HS2 Price Hike Brewing

Even without the latest news  that some HS2 contracts are coming in up to 40% over their target price, a hike in the HS2 budget has been on the cards for a while – in fact this is an article I’ve been meaning to write for weeks.

The first clue was an article in Construction News, in which it was reported that HS2 chief executive, Mark Thurston, told a conference that HS2 will look at using private funding models for Phase 2.  Whats more, Construction News reports that he said “Mr Thurston said: “The thing we can do through phase one is get a much better understanding of what it actually costs and what the demand will be, so we can start building that into the model for phase two; it’s very much a question mark for us, it’s a good challenge.”

Reported separately by This is Money, Thurston also told the Transport Times conference “We are confident that we will build it within budget, we wouldn’t say anything else in a public forum.”

These statements rather beg the question of how the government can be so certain that HS2 will come under budget if they don’t know what the costs are, and what is being said behind closed doors about the HS2 costs.

And then there was another oddity, in that staff salaries were being accounted for with a negative cost. City AM reported in May that the data published by the DfT shows “The total monthly cost of contingent labour, classified as agency (clerical and admin) staff, interim managers and specialist contractors for HS2 in February comes in at -£740,766.97.” Both the DfT and HS2 Ltd refused to give the actual figures or explain why it was negative.

And a few days ago, the Canary spotted that the Chris Grayling announced that the government would be underwriting at least £12m of risk over the HS2 rail project. They are also unhappy that not only did he give a multi-million-pound guarantee to a private rail company, but also he sneaked the announcement out without consulting parliament first.

Another factor was the publication of a report by high speed rail lobby group, Greenguage 21. This talks about a whole load of possible new railways (not all high speed) to add cross country connectivity and links to Heathrow and move away from the “hub and spoke system”. Whatever one thinks of their proposals, the publication of the report seems timed to say good things about HS2 before negative publicity. (I had rather wandered if a budget increase for HS2 would be sneaked out when the Heathrow third runway was announced.)

All of those were already public before the New Civil Engineer article on the 12th June, in which they report that the interim contracts submitted are coming in significantly over the budget for this phase of work of £6.6 billion. The NCE says ‘one source said that the collective price was coming in at “around £1.2bn” over budget, another said that some bids were “as much as 30% to 40%higher” than their individual target price.

The NSE adds that some contractors are being told to “go away and sharpen their pencils”.

Of course, we’ve been here before, when David Cameron appointed David Higgins as chair and ask him to reduce the price.  The resulting HS2 Plus document dropped some elements of the project and said the existing budget was right: no price reductions possible there.

So it seems increasingly likely that there’ll be a HS2 price rise at some point over the next few months. An ever more costly white elephant when there would be so many better ways of spending the HS2 budget.

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