HS2 : more of the same lessons to learn – again?!

I’m sure most of you will have picked up on the current challenges facing the HS2 project and its implementation but I wanted to reflect on how this impacts the construction sector, especially the reputational impacts, and how difficult it then becomes to justify future investments. The reasons for the increased costs are sadly predictable but, despite most of the issues lying at the feet of politicians, it’s our sector that tends to take the brunt of public criticism.

In terms of background, the UK Labour government initially estimated HS2 would cost £37.5bn in 2009 prices, with one line stretching between London Euston and Manchester and a branch travelling between a Birmingham Interchange station to Leeds, via an East Midlands Hub. However, estimates for the line between London Euston and Birmingham Curzon Street are up to £67bn in 2023/24 prices – while the eastern leg to Leeds was scrapped in 2021 and the northern leg to Manchester was scrapped in October last year. Both decisions to reduce the line came amid concerns over costs, with a Conservative government-backed review by former HS2 chair Sir Douglas Oakervee warning in 2020 that the cost of the entire scheme was set to stand at £87bn in 2019 prices – and several estimates putting the total cost at above £100bn. Prime minister Sunak, meanwhile, said his decision to scrap the northern leg would “save” £36bn, almost as much as the original cost estimate for the entire scheme. That’s a bit like someone who’s trying to lose weight cutting off both legs and proudly saying they’ve reduced their weight without mentioning that they can’t walk anymore. That’s not about savings, it’s just panic.

At the start of January the HS2 chair and interim chief executive Sir Jon Thompson provided MPs with four primary reasons for HS2 costs being more than were budgeted for, before adding three secondary reasons for the increases :

  1. Poor initial cost estimate: budgets for infrastructure projects need to be set early for an outline business case to be approved by the government and “that [original] cost estimate is based on very, very immature data – no design, nothing procured, no detail on which you can cost anything.” He added : “The estimate was poor, the budget was set too early, and then when you get further into it you get much better information, on that basis you can cost it out with more accuracy and discover it’s higher.” That’s a familiar story for those in the construction sector!
  2. Scope changes: “It’s worth remembering between 2010 and 2019 when the current budget was set, the scope of HS2 was changed significantly by a whole series of ministers. Much more of it was put through tunnels which costs a lot more than putting it through cuttings, for example, so there have been a whole series of scope changes”. Again, very familiar.
  3. Poor delivery by HS2 Ltd: Last year HS2 changed the responsibility of two major JV’s working on central section main works (there is no suggestion of wrongdoing by either contractor). Project control continues to be a challenge for the construction sector and that certainly reflects badly on the sector – but the political pressures to avoid facing up to reality are intense!
  4. Inflation: “This has been extraordinary in the past few years.” Construction costs had increased by 27 per cent over three years, in part due to the increased price of steel, concrete and rebar. Thompson explained that HS2’s £57bn estimate for finishing phase one was in 2019 prices – but this will increase by £8bn to £10bn when measured in 2023/24 prices. Unavoidable but surely this should have been monitored and reported regularly?

The other lesser factors included:

  1. A “hostile operating environment”: “Covid has clearly led to some additional costs, £500-600m extra due to Covid.”
  2. Planning delays: It shouldn’t be a surprise that some stakeholders are hostile to the idea that HS2 should go through pretty areas, so getting consent was always going to be difficult and planning delays have been very significant issue in some areas eg 56-day turnaround for planning consent turning into two years and then a planning appeals process.
  3. Government funding constraints: The UK government itself has sometimes said it can’t really afford to fund the schedule and/or need the project to progress more slowly because of cashflow. Elongating the programme when inflation is high means higher overall costs.

For civil engineers there’s probably no surprises here but in reality few of these points can be directly attributable to contractors. Nevertheless, reputationally it is very damaging for the sector. Picking up on his first and seventh reasons for cost overruns, Thompson made two recommendations to government about how it can reduce costs on similarly large infrastructure projects in the future and there are no real surprise here either :

  • Cost estimates : government should not “quote how much this is going to cost too early and then get fixated on it”, as early estimates will be “very immature”. “I would use [cost] ranges before you harden them up.”
  • Funding profiles : “When you are doing a programme at this scale clearly it ramps up, reaches a peak and then slows down but the government budgeting system prefers a flat line of cash, whereas programmes peak and trough… you can make [the] schedule subsidiary to the finance, but traditionally programme management is done the other way around: the programme and the schedule drive the finance.

So, how does the construction industry get governments to listen and act upon some pretty obvious lessons, especially as so many of the issues relate to the failures of politicians? Personally, I think we as a sector need to be far more vocal in our response to the plans of construction clients which isn’t easy when we also want to be awarded the work! And let’s face it the “political cycle” of 5 year elections is never going to be conducive to progressing major and long term infrastructure projects in a way that gives value for public money. But something has to give if we’re to deliver better value for public funds on major projects – and avoid the flak! Unless politicians, once a decision is made, butt out of the tinkering process and we all understand that our infrastructure is for the greater good, then we’ll continue to experience failures like HS2 and  go through more pointless reviews that tell us what we already know!

Ed Evans : Director CECA Wales