Exclusive: Conflicts of interest, audit scandals, Carillion: HS2’s chief executive has endured a tougher first 12 months in the job than he could have ever imagined. In his first full interview since taking over, Mark Thurston reveals to CN what he has learned.
“Never waste a good crisis,” Mark Thurston tells me as we sit down in HS2’s offices, up on the 18th floor of Canary Wharf’s One Canada Square.
It is a phrase Mr Thurston must have repeated to himself many times over the past 12 months, with his first full year as HS2 chief executive having been dogged by high-profile difficulties.
March 2017 saw the withdrawal of Mr Thurston’s former employer CH2M from the £170m phase two development partner contract, after a conflict of interest was discovered in its bid team.
Then came the controversy over unauthorised redundancy payments, with an audit of its accounts in May revealing that HS2 had broken government rules in handing over £1.76m to staff leaving the organisation.
And most recently in January, the client found itself back in the spotlight after Carillion – a company it had appointed less than six months earlier – collapsed into liquidation.
It has been a year of firefighting on many fronts for Mr Thurston – in many cases as a result of actions taken well before he joined the company.
Does he feel he has had to clean up after his predecessors? “I wouldn’t say cleaning up a mess. I have made changes but that has been my brief; my brief is to set up HS2 so that it can deal with what is in front of it.”
Who is Mark Thurston?
For a man exactly 12 months into one of the most scrutinised jobs in construction, Mr Thurston seems relaxed with a smile on his face as he welcomes me to his Canary Wharf office. The former hub of HS2’s London operations, its Canary Wharf office has now been reduced to a single floor – a result of its HQ moving to Birmingham.
His office is surprisingly small for the person in charge of the UK’s biggest infrastructure project. Behind him is a large window with a panoramic view of east London – a fitting backdrop as the Londoner who began his career as a TfL trainee takes me through his career.
“I started as an apprentice engineer, then moved onto junior project management, I stayed at London Underground until 29,” he recalls. “It was in 2007 I moved to CH2M to work on that,” as he points out the window to Stratford’s London Stadium, the centrepiece of the 2012 Olympics.
CH2M formed part of the CLM JV alongside Laing O’Rourke and Mace that took on the management of the Olympic Park. Mr Thurston’s role as programme delivery manager meant he oversaw the delivery of £650m of structures and highways in and around the 2012 site.
Following the 2012 Games, Mr Thurston moved to CH2M’s Crossrail team before being promoted to lead its European business – by which time the firm had already become involved in HS2.
In 2012 CH2M won the £70m phase one development partner contract, before going on to secure the £350m engineering delivery partner deal in March 2016 through its JV with Atkins and Sener.
“I came out on top of – I don’t know much more than that. I was delighted to get the role, this was a defining move in my career”
Months later in October 2016, CH2M employee Roy Hill was named HS2’s interim chief executive following Simon Kirby’s exit. CN understands that both Mr Hill and Mr Thurston were leading candidates for the permanent position, with the younger Mr Thurston being favoured ahead of his colleague.
Mr Hill has subsequently moved to WSP, where he is leading the team delivering California’s high-speed rail.
It is a path well trodden: eight of HS2’s current staff have moved directly from CH2M. “We were approached to put someone in interim, then the company ran a search that I came out on top of – I don’t know much more than that,” Mr Thurston says. “I was delighted to get the role, this was a defining move in my career.”
Reflecting on his first 12 months, Mr Thurston admits the scrutiny on the role was greater than he initially expected. “This job clearly has a lot of profile, particularly in our sector, and that will manifest itself in different ways. There were a few issues last year which occurred and I wasn’t surprised at, but it was more of an education.”
The conflict of interest
The issues he is referring to began last January, immediately after Mr Thurston’s appointment was made public.
With Mr Hill acting as interim chief executive, questions began to be asked about CH2M’s influence within the project. When CH2M was awarded the £170m phase two development partner contract in February 2017, these questions got more vociferous.
Mark Thurston chief executive HS2 121
HS2 said at the time that steps had been taken to ensure that the roles of Mr Thurston and Mr Hill had no undue influence on the contract’s procurement, pledging that CH2M employees already working for HS2 had no contact with employees working on the company’s bid.
However, when it was revealed CH2M programme director Christopher Reynolds could have had access to confidential information that might have influenced the bid, HS2 came under intense scrutiny.
Did Mr Thurston know Mr Reynolds? He doesn’t answer the question. “I was sort of one step removed from that once I got here. Inevitably, when I got here, I didn’t get anywhere near it,” he says.
“Instead of dwelling on the whys and the wherefores of who was and who wasn’t to blame, it is important we learned the lessons”
After HS2 investigations revealed the conflict of interest, CH2M decided to withdraw from the £170m deal. Transport secretary Chris Grayling would later tell parliament that the error belonged to CH2M, and that it was right to withdraw.
Having been on both sides of the fence, I ask Mr Thurston who was culpable. Again, he is reluctant to lay the blame at anyone’s door. “Instead of dwelling on the whys and the wherefores of who was and who wasn’t to blame, it is important we learned the lessons,” he says. “It will go down as a moment in time, but has not had the effect it would have, and that is credit to [CH2M’s replacement Bechtel].”
And lessons have been learned.
This was evident following the acquisition of CH2M by Jacobs, which is working as a design partner for the Sir Robert McAlpine / Bouygues / VolkerFitzpatrick JV delivering HS2’s £965m Colne Valley and Chiltern Tunnels package.
A freedom of information request from CN revealed that HS2 has removed a CH2M staff member following the acquisition to avoid any conflict of interest. The FOI also showed HS2 had drawn up a 24-page plan of how it would guard against any conflicts of interests arising between both firms in future. This includes Jacobs bringing in a compliance controller to manage and monitor potential conflicts of interest.
HS2 ground investigation work at Curzon Street Birmingham
Mr Thurston does admit that the events of the past year highlighted the need for the client to be smarter in how it handles these issues.
But the annus horribilis didn’t end with CH2M. “It was in May that I found out about the redundancy payments” when the National Audit Office got in touch, he recalls.
As part of its annual audit of HS2, the NAO found that £1.76m of the £2.76m redundancy payments handed out in the previous 12 months were unauthorised.
“We brought in a new management system. It has given us the ability to sharpen our finance and HR controls and our relationship with the government is much clearer now”
Mr Thurston subsequently appeared in front of the public accounts committee, where MPs called for action against his predecessor Simon Kirby, claiming he had “defrauded taxpayers”. A later report would identify “weak internal processes” in HS2 that “prevented key decision-making and scrutiny bodies” from receiving accurate information.
Mr Thurston says the feedback from this has helped drive several improvements in the organisation that have now been put in place. “We brought in a new management system,” he says. “[It has] given us the ability to sharpen our finance and HR controls and our relationship with the government is much clearer now.”
The changes have also seen every one of HS2’s 1,153 staff members put through a course on managing public money. CN has found out that this training cost just £4,450 – less than £3 per employee.
Ringing the changes
The changes in processes have been matched by changes in personnel, too.
HS2 has begun the search to replace Sir David Higgins, HS2’s chairman for the past four years.
Sir David is the latest of the client’s old guard to leave the project. In April 2017 commercial director Beth West departed for Landsec, phase two managing director Alison Munro retired late last year, and technical director Andrew McNaughton switched to an advisory role in January.
Chief financial officer Steve Allen, who handed in his resignation following the redundancy payment scandal, will leave at the end of this month.
The new CFO will be appointed in Q2 this year and will work with finance director Elizabeth Gillbe, who joined from Crossrail in November. Former group people director Neil Hayward replaced Peter Gregory as HS2’s human resources director in November.
The delivery of the £55.7bn line will also be beefed up by the arrival of Crossrail chief executive Andrew Wolstenholme, who will take up a place on the HS2 board as a non-executive director.
More significantly, Mr Thurston will look to pick a second-in-command over the coming months. The chief operating officer role has been created to strengthen HS2’s management team as it expands and will deputise for Mr Thurston as needed. The COO will also be in charge of formulating HS2’s commercial development strategy, including for areas around its stations, like Euston.
“The challenge for the next 12 months is improving the public image – it’s about to start building that credibility by explaining to people what we are doing”
Arguably the most important shift HS2 has to make this year is to get the public back on side after a tough 12 months. It is a challenge Mr Thurston accepts.
As part of this focus, Mr Thurston has brought Tom Kelly into the client’s executive team. Having been Tony Blair’s official spokesman between 2001 and 2007, Mr Kelly has been at HS2 since 2014 as strategic communications director. In January he was appointed as strategic director for stakeholder engagement and brought into the executive team.
His role will be to ensure good relations between HS2 and the communities it affects, but also showcase the benefits of the £55.7bn line to the public. “The challenge for the next 12 months is improving the public image – it’s about to start building that credibility by explaining to people what we are doing on the routes, and the benefits,” Mr Thurston says.
Development to delivery
HS2 changes this year. From a body tied up in development and planning, it is now in the early stages of delivery.
With enabling works more than a year in and demolition happening around Euston, HS2 is now truly a construction project. “We’ve already contracted about £8bn into the supply chain; by the end of next year that will be at £20bn,” Mr Thurston says.
And with this escalation comes increased demands from Mr Thurston on his construction companies.
He tells me he has already had meetings with each of the CEOs delivering the phase one civils deals and says his message has been the same. “I’ve said to them we shouldn’t underestimate the scale of this, not just to the industry but to the country,” he says. “I hate to use this expression, but we really need to raise the bar from the way projects were delivered before us.”
“The opportunity for offsite is in the gift of the contractors we have chosen. What we are doing will give contractors confidence to invest in these things”
At the heart of this will be showing how contractors can bring innovations into the process, including digital skills but also the use of offsite. “The opportunity for offsite is in the gift of the contractors we have chosen,” he adds. “There is a scale to what we are doing that will give contractors confidence in the pipeline to invest in these things.”
But it is not just in HS2’s delivery that Mr Thurston wants contractors to be pioneers; the CEO also wants to address the wellbeing of workers in a different way – particularly their mental health.
HS2 has already begun work to train its line managers to better understand and identify mental health issues. It will also roll out a number of training sessions for staff, develop a network of mental health first aiders, and give staff access to psychological support. “It is becoming a major issue for the sector,” Mr Thurston adds.
Mark Thurston chief executive HS2 051
One of the most immediate goals is ensuring effective designs from its civils contractors. As part of the two-stage civils contracts, the JVs will be required to pass six design checkpoints and reach an agreed final target price before being handed the finalised construction deals.
The next checkpoint will be in April. “Don’t worry: everyone has passed so far,” he assures me. “I am pleased with what I have seen.”
As has been well documented, among those phase one civils joint ventures is Kier/Eiffage.
The JV formerly known as CEK lost its ‘C’ in January following the collapse of Carillion. “Everyone imagined that it was going to cause disruption but it hasn’t so far,” Mr Thurston insists.
“When Carillion published the first profit warning we agreed with the joint venture that we needed a contingency plan, and that plan developed in the background as their subsequent warnings came out”
On the day that Carillion collapsed, the chief executive immediately called the CEOs of Kier and Eiffage to trigger contingency plans. Within 10 days, all Carillion staff had been transferred over.
“When [Carillion] published the first profit warning we agreed with the joint venture that we needed a contingency plan, and that plan developed in the background as their subsequent warnings came out,” he explains.
Since Carillion’s liquidation a number of its subcontractors have told CN that they had been reassured by its HS2 contract wins to continue working with the contractor, a decision that led to some losing millions.
I ask if HS2 could have improved its due diligence of Carillion – and whether it should have been aware of its difficulties earlier. “The financial tests are pretty onerous,” he says. “What it has made us do is think about how we maximise the UK construction supply market for subsequent phases of the line.”
Ensuring HS2 suppliers receive sustainable margins will no doubt prove a critical issue.
The fallout of the collapse has put greater focus on government procurement. A number of suppliers have told CN since the collapse that they would like to see the government lead on making sure contracts produce more sustainable margins.
Mr Thurston accepts HS2’s responsibility to do right by suppliers. He says the two-stage civils design-and-build deal is a good way of coming to a final contract price that is beneficial for client and contractor.
Among HS2’s phase one civils firms are those that have recently set out 5 per cent as their stated margin target.
Last week Leo Quinn, the chief executive of Balfour Beatty, which is delivering the £2.45bn northern civils packages alongside Vinci, said that hitting this margin target required more discerning clients.
“The bigger prize we shouldn’t lose sight of is phase 2b; later this summer we will be looking at what the best delivery method is for achieving that”
Mr Thurston refuses to tell me what he views as a good margin for a contractor. The number is secondary, he says. “To change the way we do civil construction through new methodologies, we need our contractors to invest in some of those, so it is perfectly legitimate that our contractors have good margins to achieve that – it is beneficial for both of us.”
The HS2 boss is also thinking about how he will procure phases 2a and 2b for the line north of Birmingham. “On phase 2a we are looking at our options,” he explains. “We could go back to the four JVs we’ve got; we can go back to those that prequalified for phase one but didn’t win. The bigger prize we shouldn’t lose sight of is phase 2b; later this summer we will be looking at what the best delivery method is for achieving that.”
Will he be there to see this through? Just last month, outgoing Network Rail boss Mark Carne explained his view of how long a CEO should stay. “Four [years] is too short, seven is too long,” he told journalists.
Mr Thurston appears to disagree, implying his future at HS2 could stretch beyond seven years.
Will he still be in post when the first train pulls into Birmingham Curzon Street?
“I’m on the first train, you bet.”