Highways Agency - Safe roads, Reliable journeys, Informed travellers

General briefing notes

Background

Design, build, finance and operate (DBFO) started life as a precursor and transition to motorway tolling, designed to create an operating industry which took a long-term commercial view and which might manage tolled motorways in the future. With this in mind, the Conservative Government announced in November 1992 that private-sector companies might be invited to bid for DBFO projects, with remuneration from the government according to usage.

The DBFO concept was included for consultation in 'Paying for Better Motorways: Issues for Discussion' (May 1993). A preliminary note on the principles applying to DBFO was published in April 1994. Welcomed by the City and industry, financial advisers Hambros/Pricewaterhouse then carried out a more intensive consultation on risks.

As a result of this consultation exercise, the DBFO form of contract was developed. In summary, the private sector, over the 30-year life of the contract, assumes responsibility for the operation and maintenance of a length of existing road (where appropriate) and the detailed design and construction of specified improvement schemes and their subsequent operation and maintenance. These responsibilities lead the private sector to focus on delivering whole-life cost efficiencies. DBFO has developed into a method of procurement worth pursuing in its own right as an alternative to other forms of procurement using conventional funding arrangements.

The first eight DBFO projects - Tranches 1 & 1A

Tranche 1

• A1(M) Alconbury to Peterborough
• M1-A1 Lofthouse to Bramham Link Road
• A417/A419 Swindon to Gloucester
• A69 Carlisle to Newcastle

Tranche 1A

• A19/A168 Dishforth to Tyne Tunnel
• A30/A35 Exeter to Bere Regis
• A50/A564 Stoke to Derby Link
• M40 Denham to Warwick

Contracts for the first eight DBFO projects were all awarded in 1996 (sometimes referred to as tranches 1 and 1A). These involve the private sector in managing about 600km or 5 per cent of the existing Highways Agency network and delivering 11 road improvement schemes with an estimated capital value in excess of £550m. Ten of the 11 schemes were completed and opened to traffic by Spring 1999, with the remaining scheme, the A30 Honiton to Exeter Improvement, opened in the Spring of 2000.

Reimbursement on these contracts is primarily by means of shadow tolls paid according to usage of the project road, plus bonus elements for safety enhancements and charges for lane closures and penalty points for not achieving set operating standards.

Value-for-money savings

The first four DBFO projects were the subject of a National Audit Office (NAO) report published on 28 January 1998, and a subsequent Public Accounts Committee hearing on 23 February. The conclusion of the latter was that the Highways Agency (HA) had made significant value-for-money (VFM) savings in the order of £100 million. A separate analysis of the first eight projects shows that they delivered VFM savings averaging 15 per cent.

The VFM of DBFO projects is established by placing each risk associated with the project with the party best able to manage that risk. Principal risks transferred to the private sector in the first eight DBFO projects included construction cost (including unforeseen ground conditions), opening date, operation and maintenance over 30 years, and traffic. Risks retained by the Department for Transport (DfT) included completion of the statutory procedures, land assembly, additional works required by the Secretary of State and events such as extreme weather conditions.

Tranche 2 Projects

Three DBFO projects were out to tender when the Accelerated Review was announced soon after the General Election in 1997. These were:

• South Midlands Network
• Cumbria to Bradford
• Weald and Downland.

These projects were subsequently cancelled. A number of other projects (A40 West London Approach & A36 Wessex Link) have also been considered for DBFO status but have been rejected. Information for all these projects is presented in 2c - Tranche 2 project fact sheets (Historic summary of DBFO projects).

Post Tranche 2 DBFO projects

The A13 Thames Gateway DBFO Project

Approved as part of the accelerated review of the trunk road programme conducted in summer 1997, the A13 DBFO provides a vital link in the transport infrastructure to assist regeneration in East London, improving east-west access to Docklands, the Lower Lea Valley and other parts of east London.

Following a pre-qualification exercise, four bidders were selected and tenders invited in August 1998. Tenders were returned in March 1999 and bidders shortlisted in August 1999. A provisional preferred bidder was selected in December 1999. The successful tender was awarded to Road Management services [RMS (A13) plc]. The contract signature was made in April 2000 and work commenced on 11 July 2000.  At contract award the project was transferred to Transport for London (TfL), who are now responsible for this DBFO contract.

The A13 Thames Gateway DBFO project is the first example of a DBFO reflecting the government's integrated approach to transport. This is achieved by a new payment mechanism that moves away from the all-vehicle shadow-toll payment mechanism used on previous DBFO contracts, replacing it with a combination of:

• Availability payments, designed to encourage the private sector to manage the maintenance programme to avoid disruption to road users at peak times, and with greater financial incentives in respect of keeping bus lanes open and available for use;
• Separate footway and cycleway availability payments, encouraging the private sector to recognise the needs of the non-motorised user by maximising the availability of these facilities;
• Long-vehicle shadow tolls, providing incentives to the private sector to manage public transport and heavy goods vehicle traffic effectively without encouraging increased car usage; and
• Safety payments, designed to encourage the private sector to reduce the number of accidents.

This mechanism was the starting point for the development of payment mechanisms for two new DBFOs announced by Lord Whitty in December 1998 (see below).

A1 Darrington to Dishforth DBFO Project

The A1 Darrington to Dishforth DBFO project contains two upgrading and widening schemes, with a capital value of about £245 million. Construction has been completed on this project.

A249 Stockbury (M2) to Sheerness DBFO Project

The A249 DBFO project contains three improvement schemes with a capital value of about £100 million. The contract was signed in February 2004.

M25 DBFO Project

The M25 DBFO project comprises the existing Area 5 network and Dartford Crossings - which together form the Project Road. Once let, a DBFO Company will assume responsibility for the operation and maintenance of the Project Road and a programme of capital works including the widening of up to approximately 102km of the existing M25, generally to dual 4 lane standard. The project is currently at the preferred bidder stage.

Scottish and Welsh Office DBFOs

DBFO is not just a procurement option used in England. The Scottish Office awarded the A74(M)/M74 DBFO in April 1997 and the Welsh Office the A55 in December 1998. Both contracts are expected to deliver VFM savings, although in the case of the A74(M)/M74 DBFO, a National Audit Office (NAO) report concluded that the net benefits may be less than the £17 million calculated by the Scottish Office. The price, however, can be expected to remain VFM.