The full HS2 project should go ahead despite “inflated prices” that have resulted from an “unsuccessful” procurement strategy that could see some contracts retendered.
Those are some of the findings of the leaked independent review of HS2 led by former Crossrail chairman Douglas Oakervee.
Oakervee has determined that HS2 should go ahead despite its £88bn price tag, according to a copy of review seen by The Times.
The report estimates that the escalating cost, from an original budget of £56bn, means that the benefit to taxpayers has fallen from £2.30 for every £1 spent in 2017 to between £1.30 and £1.50 for every £1 spent this year.
It added that there are no “shovel-ready” alternative investments that could be made in the rail network to add capacity.
Nonetheless, the report was critical of HS2’s procurement strategy. It described how initially all the risk was placed on contractors but that given construction’s fragile state after the collapse of Carillion, contractors priced the risks higher than HS2’s expectations. That meant that HS2 introduced a risk transfer system to overcome the problem. But the report said this has resulted in HS2 now “carrying most of the risk and all of the pain with little gain”, resulting only in “relatively modest reductions in price”.
It recommended that the government should consider re-procuring some contracts if needed to get best value, while it should ensure that phase one projects yet to be contracted should be “on acceptable commercial terms”.
Phase 2a of the project from Birmingham to Crewe is expected to cost more than expected as a result of “emerging estimates for land and property, systems and indirect costs”.
The report was originally due to be published in the autumn but The Times claimed that prime minister Boris Johnson wanted to delay it until after the December general election. Meanwhile, Lord Berkeley, deputy chairman of the review panel and a known opponent of HS2, is reported to be submitting a dissenting report to civil servants.
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The risks of this type of contract to a construction contractor are of the scale. The NEC does not really help in transferring the risk. If the HS2 team want to reduced the tender quotations, price then they should take on all the risks involved. Contractors pricing unknown risks are expensive, as HS2 have now found out.