HS2 contracts may be twice as costly as first thought, says new boss
The contracts for HS2 may run to more than double their initial projected cost, the troubled project’s new chief executive has warned ahead of crunch talks this autumn.
Mark Wild, who was brought in to reset the high-speed line last year, told MPs the contracts would finish “considerably over budget,” with a likely overspend of between 50 to 100 per cent.
Responding to MPs on the Transport Committee, Wild revealed around £26bn had already been spent on the main civils agreements, despite them being just “over halfway done.” They were initially priced at £19.5bn.
“There is no incentive for the contractor to minimise spending. There is no commercial tension you would normally expect to mitigate cost,” he said.
Former KPMG chair James Stewart’s review last month found poor-value contracts negotiated between HS2 Ltd and its suppliers to be “by far” the most significant contributor to overall cost increases.
Current estimates place the cost of HS2 at more than £100bn, up from an initial budget of £38bn (by 2009 prices), while the project is up to three years behind schedule.
Won by the likes of Balfour Beatty, Costain and Mace, HS2’s three most valuable civil engineering contracts are the biggest to ever be let in the UK.
The deals were re-negotiated in 2020 to a cost-plus model, a move which has proven highly controversial given it passed nearly all of the risk onto the government. The alternative would have been fixed-price contracts or the inclusion of greater penalties for cost overruns.
HS2 boss preps for crunch talks
“With the benefit of hindsight, the only way to mobilise the project was to remove the risk from the contractors,” Wild said on Wednesday.
“The crystallisation of the risk, even with some of the biggest contractors in Europe, would have destroyed their companies.”
Wild is preparing for crunch talks with contractors this autumn as he seeks more favourable terms for HS2 Ltd, the arms-length body overseeing delivery.
“I’ve engaged with all of the chief executives and with the emergence of a coherent programme… all of them are willing to engage in a conversation to rebalance risk and reward,” he told MPs.
“I’m not saying it is going to be perfect, but I’m confident we’ll get there. If we don’t get there, I’m just going to manage the contracts anyway.”
His comments appear to contradict the prior words of Balfour Beatty’s former chief executive Leo Quinn.
Ahead of his exit from HS2’s largest contractor, Quinn told CityAM that re-negoitation was the “wrong priority” and that passing on the risk would mean the UK “wouldn’t have a construction industry.”
Wild said: “Clearly, we’re not going to be able to put all of the risk straight back on them. But these contractors are in the business of getting the job done… Staying on our job for a long period of time is not within their mindset.”