The National Audit Office has said that following the Department for Environment and Rural Affairs decision to endorse the Tideway Tunnel in 2007, Thames Water’s analysis of alternatives was less detailed, its costing of alternatives was not independently scrutinised and combinations of alternative technologies were not appraised.

Defra based its endorsement based on Thames Water’s own assessment that it was the lowest-cost option capable of achieving its objectives by 2020. Defra subsequently reviewed its position but concluded in 2014 that delaying the Tunnel to consider alternatives further would likely increase the risk of fines for breaching the Directive.

The comments come with the publication of the Government’s spending watchdog’s findings from its review of the £4.2 billion Thames Tideway Tunnel in an update of developments since an NAO report in 2014, which found six areas that were considered critical for achieving value for money.

However, in 2014 the NAO  said it did not review the evidence base supporting the decision to build the Tunnel to avoid influencing the outcome of ongoing competitions for the construction and financing of the Tunnel.

The latest report examines the evidence base supporting the decision to proceed with the Thames Tideway Tunnel, as well as progress achieved to date.

Introducing the review, the NAO said  it is still too early to form a value for money conclusion on the project, which is scheduled to be fully operational by 2024 but expects to provide updates on the Tunnel.

It took the Department for the Environment, Food and Rural Affairs (Defra) and the Environment Agency 10 years to agree measurable standards and the specifications of the Tunnel - the process began in 2000 and concluded in 2010.

The Department endorsed the Tunnel as the preferred option in 2007 based on Thames Water’s assessment that it was the lowest-cost option capable of achieving its objectives by 2020. However the Review concludes that Thames Water’s subsequent analysis of alternatives was less detailed, with its costing of alternatives not independently scrutinised. In 2014 the Department made the decision that pausing the Tunnel to research alternatives would likely increase the risk of fines for breaching the Directive.

The NAO also said that Defra and the Environment Agency did not fully explore uncertainty in the modelling before endorsing the full tunnel option. Models which forecast spills and dissolved oxygen levels played a key role in eliminating alternatives to the Tunnel. The Environment Agency could not provide evidence that it had sufficiently understood the impact of uncertainty on the outputs from Thames Water’s models.

Evidence more robust for some criteria than others

The Review also found that evidence was more robust for some criteria than others. The NAO found that the dissolved oxygen standards were supported by a rigorous scientific approach, which was favourably peer-reviewed by an independent academic and comparable to other English standards for environmental regulation. Thresholds for identifying unsatisfactory CSOs were based primarily on the Environment Agency’s judgement which it only reviewed internally.

The Environment Agency’s consultants in 2007 reported that the models could predict dissolved oxygen levels which were overly pessimistic when compared to measurements in practice, and made recommendations to refine the modelling in 2009.

According to the NAO, while the Environment Agency partially adopted the recommendations it has not carried out another validation exercise since 2007. The Environment Agency told the NAO that, although it would have been possible to increase confidence in the model results by obtaining more extensive data sets, it did not consider that any of the areas of uncertainty with the results were sufficient to justify the costs necessary to any improved data.

Correcting for inaccurate predictions could have resulted in a smaller, lower cost tunnel

The NAO has also concluded that correcting for inaccurate predictions could have resulted in a smaller, lower cost tunnel. The closest alternative to a full-length tunnel in compliance and cost terms (The East/West Tunnel) failed not only due to unsatisfactory dissolved oxygen performance but also because it would not limit spills from all ‘unsatisfactory’ CSOs.

Refinements to the sewer model after 2007 suggested that a lower capacity Tunnel could still achieve the 4 spills threshold, and this led to an estimated £646 million of savings. Further refinements could have identified the potential for further capacity reductions, albeit through reducing the diameter of the tunnel, which estimates suggest reduces costs relatively less than reducing the tunnel’s length. Defra considers that the cost of rectifying a tunnel with inadequate capacity would be prohibitive and that the Tunnel chosen offers greater certainty that it will be future-proof.

Cost of Tunnel to Thames Water customers still uncertain & 60% of benefits go to households outside Thames service area

The Review says that while the current cost estimate of the project is £4.2 billion, it is still unclear how much Thames Water customers will pay for the construction of the tunnel. Tunnel costs added £13 a year to the average household bill for Thames Water customers in 2016-17. The company forecasts the bill impact will peak at between £20 and £25 by the early 2020’s.

The Department forecasts that the benefits of the project will be between 1.8 and 3.1 times its costs, however the Review says these estimates are uncertain. Approximately 60 per cent of the estimated annual benefits accrue to households outside of Thames Water’s service area, although only Thames Water customers will pay towards the Tunnel’s costs.

The NAO also said that despite construction work starting and the prospect of the UK leaving the European Union, the European Commission could yet seek fines against the UK for a continuing breach of the Directive. The timescale in which it would do so is uncertain, and the Commission has told the NAO it has not yet made a decision. The NAO has not audited or considered the effects on the project of leaving the European Union.

Click here to download the National Audit Office Review of the Thames Tideway Tunnel in full