New HS2 boss blasts cost-plus contracts for £6bn of overspend

Aaron Morby 3 weeks ago

HS2’s new boss has laid the blame for massive phase 1 budget overruns on the Government’s decision to let cost-plus contracts for main civil works.

Sir Jon Thompson warns cost plus contracts will hamper efforts to control overspend
Sir Jon Thompson warns cost plus contracts will hamper efforts to control overspend

Incoming executive chairman Sir Jon Thompson said that 89% of the cost increase from 2020 till now was down to these contracts alone.

He said the decision had tied his hands preventing him from pulling levers on contractors to rein back costs.

The latest projected cost for HS2 Main Works Civils Contracts is £21.8bn to £23.4bn, a cost hike of £6.1bn.

The latest estimate at 2019 prices still does not take into recent rampant cost inflation across the industry, and the Government has now demanded a new cost estimate at today’s prices.

Sir Jon, who has been in post as executive chairman since Mark Thurston stepped down in September, criticised the procurement decision as he was cross-examined by the Public Account Committee yesterday.

He said: “We have to be upfront with you now, the Government decision to let cost-plus contracts where there are very few incentives or penalties around them does not provide me with any real levers on contractors to do better in relation to schedule and costs because they receive a marginal reduction in their fee.

“If they spend 100% more than what was agreed, they only get 1% reduction in their fee.”

“I can attempt to see if we can reset that in some way, but we are where we are.

“The decisions was made for all the right reasons, I assume back in 2019, but these contracts do not provide me with very much leverage.”

Sir Jon also warned that extra cost pressures loomed with plans to connect HS2 to the West Coast Main Line through a major redesign at the Handsacre junction, already a choke point on the route.

This would need to be expanded requiring extra land and incurring extra cost, he said.

At the same time, the PAC was told that the Department of Transport and HS2 were presently at odds about the final cost for Phase One with the DfT setting a £45bn-£54bn price range and HS2 estimating £49bn – £57bn.

HS2 is planning to tighten management controls on budgets with the appointment in January of a Chief Railway Officer for the project. The new role will to be to integrate all elements of phase one, working alongside a new chief executive replacement for Mark Thurston.

“A lessons learnt from Crossrail is you need a single controlling mind for the programme overall, rather than working through individual lines,” said Thompson.

He revealed that the present working completion date for the project was now 2030.

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