5 Ways to Improve the Delivery of Road Projects
Roads are the world’s first social network. People and goods need to move for an economy to grow, for wealth to be created, for prosperity to be shared. Much as a dynamic economy depends on the movement of goods and services, people everywhere rely on roads to access employment, education, and health services.
Many authoritative studies have underscored the growing gap between investment needs on the one hand, and the combined spending on road construction and upkeep on the other. Research shows that road-sector investment needs to be approximately USD 900 billion per year to keep pace with projected growth—currently, it falls short of this figure by USD 180 billion per year
Far less attention has been paid to the policies and mechanisms required to stretch available funds through better project selection, efficient procurement strategies, and effective delivery practices. Many road-infrastructure tenders receive too few bids and there are often significant cost variations. There is a lack of value-assurance processes and there are significant challenges to scaling innovation. These figure among the recurrent challenges expressed by road agencies worldwide. Additionally, experience shows that, to significantly and sustainably improve a country’s road network, the whole delivery system must be taken into consideration. It is not enough simply to increase funding.
Against this backdrop, the International Road Federation, a non-profit organization with a mission to assist countries in progressing towards better, safer, and smarter road systems, partnered with McKinsey & Company, a worldwide management consulting firm, to explore what can be done to enhance the whole delivery system. The partnership seeks to ensur that the spend results in the best possible road network – defined as the road network that best fulfills the transportation needs of the economy.
A study of more than 20 national and sub-national road-infrastructure delivery systems across the world was undertaken, to uncover root causes and improvement pathways. In consultation with leading industry experts, we developed a diagnostic for the full infrastructure delivery system across five key areas:
- Fact-based project selection
- Streamlined project delivery
- Making the most of existing road networks
- Strong governance
- Robust funding and finance
These areas were further broken down into 30 categories and 80 sub-categories, each representing a globally leading practice, and connected to a database of over 500 examples of best practices found across the world (exhibit).
Our efforts have yielded significant insights into the root causes behind the challenges in the infrastructure industry in general and the road sector in particular. They have also enabled us to identify successful and proven approaches to overcome these challenges.
The solutions are complex, and there is no single quick fix. However, we have identified five best practices that should inform every country’s improvement journey.
1. Maintain rigorous, fact-based, and transparent project selection.
The key to improved project selection is to establish (and stick to) a rigorous, fact-based project evaluation and a transparent process for establishing what can be done and in what order. Having one entity responsible for evaluating projects and establishing a fact base enables policy makers and elected officials to properly prioritize. Ensuring an outcome-focused approach to prioritization will bring the greatest benefits to citizens and businesses. Transparency in the process and on the criteria for prioritization also helps with stakeholder management. It is equally important that the fact-based project-selection method originates in the infrastructure strategy and is linked to the overall strategic goals of the society.
2. Streamline delivery.
The key to streamlining delivery is to boost sector cooperation across contracting, tendering, site management, and stakeholder management. The infrastructure owner decides the type of contract and how to tender the projects. For example, a decision to move away from design-bid-build contracts toward design-build contracts may pay dividends. Of course, design-build contracts are not a panacea, but their increased use can improve cooperation, align incentives, and enable stakeholders to better draw on each other’s strengths. Equally, the use of negotiations under the framework of public procurement laws can deliver benefits. Negotiations can help limit erroneous calculations, reduce overly wide discrepancies in risk estimates, and encourage improved use of alternative construction methods. However, they also increase the need for advanced tendering capabilities from infrastructure owners and suppliers.
3. Make the most of existing infrastructure.
Governments often seek to address transportation needs by launching new projects, but the existing stock of roads will always be more important than network additions. Making better use of the existing network is key. Our diagnostic shows that many countries do not focus enough on this lever. Additionally, building a fact-based maintenance strategy to reduce road lifecycle costs and ensuring that assets are not allowed to deteriorate to a point where reconstruction costs start to rise sharply enables governments to increase network reliability and reduce overall cost of ownership.
At the same time, pricing mechanisms such as congestion charges can improve road-network utilization and lead to higher economic effectiveness, while environmental effects are often positive. Furthermore, the capacity of existing assets can increase by making them more “intelligent.” This includes familiar solutions such as adjustable road signs, and adaptive traffic lights, as well as newer technology such as navigation apps with crowd-sourced traffic information. In the future, connected and self-driving vehicles may increase the capacity of existing infrastructure significantly, both by cutting accidents and the reduction of “stop-and-go waves.”
4. Ensure effective sector governance.
Our diagnostic efforts found that, across the board, three enablers need improvement for the road infrastructure sector to work better—capabilities, collaboration, and governance:
- Our research across thousands of infrastructure and construction projects shows that project-management skills make all the difference—no other factor correlates as strongly with the outcome of the project. Attracting, developing, and retaining talent is imperative, but also something that many governments and private-sector representatives acknowledge to be a challenge.
- An effective road sector requires collaboration between a broad range of stakeholders from the private sector, public sector, and citizens. Our research has consistently shown that this lacks efficiency, often because there is not a commonly shared goal for the road sector.
- Finally, cooperation across government can pose challenges. Separating technical and political responsibilities can help clarify roles and facilitate improved governance—but solutions must be tailored to the political situation in each country.
5. Enhance funding and finance frameworks.
While funding of roads will likely continue to be predominantly sourced from government budgets, many countries would be better off if they could complement public funds with access to private money. No one solution is right for all countries, but tools ranging from toll stations, infrastructure bonds, real-estate appreciation capture, congestion charges, public-private partnerships, build-operate-transfer, and other methodologies can be part of the toolbox and considered as a way of topping up available funds.
Given the complexity of the task at hand, all stakeholders have a role to play. Governments can set up the playing field right and enable sufficient flow of funds. Infrastructure owners can build comprehensive plans for investments, maintenance and, improved use. Companies can strive for innovation. Courts and municipalities can streamline permitting. Citizens can make their voices heard on effectiveness measures. The task may feel overwhelming, but as our work has shown, a good way to start is to take stock of the current state and design an inclusive plan for improvements based on the desired future state.
To read more on our findings and continue the conversation, please visit https://www.irf.global/mckinsey-irf-diagnostic/
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