Both the government and those in charge of the HS2 high-speed railway underestimated the project’s complexity, the government’s spending watchdog has concluded.
The latest government estimate places the cost of HS2, which is currently under independent review by former chairman Douglas Oakervee, as high as £88bn, although it is thought that its final cost could surpass £100bn. Meanwhile, full services on the network are expected to start between 2036 and 2040 – between three and seven years later than planned.
Ambitious schedule
In an updated study looking at HS2’s progress, the National Audit Office (NAO) said the target opening date for Phase One (London to West Midlands) was “ambitious” in comparison with other infrastructure programmes. It said the Department for Transport (DfT) did not sufficiently consider that HS2 is a much larger and more challenging programme to deliver.
In 2013, the NAO reported that it would be difficult for HS2 Ltd to complete all work in the time available and in 2016 warned that the 2026 opening date was at risk. The NAO went on to say that it was “clear” from 2016 that the 2026 opening date was in doubt, but the DfT did not reset it. Since April 2019, HS2 Ltd has been planning on the basis of a “more realistic” schedule for the programme, it said.
Ballooning funding
Meanwhile, the NAO found that DfT set the available funding for Phase One in 2015, based on a basic design produced in 2013. Since then, forecast costs have increased on all parts of Phase One. DfT and HS2 Ltd now estimate Phase One to cost between £31bn and £4bn, £3.9bn to £12.9bn more than its available funding.
And it added that HS2 also failed account for the level of uncertainty and risk in the programme when estimating the costs of Phase One in April 2017, with the £7bn of contingency it set aside not enough to address the cost increases that emerged.
‘Sensible’ contract revisions
A commitment to Parliament by DfT and HS2 to meet requirements such as increasing the length of tunnelling and erecting noise barriers have also contributed to the increased cost of Phase One and may restrict contractors’ ability to avoid costs in construction, the NAO warned.
The watchdog criticised both organisations for “not adequately managing risks to taxpayer money”. It added: “They have tried to understand and contain costs but have been unable to bring them within the available funding, or enable passenger services to start by the planned opening date.”
It recognised that DfT and HS2 have since made progress with their preparations to start construction on Phase One and that HS2 now has greater confidence in its cost estimate for Phase One. But it cautioned that HS2 will need to “manage risks that could cause costs to further increase”. Main construction has not yet begun and approximately 50% of the costs in HS2’s estimate are less certain because they are not yet based on contracts agreed with industry, the NAO warned. It said HS2’s revised terms for the civil construction contracts were “sensible”, but will require strong management.
Phase Two uncertainty
Meanwhile Phase Two of the programme is at a much earlier stage than Phase One but is already forecast to cost more than its available funding and take longer than expected. HS2 Ltd’s current forecast for when passenger services would run on Phase 2a (West Midlands to Crewe) is between 2030 and 2031, and for Phase 2b (Crewe to Manchester and West Midlands to Leeds) is between 2036 and 2040, three to seven years later than planned. DfT estimates that costs for Phase 2a could be £6.5bn (87% higher than the available funding) and Phase 2b £41bn(63% higher than the available funding).
Gareth Davies, the head of the NAO, said: “There are important lessons to be learned from HS2, not only for the Department for Transport and HS2, but for other major infrastructure programmes. To ensure public trust, the department and HS2 must be transparent and provide realistic assessments of costs and completion dates as the programme develops, recognising the many risks to the successful delivery of the railway that remain.”
Responding to the NAO report, a spokesperson for HS2 said: “The vast majority of the NAO’s findings were revealed in HS2’s 2019 stocktake – a year’s worth of deep dive investigation into the underlying costs and timescale of the project. As such, the revised costings and schedule are already widely known.
“After being appointed HS2 CEO in 2017, Mark Thurston identified the serious challenges of complexity and risk in the project, and he made several significant changes and improvements to the organisation, its governance and processes. As the NAO recognises, this work – along with a greater understanding of the ground conditions and build requirements – means ministers have robust cost estimates for Phase One of the HS2 project. If the government decides to proceed, HS2 Ltd has a highly skilled team in place ready to build Britain’s new state-of-the-art, low-carbon railway.”
