Success in this area is measured mainly by the company’s performance against a KPI to deliver £2.2bn of efficiency by the end of road period 2 in March 2025.
This efficiency KPI was set by government following our 2019 review of the company’s draft plan to deliver RIS2. Government agreed our recommendation for £650m additional cost reductions and efficiency savings on renewals and enhancements to be used for managing risk.
However, providing the right incentives for efficient delivery is not straightforward.
There is an important balance to be struck between ensuring government priorities for the current road period are delivered in an affordable way and minimising the longer-term whole life cost of a road scheme or renewal project.
As evidence of its efficiency, National Highways must deliver its planned outputs within its funding, show cost reductions on repeatable activities, and describe how it has delivered efficiently.
ORR supports efficiency in RIS2 by monitoring National Highways' reported performance against the KPI, which includes reviewing the evidence for the efficiency generated.
In 2020 we agreed with the company an approach for the reporting and monitoring of efficiency. This is described in the Efficiency and Inflation Monitoring Manual.
Since its creation in April 2015, Highways England (now National Highways) has made the most of its opportunities as a company with fixed five-year funding settlements, to deliver efficiency benefits.
Overall, in road period 1, our final review found that while the quality of evidence varied, it was sufficient to show that it had met its RIS1 commitment to deliver £1.2bn of efficiency.
So far in road period, 2 we found that the company made a promising start in a challenging year (2020-21), but must work to improve the evidence of its reported efficiency.
As outlined in our 2020-21 Annual Assessment we are concerned about the future delivery of the RIS2 enhancement portfolio and how any required changes to the RIS could affect efficiency and wider performance targets.
We have already seen schemes moving further along in the road period and into the next causing some significant underspends in RP2, which led us to formally escalate this matter with the company and we expect it to take significant steps to mitigate our concerns.
This autumn we will be publishing a consultation on ur role and approach towards road investment strategy 3 (2025-2030)
This will include how we propose to contribute to ensuring government and National Highways' plans for RIS3 reflect a realistic but stretching level of efficiency.