By Joshua.Chambers

07 May 2014

Highways Agency chief executive Graham Dalton is leading his organisation out of the civil service for a new life as a government-owned company. He tells Joshua Chambers why he can’t wait to escape Whitehall’s stifling rules

It’s fitting that the Highways Agency is headquartered in Birmingham. After all, this is Britain’s ‘Motor City’: a place circled by ring roads which, though designed to ease vehicular movements, were ultimately found to be holding back the city’s social and economic regeneration. Eventually, the roads were tamed, with sections of the inner ring road remodelled to allow the transformation of the Bullring. And today, the Highways Agency is based in a fashionable and iconic building in a major new development.

Inside that HQ, though, Highways Agency chief executive Graham Dalton finds himself bound up in another set of tight, sclerotic restrictions. “I am confined in so many ways,” he says, hitting out at the “old-fashioned” way in which the civil service operates.

Just as Birmingham has managed to break free from its self-imposed constraints over the past decade, pulling down unwanted edifices and building sparkling, startlingly-modern new structures, the Highways Agency wants to follow this example. Dalton now plans to break down the restrictions of the public sector, and to rebuild his organisation as a thriving private company.

As Dalton explains, the Highways Agency will soon be using a completely new operating model: one that will totally transform government’s management of the roads network, and may set a further precedent for civil service project management.

Plotting the route ahead
The journey began in 2013, when the government published two documents plotting the route ahead for the Highways Agency and the 4,300 miles of roads it oversees. Rather than setting out two- or three-year plans, the government first set out investment plans for the next ten years; and then, in the second document, announced that a new body would deliver those plans.

As it stands, Dalton says, the Highways Agency “has got quite a decent reputation, and we’re seen as being reasonably successful” in policy terms – but he thinks motorway speeds aren’t up to scratch. “If you’re driving down the M6 to come to work in Birmingham every morning, we’ve got to the point where 50mph or 40mph is acceptable, and the target is to make it 40mph every weekday morning,” he comments: the agency is hitting its targets by minimising jams, but overall motorway speeds are drifting down. A huge amount of economic activity relies on decent motorway speeds, he adds: “Getting more predictable, but slower and slower, is not acceptable.”

Britain is ranked 24th in the world for its roads, behind many other developed countries; France, for example, has built more miles of new motorway since 1990 than the entire UK motorway network. The UK government’s plans involve tripling road investment over the next ten years to plug this gap, with schemes to widen roads, resurface most of the network, and redesign the bottlenecks that cause many traffic jams.

Throwing money at the problem isn’t enough, though, says Dalton. The big, global suppliers need to think of Britain as a good place to do business – but in the past, the government has too often changed its mind about its investment plans, rendering useless all the money and time invested by suppliers in research and tender documents. “My suppliers need to be gearing up now,” he says – but many have been deterred from bidding for work in Britain. “I need the Balfour Beatties, the Akins of this world to commit their best people, their resources, to working on highways in the UK, not houses in Qatar or power stations in Hong Kong. I need them committing the resources now – but if we carry on with the existing model, the suppliers will take a look at government’s announcement on more capital investment, and say: ‘That’s really interesting, but there’s a general election coming up and then there’ll be a spending review after that’.”

The massive level of new investment planned does make UK roads look like an attractive market; but until those political uncertainties are removed from the mix, says Dalton, roadbuilders will look askance at the opportunities. “We’re running a competition now for people who are going to deliver the next generation of smart motorways, starting on site in 18 months to two years’ time. If suppliers think they’re going to go through a tender exercise and, at the end of it, budgets are going to get cut, then they won’t bother tendering.”

Bad navigating
Certainly, there’s a historic pattern of road funding being cut. “History has told us and our suppliers that declarations of big plans do not necessarily follow through,” he says. Roads companies are particularly bruised after the 2010 Spending Review, in which many big projects were suddenly slashed or mothballed, leading to mass redundancies among providers. “Incrementally, in each Autumn Statement we’ve added [the projects] back in,” he says – but the businesses have been bitten, and remain shy. “There’s no confidence in the market,” Dalton complains.

Worse, the short-termist approach of the Treasury creates perverse incentives in a long-term market. The very wet weather in January and February made it impossible to carry out £20m of planned road resurfacing work. “In a normal commercial business, I can replan that work to have it done in March, April, May, June, July – whenever. But because I’m part of the civil service, I couldn’t replan the work and had to give the money back the Treasury. At the end of the year, I’ve lost the budget; and that means that because the work still needs to be done, something else won’t get done.”

The Highways Agency is the only big infrastructure manager still run by civil servants, Dalton notes, with water, rail, telecoms and power run on longer-term timescales by independent organisations. “I am confined in many ways with a lot of policies that are one-size-fits-all-of-government; so I have a civil service grading structure in this business, which gives me ten organisational layers. That is really old-fashioned: you’d struggle to find anything like that in any other infrastructure business.” 

Under the government’s plans, the Highways Agency will peel off from the civil service and become a private company owned by the UK Government. “Not being a central government business, but a company that can set its own destiny and plan a bit better for the business, will make us far quicker to respond; far pacier,” Dalton says. It’s a different model from the other big public infrastructure companies, such as National Grid and Network Rail: these raise much of their own funding. But roads are free to use so there isn’t a ready source of income, he adds.

Overcoming roadblocks
As well as the civil service-imposed constraints around the agency’s funding and planning models, Dalton also rails against the ways in which life in the civil service limits his recruitment. “The sort of people I need,” he says, “are not the sort of people who would automatically look at a public sector role – certainly not a central, civil service role – because all the equivalent companies are private sector or, like Network Rail, quasi-public sector. The sheer fact [that people have to look for Highways Agency] jobs at – well, many of us just wouldn’t.”

Further, he thinks the recruitment processes themselves are “labyrinthine.” Dalton’s daughter trained as an accountant and recently went for an interview at a big accountancy firm in Edinburgh. He was startled that, despite the size of the firm, they were still able to call her on the train home and make her an offer. In the civil service, the centrally-imposed systems ensure that the whole process takes over a month, and “really slow processes like that say to a new candidate, who is not being offered a particularly special employment package, that this is a slow, bureaucratic business. We have people turning us down who are saying: ‘On balance, thank you for the offer but I won’t take it’.”

Pay is another constraint, Dalton says. “I have no flexibility, and public sector pay constraint, in the form that it’s running at the moment, is entirely inconsistent with [pay levels in] a thriving wider construction industry.” As the agency’s reputation improves, his staff become more attractive to private companies – and he’s losing senior people, including a divisional director leaving as CSW goes to press. Further, “if I’m trying to step up the level of investment [in roads] then I have got to attract and retain the good people I’ve got, and recruit some more. I haven’t got the space for the normal churn I might get,” he says. “I’ve got to be quite dynamic in the market, and civil service structures don’t enable you to do that. It’s very slow.”

Cabinet Office spending controls are also a source of irritation for Dalton. He agrees that, in many instances, they’re common sense, and says he is pursuing the underlying policies, but he doesn’t like the bureaucracy of the approval processes. “We invest a huge amount of time looking upwards to our sponsoring department [the Department for Transport] and the Cabinet Office, demonstrating that we are compliant with their requirements, which is time and resource that would be better spent on managing my supplier and my contractors.” Dalton would prefer a lighter touch: “It’s about trust: we have heavy approval processes for relatively small amounts of money, and yet quite a lot of trust for some very big amounts of money. That’s probably common in a lot of places.”

The new destination
Becoming a private sector body won’t only bring advantages to the Highways Agency; Dalton believes it will improve customer service too. “The oddity of the Highways Agency is that we’re running a business where we’re not charging at the point of use, so we’re not forced to have that direct relationship with people using the network,” he says. That means the “customer comes second, in effect”. But when it’s a company, Dalton anticipates more scrutiny of this part of the Highway’s Agency’s operations – not least because it’ll have to answer to the commuter representative group, Passenger Focus. “There’ll be a louder, clearer voice, and ministers will feel a bit less defensive. At the moment, a criticism is inherently a criticism of them. They will be able to turn around and say: ‘Yup, you’re right. Road company, do something about it!’”

The new body will retain the accountability structures governing other public bodies, he adds. “There is still the ultimate sanction: summoning me to appear before a parliamentary committee if we do wrong.” Also, the company will publish its annual report and accounts, and comply with the Freedom of Information Act. “There will be no cloak of secrecy enveloping this business when it is set up. Indeed, I would expect scrutiny to increase, not reduce. The shareholder is the secretary of state for transport, Her Majesty’s Government, so I will be accountable to parliament and the secretary of state for us achieving the high-level objectives set for us with the money available.”

Non-executives will also gain further oversight powers over the company, he says. “At the moment, the non-execs are there to advise the accounting officer, and very good at it they are too. But in an incorporated body, the non-executives are directors of the business and have genuine accountability. That does mean you can attract some big hitters as non-execs, especially in a business like this. It’s an attractive business to be a part of, because they feel that they are making a difference in guiding that business rather than just spouting good advice.”

I have to ask: what’s to stop the new company’s managers from using these freedoms to pay themselves very large salaries? “If the senior team I have now were that motivated by money, they wouldn’t have come here,” he responds. “We work here because it’s a really good job.” Further, he notes, “there will be a board with a robust remuneration committee that will set senior-level pay.” And finally, “you don’t want to start off on the wrong foot by creating a really bad relationship, so pay should be where the market is to attract and retain the right people. If that position were abused, it’s entirely within the gift of the secretary of state of the day to remove the chairman and probably the chief executive as well.”

Road to somewhere
Much of the interview has focussed on the future of the Highways Agency, but it’s worth spending a few minutes focusing on the present. After all, it’s a large public body with a great deal of expertise in managing major projects.

One of its most high-profile major projects has been the widening of the M25. This received a green rating from the Major Projects Authority, but was panned by the National Audit Office (NAO). Why the contrast? The MPA, he replies, looked at the planning and delivery of a construction scheme – and here the agency did a quality job. “I think we have managed projects and procurement very well,” he says. “We’ve had very keen market rates, and I think that has been reflected by the MPA’s assessment.

The NAO, however, examined the agreement of the entire, 30-year PFI contract, criticising the agency because the procurement process was slow – meaning that it fell foul of the credit crunch, and thus rising finance costs – and for being too slow to embrace ‘hard shoulder running’, in which vehicles are allowed onto the hard shoulder. In response, Dalton says that hard shoulder running hadn’t been sufficiently trialled at that point: “Had we taken that decision at the time, it would have been based on the operational experience of one motorway in the Midlands. My view is that they criticised us unjustly; they criticised us for being too cautious.” Dalton also argues that many of the NAO’s criticisms were made “with the benefit of hindsight,” and complains that NAO reports tend to focus on the negative. “The NAO is good,” he says, “but their value for money studies – by the time they’ve been translated into a concise report for wider public consumption – tend to dwell on the things that were not brilliant, and cover over the things that generally were.”

As an example of something that is brilliant, Dalton points to the building he’s sitting in: the credit crunch may have cost his agency money in the M25 project, but it led to savings on office costs. As he leads CSW and the photographer up on to the roof for a photoshoot, he explains that he secured a tenancy in the fancy skyscraper in 2009, when the developers were hit by financial problems and keen to do a deal. 

It’s a great location, and one with fantastic views: the roof overlooks the roads and highways heading out of Birmingham, with gleaming new skyscrapers lining the remnants of the roads that used to encircle the city. Dalton’s swoop to lease one of these properties was a vote of confidence in the dynamic new Birmingham; and, as it turns out, the first step on the road to his agency’s reform. The Highways Agency will soon be free of the rigid controls, limits and bottlenecks that currently limit its operations – and if Dalton is right, Britain’s drivers will soon be experiencing equal improvements in their own freedom of movement. 

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