Revaluing maintenance - MMS
Hi everyone. James here. I am taking a break for today. But fear not. Friend of the newsletter Paul Beckford has prepared an excellent special for you on the value of road maintenance. If I was to give you an action today, it would be to read this, and then consider ongoing maintenance costs as part of your infrastructure projects.
If you want to discuss any of this with Paul, simply reply to this newsletter and it should go straight to him. In the meantime, enjoy. Take it away, Paul…
Many transport infrastructure assets around the world are mature or near the end of their expected lifecycles. Thus, it is of increasing importance to extend their life and utility to generate additional value. However, the focus of governments, asset managers, and most of the academic literature is on short term cost minimisation rather than long term value generation.
The OECD (2013: 106) has expressed concern that maintenance spending globally has been lower than ideal, with the consequence that future costs to maintain network integrity may turn out to be high.
This ‘fix it when it breaks’ approach gives insufficient priority to delivery of preventative maintenance interventions. For reasons of capital, resource and time, maintenance interventions that could extend asset life or utility are not delivered and the result is in an increase in likelihood of more costly corrective maintenance being required in the future.
Maintenance is an inherently stochastic deterioration and failure process. However, there is often insufficient data and information about asset condition of transport infrastructure to make decisions around their maintenance that are fully informed.
Enabling better integration of asset management principles into the appraisal process might result in greater alignment of data and reporting techniques to ensure that different asset managers can learn from each other. Indeed, the ITF (2022) highlights the benefits being delivered in France by having such a central repository. This may also help adequately address the deficiency of investment that has existed for maintaining and upgrading Britain’s road network.
Ultimately, such decisions may require a trade-off in asset performance, design life and available budgets that lead to varying levels of regular and corrective maintenance. Without such analyses, routine maintenance is all too easily deferred, making deterioration a problem for another day, thereby increasing the risk of asset failure.
Cost of deferred maintenance
Maintenance deferral, especially deferral of routine or preventative maintenance, can increase the likelihood of assets requiring more expensive and intensive corrective maintenance. Such deferrals also increase the risk of asset failure and total asset lifecycle costs.
The Asphalt Industry Alliance (AIA) 2022 survey estimated that the maintenance backlog is still 9 years and involves one-time catch-up costs of £12.64bn (AIA, 2022: 2). The survey also revealed that 44% of local authorities reported transferring capital funds intended for highway improvements to supplement their revenue budgets for routine maintenance (AIA, 2022:10).
Network Rail funding for Control Period 7 totals £44bn, some £9bn less than for Control Period 6 which means that further prioritisation of critical safety maintenance will be undertaken, thereby exacerbating the existing backlog and increasing the potential for operational restrictions in the future.
A shift from short-term cost minimisation to quantifying the financial costs caused by deferred maintenance would help meet this challenge. Interestingly, Casady & Geddes (2020) examined the potential for a ‘fix-it-first asset recycling’ model in the United States to address critical deferred maintenance problems. Such an approach to maintaining transport infrastructure assets in the UK deserves more detailed examination.
Understanding life cycle value
The 2022 update of the UK Treasury’s Green Book now provides important recognition of asset value at the end of an appraisal period. Yet, it does not address the fact that the end of appraisal (usually 60 years) may not equate to the end of the asset life.
There is no guidance on how to track the costs of maintenance for assets, what techniques could be employed to maximise an asset’s life, nor how to achieve efficiencies in asset management. There is also the related issue of the design life of the asset and its constituent components which are likely to have different degradation rates, thereby requiring trade-offs between asset renewal and replacement (more of a pressing issue for rail than it is for road maintenance).
However, if the guidance from central government is not explicit about these impacts, benefits, and trade-offs, then they will not be included in business cases, which means that opportunities to extend asset life and realise greater value will be missed.
Re-conceptualising the value of Maintenance & Renewal (M&R)
Re-conceptualising what is understood by the value of maintenance can significantly improve business cases for investment. This should result in increased expenditure on preventative maintenance, reducing lifecycle costs for specific assets limiting the risk of more expensive corrective maintenance. A paradigm shift is thus essential, one that begins to consider costs foregone as a key benefit that should be analysed when making strategic decisions about investment priorities.
Instead of considering M&R as a liability, it should be treated as an asset to society. An enhanced valuation model that compares a range of different M&R strategies, with different cost implications can ensure that the best possible value can be extracted from an asset over its lifecycle, which may include an extension of the design life.
A comprehensive valuation of transport assets that reflects total value may lead to decisions that prioritise M&R over investment in new transport assets, or at least allow them to be ranked on a common framework. New policy priorities may then emerge that seek to extract a greater net value from existing assets by increasing expenditure on maintenance and renewals.
Such a shift would also encompass more holistic analyses around the time dimension, ensuring that asset managers are empowered to ask whether it is more beneficial to undertake an annual resurfacing programme (regular routine maintenance) for a week compared to having to close a road for a month to completely replace the road surface.
Why its important for us to consider maintenance costs
A comprehensive valuation model for transport assets that reflects total value could play a significant role in reducing maintenance backlogs, thus freeing up capital for expenditure on other policy priorities.
The way that maintenance is appraised (and business cases developed) requires a reorientation, away from analysing schemes in terms of their benefits delivered but rather the costs of not investing in maintenance.
Any potential solutions require a re-examination of the development of businesses cases for investment in maintenance, the mechanisms for valuing such assets, the level of investment available, and the governance structures that oversee such decision making.
Thank you for that Paul. Cannot agree more with you when we as professionals need to consider the costs of not maintaining things.
If you want to write something for this newsletter like Paul has, drop me an email at james @ mobilitylab - dot - org - dot - uk. You will even get paid for it. Lets talk! James