Review of National Highways RIS2 efficiency evidence
One of the key responsibilities of the Office of Rail and Road (ORR) is to monitor National Highways’ progress in achieving its Road Period 2 (RP2) efficiency target of £2.11bn. National Highways has developed the Efficiency and Inflation Monitoring Manual (EIMM) to outline the principles for calculating efficiency and provide supporting evidence. During the five years of RP2, National Highways commits to providing annual updates on progress to ORR for review to ensure they’re on track to achieve their efficiency target.
The challenge
The Office of Rail and Road (ORR) commissioned Rebel to (i) evaluate particular aspects of RIS2 efficiency evidence and (ii) recommend future improvements of the Efficiency and Inflation Monitoring Manual (EIMM). The goal was to assess National Highways’ proposal to adjust its efficiency KPI measurement concerning headwinds (factors that hinder performance) and tailwinds (factors that aid performance), and variable renewals delivery (for instances where work on asset renewals exceeds or falls short of planned levels). Additionally, Rebel was tasked with recommending ways to adjust and improve the EIMM to better account for these factors in future Road Periods.
The approach
Rebel’s approach involved a detailed assessment of the National Highways proposal using a tailored framework for measuring efficiency. Each scenario — covid-19, non-recoverable VAT, potential tailwinds, and variable renewals delivery, was individually assessed considering their specific complications in measuring efficiency. This framework enabled Rebel to understand the real impact of each scenario, its likelihood of affecting the achievement of the efficiency KPI, and to quantify the size of this impact. Rebel was able to work flexibly and deal with early stage analysis from NH, setting out what further work we would expect to see and recommended next steps.
Rebel focused on the validity of National Highways’ submissions and the adequacy of the EIMM for managing these factors. Key insights were also drawn by comparing National Highways approach with other regulated sectors, such as rail and energy. Rebel worked flexibly and dealt with early-stage analysis from National Highways, setting out what further work we would expect to see and recommending next steps.
Impact
Rebel strengthened the EIMM’s efficiency measurement approach by providing a structured framework and precise recommendations on the inclusion of key elements in the efficiency calculation.
