a five-year term is not very long where public money and decision-making is concerned. “If you look at how that works in practice, some of the things we're starting in this five-year cycle for Highways England won't be finished until well into the next five-year cycle or even beyond that,” she says. “However, the benefit of this system is it creates an environment where if we commit to something it has to be well developed and well planned so it will stand up to future scrutiny and stand the test of time.”
‘The more you invest in infrastructure, the more growth you create’
There's a rigorous process in the UK in terms of how projects are approved at all stages of their development but, once all the hurdles have been met, the government of the day is then committed to them and the project vehicles can proceed with the knowledge that all the work to get to that point has been done.
The benefit of getting these infrastructure projects off the ground is huge. “The more you invest in infrastructure, the more growth you create, not just immediately in terms of the construction sector and the people working in it, but ultimately, if you're increasing transport capacity in the UK, for example, then growth will follow,” says Cearns. “My personal view is that it also means you are giving a very big signal to the supply chain, to the construction companies, that there is some stability and that is extremely important.”
At present, UK infrastructure projects are run on a publicly funded basis but using vehicles at arm’s length from government to operate as a delivery mechanism with their own boards to take responsibility for delivery within the context of overall government policy.
Delivery is about more than roads, rail and buildings. “At Highways England we operate within a complex framework of policy imperatives,” points out Cearns. “We are a company, but we have a framework agreement with the Department of Transport. We are also regulated by the Office of Rail and Road and we have specific responsibilities to a wide variety of public policy drivers, for example, SMEs, social enterprises, the environment and social benefit.” The levelling up agenda will also be assessed within this standardised framework.
The economic models that are developed will draw in all these benefits – not just direct economic benefits but also the indirect ones around pollution, employment, housing – and they are based on Treasury guidance, which sets the parameters so that the models are consistent and can be compared. Then there can be detailed ‘value for money’ analysis around all these elements.
“We also have gateways in relation to what does not meet value for money criteria where there are escalation procedures to the Minister and Parliament to make sure projects are directed in the right way to achieve the greatest value for money,” points out Cearns.
Collecting information on a project starts at a very early stage. “We have gateway mechanisms for approving investment in projects compared to the baselines that have been set,” she says. “A lot of the analysis on projects at the beginning is about the outcome on an unexpected risk basis and then, as risk diminishes over time, that focus becomes more certain and you can start to solidify the outcome. But it's all about finding information, and transparency of analysis, around the projections and the risk profile of the project.”
Zero carbon creating a ‘step-change’
What has the net-zero commitment meant for UK projects? Cearns responds that Highways England was already ahead of the game on the environment front.
“I think zero carbon is creating a step-change in the way we think but it's not just about the way we build the asset, it’s also about how the asset is used, what its lifespan is and its upkeep and maintenance. Then there’s the road usage itself,” she says. “I think the government has been very good on this, but we also have to influence our supply chains. There are parts we’ve got direct control over but there are other issues around which there is much broader government policy.”
Building well and building with foresight is vital. “You can build roads to last 50 years, or you can build the roads last 100 years. The cost of the road lasting 100 years is not twice as much as the road lasting 50 years and, most of the time, technology can be added in,” she reminds us.
Of course, large public infrastructure projects like Crossrail teach us a lot about digital-based infrastructure projects too – not just about the social and economic benefits but also about how to manage such huge complexity that must deliver value across generations.
Cearns comments that we are starting to witness a revolution in infrastructure delivery – especially concerning net-zero – but revolution cannot happen without evolution and that is where we are now.
She says accountants have a unique understanding of complex information like this. “Accountants have the facility to look at complex information and understand it, but also to spot gaps and inconsistencies. Accountants are in a very good position to challenge, question and therefore support this type of economic analysis. I do think accountants have a huge amount to contribute. By definition their training gives them invaluable analytical skills, questioning minds, data comprehension and just good business common sense.”