A public spending watchdog has said HS2’s construction contracts are “extremely poor value for money” and is “unconvinced” they can be renegotiated to achieve significant savings.
The Public Accounts Committee (PAC) described HS2 as a “cycle of repeated failure” and “a casebook example of how not to run a major project”.
In a report published today (28 February), the committee found HS2 Ltd and the Department for Transport (DfT) “have failed to work together effectively”, lack the necessary skills to deliver the programme, and that early plans for Euston “carry huge risks”.
The report stated: “Over a decade into the programme, we still do not know what it will cost, its final scope, when it will be completed, or what benefits it will deliver.”
The PAC said the seven main civil engineering contracts for phase one were “unacceptable to the public purse” and stressed that HS2 Ltd must deliver on assurances to renegotiate these and achieve cost savings.
The contracts were awarded in July 2017 to four joint ventures (JVs): SCS JV (Skanska, Costain and Strabag), Align JV (Bouygues, Volker Fitzpatrick and Sir Robert McAlpine), CEK JV (Carillion, Eiffage and Kier), and BBV JV (Balfour Beatty and Vinci).
Initially valued at £6.6bn, the contracts were renegotiated in 2020 amid project-wide cost inflation. The new terms shifted risk from contractors to HS2 Ltd, reducing liability for cost overruns above a fixed target price but imposing penalties for failing key performance indicators.
By 2023, HS2 Ltd reported that the contract values had risen by £6bn (in 2019 prices) since renegotiation.
Construction News has asked HS2 Ltd to confirm these contracts’ current forecasted value.
The PAC previously warned in May 2020 that HS2 Ltd needed strong commercial skills to manage these revised arrangements. However, the committee now says HS2 Ltd “did not heed warnings” and admits it has not effectively managed the contracts.
HS2 Ltd has acknowledged the contracts are unproductive and is attempting to renegotiate them.
While the JVs are reportedly open to discussions, the PAC is “unconvinced there are incentives for contractors to make significant changes and deliver cost savings”. It warned that contractors could pass financial consequences down the supply chain, impacting small and medium-sized enterprises.
The PAC called for the DfT’s six-monthly progress updates to Parliament to include details on contract renegotiations and cost savings. It also urged HS2 Ltd to outline contingency plans if renegotiation fails.
SCS JV, Align JV, BBV JV, and Eiffage Kier (renamed from CEK JV after Carillion’s collapse) have been contacted for comment.
The committee further called for a “fundamental reset” of HS2, recommending HS2 Ltd establish revised actions, milestones and outcomes. It urged the DfT to radically improve cost oversight and control.
The PAC highlighted:
- A stark failure in cooperation between the DfT and HS2 Ltd, illustrated by their inability to agree on cost estimates.
- A lack of commercial management and leadership expertise within both bodies.
- Significant risks in plans for Euston, expected to cost £6bn, with scepticism over private sector contributions.
- Poor value for money in environmental mitigation, citing a £100m bat tunnel doubling costs for that section of railway.
- Slow progress in disposing of land acquired for the now-cancelled phase two.
- A lack of evidence that lessons have been applied effectively to avoid past mistakes.
The PAC asked the DfT to respond to these concerns either in writing to the committee or as part of its six-monthly updates.
An HS2 Ltd spokesperson said: “Mark Wild, our new chief executive, agrees with the committee that there has been failure in the management of HS2’s cost and schedule. He is taking decisive action to get the project back on track at the lowest feasible cost. His fundamental reset is critical to ensuring HS2 achieves its goals of driving economic growth and connecting our biggest cities with fast, reliable journeys.”
Alasdair Reisner, chief executive of the Civil Engineering Contractors Association, said: “The UK must learn major lessons from HS2 and rediscover the ambition behind its design. Contractors have faced uncertainty from the start, striving to deliver cost-effectively without compromising safety. They must be allowed to complete HS2 without being scapegoated for poor governance, shifting political priorities, and market conditions worsened by events like the war in Ukraine and the pandemic.”
The DfT has been contacted for comment.
