HS2: Northwards goes the cost, just not the track

Mammoth undertakings like HS2 often become symbolic of a nation, which is kind of unfortunate, given the project’s bloated costs and the truncation of its original vision. Tim Clark explores where it all went wrong

As the largest construction project in Europe the HS2 rail line is never far from the headlines.

However, once again, the troubled mega-project was in the media for the wrong reasons this month, after it was revealed that the cost for Phase 1 from Old Oak Common to Birmingham may hit £65bn – which is £10bn more than the original cost estimate for the entire line from London to Manchester, Birmingham and Leeds.

Since Phase 2 of HS2 was scrapped in October last year Build in Digital has spoken to half a dozen experts who either work within the project, act as consultants, or have been hired to work on the rail project to understand just what went wrong, how costs have been allowed to escalate so much, and what may come next.

One consultant who has worked on HS2 said that a major problem was the lack of listening [by senior management], and a series of mistakes which, in turn led to a domino effect down the line.

“HS2 was poorly conceived,” they say. “Large parts of it were poorly designed. The designs didn’t match the procurement strategy.

“It was badly permissioned in that they gave away too many [concessions] in the hybrid bill [the law passed by parliament to allow the line to be built ] and when it came to procurement it wasn’t clear who owns the design responsibility. That wasn’t clear. So procurement didn’t match the design.

“I think somewhere underneath it is a really well-intentioned project, and it’s a needed project, but it’s the wrong project for those reasons.”

Compound errors

One of the main issues with the management of HS2 is that it is unclear whether issues were fixed before they escalated.

Property cost estimates were one of the key areas where the initial budget rose to become far higher than previously expected. In London alone, HS2 is understood to have paid almost £750m to settle one compulsory purchase order – which is among the largest CPO acquisitions in the UK ever. Other property costs were similarly under-estimated.

Doug Thornton, former property director at HS2, first raised questions over the costs in 2016. Thornton was given the role of acquiring land for the HS2 project, however speaking to Build in Digital he says that a number of questions still remain to be answered.

By late 2015, according to Thornton, HS2’s own data identified the need to acquire 11,500 property interests to be able to build Phase 1 from London to Birmingham.

The property cost estimate used at the time however was based on only 6,000 properties. A later report by the National Audit Office (NAO) in 2018 found that over 18,000 properties were needed. A far larger number than originally envisaged.

In a letter to Simon Case, former head of the civil service, seen by Build in Digital, he said: “I could find no reasonable explanation, based on HS2 Ltd’s own data, for their veracity […] When we started to put numbers on the budget gaps the trouble started.”

The NAO were informed that it was “not useful” to create detailed property cost estimates prior to Royal Assent for the line being granted.

Report card

The general public could be forgiven for pondering how the costs for HS2 continued to rise for so long. The scheme has, in theory, several oversight mechanisms in place to ensure that costs are kept under control.

Although HS2 itself is a limited company, it is wholly-owned by the Department for Transport (DfT), and has its own ministerial oversight in the shape of Huw Merriman – .minister of state for rail at the DfT whose remit specifically covers HS2.

The news by the new executive chairman of the body, Sir Jonathan Thompson on 11 January that the line will now cost between £49bn and £56.6bn in 2019 prices shows how far the costs have risen. Inflation since then has, according to the executive chairman, added a further £8bn to £10bn to the costs.

The news revealed another interesting facet of the HS2 story – the open disagreement between HS2 – as it is now run by Sir Jonathan – and the government. As the BBC stated on 11 January, the government thinks the cost for Phase 1 should be “at the lower end of £45bn to £54bn”.

According to the HS2 executive chair, the £45bn estimate isn’t achievable. It is one of the few times that the body running the rail project has publicly stated that the costs will be higher than the government is keen to admit.

Another question that needs to be answered is the timing of the projects. Many construction contracts were signed without final designs known, and thus final costs weren’t known either.

Speaking to Parliament in April 2023 former chief executive of HS2, Mark Thurston admitted that he did not know the real cost of building Euston station, even though a joint venture between Mace and Dragados had been appointed as preferred bidder for the station work as far back as February 2019.

Appearing at a session of the Public Accounts Committee, Thurston said that there was no way of knowing how much the terminus would cost until the market “had priced it”.

He said: “The reality is with all of HS2 – and it’s the same across the sector, [and] across government – [you don’t] really know what this is going to cost the taxpayer on these big projects until the marketplace has [been] priced in, and you’re in the hands of the market.”

This kind of procurement – a hit and hope approach – is unheard of in many other industries. Euston itself can be considered an illustration of the wider problems HS2 has suffered from.

HS2 Ltd has spent £2bn on Euston station thus far, and £300m to demobilise the site – effectively mothballing a large tract of land close to central London. The Architects Journal revealed after a Freedom of Information Act request that the design costs alone were £289m.

That is an astronomical figure for a station whose final design is still not yet known.

“Euston should never have been built,” one property professional told Build in Digital.“It should have gone underneath London and the trains turned around somewhere in a field where there’s cheap land.”

The conundrum of Euston is still unsolved, with the current government expecting private funding to help bridge the gap – with eventual final costs still unknown.

Were HS2’s costs ever really put under the microscope?

The answer is yes. The Integrated Rail Plan (IRP) ran the rule over the project in 2021 and prior to that the Oakervee review – chaired by Douglas Oakervee – in 2019.

However, even successive reports could have – it can be argued – glazed over shortcomings in the project, or had to juggle realistic cost priorities with political considerations, either within the industry or government. Without full public inquiry it may not ever be known, however there are clues to the trade-offs which occurred.

One rail consultant told Build in Digital: “If you read carefully over the Oakervee report, what it really says is that if you [the government] don’t start the project reasonably quickly, then the UK construction industry is going to be decimated.”

Thornton believes that cost issues grew to such proportions that the management was unable to cope with the scale of the problem.

“I think they [HS2] were in such a mess that the calibre of director’s they had [at the time] maybe didn’t realise the mess they were in, and rather than putting the foot down on costs, they focussed on gaining Royal Assent [for the hybrid bill].

Was parliament deceived when it came to real cost issues? Some, such as Thornton, believe so.

In an interview with Sky News in 2020 Thornton stated that he was asked to “advance figures I thought were severely misleading”.

The issue is that, despite the growing number of whistleblowers who have come forward warning over project cost problems, no member of the DfT or HS2 has yet to fully respond to the accusations.

Construction industry

Another consideration is whether the construction industry itself could have done more to keep costs down on the project? One senior transport consultant believes that the whole HS2 fiasco is an example of the structural problems in the sector, and why fundamental change is needed.

“It’s almost like an abusive relationship,” they say, citing the low-productivity, low-margins which proliferate across construction among contractors.

“Why don’t people get out of abusive relationships? For construction companies it is the fear of what they [contractor’s] don’t know.

“I think the construction industry is [in] an abusive relationship, which is that they would rather be unproductive than get out because of the uncertainty.”

The comments are controversial, and likely to ruffle feathers. However it does pose the question of whether the construction sector is unable (or unwilling) to break with the high-cost, low-productivity model that seemingly redesigns the wheel for each aspect of each project?

One rail expert, speaking off the record, said that the industry is heavily influenced by consultants.

“We don’t need so many [consultants]. If I want to build something I should be able to buy it once, and that’s it. What the industry needs is doers, and not thinkers, who can build a prototype, and then build it.

“People ask why construction isn’t like the car industry; well the large car manufacturers don’t use consultants, just a few really bespoke ones. The rest is done in-house.”

HS2 seems to have, belatedly, got the message. In December it announced plans to replicate the design of its Thame Valley viaduct on another viaduct in Northamptonshire, saving money and carbon emissions. The brainwave has, however, come late in the day for a project over a decade into its planning and construction.

What next?

For both supporters and opposers of HS2, the impact of the cost problems has damaged trust in cost management of major projects, be they rail or road. This has implications for future investment. Grand plans for country-long rail routes aren’t likely to be seen for decades.

On 12 January, Labour leader Keir Starmer ruled out any revival of HS2’s Northern legs, stating it would be “impossible” to bring the project back up to its previous scope. Starmer’s comments have seemingly killed off phase 2 of the HS2 project for good. The PM, Rishi Sunak had already cancelled any HS2 works North of Birmingham.

The full tale of what happened at HS2 has many chapters to go, what is known is that there are still a number of major questions still to be answered. If the government, the DfT, and the construction industry is serious about “learning lessons” from the failures at HS2, it may need to be answering those questions sooner rather than later.

Image credit: TierneyMJ/Shutterstock

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