IMPACT OF JUDICIAL REVIEW REFORM ON THE COSTS OF INFRASTRUCTURE PROJECTS
Nine out of ten global projects worth over US$1bn in value exceed their budget or are delivered past their respective deadlines1. Whilst some overrun is expected where there is no clear precedent, it is clear there are gaps in knowledge across the sector which inhibits stakeholders from being able to estimate costs and foresee potential issues accurately. In the UK, projects such as the High Speed 2 (HS2) have been subject to intense media scrutiny due to sizeable cost increases since its conception.
This level of uncertainty affects a contractor’s ability to make accurate forecasts which usually leads to a higher likelihood of costs exceeding budgets.
In 2009, the government estimated that HS2 would cost £37.5bn (in 2009 prices) which following a review in 2019 rose to £72.1bn and £78.4bn (in 2015 prices)2. For example, inflation rose sharply, and ground conditions were more challenging than expected which required more structural work. Other reasons for the rise in costs stem from policy changes which led to the scope of works changing and some optimism bias from the government as to the costs and time it would take to build HS23.
These issues highlight the need for all stakeholders to be involved at an early stage in the planning process to collaborate and remove uncertainty where it is possible to do so.
A recent report by the National Infrastructure Commission summarised the issues faced by large infrastructure projects into key problem areas:
- A lack of clear strategic direction.
- Challenges with project clients and sponsors.
- A constrained supply chain.
- In efficient consenting and compliance issues.
This level of uncertainty affects a contractor’s ability to make accurate forecasts which usually leads to a higher likelihood of costs exceeding budgets. Furthermore, uncertainty prevents investors from being able to make informed decisions about the likely return on investment for projects. Governmental stakeholders are also unable to make conclusive, robust, or long-term policy decisions when strategic direction can change between successive parliamentary terms.
Another major obstacle in the UK comes in the form of legal challenges. The government announced that they would be implementing reforms set out by Lord Banner KC (the Banner reforms) to reduce the burden on the legal system and the infrastructure sector caused by unnecessary and unmeritorious challenges. The Banner reforms should reduce one area of unexpected costs and delays for parties, which should be a welcome improvement for the sector.
Lack of clear strategic direction
In the absence of a stable, long-term infrastructure strategy by the UK Government, UK infrastructure has been subject to unpredictable public capital investment. The report highlights that the UK has seen more year-to-year volatility than the other nine largest economies4. This uncertainty has deterred investment into projects and undoubtedly slows down development.
Challenges with project clients and sponsors
There is often poor collaboration between those setting the budgets and those executing the projects. Poor early-stage planning can lead to unrealistic budgets and inefficient design work which may change depending on the objectives of the project sponsor over time.
The TransPennine route upgrade was originally designed to move from diesel to electric trains at a cost of £289m in 2011. The works are now expected to cost between £6.2bn and £6.5bn.
The report gives the example of the TransPennine route upgrade which was originally designed to move from diesel to electric trains at a cost of £289m in 2011. The project plans changed due to the sponsoring entity adapting the plans to also increase capacity. The works are now expected to cost between £6.2bn and £6.5bn.
Constrained supply chain
Labour productivity in the construction sector and whole economy of the UK has not increased by a meaningful amount since the start of the 2000s as stagnant productivity has hampered both5.
Inefficient consenting and compliance issues
These challenges place strain on party relationships and could lead to investors and project sponsors choosing more favourable jurisdictions. In the UK, the approval process for large infrastructure projects increased by 65% between 2012 and 2022, to an average of four years6. Large infrastructure projects are also more prone to judicial review and the rate of judicial review of such projects has also increased dramatically over the last decade, rising by 48% since the early 2010s7. The danger is that parties become far more riskaverse to avoid or mitigate consent issues, leading to greater expenses. Uncertainty causes developers to make design changes to try and appease their critics or overdesign their project to limit the risk of a legal contest. Not only do these corrections themselves add cost, but navigating the bureaucracy to determine the changes required also adds great expense.
The UK is regarded as a leader in infrastructure regulatory standards. This can benefit project timelines as clear regulations should lead to predictable milestones and increased planning efficiency. Despite an internationally reputable compliance landscape, the UK regime has recently been criticised for adding costs to parties. Standards are rapidly changing, and this removes planning certainty. For example, Hinkley Point C developers were required to make 7,000 alterations to designs that had been used in previous international stations.
In addition, large project teams can cost around £1.5m to run per month8 and will usually have to continue their project work during legal disputes as well as provide information to legal teams. Delays caused by judicial review can therefore cause significant financial burden on the parties.
R (On the Application Of) v Secretary of State for Energy Security and Net Zero & Ors (2024) EWCA Civ 12 is an example of judicial review significantly delaying the development on an infrastructure project. The appeal was brought by residents against a decision to grant two development consent orders. The consent orders related to two significant infrastructure projects; East Anglia ONE North and East Anglia TWO Offshore Wind Farm. The residents were concerned with the cumulative effects of the developments and possible flood risks caused. The Court of Appeal dismissed the appeal. The judicial review process took over two years, significantly delaying the project. The interruption is even more frustrating for developers, as the courts concluded that there was no legal basis for opposing the projects.
Another prominent case of judicial review delaying a project was the review of Heathrow airport’s new runway. Following the consultation period, the Secretary of State laid the national policy statement relating to the building of the new runway before Parliament in June 2018.
Another prominent case of judicial review delaying a project was the review of Heathrow airport’s new runway. Following the consultation period, the Secretary of State laid the national policy statement relating to the building of the new runway before parliament in June 2018.
National policy statements are designed to set out objectives for the development of nationally significant infrastructure and are designated as national policy statements under section 5 of the Planning Act 2008. The airport national policy statement (ANPS) set out a policy framework within which to consider an application by a developer for a development consent order (DCO)9 for a new runway.
The ANPS and other national policy statements are the primary consideration in the determination of an application for a DCO10. This became the legal framework which Friends of the Earth and Plan B Earth (the applicants) sought to judicially review.
The Planning Act also set out several sustainability objectives which the Secretary of State must comply with when designing national policy frameworks. The applicants brought a judicial review challenging the lawfulness of the development based on lack of consideration of several sustainability requirements under section 5 and section 10 of the Planning Act and failing to take government’s commitments under the Paris Agreement into account. Applications to challenge the project came in at the divisional level in May 2019 and it was not until December 2020 that the Supreme Court ruled that the development and policy as lawful.
While it is important that there is the ability to question whether developments should proceed, the loss of time for dealing with legal challenges is not always priced into budgets at the outset of infrastructure projects. This can lead to cost overruns for unexpected or prolonged challenges.
As noted, the government announced the Banner reforms to reduce the burden on the legal system and the infrastructure sector caused by unnecessary challenges11. The initial paper permission stage for judicial reviews in relation to nationally significant infrastructure projects will be removed and the scope for appeals which are ‘totally without merit’ as deemed by a High Court judge will be curtailed. Currently, applicants have three attempts to argue their case at the High Court, the Divisional Court and the Court of Appeal respectively unless the claim is deemed to be totally without merit. The reforms seek to reduce the number of attempts to just one – meaning that unmeritorious claims will not prevail passed an initial oral hearing. This should reduce costs for all parties and liberate hours of delay in the legal system.
Furthermore, league tables of court delays will be brought in to promote quicker judicial decisions. This should reduce consenting times by six to twelve months, which should lead to cost savings for developers and sponsors footing the bills for these projects.
By reducing the number of judicial review attempts and expediting the process, the government hopes to facilitate quicker project approvals and implementations.
By making it more difficult to bring unsustainable claims against these projects, sponsors can feel more confident in project budget estimates. It may also improve the attitude of foreign investors towards the UK regulatory environment as proposed by Charles Emond, president of CDPQ12.
Judicial review has played a critical role in ensuring that large infrastructure projects meet legal and environmental standards, but excessive delays have contributed to significant cost overruns. The proposed Banner reforms, particularly the limitation on appeals, are designed to eliminate weak claims more efficiently and accelerate decision-making. If implemented, project sponsors and investors will benefit from more certainty surrounding the potential delays caused by legal challenges, which should have a positive impact on cost overruns.
The Banner reforms aim to streamline legal processes and reduce delays in infrastructure projects, which should improve procurement efficiency. By reducing the number of judicial review attempts and expediting the process, the government hopes to facilitate quicker project approvals and implementations. The changes are expected to lower long-term costs by reducing delays and uncertainties that commonly and regularly drive-up project expenses. This should result in substantial economic savings and efficiency gains, making infrastructure projects more cost-effective. General emphasis on accelerating project delivery and reducing bureaucratic obstacles is underlined by a need for skilled professionals to facilitate expeditious infrastructure projects.
3 www.instituteforgovernment.org.uk/explainer/hs2-costs
4 National Infrastructure Commission (2023), Delivering Net Zero, Climate Resilience and Growth: Improving nationally significant infrastructure planning, figure 3.1, page 19.
5 National Infrastructure Commission (2023), Delivering Net Zero, Climate Resilience and Growth: Improving nationally significant infrastructure planning, figure 6.1, page 35.
6 National Infrastructure Commission (2023), Delivering Net Zero, Climate Resilience and Growth: Improving nationally significant infrastructure planning.
7 Ibid
8 Ibid
9 R (on the application of Friends of the Earth and others) (Respondents) v Heathrow Airport Ltd (Appellant) [2020] UKSC 52, para 5.
10 Ibid, para 23.
11 www.gov.uk/government/news/prime-minister-clears-path-to-get-britainbuilding
12 www.gov.uk/government/news/prime-minister-clears-path-to-get-britainbuilding