Review of major capital  projects in Scotland
How government works

Prepared for the Auditor General for Scotland
June 2008

Auditor General for Scotland
The Auditor General for Scotland is the Parliament’s watchdog for ensuring propriety and value  for money in the spending of public funds.

He is responsible for investigating whether public spending bodies achieve the best possible value for money and adhere to the highest standards of financial management. He is independent and not subject to the control of any member of the Scottish Executive or the Parliament.

The Auditor General is responsible for securing the audit of the Scottish Government and most other public sector bodies except local authorities and fire and police boards.

The following bodies fall within the remit of the Auditor General:

�､	departments of the Scottish Government eg, the Education Department
�､	executive agencies eg, the Prison Service, Historic Scotland
�､	NHS boards
�､	further education colleges
�､	Scottish Water
�､	NDPBs and others, eg Scottish Enterprise.

Summary
Capital investment in the public sector is significant 
1. Public investment in infrastructure touches most aspects of Scottish life. It provides new and upgraded facilities, such as roads, railways, hospitals, schools, museums, prisons and major IT projects. Between 2002 and 2007, the Scottish Government and its agencies, non-departmental public bodies (NDPBs) and the NHS completed 43 publicly-funded major capital projects valued at £811 million (Appendix 1).1   
2. There are currently 104 major projects valued at £4.7 billion in progress (Appendix 2). Most of these are in the transport and health sectors (Exhibit 1). There are: 
�､	Nine large projects – seven transport and two health projects – with a combined value of £2.8 billion. The value of these projects ranges from £120 million to £692 million.
�､	Thirty-seven medium projects – mainly in the transport, health and justice sectors, valued at between £15 million and £85 million each – with a combined value of £1.4 billion.
�､	Fifty-eight smaller projects – covering all government portfolios, valued at less than £15 million each – with a combined value of £0.5 billion. 2
3. The scale of investment means that good decision-making about the capital programme and good management of individual projects are vital.

4. In May 2008, the Scottish Government proposed the further development of the Scottish Futures Trust initiative. This includes plans to provide a focal point for coordinated public sector infrastructure planning and investment. If approved and implemented, this coordination may help address our recommendations below. 

Summary of key messages 
�､	At project approval stage, the early estimates of cost and time were too optimistic for many major projects. Performance against cost and time estimates is better after contracts are awarded, as plans are more certain and risks clearer. Two-thirds of projects were completed within five per cent of the contracted cost and within ten per cent of the contract time. Most current projects reviewed also appear on track to meet the contract cost.
�､	Most completed projects have successfully delivered the required roads, hospitals and other assets, and all current projects are forecast to do so. However, few projects have been evaluated to demonstrate that they have delivered the expected wider benefits which originally justified the investment.
�､	Project management and governance arrangements of individual projects are broadly effective. However, the quality of project appraisals could be improved. Initial cost estimates also need to better reflect risk and uncertainty, and consider a range of inflation scenarios.
�､	There is a case for better cross-government coordination of capital investment programmes, including consideration of the capacity and capability of suppliers and contractors.  
Summary of recommendations 
The Scottish Government should: 
�､	collect information on all projects and get explanations for cost, time and quality changes, and lessons learned. It should report performance publicly.
�､	  strengthen strategic direction and investment planning through a senior, government-wide, investment coordination and challenge function
�､	  ensure robust procurement strategies and cost estimates have been developed prior to awarding funding to projects
�､	  take account of market conditions and construction inflation when developing its capital programme.
Public bodies should:  
�､	prepare robust business cases for every project. These should be clear about the project aims and benefits, and include assessment of: risks; the range of options to be considered; and a clear basis for assessing, reviewing and reporting
�､	build whole-life costs into business cases and subsequent project reporting
�､	ensure cost, time and quality targets are clear from the outset, and properly recorded
�､	improve early-stage estimating of the cost and time of projects. They need to ensure better assessment and quantification of risk and uncertainty, and should include a specific risk allowance, optimism bias allowance and take account of construction cost inflation in early cost estimates
�､	develop an appropriate procurement strategy which considers all procurement routes, competitiveness and capacity within the construction industry. Ensure that risk management strategies explicitly consider and mitigate the risk of changes in scope after the contract has been awarded
�､	make more use of tools available to assess and confirm both the quality of design and environmental sustainability to get the best of benefits from the available funding 
�､	ensure appropriate project management and governance arrangements are put in place for every project
�､	from the outset, ensure they have project managers with appropriate experience and knowledge of effectively managing major projects 
�､	ensure independent gateway or similar reviews at the key stages in projects
�､	ensure project budgets are sufficient to allow for post-project evaluation in all projects
�､	carry out post-project evaluations within a reasonable timescale to determine whether projects have delivered the benefits intended (benefits include satisfying the business requirements as well as providing good-quality design and functionality). Evaluations should consider performance against cost, time and quality targets.
�､	set a clear plan with regard to the need for independent gateway or similar reviews at key stages in projects 
Part 1. Introduction
There continues to be significant capital investment in the public sector 
5. The Scottish Government is investing significant sums of money in capital projects. The latest Infrastructure Investment Plan, published in March 2008, sets out the government’s proposals for capital investment in Scotland.3 It provides details of £10.5 billion of major projects that will be funded directly through public investment and those that will be funded partly or wholly by private capital. It aims to contribute to the government’s five strategic objectives of making the country:  
�､	wealthier and fairer
�､	smarter
�､	healthier
�､	safer and stronger
�､	greener.
All major investment projects involve significant risks  
6. There has been significant investment in public sector assets across the UK over the last few decades but this has not always resulted in assets that were fit for purpose or delivered value for money to the public purse. In the past, a number of large public sector capital projects did not meet cost, time and quality targets.
 7. Audit Scotland has previously reported on a number of major capital projects in our reports on the Holyrood Parliament building, overview of transport in Scotland and the Edinburgh transport projects: 

�､	In our reviews of the Parliament building we found significant difficulties associated with the construction of a very complex,  unusual building against very tight deadlines.4 Difficulties with the procurement method lay at the heart of the problems that arose. Although a distinctive landmark building has been delivered, the cost and time objectives were not met. Final costs on completion in 2004 were more than four times the initial estimate in 1998. Lessons for public sector procurement included: the importance of selecting the best procurement route; setting agreed budgets and other indicators to measure performance; and ensuring clear leadership and proper planning to ensure that good competition provides fixed and firm prices.
�､	Our 2006 overview report of transport in Scotland commented on a number of major road and rail transport projects.5 In six major projects completed between February 2003 and November 2005, actual construction costs had exceeded the pre-tender estimated cost by up to 33 per cent. For projects in progress, the report found a variable picture on estimated time to completion and outturn costs. 
�､	In June 2007, we conducted a review of the Edinburgh Airport Rail Link (EARL) and Edinburgh tram projects.6 Our report concluded that the tram project was relatively well advanced and arrangements to manage it looked sound. There was more uncertainty about EARL, which was at an earlier stage of planning, and we highlighted some particular concerns about its governance and procurement.
8. The Scottish Government has published two infrastructure investment plans since 2005.7 The Scottish Executive set up an overarching Infrastructure Investment Group (IIG) in 2006, but there is currently no reporting mechanism that brings together current progress on all major projects across the government. The Scottish Executive also developed a database of major projects, but there are no plans to report publicly on the progress of individual projects. 
Good project management is essential to deliver major capital projects to cost, time and quality 
9. Exhibit 2 summarises the main stages and five decision points in the life cycle of major projects from inception to completion, and explains why these are important. These key stages provide a framework for evaluating project progress. 

10. Good project management and governance do not guarantee that a project will deliver its required outputs to cost, time and quality. Well managed projects may fall short in some way due to factors beyond their control. However, good management and governance increase the likelihood that projects will deliver to cost, time and quality, and help managers to respond effectively if problems arise.
 11. Key features of good practice include: 
�､	Prior to projects being approved for construction, they should be soundly researched, planned, and fit well with the Scottish Government’s strategic objectives and policy priorities.
�､	Projects should be well organised, with clear aims, objectives and delivery arrangements.
�､	Competent, experienced teams should be appointed to deliver projects, with good leadership and properly defined roles and responsibilities. There should be a sound appreciation of risk and an effective strategy to manage and mitigate it.
�､	An effective partnership with suppliers, with their appointment based on a well-designed and well-executed competition.
�､	Accountability and transparency with regard to the progress of the project.
�､	At all stages of a project, there should be a clear focus on outcomes and how it will support and improve business performance.
12. Exhibit 3 summarises the main features of good project management practice, with further detail given in Appendix 3. We developed these good practice statements with Ernst & Young, which worked with us on this project. We took into account other published sources of advice, guidance and good practice on major project management, including: the Office of Government Commerce Programmes and Projects Guidance; the HM Treasury Green Book guidance on investment appraisal; and the Scottish Government’s Construction Works Procurement Guidance.8,9,10

About this report 
13. The Scottish Parliament needs assurance on the progress of capital investment and an understanding of what is happening at individual project level. Audit Scotland has therefore prepared this report to provide the Parliament with a position statement on how recently completed projects and a sample of current major capital projects performed against cost, time and quality targets. This is the first report of its kind and may form the basis of a series of regular updates on major capital projects. 
 14. Our methodology is outlined in Appendix 4. In summary, we:  
�､	surveyed all 43 projects that the Scottish Executive and its agencies, NDPBs and the NHS completed between April 2002 and March 2007, to obtain a comprehensive picture of completion to cost, time and quality. In addition, we reviewed five completed projects in more depth to help understand performance better
�､	reviewed 15 current projects to examine progress against cost, time and quality
�､	conducted case study reviews for all 20 projects reviewed (5 completed and 15 current) covering each current government portfolio and £2 billion in value (36 per cent by value of recent and current projects). We assessed each case study project against good project management practice. We report the performance of the case study projects to cost, time and quality using a traffic light system (Exhibit 4). We completed our case study reviews between October 2007 and February 2008, and, inevitably, projects will have moved on since we completed our examination.
15. Our review did not cover local authorities, further and higher education institutions or Scottish Water. These sectors are at arm’s length from the Scottish Government, have separate accountability and governance structures, and different funding systems for capital investment. Audit Scotland may examine major capital projects in these sectors in the future.
 16. We did not examine the progress of projects funded through Private Finance Initiative (PFI) contracts (14 projects completed and in progress valued at £902 million). The Scottish Government will not use standard PFIs for new projects and is developing an alternative method to help fund major capital projects. The Parliament’s Finance Committee is conducting an investigation into the funding of capital projects.
 17. This report is organised into three further parts: 
�､	Performance of all completed projects against cost, time and quality targets (Part 2).
�､	Progress of a sample of current projects towards cost, time and quality targets (Part 3).
�､	Lessons for the future (Part 4).
18. In addition to this report, we have also published a high-level summary of the 20 projects we reviewed and a good practice checklist for public bodies on our website: www.audit-scotland.gov.uk
 
Part 2. Projects completed between 2002 and 2007  

Key messages 
�､	In general, the achievement of cost and time targets improved significantly as projects progressed.
�､	Around two-fifths of projects were completed within the cost estimated when they were first approved. 
�､	Three-fifths of projects were completed within the forecast cost before awarding the main construction contract; and a quarter experienced an increase of less than five per cent compared to the contract estimate. 
�､	For most completed projects, the forecast delivery date at initial approval was overly optimistic. Only around two-fifths of projects were completed within or close to the initial forecast date.
�､	Most completed projects successfully delivered the required roads, hospitals and other assets. However, one in five completed projects reported significant defects in the first year after completion. In all cases, project teams were pursuing remedies for identified defects. 
�､	 Few projects have been evaluated to demonstrate that they have delivered the expected benefits, which originally justified the investment, and there is no consistent approach to public performance reporting.
Overall, the achievement of cost and time targets improved as projects progressed 
19. Capital spending must be used efficiently to deliver projects to budget and on time. There are two key decision points for any project: the initial decision to proceed with its development (business justification – Gateway 1 in Exhibit 2); and the major decision immediately prior to awarding the main contract (investment decision – Gateway 3). 
�､	Any weakness in the analysis at the initial decision could later undermine the development and overall success of the project. There needs to be clarity about the overall value and purpose of the project, its contribution to business goals and the optimum balance of cost, benefit and risk for its effective delivery. Inaccurate cost and time estimates at this stage undermine effective appraisal and value for money.
�､	The estimate immediately prior to awarding the contract is vital because it provides a basis for confirming value for money before the main financial commitment (the construction contract) is accepted. Once a contract price is agreed, significant changes to a project are likely to be costly, disruptive and lessen value for money.
20. We examined the final costs of completed projects and the actual completion time compared to the estimates made at these two key stages.  
21. The completed projects we examined were developed over different periods, including some that were started before devolution. Most projects took more than two years to go from initial approval to completion; in some cases they took longer, over six years in one case. Consequently, the guidance on project management and cost estimating that applied to the development of each project has changed in some cases.11

22. Fourteen of 43 completed projects did not estimate a completion date at the point of initial approval. Information about other contract time and cost estimates was better but incomplete.12     
23. Exhibit 5 presents a high-level summary of our findings on the performance of the completed projects against cost and time targets, and illustrates the following major points: 
�､	Initial estimates of time and cost (Exhibit 5A) were often too optimistic.
�､	Cost and time overruns are often interrelated. However, there is no statistically significant relationship linking the achievement of cost and time targets.
�､	There is a general picture of improvement in both time and cost estimating after contracts are awarded (Exhibit 5B), as plans are more certain and risks clearer. At this stage, although some projects do not achieve cost and time targets, the degree of variation is significantly smaller. Four-fifths of projects completed within five per cent of the contract costs.  Two-thirds of projects completed within ten per cent of the forecast contract duration.
24. In the rest of Part 2, we analyse in more detail the performance of all completed projects against cost, time and quality targets. 
Most projects were delivered within or close to, contract price, despite early estimates being too low 
25. Exhibit 6 summarises the results of our more detailed analysis of final costs compared to initial and contract cost estimates. 

Only two-fifths of completed projects met the initial cost estimate
26. The combined final cost of  41 projects completed between 2002 and 2007 was £730 million.13 This was £84 million (13 per cent) higher than the combined initial estimated cost of £646 million.  
27. Sixteen projects were successfully completed within initial cost estimates. Four of these were roads projects managed by Transport Scotland and its predecessors, while seven were prisons projects managed by the Scottish Prison Service. The five other projects completed within the initial cost estimates were: two NHS projects and three enterprise projects.14

28. Twenty-five projects had initial cost estimates that were too low, in most cases by a significant margin. The final cost of these projects shows an average overrun of 39 per cent against the initial cost estimate: 
�､	Eight projects had cost increases of between one and 17 per cent.
�､	Seventeen projects had final costs of 20 per cent or more above the initial forecast, with one small project (the Aberdeen Sheriff Court Annex) overrunning by 149 per cent. 
The final cost of most completed projects was within or close to the contract price
29. The combined final cost for 38 projects was £754 million.15 This was £8 million (one per cent) more than the combined approved contract price of £746 million. This shows that contract cost estimates are more reliable than estimates made at the initial approval stage. For these 38 projects: 
�､	Twenty-two were delivered within the contract price. 
�､	Nine projects experienced an increase of less than five per cent and one an increase of seven per cent. 
�､	Six projects experienced larger cost increases, between 11 and 28 per cent.
30. As part of our review, we also examined five out of the 43 completed projects as case studies, allowing us to assess performance against cost, time and quality targets. Exhibit 7 provides a summary of the outcomes of these five projects. 
 31. Three of the case study projects experienced significant cost increases compared to initial estimates (highlighted by the red traffic-lights for cost in Exhibit 7). The reasons for cost increases in these cases mainly related to errors in the initial estimate, although external factors also contributed:

�､	The £87 million Beatson Oncology Centre experienced a £22 million (30 per cent) increase in cost from the initial estimate and a further £5 million (7 per cent) increase against the £82 million contract cost estimate. The original estimates in 2001 did not include a provision for inflation, which subsequently added £8 million to costs. Revised guidelines which added a further £8 million, and changes in guideline costs for patient areas added a further £6 million to the initial cost estimate. The Greater Glasgow NHS Board approved the increased cost in 2003 before the contract was awarded. However, further changes to meet new external requirements for the storage and containment of radioactive materials and consequential delays and disruption added £5 million to costs. These changes were approved under the project’s formal change control system.
�､	The £33 million final cost of the new HQ for the Scottish Agricultural Science Agency (SASA) at Gogarbank was £9 million (37 per cent) higher than the initial estimate of £24 million, but marginally (one per cent) below the £33 million contract cost estimate. The initial estimates were prepared in 2000 and 2002 before any design had been completed. They were provisional estimates and did not contain allowances for risk and uncertainty. Revised estimates and the final design were included in a business case costed at £33 million, which was accepted in 2003. Higher proceeds from the agency’s sale of surplus land at its former HQ (£23 million compared to an initial estimate of £15 million) helped to offset the higher project costs.
�､	The £32 million final cost of the Playfair project for the National Galleries of Scotland was £6 million (26 per cent) higher than the initial estimate, and £5 million (21 per cent) higher than the contract cost estimate. The increase in costs during the contract stage was due to higher than anticipated construction cost inflation; changing the scope of the project; a longer than anticipated parliamentary bill process (which delayed some construction work); and additional fundraising costs not being included in the original estimate.16 The National Galleries met the majority (87 per cent) of the cost increase from fundraising.
Most projects experienced delays, particularly compared with initial forecasts 

32. We also examined the actual completion time of projects compared to estimates made at the two key stages – initial approval and immediately prior to contract. 
Compared with the initial time estimate, most projects were significantly delayed
33. Exhibit 8 summarises project completion times compared with initial estimates. 
 34. As with cost estimates, for most completed projects the forecast delivery date at initial approval was too optimistic. Our analysis of 29 projects with complete performance data shows that: 
�､	ten projects were delivered within the initial time forecast
�､	nineteen projects took longer than initially forecast. Of these, two were delivered within ten per cent of the initial time forecast and the other 17 overran by between 16 and 200 per cent. 
Most projects experienced some slippage compared with the contract estimate
35. Exhibit 9 summarises project completion times compared to contract estimates.   36. Of the 39 projects with complete performance data: 
�､	Six projects were completed ahead of schedule. For example, the Playfair project was completed seven months earlier than planned after the National Galleries for Scotland took the opportunity to run two elements of the project in parallel, rather than consecutively as initially planned. This was not at any additional cost to the project.
�､	Ten projects were completed on time.
�､	Nine projects were completed with a ten per cent time overrun or less.
�､	Thirteen projects slipped between 11 per cent and 45 per cent of the  contract time estimate. 
�､	The Dykebar Acute Mental Health Admissions unit slipped by 100 per cent, completing in ten months compared with a forecast of five months.
37. Two of the completed projects in our case study reviews experienced significant delays. During the construction contract, the Beatson Oncology Unit was delayed by around six months due to design changes after the contract was awarded. These changes were to meet new external requirements for the storage and containment of radioactive materials. 
Most completed projects have delivered the expected assets  
38. Project quality may be defined as fitness for purpose, ie the project will satisfy the needs for which it was intended. Because projects vary significantly, there are no simple and universal measures of the achievement of quality which can be applied to all projects. 
39. In our survey of completed projects we looked at whether the required project outputs were delivered without significant defects and what wider assessments of quality, if any, had taken place.17 Eight of the 43 completed projects (almost one in five) reported significant defects in the first year after completion, five of these were NHS projects. Examples of defects reported included: 
�､	The Glasgow Royal Infirmary redevelopment project had heating and ventilation problems. Five years after completing the project, the problems have still not been fully resolved, but the contractor is rectifying the problems at its own expense. The NHS board has identified the underlying cause of the problems as a lack of detail in the tender specification at the outset of the design and build contract.
�､	The Beatson Oncology Unit has experienced some leaks which have resulted in some areas needing to be replastered.
�､	A new network IT system for HIE needed significant software bug-fixing after it was implemented in March 2007. 
�､	HIE’s European Marine Energy Centre in Orkney experienced various cabling and leakage problems. 
40. In addition, recent problems have emerged with the Clyde Arc Bridge. The bridge was closed to traffic in January 2008, 16 months after it had first opened, when one of its cable connections failed. 

41. With the exception of the problem with the Clyde Arc Bridge, which is now resolved, none of the defects represent a fundamental failure. In all cases, project teams have pursued or are pursuing remedies for defects. The project costs have been protected by the retention of some contract payments pending resolution of the defects. 
Few completed projects have been evaluated to demonstrate benefits  
42. Technical quality control, such as defects reporting, is important but is not sufficient to address all stakeholders’ expectations and requirements of the project. It is important that there is clarity from the outset about the expected benefits and how these will be achieved. It is good practice to set out specific benefits in the business case, with measures identified and responsibility assigned to track, monitor and measure the delivery of benefits. The finished project can then be assessed to ensure that it meets the business requirements and provides good- quality design and functionality.

43. However, few projects have been evaluated to determine whether they have delivered the benefits intended. In most cases, evaluation concerned the quality of design and functionality rather than a more fundamental review of the achievement of the service and business benefits: 
�､	Only seven of 43 completed projects had done a formal assessment of the project design using design quality measures; and only two of the seven could provide documents to evidence this.18
�､	Only four completed projects reported any formal assessment of the project against environmental (BREEAM) criteria.19 All four projects reported good or very good performance. No projects reported other assessments against environmental criteria.
�､	Sixteen projects reported other forms of quality assessment, such as user surveys or other forms of acceptance testing. But only three could provide documents to evidence this.
44. The Scottish Public Finance Manual requires project teams to complete post-project evaluations but there is no requirement to report the results. We found: 
�､	Thirteen projects reported doing a post-project evaluation. Only four could provide a copy of this report, although nine provided comments on the three main lessons learned from the evaluation. 
�､	Nine roads projects completed by Transport Scotland and its predecessors were subject to standard quality control procedures for roads. These procedures do not include a formal post-project evaluation but do measure the residual life of the road five years after opening. Any shortfall compared with the remaining life specified in the contract is classified as a defect and must be remedied at the contractor’s expense. 
�､	The remaining 21 completed projects reported they had not done a post-project evaluation. However, this included four projects which have deferred evaluation. 
Recommendations 
The Scottish Government should: 
�､	collect information on all projects including explanations for cost, time and quality changes, and lessons learned. It should report this information publicly.
�､	Public bodies should:
�､	improve early-stage estimating of the cost and time of projects and ensure better assessment and quantification of risk and uncertainty
�､	make more use of the tools available to assess and confirm both the quality of design and environmental sustainability to get the best benefits from the available funding
�､	ensure project budgets are sufficient to allow for post-project evaluation in all projects 
�､	carry out post-project evaluations within a reasonable timescale to determine whether projects have delivered the benefits intended (benefits include satisfying the business requirements as well as providing good-quality design and functionality). Evaluations should consider performance against cost, time and quality targets
�､	ensure cost, time and quality targets are clear from the outset, and properly recorded.

Part 3. Projects currently in progress

Key messages 
�､	  Four of the 15 current projects had significant increases in estimated cost before approval of the main construction contract. In particular, the estimated costs of two transport projects – the  £692 million M74 completion project and the £85 million Stirling-Alloa-Kincardine Rail Link – have more than doubled since they were first approved, and both have experienced delay. 
�､	  Nine current projects had awarded the main construction contract, which should increase cost certainty. Most of these have experienced little or no increase in contract costs so far, and three more projects have since reached the contract stage.
�､	  Thirteen current projects are on schedule to achieve the initial completion date but two transport projects are not. 
�､	  It is too early to assess the quality of projects in progress. Four are at a relatively early stage of development, which increases the possibility of changes in scope. Two other projects have experienced significant changes in scope since inception. 
45. We assessed the progress of 15 current projects against cost, time and quality targets. Exhibit 10 provides a summary of each project we examined and our assessment of its progress towards cost, time and quality targets at the time of our review. We examined projects between October 2007 and February 2008, and, inevitably, projects will have moved on since we completed our examination of them.  46. The 15 projects reviewed have an estimated cost of £1.8 billion (38 per cent of the £4.7 billion value of current projects – Appendix 2). They cover each of the Scottish Government’s portfolios and include projects at each of the key stages in a project life cycle prior to completion. Nevertheless, because we have reviewed only a small sample of projects, and our findings are based on their status at a snapshot in time, our results cannot provide assurance on the performance of all 104 current projects. 

The costs of some current projects have increased since initial approval 
47. Four of the current projects we examined have, so far, experienced significant cost increases compared with the initial forecasts. Exhibit 11 summarises the main reasons for cost increases.    Two large transport projects have experienced large cost increases and slippage compared with the initial forecasts
48. Transport Scotland inherited responsibility for the two projects affected by the largest cost increases: the M74 completion and the Stirling-Alloa-Kincardine Rail Link. In each case, the estimated cost of these two projects had more than doubled and both had been significantly delayed.  
49. Case study 1 provides an overview of the changes in time and cost estimates affecting the M74 completion project. At the time of our initial review (Autumn 2007), the £510-593 million estimated project cost was more than double the £245 million estimate in 2001 when the Scottish Executive first accepted responsibility for the project. The project had also been delayed by about three years. Total project costs were uncertain at the time of our review because the tendering for the main construction contract was still in process and had resulted in only one bid being received. The contract was awarded in March 2008 and the estimated project cost is now £692 million.
 50. Case study 2 (page 24) provides an overview of the changes in time and cost estimates affecting the Stirling-Alloa-Kincardine Rail Link project. At the time of our review (Autumn 2007), Transport Scotland had recently taken direct control of this project, and project management and governance had improved. The project was completed in May 2008, within the revised timetable approved by Transport Scotland when it took over the project.
 Three other projects are subject to significant uncertainty 
51. In addition to the four projects outlined in Exhibit 11, which have experienced significant increases in estimated costs, three other current projects were subject to significant uncertainty about their estimated costs at the time of our review: 
�､	The scope of the Glasgow Airport Rail Link project had, at the time of our review, been subject to significant change. This followed a decision by Transport Scotland to combine it with a previously separate rail improvement project, the Paisley Corridor Route. The intention was to reduce overall disruption to the network by combining the necessary construction works, and therefore produce better value for money overall. However, at the time of our examination, a new cost for the combined projects had not been agreed.
�､	At the time of our examination, the Scottish Crime Campus project was at the inception stage and the level of funding had not been finally approved. The current cost estimate of £63 million is based on feasibility study work undertaken in 2005, and further appraisals need to be conducted before a realistic cost of the project can be confirmed.
�､	The Erskine Bridge strengthening and maintenance programme is unusual because it constitutes a number of phased programmes of work rather than one individual project. At the time of our review, £17 million of works had been tendered and £10 million had been spent on maintenance. The current cost estimate of £29 million is an indication of the possible cost of the project, and there is no definitive lifetime budget or end date target for the programme of works.
Most projects at the delivery stage are not experiencing increases in cost 
52. As noted in Exhibit 10, nine current projects had progressed to the delivery (ie, post-contract) stage at the time of our review (and three more projects have now reached that stage). Based on the experience of completed projects (Part 2), the cost of a project is likely to be more certain once it has reached the delivery stage. 
53. Our review showed that of these nine projects:

�､	six were experiencing no increase in the expected contract price20
�､	the Golden Jubilee Heart & Lung Centre was experiencing a forecast increase of £1 million (14 per cent) in the construction contract price, but this increase was wholly offset by savings in equipment costs that form part of the project
�､	two projects are experiencing significant cost variances: the Stirling-Alloa-Kincardine Rail Link project is forecasting a £19 million (29 per cent) cost overrun on the contract; while the Erskine Bridge has a £4 million overrun (representing a 70 per cent increase on individual contracts included within this project). 
Most current projects are on track to meet contract timescales 
54. Most current projects are expected to be completed with little or no delay compared with the forecast made when the contract was awarded. However, three current projects have suffered significant delays: 
�､	The Parliament House Master Plan project has been delayed because initial tendering for the project in 2005 and 2006 did not result in any bids. In January 2008, the Scottish Court Service awarded a contract for the first of three phases of the necessary works, and there is no indication of further delays.
�､	The M74 completion and the Stirling-Alloa-Kincardine Rail Link projects are discussed in Case studies 1 and 2.
It is too early to assess the quality of current projects 
55. Assessing the quality of current projects is difficult while they are incomplete. We have limited our assessment of quality to identify whether any changes in scope have occurred during the life of each of the projects reviewed.  
56. Three projects are at a relatively early stage of development, with no approved design for some or all of the project, or no contract awarded. Inevitably, the scope and cost of these projects are subject to greater uncertainty. These projects are the Scottish Crime Campus (at inception stage); and two other projects at various stages of procurement: the Glasgow Airport Rail Link Project and the Royal Museum Masterplan.
 57. For nine other current projects we reviewed, the scope had not changed significantly at the time of our review and there appeared to be no over-riding risk to overall delivery. For two remaining projects, however, there had been some changes in scope. 

58. The Edinburgh Prison Phase 3 project has experienced some moderate changes in scope, compared to that at inception. All changes were approved under the project’s formal change control system and have resulted in the project cost increasing by £2 million. Examples of changes include: use of a key management system (which will offer increased staff efficiency) and work to comply with the Disability Discrimination Act.   59. The Stirling-Alloa-Kincardine rail project is discussed in Case study 2. 

Part 4. Lessons for the future

Key messages 
�､	  Project management and governance arrangements within individual projects are broadly effective.
�､	  In most cases, projects are addressing the strategic aims of the Scottish Government and demonstrated this in their business cases. However, four projects had no authoritative business case. There is scope to improve the quality of project appraisals more generally.
�､	  The overall approach to estimating costs, including the treatment of risk and uncertainty and consideration of whole-life costs at the project appraisal stage, could be improved.
�､	  There is evidence of a sound approach to competition in most cases, but not all projects achieved a sufficient degree of competition from the outset.
�､	  Project managers with specialist knowledge and significant practical experience can better deliver projects.
�､	  The Scottish Government has a strategic group with a remit to improve project delivery. However, there is a case for additional leadership and better coordination and management of the investment programme across government, to ensure that it matches market capacity and capability. This would promote good competition and value for money in the medium and long term.  
60. In this part of the report, we review lessons for the future management of major projects. Good project management and governance are important to help ensure the success of projects. They should provide evidence of robust cost estimating to support investment decision-making and help deliver  value for money. 

Management and governance within individual projects are broadly effective
61. Using our model of good practice (Exhibit 3 and Appendix 3), we assessed project management capability under five areas of project management and governance in five completed and 15 current projects. Exhibit 12 shows that for each of these areas at least three-quarters of the projects were assessed as adequate to improving or better. 

62. For seven out of 19 projects, that had advanced to procurement stage or beyond, capability was mostly adequate to improving. However, seven projects were assessed as having only basic capability in only one or more good practice areas: the M74 completion, Playfair Project, Royal Botanic Garden Visitor Centre, Erskine Bridge, Glasgow Airport Rail Link, Golden Jubilee Heart & Lung Centre and the eCare project. For these projects, the most common gap in capability related to planning. 

63. Only one project, the Scottish Crime Campus, had basic capability in all five areas of governance and project management. The project was at inception stage at the time of our review in late 2007, no outline business case had been approved and capability was expected to improve. In early 2008, major developments in the project were highlighted, which should improve its project management and governance.

64. The remainder of this part of the report highlights achievements and lessons learned in the following areas of project management:

�､	project set-up and planning (including business cases and cost estimating)
�､	procurement
�､	project delivery
�､	wider programme management.
Project set-up and planning are key to the successful delivery of projects 
65. Good practice in setting up and planning projects requires:  
�､	clear vision and direction from the outset
�､	a well thought through business case, which defines the outputs and outcomes from a project, to help determine its value for money. Business cases should also set out a clear plan for delivery. This should be used throughout the project to help manage changes affecting it during implementation and to help realise the intended benefits
�､	support for and commitment to the project from top management and major stakeholders 
�､	a good and clear decision-making structure with proper, well-defined roles and responsibilities for all involved in the project.
Business cases are needed to set out a clear plan for delivery
66. Business cases for most projects demonstrated clear links between the stated aims of the project and wider strategic goals. 
67. However, our work identified gaps in some projects. In four projects (Erskine Bridge maintenance, M74 completion, eCare, Scottish Crime Campus) no authoritative business case was available. Although each of these projects had passed through several decision points, the absence of a business case created a number of risks:  
�､	There may be confusion and a potential lack of ownership in relation to the key parameters of project aims, scope, cost, time and risk, which may compromise the success of the project.
�､	Accountability is weakened because the basis for reporting, reviewing and assessing progress on benefits, costs, risks and timescales is not as clear as it could be.
68. In a few other projects, while satisfactory business cases were available, there was scope for improvement. For example, the business case for the National Intranet had not been reviewed to reflect changes in the project that had been introduced in the previous two years. Similarly, the business case for the Edinburgh Waverley Infrastructure Works had not been revisited since December 2005. 

69. As part of our review, we commissioned an expert assessment of a sample of six business cases to assess quality and completeness.21  The purpose of the assessment was not to question the merit of any project, but to examine the quality of the underlying project appraisal process. This highlighted a number of areas where the quality of project appraisals could be improved:  
�､	In most projects, the overall aims were set down, but these could have been improved by having more clearly-defined and specific objectives. In particular, the inclusion of specific targets to demonstrate the change brought about by the investment would have enhanced the understanding of the need and purpose of the projects.  
�､	In most cases, a reasonable range of options was identified. However, the list of options considered in detail in some appraisals was limited. There is a risk that rather than a rational examination of a wide range of alternatives that ultimately highlights the best option, business cases become a process to justify a pre-existing preferred option.  
�､	In three cases, the initial appraisal excluded consideration of how to procure the project. Although better analysis in this area was completed immediately prior to awarding the contract, ideally an assessment of risks to delivery of a project should influence the choice of procurement method from the outset. 
The approach to estimating costs needs to improve 
Early cost estimates should include appropriate allowances for risk and cost inflation
70. Parts 2 and 3 of this report show that, in many cases, project time and cost estimates supporting the initial decision to proceed were too optimistic. Only two-fifths of projects were completed within the cost estimated at initial approval, and the costs of some current projects have also increased significantly. 
71. Research for HM Treasury in 2002 provided evidence of systematic errors in estimating cost and time in the early stages of major projects across the UK.22  This identified regular underestimates because project managers did not make sufficient allowance for the unforeseen problems that increase costs and time, this is known as ‘optimism bias’. HM Treasury issued guidance in 2003 to counteract this. The guidance requires projects’ cost estimates to include an allowance for optimism bias. The allowance has to be based on empirical evidence of cost overruns experienced by similar or comparable projects.23 The allowance for optimism bias is over and above allowances for specifically identified risks but may be expected to gradually reduce as the project progresses and knowledge of risks (and how to control them) improves. As well as improving the accuracy of cost estimates, allowing for optimism bias also reduces the risk of committing to more projects than can be afforded in the overall investment programme.
 72. In the cases we examined, project teams had attempted to improve cost estimating and project control by recognising optimism bias. In most cases, potential risks and their associated costs had been identified. 
73. Due to the long gestation periods of projects, some projects had not built in allowances for risk or optimism bias in early estimates. For example, project cost estimates made before the HM Treasury guidance in 2003 included no optimism bias allowance. After this date, there were significant differences among projects on how estimates accounted for risk and uncertainty in project. Some projects introduced large contingency allowances to reflect estimating uncertainty, but these were not always linked to any specific empirical evidence about optimism bias. In other cases, risk registers and risk management systems were introduced to assist project management, but the results were not directly linked to project budgets and estimates. 
74. Another problem in forecasting costs is accounting for construction costs inflation. Some projects we reviewed either did not include a specific inflation estimate or assumed that construction inflation would be the same as general inflation. However, recent history and longer trend analysis show periods when construction inflation varied significantly from general inflation. Since 2000, the Scottish Public Sector Tender Price Index (SPSTI) has risen by an annual average rate of 5.8 per cent (49 per cent in total), while general inflation has recorded a 2.5 per cent annual average (19 per cent in total) (Exhibit 13). Current independent forecasts suggest that, for the next few years, construction inflation will continue to outstrip general inflation. Projects therefore need to consider a range of inflation scenarios if cost estimates are to be reliable.24 
Other project cost estimates could be improved
75. There is scope to improve other aspects of estimating cost. The choice of construction method, fixtures, fittings and services may significantly affect the costs and they require careful assessment during project appraisal. Explicit consideration of the effect of whole-life costs was relatively scarce within the project appraisals we examined.25

76. Comparative costs from similar completed projects provide a useful benchmark for establishing likely costs at the early appraisal and planning stages, but we found the use of benchmarking and cost comparisons varied among projects. Transport Scotland, because it is running a programme, can and do compare the costs of its major road schemes to help gauge the likely cost of any new project.

A sound approach to procurement is vital
 The choice of procurement strategy can affect project costs
77. Choosing the correct procurement strategy for a project is essential for good competition, minimising costs and maximising quality and value for money. The aim is to get the optimum balance of risk between client and contractor, in accordance with the principle that each risk should be assigned to whichever party is best placed to manage it. There is no single right answer when deciding how to procure a project due to the individual nature and requirements of projects. Exhibit 14 illustrates the potential advantages and disadvantages of different procurement routes, for projects which are publicly funded.

78. Our work shows that project teams were mostly making sound procurement decisions. For example, because of the importance of integration and cost certainty within projects, HM Treasury guidance states that design and build contracts should be considered for every project, along with other integrated procurement methods such as Prime Contracting. Design and build was the most commonly adopted procurement route among projects completed between 2002 and 2007 (Exhibit 15).

79. Our case study reviews showed that in most cases, project teams had prepared formal procurement strategies based on an assessment of risks and risk allocation strategies for each procurement route. Tender competitions for projects were also generally well handled, with a good level of competition in most cases. The projects we reviewed typically received between three and five bids each before the main construction contract was awarded.

80. In particular, for roads projects, Transport Scotland and its predecessors developed a robust lump-sum design and build contracting strategy, which has resulted in a high degree of cost certainty for many projects in recent years. Between 1993 and 2005 it completed 25 design and build projects costing £390 million, with an average contract cost variance of +4 per cent.

81. However, three projects – M74 completion, Playfair project and Parliament House – experienced difficulties with their procurement:   
�､	In two cases, M74 completion and Parliament House, the fixed price design and build contracts (which should provide cost certainty for the client but involve a high degree of risk transfer to suppliers) did not prove attractive to the market. This in turn created delays and other problems for the projects. Case study 1 in Part 3 discusses the M74 completion project.
�､	The National Galleries for Scotland initially tendered for a management contractor for the Playfair project. This procurement route was selected after professional advice from the externally-appointed project manager, but it received only one bid in response. In 2001, after further advice and discussion of the procurement strategy with the Scottish Executive, it tendered for a construction management contract. Six competitive bids were received and a construction manager was appointed in June 2001. 
�､	In 2005, the Scottish Court Service attempted to procure the works for the Parliament House project on a fixed price design and build contract. This resulted in no bids being received. A revised tender in summer 2006 (again based on fixed price design and build contract) also resulted in no bids, despite contractor interest and confirmation from some that bids would be submitted. After a review of the contract strategy, the Scottish Court Service approved a procurement approach for Phase 1 of the project based on two-stage tendering, with the Scottish Court Service retaining responsibility (and risk) for design and coordinating the works. In spring 2007, three bids were received in response to the first-stage tender and the Scottish Court Service appointed a main contractor for its Phase 1 works in June 2007.
82. For three projects, the chosen contract type proved to be poorly matched to some risks arising later in the project. Specifically, the risk of changes in scope after the construction contract was awarded had not been fully considered, resulting in costs being higher than the contract price:

�､	The Stirling-Alloa-Kincardine Rail Link project is discussed in Case study 2 in Part 3.
�､	The Golden Jubilee Heart & Lung Centre had a design and build lump-sum fixed price contract.The client made changes to the scope after it was awarded, with inadequate assessment of potential risks. The changes resulted in a 14 per cent increase in the contract cost. 
�､	After it awarded the design and build contract for the Beatson Oncology Unit project, NHS Greater Glasgow and Clyde made changes to the scope to meet newly issued regulations for the safe treatment radioactive materials and safe containment of x-rays. These changes were necessary to ensure adequate security and compliance, but introducing them at this stage contributed to a seven per cent increase in the contract cost. 
Wider market conditions may also affect costs
83. Public sector capital projects compete in an open market along with the private sector and are subject to the volatility of the market. The market is affected by domestic demand and, increasingly, by global demands for raw materials, knowledge and expertise, which has forced up prices. Consequently, in periods of high demand, market competition may weaken and project costs increase beyond original plans and forecasts. In particular, there is a risk that increasing national and international demand may reduce the number of suppliers bidding for contracts.

84. Market conditions present strategic risks to individual projects and to the Scottish Government’s investment programme as a whole. The current market means that there may be fewer potential suppliers for capital projects, or their willingness to compete for work may be reduced. This increases the risk of poorer value for money for public bodies from weak competition. The Scottish Government needs to consider carefully the extent to which poorly coordinated approaches by the public sector could put value for money at risk and how to manage that risk.

Good governance and experienced teams have contributed to successful project delivery

Project managers with specialist knowledge and significant practical experience can more effectively deliver projects
85. Overall, projects appear reasonably well executed. For all projects, there was generally a culture of positive project management and recognition of the importance of a systematic approach. In general, for most projects: 

�､	Good governance structures were in place. The right people were involved and committed to the project.
�､	Project reporting showed evidence of clear leadership, accountability and openness to support decision-making.
�､	Business cases and project plans clearly allocated responsibilities for delivery.
86. In particular, Transport Scotland and the Scottish Prison Service (responsible for investment programmes comprising many similar, rather than one-off projects) have well-established, systematic procedures. 

87. Both Transport Scotland and the Scottish Prison Service have delivered a programme of projects within ten per cent of the overall estimated cost. The Prison Service completed ten prison projects between 2002 and 2007 at a total cost of £198 million. This was less than both the initial estimated cost of £201 million and the combined contract cost of £199 million. Similarly, Transport Scotland completed nine roads projects costing £164 million. This was nine per cent more than the initial estimated cost of £150 million but £8 million (five per cent) less than the combined contract cost of £172 million.

88. Transport Scotland’s road investment programme in 2007-08 comprises ten medium and large projects, each exceeding £20 million in value. Similarly, there are three medium and large rail projects in progress. Major roads projects are managed by small but experienced teams within Transport Scotland, with strong communication and well-understood roles. Similarly, Transport Scotland has significantly increased the number and skills of project managers with experience in delivering rail projects.

89. Other public bodies with limited experience of major projects, such as in the case of the Scottish Agricultural Science Agency’s new HQ at Gogarbank, employed individuals and project management companies to bring the skills needed to help deliver their projects. 

Independent gateway reviews are not always done
90. A gateway review is a short, focused review of a project carried out at key decision points in its life cycle by a team of independent, experienced practitioners. Exhibit 2 in Part 1 highlights the five project gateways. Gateway reviews provide an independent stock-take at key points in a project, with an opportunity to identify and correct any deficiencies. The Scottish Government sponsors and provides resources centrally to enable independent gateway reviews to take place. 

91. The Scottish Executive introduced gateway reviews in 2001, but they were not mandatory until 2005. Since 2005, 44 gateway and similar reviews for 20 major construction projects have been completed.26  

92. Of the 15 current projects we examined, nine had carried out gateway reviews or another form of review with some degree of independence from the project team. Project teams that have carried out gateway and similar reviews confirm the process is valued and useful. Six other current and five completed projects we examined had not completed gateway reviews because they had started (or in some cases finished) prior to this becoming mandatory.27

Better coordination and challenge across the Scottish Government may improve investment planning and control

93. The Scottish Executive’s 2005 Infrastructure Investment Plan recommended improvements in how the public sector should manage the substantial increase in infrastructure spending, to promote value for money and effective delivery. The plan aimed to:

�､	sustain healthy interest from suppliers in the larger volume of future projects  
�､	improve in areas, such as procurement, where the Holyrood project had highlighted risks
�､	secure high standards of governance and accountability
�､	build project management capability within public bodies.
94. Some improvements have been made in these areas. 

�､	The Scottish Executive undertook a fundamental review and strengthening of central guidance on major project procurement and management during 2004 and 2005, and issued revised guidance in December 2005. 
�､	In general terms, our review suggests this guidance is widely recognised and accepted by project managers.
�､	In 2006, the Scottish Executive improved strategic coordination by setting up a cross-government committee – the Infrastructure Investment Group. 
95. However, it is not clear that action so far fully satisfies the improvement aims of the 2005 plan. For example, in 2007 the Scottish Government deferred a decision to introduce changes in corporate governance and reporting systems to strengthen central oversight and challenge.  
96. The Scottish Government’s 2008 Infrastructure Investment Plan, sets out its future investment plans and the broad delivery framework. However, it does not provide a plan for maintaining and strengthening capability in major project management.

97. The Infrastructure Investment Group oversaw the creation, in 2007, of a database of current and potential major projects across the Scottish Government. However, the database provides only a snapshot of each project, with no real-time information available on project status, progress against cost, time and quality targets or risks to their delivery. 
98. The NHS, Transport Scotland and the Scottish Prison Service are responsible for large capital investment programmes and use their own systems for monitoring and overseeing projects. But there is no strong, central focus within government to foster consistent and constructive challenge of investment projects and their progress. The Scottish Government does not have standardised systems for reporting and appraising the current status of projects and how they are performing against cost, time and quality targets.

99. A completely new and centralised (ie, pan-Government) system of project management, monitoring and reporting is unlikely to be the best approach. It would be costly to implement and would cut across existing governance systems, which, our work shows, are in many respects effective. However, there are risks with the current approach, which devolves responsibility to individual government portfolios, making strong unified direction and leadership more difficult to achieve. There is scope for reinforcing strategic direction and investment planning, by establishing a senior, professionally-led, coordination and challenge function to champion best practice in investment planning and control across the whole Scottish Government and the wider public sector.  
100. The key achievements and lessons our work has identified provide a useful starting point for reinforcing and spreading good practice. Key issues to maintain and strengthen capability in major project management are: 
�､	The need for good leadership to promote and ensure consistently high standards of major project management and governance across government.
�､	Developing and sharing existing project management and expertise across government.
�､	Improving the rigour of project appraisals and the reliability of project cost forecasting. 
�､	The opportunity to support accountability with better, more consistent and open reporting of project progress, outputs and achievements.
�､	Introducing a more strategic approach to major project procurement across government which responds to market conditions and appetite.
�､	Reinforcing constructive challenge to support effective delivery of projects and disseminating lessons learned. 
101. In May 2008, the Scottish Government published its business case for the further development of the Scottish Futures Trust initiative. This includes the proposal for a small new public body, Scottish Futures Trust Ltd Delivery and Development, which is intended to provide a focal point for coordinated public sector infrastructure planning and investment. It will seek to introduce greater efficiency in major investment through greater scrutiny, oversight and coordination across the public sector. This coordination may help address our recommendations below.

Recommendations 
The Scottish Government should: 
�､	  strengthen strategic direction and investment planning by establishing a senior, government-wide, investment coordination and challenge function
�､	  ensure robust procurement strategies and cost estimates have been developed prior to awarding funding to projects
�､	  take account of market conditions and construction inflation when developing its capital programme.
Public bodies should:

�､	  ensure appropriate project management and governance arrangements are put in place for every project
�､	  	prepare robust business cases for every project. These should be clear about the project aims and benefits, and include assessment of: risks; the range of options to be considered; and a clear basis for assessing, reviewing and reporting
�､	  include a specific risk allowance, optimism bias allowance and take account of construction cost inflation in early cost estimates 
�､	  build whole-life costs into business cases and subsequent project reporting
�､	  develop an appropriate procurement strategy which considers all procurement routes, competitiveness and capacity within the construction industry. Ensure that risk management strategies explicitly consider and mitigate the risk of changes in scope after the contract has been awarded
�､	 	from the outset, ensure they have project managers with the appropriate experience and knowledge of effectively managing major projects
�､	 	set a clear plan with regard to the need for independent gateway or similar reviews at the key stages in projects.
Footnotes

1   We define a major project as having a capital cost of £5 million or more.
2   We have defined small, medium and large projects as less than £15 million, £15 -100 million and over £100 million respectively.
3   Infrastructure Investment Plan 2008, Scottish Government, March 2008.
4   The New Scottish Parliament Building: an examination of the management of the Holyrood project, Audit Scotland, 2000 and Management of the Holyrood Building Project, Audit Scotland, 2004.
5   Scottish Executive: an overview of the performance of transport in Scotland, Audit Scotland, September 2006.
6   Edinburgh Transport Projects Review, Audit Scotland, June 2007.
7   The 2005 Infrastructure Investment Plan was published by the Scottish Executive. 
8   Available from http://www.ogc.gov.uk/programmes_and_projects.asp
9   The Scottish Government has adopted the Green Book and it applies to all parts of the Scottish administration. Available from: http://www.hm-treasury.gov.uk/economic_data_and_tools/greenbook/data_greenbook_index.cfm 
10   Available from http://www.scotland.gov.uk/Publications/2005/11/28100404/04042
11   In particular, HM Treasury introduced new guidance on costing in 2003 – paragraph 71 below refers
12   Projects with incomplete information about time and cost estimates are identified in Appendix 1.  
13   We do not have forecast costs for two NHS projects, the Glasgow Royal Infirmary redevelopment and the Gyle Square property fit-out.
14   Transport Scotland was set up as a new agency of the Scottish Executive on 1 January 2006. At that time, it assumed responsibility for overseeing delivery of the Scottish Government’s major transport commitments. Its responsibilities include delivering major road and rail projects.
15   Information about contract cost estimates was not available for five projects – New Royal Aberdeen Children’s Hospital, Factory for Vestas, PBWAS, Gyle Square property fit-out, European Marine Energy Centre.
16  Construction inflation measures the change in the underlying costs of labour, raw materials etc, required in construction and it often rises faster than general inflation.  
17   We defined significant defect to be anything that adversely affected the client’s use of the project building or output, ie any loss of functionality compared with that expected.
18   The indicators are for: functionality; build quality; impact; and, diversity and inclusion. The Strategic Forum for Construction has stated that: “Greater use of design quality indicators should be one of six headline targets to help judge the industry’s ongoing performance”. It suggested that, by the end of 2007, 60 per cent of all publicly-funded/PFI projects costing in excess of £1 million should use these indicators.
19   In the UK, BREEAM (the Building Research Establishment Environmental Assessment Method) is the most widely-used system for rating buildings in accordance with environmental credentials. Until June 2008, the NHS in Scotland has used the National Environmental Assessment Toolkit (NEAT).
20   Edinburgh Waverley Infrastructure Works, A876 Upper Forth Crossing at Kincardine, Edinburgh Prison Phase 3 (although this project had suffered cost increases at earlier stages), Royal Botanic Garden Edinburgh Visitor Centre, eCare and National Intranet. 
21  The six projects selected for the assessment were: the Beatson Oncology Unit, Edinburgh Waverley Infrastructure Works, M74 completion, National Intranet, State Hospital redevelopment and the Royal Botanic Garden Visitor Centre.
22  Review of Large Public Procurement in the UK, Mott MacDonald for HM Treasury, July 2002. 
23   HM Treasury Supplementary Green Book Guidance – Optimism bias is a systematic tendency to underestimate the cost of a project by ignoring the likelihood of unforeseen costs.
24   http://www.davislangdon.com/upload/StaticFiles/EME%20Publications/Market%20Forecasts/MarketForecast_May2008.pdf
25	The whole-life costs of a facility are the costs of constructing, operating and maintaining it over its whole life through to its disposal. Whole-life costs of an asset are more reliable indicators of value for money than the initial construction costs, since money spent on a good design can be saved many times over in (lower) construction and maintenance costs. A well-built project can also achieve significant savings in running costs.  	
26   Most of these projects have been reviewed more than once. The Scottish Government facilitated a further 95 gateway reviews of policy projects in  the same period.
27   The six current projects are: Upper Forth Crossing, Golden Jubilee Heart & Lung Centre, Stirling-Alloa-Kincardine Rail Link, eCare, Erskine Bridge maintenance and strengthening, Edinburgh Prison Phase 3.

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ISBN 978 1 906752 05 7      AGS 2008/6