Guidance

Terms of reference for VfM Study on the governance and budgeting arrangements for mega projects

Published 11 March 2025

© Crown copyright 2025

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/terms-of-reference-value-for-money-vfm-studies/terms-of-reference-for-vfm-study-on-the-governance-and-budgeting-arrangements-for-mega-projects

1. Overview

The government’s most complex and strategically significant projects sit in the Government Major Projects Portfolio (GMPP). In 2023-24 there were 227 projects in the GMPP, with a total whole life cost of £834 billion.[footnote 1] Within this, there is a subset of “mega projects”, with an estimated whole life cost of more than £160 billion.[footnote 2] The National Audit Office (NAO) defines mega projects as those whose risks are too large to be managed by the relevant departments and arms-length bodies, with overall budgets in the tens of billions and long project lifetimes.

Independent experts, including the National Infrastructure Commission, the NAO and the Public Accounts Committee, have identified shortcomings in the existing budgeting framework and governance arrangements for mega projects, which can undermine value for money. These include:

  • funding decisions being too short-term and restrictive, leading to stop-start, driving higher whole life costs and undermining delivery planning[footnote 3],[footnote 4]
  • insufficient flexibility to reallocate funding within and across departments to expedite the delivery of projects[footnote 5]
  • the cost and time overruns of mega projects having a knock-on impact on all the other projects a department is running and the mega project’s risks being too large for a department to manage[footnote 6],[footnote 7]
  • excessive optimism in the initial estimates of the cost and timeline of projects, which mean decisions to proceed are not accompanied by sufficiently robust and realistic assessments of affordability[footnote 7],[footnote 8]
  • projects being initiated before they are ready, locking in costs and timings before the scope and benefits are defined[footnote 9]
  • governance and accountability arrangements put in place at the set-up stage of projects not reflecting the scale and nature of the risks involved, and then not evolving as the project develops, particularly where multiple departments are involved[footnote 7],[footnote 10]

Given the complexity, size and strategic significance of mega projects, there is a value for money case for improving the governance and budgeting arrangements.

2. Scope, issues and challenges

This study will look at the budgeting framework and governance arrangements of current and future mega projects. In line with the NAO’s definition of mega projects, it will review the current arrangements for HS2, the proposed new nuclear power plant Sizewell C, and the Ministry of Defence’s nuclear programme. The OVfM may, in the course of carrying out its study, bring other projects into scope.

The study will not look at, or make recommendations on, the funding level or delivery mechanism for specific projects or whether any specific mega project should proceed.

The study will need to explore a range of issues, including how to:

  • manage affordability constraints and fiscal risks if annual budget flexibility is increased, to improve delivery of projects within whole life cost forecasts
  • balance flexibility with appropriate scrutiny and oversight, based on clear and agreed cost and benefit forecasts, with reliable mechanisms for assessing delivery against forecasts
  • create the right incentives for all parties involved in the delivery of mega projects to achieve the project’s objectives on time and within a realistic budget

3. Governance and resourcing

The Chief Secretary to the Treasury will oversee the study at a ministerial level, supported by the Defence Secretary, the Energy Secretary and the Transport Secretary.

A senior official group, with representatives from relevant departments, will oversee policy development and recommendations to ministers. Provisional recommendations will be reviewed by the interim CEO of the National Infrastructure and Service Transformation Authority (NISTA). The study will be resourced by officials from the Office for Value for Money (OVfM), the Ministry of Defence, the Department for Energy Security and Net Zero, the Department for Transport, and HM Treasury, with input from the Infrastructure and Projects Authority, the National Infrastructure Commission, NISTA and the Cabinet Office.

The study will be informed by consultation with the NAO and leading experts in the field. It will also draw on the Major Transport Projects Governance and Assurance Review, being led by James Stewart.

In line with his Terms of Reference on appointment, David Goldstone (Chair of the OVfM) will not participate in the discussion or determination of a matter where he has a non-financial interest where the interest might suggest a danger of bias. This includes not participating as Chair of the OVfM in discussions or determinations relevant to issues related to his other roles, such as his role as HM Treasury’s nominee for the HS2 Board, and his role as Non Executive Director of the Submarine Delivery Agency. For this study, David’s expertise will be used to inform recommendations on the overarching governance and budgeting arrangements for all mega projects, with any discussions on the specifics of HS2 or the Submarine Delivery Agency being led by the Director of the OVfM.

4. Timetable and output

The study will inform decisions at the upcoming Spending Review, and progress to the following timetable:

  • February: terms of reference published
  • February-March: policy development
  • April: update to the ministerial oversight group
  • May: Spending Review negotiations
  • June: publication of the study’s conclusions in the Spending Review

The OVfM will consider the conclusions of this study as it develops options for system reform. Given the OVfM is a time-limited organisation, implementation of the conclusions of the study will be overseen by NISTA.

  1. Infrastructure and Projects Authority (2024), Annual Report on Major Projects 2023-24. ↩

  2. Using latest public whole life cost estimates for HS2 (Major Projects Data, gov.uk) and the nuclear deterrent (House of Commons library). ↩

  3. National Infrastructure Commission (2023), The Second National Infrastructure Assessment. ↩

  4. Resolution Foundation (2020), Euston, we have a problem. ↩

  5. International Monetary Fund (2022), UK Technical Assistance Report – Public Investment Management Assessment. ↩

  6. Resolution Foundation (2023), Cutting the Cuts: How the public sector can play its part in ending the UK’s low-investment rut. ↩

  7. Gareth Davies, NAO (2024), Getting the most from every public pound – a blueprint for value for money. ↩ ↩2 ↩3

  8. Institute for Government (2020), Capital investment: why governments fail to meet their spending plans. ↩

  9. House of Commons Public Administration and Constitutional Affairs Committee (2020), Delivering the government’s infrastructure commitments through major projects. ↩

  10. House of Commons Committee of Public Accounts (2024), Delivering value from government investment in major projects. ↩

Back to top