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HS2 at 10: The costs, conflicts and controversy

As the client behind the £55.7bn line approaches its 10th birthday, CN looks at the major pressure points the line has faced on the road to main construction.

Public demonstrations, procurement scandals, ballooning costs: HS2 has faced numerous challenges spanning nearly a decade, yet still it soldiers on.

Following the establishment of HS2 Ltd in January 2009, the case for high-speed rail running up the spine of Britain was made in a government white paper back in 2010.

At the time, the report predicted a cost of £30bn. Although the final route was nowhere near being settled upon, those initial proposals featured all the major elements of the Y-shaped line finally confirmed in November 2016. While the route has remained largely the same, the estimated cost of the project has not, gradually increasing to £55.7bn in 2015 – almost double the original estimate.

The scheme has also suffered from internal mismanagement, with a conflict of interest and redundancy scandal doing little to improve its public image. But despite the various battles and blunders, it continues to stagger through milestones towards the belated start of full-blown construction work.

With HS2 Ltd approaching 10 years in operation, what have been the biggest challenges and deepest crises that have shaped the project’s progress?

The question of cost

The overall cost of HS2 is one of the most contentious issues about the project.

At the time of the 2010 general election, the Conservatives had placed an estimate of £20bn on the project, while Labour said it would cost £30bn. With the route largely in place by January 2012, the estimate increased to £32.6bn; in June 2013, it rose again to £42.6bn.

The figures were updated most recently in November 2015, with all the costs (including rolling stock) estimated at £55.7bn.

In April 2017, infrastructure consultant Michael Byng, who created the method Network Rail uses to cost its projects, published a damning report alongside Lord Berkeley setting out what they believed HS2 would truly cost.

The pair claimed the first phase would come in at £48.7bn (at 2015 prices), instead of the £24bn quoted by government. In doing so, they accused those behind HS2 of underestimating the cost of various elements, from railway control and telecoms systems through to civil engineering and enabling works.  

Mr Byng produced an updated report in July 2018 – again backed by Lord Berkeley – that ramped up the alleged cost of phase one to £55bn. The revised report also claimed that phase one was unlikely to be finished by 2026, suggesting 2030 or 2031 as more realistic completion dates.

Both HS2 and the government have rejected these claims.

Capita HS2 High Speed 2

Capita HS2 High Speed 2

Source: Capita

With the project still at a relatively early stage, it is of course impossible to prove or disprove either side’s estimates. Nevertheless, cost hikes on contracts already awarded will only fuel speculation that the overall scheme’s budget may have to rise further.

For example, CH2M’s phase one development partner contract was valued at £50m-£70m when it was awarded in 2012, yet ended up costing HS2 more than £100m across the duration of the four-year deal, which ended in December 2016.

Citing the £6.6bn civils contracts handed down in July 2017 (the start of which has been delayed from March to June 2019), HS2 infrastructure director Chris Rayner says “there’s nothing at the moment” that suggests the project will run over budget.

“When we get to notice to proceed, we will have a very firm view that we can deliver this within the funding that we’ve got” 

Chris Rayner, HS2

“[The civils contractors] have been taking our hybrid bill designs and working up scheme designs from those,” he says. “At the same time, they are working up costs and we have an active idea of what [these will be]. When we get to notice to proceed, we will have a very firm view that we can deliver this within the funding that we’ve got.”

To date, £4.1bn has been spent on consultancy and legal fees, compensating land and property owners, and on the early works carried out so far.

Another oft-repeated criticism is how HS2’s cost stacks up against international high-speed rail projects. For example, Saudi Arabia opened its 450 km high-speed rail link between the cities of Mecca, Medina and Jeddah last month, which cost just £6bn to build.

Mr Rayner rejects this comparison: “That’s built over a completely open expanse of terrain, where you basically plonk a track form onto a piece of desert and your major concern is how you stabilise the track form. Forty per cent of our route is in tunnels, so there isn’t a comparison.”

Threats to the business case

Saudi Arabian terrain is no doubt different to that of the UK.

However, France, Spain and China have all invested in high-speed rail over the last 30 years, and none have come close to HS2 in terms of proportional cost.

As a result, when it comes to justifying the budget, both government and HS2 have repeatedly pointed to the promise of long-term economic benefits, as well as increased capacity. 

Reduced journey times are of course a major part of these benefits, and WSP rail director Ian Johnson points to some of the less-heralded technical challenges of achieving the speeds required. “In order to travel at very high speeds, the energy consumption is significantly more than on a conventional train,” he says. 

“It’s the trade-off between trying to deliver the required business benefits against the cost, and technical challenges of doing so” 

Ian Johnson, WSP

“A high-speed train of equivalent length to a pendolino on West Coast would probably have a power requirement of 60-80 per cent more, because of the energy required to run at high speeds. It’s the trade-off between trying to deliver the required business benefits against the cost, and technical challenges of doing so.”

Another threat to the HS2 business case is how well it can be integrated with existing services.

The government expects phase one to cost £24bn, with the direct returns being enhanced capacity and London to Birmingham journey times being cut by 32 minutes.

“Some of the benefits don’t get delivered by the programme,” Mr Rayner says. “The technical challenges are immense, but they’re not unknown. It’s the things that are not in our control that worry me most, and that’s making sure the railway works properly as a connected service. Seven out of 10 trains on phase one operate off of HS2 and go to other destinations on the conventional rail network.”

If the HS2 line fails to facilitate this “wider exploitation” of its capacity by the existing network, then it will have fallen short on a key metric of its success.

Procurement saga

The £55.7bn scheme has been awarding contracts, initially to consultants and designers, since 2012. But here too, it has come under intense scrutiny. 

The first round of deal were handed out at the start of 2012, with Aecom, Arup and Mott MacDonald among those to win work in the phase one civils design preliminary framework.

But it was the selection of CH2M as phase one development partner in January 2012 that marked the first major deal procured by HS2. The firm beat Mace, Parsons Brinckerhoff and Turner & Townsend to the deal, valued at the time between £50m and £70m. The US engineer’s winning streak continued as part of a JV alongside Atkins and Spanish engineer Sener with a second contract in March 2016, this time valued at £350m.

However, CH2M’s third HS2 deal – being named phase two development partner in February 2017 – put the project’s procurement processes under the microscope.

CH2M was already ingrained in the client’s operations following its earlier wins. Around 200 CH2M staff were working for HS2 at the start of 2017, with a number of senior personnel moving between the two firms.

But it was in November 2016 when questions began to be asked about the relationship between the two organisations.

This was the month CH2M project director Roy Hill joined HS2 as interim chief executive, after the shock exit of Simon Kirby. The appointment came on the same day HS2 opened tenders from CH2M, as well as Bechtel and a Mace / Turner & Townsend JV, for the £170m phase two development partner contract.

In January 2017 HS2 named CH2M’s European managing director Mark Thurston as its permanent chief executive. Less than a month later, CH2M would be chosen as preferred bidder for the £170m development partner role.

Mark Thurston chief executive HS2 121

Mark Thurston chief executive HS2 121

Mark Thurston was named HS2 CEO in January 2017

The signing of the contract was delayed for weeks as Mace considered challenging the decision and entered showdown talks with HS2. As discussions continued, it emerged that HS2 was looking into the role played by its former chief of staff Christopher Reynolds, who was now programme director at CH2M and involved in the company’s bid.

CH2M withdrew from the £170m deal shortly after this revelation, citing “delays to this critical national infrastructure project which could ultimately lead to increasing costs to UK taxpayers, as well as to our firm”. HS2 faced fierce criticism in the weeks following CH2M’s decision, while transport secretary Chris Grayling was hauled in front of the transport select committee to explain how such a situation could have occurred.

It would not be the last public procurement saga to befall the client.

More recently, Spanish train manufacturer Construcciones Y Auxiliar De Ferrocarriles (CAF) was added to the shortlist for HS2’s £2.75bn rolling stock contract, after challenging the decision to exclude it at the High Court. It remains unclear whether the case reached judgement or was settled out of court.

However, HS2 said CAF was included after the client exercised its right to “consider the expression of interest submitted by CAF”, given that it only had four tenderers on a shortlist that could accommodate five.

Redundancy payments scandal

Seven months after the conflict-of-interest scandal surrounding CH2M’s appointment was put to bed, HS2 found itself dealing with another public case of mismanagement.

A public accounts committee report published in December 2017 revealed the client had made irrecoverable and unauthorised redundancy payments of £1.76m to staff.

As part of its relocation from London to Birmingham, HS2 ran compulsory and voluntary redundancy schemes between 2016 and 2017. The company was only authorised to offer statutory redundancy terms, under which it would have paid out £1m to the 94 individuals affected. However, the unauthorised enhanced packages took this figure to £2.76m.

“HS2 Ltd sought permission from the Department for Transport to offer staff enhanced redundancy packages, which the department refused in April 2016,” the MPs’ report said. “Despite this, HS2 Ltd ran the enhanced schemes anyway.”

In an email seen by Construction News, the DfT’s director-general for HS2 David Prout asked the then chief executive Simon Kirby to “nip something in the bud” for him, describing the request “to offer civil service rather than statutory redundancy terms to staff” as an “absolute red line”.

Mr Prout added that if the proposal were to go as far as a written proposition that was tabled in front of senior DfT staff, HS2 would suffer “enormous reputational damage”.

HS2 chief executive Simon Kirby 9

HS2 chief executive Simon Kirby 9

Former HS2 CEO Simon Kirby was criticised over enhanced redundancy packages

Mr Kirby, having been CEO at the time of the correspondence, was criticised for failing to circulate the email “expressly disallowing” the request to offer enhanced redundancy packages. As a result, incorrect information was allowed to circulate, which led to the then HR director Peter Gregory telling the HS2 board and executive committee that approval had in fact been secured.

The revelations led Conservative MP Geoffrey Clifton-Brown to ask whether action should be taken against Mr Kirby, as “there is an element of fraud here”, he suggested.

In a statement responding to the public accounts committee report, Mr Kirby said he did not recall whether he “forwarded one specific email from David Prout to others within HS2”, and that “the issue of statutory severance was well known within HS2”. He added that he left HS2 in December 2016, and that “the decision to make senior managers redundant, and under what terms, was not made until after I left”.

“Despite running an infrastructure scheme worth £55bn of taxpayers’ money, HS2 Ltd does not have in place the basic controls needed to protect public money”

MPs’ report, December 2017

The scandal led to the resignation of chief financial officer Steve Allen, who conceded that the wider weaknesses highlighted by the report led to the “HS2 executive and board being misinformed”.

MPs on the committee also expressed concern at the culture within “HS2 Ltd of failing to provide full and accurate information to those responsible for holding it to account”.

The report added: “Despite running an infrastructure scheme worth £55bn of taxpayers’ money, HS2 Ltd does not have in place the basic controls needed to protect public money.”

Latest from the ground

Despite the public dressing down from the public accounts committee, on top of the conflict-of-interest scandal and conflicting claims over eventual costs, the HS2 project has continued to make progress.

Enabling works on the line started almost two years ago. Early works have also started at Birmingham Curzon Street station, Euston station and the nearby St James’ Gardens cemetery, at which some 60,000 bodies will be exhumed as part of the archaeology effort.

HS2 ground investigation work at Curzon Street Birmingham

HS2 ground investigation work at Curzon Street Birmingham

Enabling works at Birmingham Curzon Street

However, civils work on phase one – which represents the next stage of the programme and forms the bulk of the job – has been delayed.

Broken down into design and construction phases, the former was scheduled to complete in November 2018, ahead of construction beginning in March 2019. However, in July the government announced construction had been pushed back to June 2019 to give suppliers more time to “optimise” their designs.

HS2 CEO Mark Thurston has since said this will not impact the 2026 opening date.

Meanwhile the scrutiny continues unabated: last month the National Audit Office published an investigation into HS2’s acquisition of land and property for phase one. It found that “the property acquisition programme is currently on track” but that there were still significant risks, as the scope of the programme or engineering methods “could significantly change the land that is required”.

“Nothing that we see as far as we’ve got in developing designs and schedules suggests we are anything other than on schedule” 

Chris Rayner, HS2

Where land and properties had been purchased using compulsory purchase powers, “only half of advance payments to claimants have been completed within the required three-month period”, the NAO added.

It did state that HS2’s land and property acquisition work was on course to come in as much as £300m under budget. However, with the property acquisition programme still at a early stage, “there remains significant uncertainty about what the final cost will be”, the report noted.

With just over eight years to go until the planned opening of the London-Birmingham phase one, is HS2 confident of hitting its target?

“We’re working all of that through now,” says HS2’s Mr Rayner. “Nothing that we see as far as we’ve got in developing designs and schedules suggests we are anything other than on schedule.”

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