2.1 The Agency's objectives for the M25 widening included delivering a high quality service putting road users first, while reducing congestion and improving journey time reliability and safety. It sought a private finance contract to:
• widen four sections of the M25 (around 60 miles);7 and
• operate and maintain the 125 miles of M25 including the Dartford Crossing, plus 125 miles of connecting roads at junctions.
2.2 The Agency identified industry concerns about the risks of pricing later sections as it planned to spread the widening over around seven years. It therefore aimed to procure a fixed price for the first two sections (Sections One and Four) and to agree the price of the later sections subsequently, based on costs experienced on the first two. The Agency included Section Four, which had the least favourable cost benefit ratio, in the widening project for project management reasons (Figure 5).
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Figure 5 Economic appraisal of the benefits and costs of widening
| Present value of | Present value | Benefit to |
Section 1 (initial section) | 1,368 | 264 | 5.15 |
Section 2 (later section) | 458 | 84 | 5.43 |
Section 4 (initial section) | 687 | 337 | 2.04 |
Section 5 (later section) | 931 | 249 | 3.74 |
NOTES
1 2002 prices.
2 Present value of costs includes discounted scheme costs and discounted indirect tax revenues.
3 In 2007 prices, the estimated present value of the benefits of the two initial sections is £2.3 billion.
Source: Highways Agency
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2.3 The Agency incorporated lessons learnt on previous private finance contracts. In particular:
• The M25 payment mechanism has lane availability as the key measure rather than usage and demand.
• The Agency redesigned the change mechanism. It can make minor changes up to a certain limit with no change to the monthly charge. There is also a contract review clause, as an alternative to termination, allowing the Agency to renegotiate the contract if it radically changes its requirements.
2.4 The project was attractive to the market due to its size and the opportunity to operate a major road system for 30 years, and the Agency ran a competitive procurement process. The Agency prequalified five potential bidders, and then reduced these to three consortia in October 2006:
• ALF - Amey, Laing O'Rourke and Ferrovial Agroman;
• Connect Plus - Balfour Beatty, Skanska, Atkins, and Egis; and
• FLOW - Vinci, Laing Roads, Carillion, and Costain.
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7 Section Three was dealt with under a separate contract.