The UK government is considering bringing HS2 Ltd under direct state control following a new review.
- This move follows concerns about HS2’s escalating costs, which may rise to £67bn.
- James Stewart, former KPMG chair, is leading a government-commissioned governance review of HS2.
- Contractual issues with major contractors have led to increased costs and potential mismanagement.
- The review may result in enhanced ministerial oversight and renegotiation of key contracts.
The UK government is contemplating the prospect of bringing High Speed 2 Ltd (HS2 Ltd) under direct state control. This consideration is part of a newly commissioned review, a response to escalating costs and purported mismanagement of the project. The review is being led by former KPMG chair, James Stewart, highlighting the seriousness with which the government is treating the concerns surrounding HS2 Ltd.
The costs associated with HS2 have been a consistent point of contention, with the official budget set between £49bn and £56.5bn, but potentially reaching as much as £67bn. The spiralling costs were notably a factor in the decision by former Prime Minister Rishi Sunak to cancel Phase 2 of the project. A significant contributor to this financial uncertainty has been the complex contractual relationships with HS2’s four primary contractors.
These contracts, which include both design and build components, have placed contractors in influential positions, allowing them to negotiate changes that often result in increased costs. Indeed, HS2 Ltd has reportedly been overwhelmed by compensation claims from these contractors, undermining its role as a ‘guiding mind’ in the project’s technical progression.
The National Audit Office noted that HS2 Ltd has struggled to achieve anticipated cost savings through its contracts, with incentives failing to deliver expected productivity improvements. Consequently, the Department for Transport (DfT) and HS2 Ltd are working on a plan to renegotiate these major contracts to establish better cost control and certainty. However, they acknowledge the inherent challenges in altering contracts that are already underway.
Inflation and premature budget setting have also contributed to HS2’s financial woes, alongside delays in planning. The DfT remains circumspect, refusing to comment on speculative points but committing to a thorough review of inherited positions concerning HS2 and future announcements in due course.
The government’s review may set the stage for a significant restructuring of HS2 Ltd’s operations and oversight.
