Risks were underestimated on HS2 project

The government’s public spending watchdog says that the HS2 rail project is over budget and behind schedule because the government and HS2 Ltd underestimated its complexity and risk from the outset.

The National Audit Office (NAO) has published its third report into HS2 but it reveals little that has not already been made known.

It says the DfT’s latest official estimate of the cost of HS2 is between £65bn and £88bn (2015) prices, which is between 17% and 58% more than the funding that has been made available for it. Other credible assessments put the likely cost at more than £100bn. Full services on the entire network are now forecast to start between 2036 and 2040, between three and seven years later than originally planned.

By 31st March 2019, some £7.4bn had already been spent on HS2.

The NAO says that HS2 Ltd, the government company tasked with getting the project built, did not adequately account for the level of uncertainty and risk in the programme when estimating the cost of Phase One (London-Birmingham) in April 2017. It used a method for calculating contingency that was not appropriate for a programme at such an early stage of development. The £7bn of contingency was not enough to address the huge cost increases that emerged.

Costly environmental mitigation measures were added by MP’s as the Phase One enabling legislation made its passage through Parliament, including a 16km tunnel under the Chilterns, in total £1.2bn was added at the petitioning stage while the Phase One bill was going through parliament.

“By not fully and openly recognising the programme’s risks from the outset, DfT and HS2 Ltd have not adequately managed risks to taxpayer money”, the NAO says. “They have tried to understand and contain costs but have been unable to bring them within the available funding, or enable passenger services to start by the planned opening date”.

The report concludes: “We welcome the increased realism on the estimated cost and schedule for the programme. However, significant risks remain. While the estimated cost and schedule for Phase One are now on a stronger footing the challenge of getting Phase One into construction, and of monitoring and managing the programme as it progresses, is considerable. Phase Two is at a far earlier stage of development with many important decisions to be made before HS2 Ltd and the Department can improve cost and schedule estimates. Completing High Speed Two will require sustained focus and support from the Department and across government to ensure the programmed is re-established on a sound basis, balancing cost, time and benefits, and delivered in a way that achieves long-term value for money”.

High Speed Two: A Progress Update is the NAO’s third report on the project, following previous reports in 2013 and 2016.

A spokesperson for HS2 Ltd said: “The vast majority of the NAO’s findings were revealed in HS2 Ltd’s 2019 stocktake – a year’s worth of deep dive investigation into the underlying costs and timescale of the project. As such, the revised costings and schedule are already widely known.

“After being appointed HS2 Ltd CEO in 2017, Mark Thurston identified the serious challenges of complexity and risk in the project, and he made several significant changes and improvements to the organisation its governance and processes. As the NAO recognises, this work -along with a greater understanding of the ground conditions and build requirements – means ministers have robust cost estimates for Phase One of the HS2 project. If the government decides to proceed, HS2 Ltd has a high-skilled team in place ready to build Britain’s new state of the art, low carbon railway”.