HS2 construction contracts priced at £19.5bn have already cost £26bn despite being “just over halfway done”, the boss of the high-speed rail project has told MPs.
Civil engineering to build tunnels and cuttings for the 100-mile line should be almost finished but is closer to 60% complete, while only a third of the wider project – including laying tracks and wiring – is done, the transport select committee heard on Wednesday.
Mark Wild, chief executive of HS2 Ltd, said that while budget estimates had suffered from “optimism bias”, the company had “lost control of the programme”. He told the committee that the rush to start work in 2020 without balancing the risks in the contracts was the main reason for costs spiralling upwards.
Contracts were signed off in April 2020 and construction formally began five months later, before designs were finalised and local planning consents were in place, he said.
Wild, who started work last December, is engaged in a “reset” of construction, which he said would include reshaping his direct staff at HS2 Ltd, coming up with a credible schedule and budget, and renegotiating contracts in the autumn.
He said: “The bottom line is that, at the notice to proceed, the contractors could not price the risk. What we’re seeing is the crystallisation of risk: they should have cost £19.5bn, and we’ve already spent £26bn and we’re just over halfway done … Between 50% and 100% is the likely overspend.”
The line between London and Birmingham – initially designated as phase one, but now the entirety of HS2 – was originally planned to open in 2026.
The schedule was subsequently postponed to between 2029 and 2033. But on Wild’s advice, Heidi Alexander, the transport secretary, told parliament last month that there was “no route” to full HS2 services until after 2033.
Wild told the committee: “If you lose control of the programme, you end up at the extreme end of optimism bias, which ends up in delusion … The problem with HS2 is we lost control of the programme.”
He said Covid and inflation caused by Russia’s invasion of Ukraine had a significant impact on time and costs, but that HS2 had failed to manage costs.
He said the company was “unbalanced” and had “a significant gap” in its frontline workforce managing contractors, as well as having “too many consultants who’ve been there for too long”.
“We’ve ended up … locked in our own bureaucracy,” he said.
Also giving evidence, Lord Hendy said politicians had to be ultimately accountable for the decisions made. The rail minister told the committee it was unclear why political leaders had decided HS2 should be an “exceptionally fast railway”.
While accepting that higher speed did increase potential capacity, he added: “It is hard to understand why there was such zealotry about the highest-speed railway in a relatively small country.”
HS2 trains will have a maximum speed of 225 miles an hour, though Wild suggested last month they start running at lower speeds to reduce the period needed for testing and potentially run services sooner.
Wild told the committee he was confident that HS2 could “get a reset” and that the company would keep budgets under control by no longer allowing “gold plating” or “first-of-a-kind technology” on the project.
He added that he was dealing with contractors who “are working across government and are part of a much bigger game than just HS2”.
With major contracts to be awarded on work such as the Sizewell C nuclear plant and upgrading the National Grid, Hendy said he believed firms would “lean in” to Wild’s plans.
He said some examples of what Wild called “gold plating” had already been scrubbed from the project, such as “air-conditioned platforms” as part of the first design for HS2’s London Euston terminus.
“Even Saudi Arabia doesn’t have air-conditioned platforms,” he said.
