Supply Side
HS2 Problems a Sign of Poor Contracting Strategy?

The UK’s high speed rail programme, HS2, is in danger of descending into a bit of a shambles, it seems. I should say that my personal view is that this programme is not the best use of public money. The initial business case for example was based on people’s time on the train having no economic value, which was obviously nonsense, and it just seems an awful lot of money to spend as we move into a word of virtual reality, driverless cars, drones and so on.

But anyway, setting that aside, last week the contracting process for the phase 2 fell apart when CH2M, who had won the contract, pulled out. That followed complaints from Mace, one of the unsuccessful bidders, that there were conflicts of interest in the procurement process. CH2M has provided dozens of staff on secondment to HS2, including the previous CEO, who was then replaced by a permanent appointee – who also came from CH2M!

The last straw was the revelation that Christopher Reynolds who had worked for HS2 had then gone back to CH2M to lead the bid team for this latest contract. Even if HS2 put all the feasible “Chinese Walls” in place, and took every precaution to guard against conflicts, it just got to the point where it didn’t look and feel right. And ultimately, that is a key point with conflicts of interest; it is not just whether there really IS a conflict, if the perception is that there could be a conflict, then you have a potential problem.

In addition, the Permanent Secretary at the Department for Transport (DfT) is moving on, as is the DfT Director General for high-speed rail. Now these two are not involved day to day in the programme, but it is worrying in terms of the oversight provided to HS2, who are already spending a fortune and throwing around six-figure salaries like confetti. “We need to get the best people” has been the argument – but that hasn’t exactly worked in this case, has it?

We do wonder why HS2 did not follow a pretty well-worn and proven approach and engage a partner on the buy-side to supplement the in-house team, if it was felt such additional resource was needed.

The partner, as a condition of bidding for that role, would then not have been allowed to bid for operational contracts. That was the approach taken very successfully on the 2012 Olympics, where ironically CH2M were part of a consortium along with Mace and Laing O’Rourke called CLM that acted as contract managers for the construction programme.

That worked very well in delivery terms, and the Olympic contracting programme was perceived as a big success in the end. I did a review of the CLM performance as contract managers during the construction phase (not published but for internal government purposes) and I struggled to find much constructive criticism to be honest because they were so impressive. It was however expensive, as we pointed out here after some detective work!

Surely the same approach would have worked here on HS2? Should CH2M or Mace or whoever have been appointed to work buy-side and in return agreed not to bid for other work?  Instead, this view that the conflict of interest problem would not be too serious perhaps suggests a commercial naivety in the HS2 team.

That is a worry for a programme that will spend £56 billion of public money, so let’s hope National Audit Office looks into this programme’s procurement activities sooner rather than later. Our advice to Sir Amyas Morse and his auditors is please don’t tell us once all those billions are spent that it wasn’t well run – get stuck in now!

Voices (3)

  1. Stephen Plowden says:

    The contracts seem to have been be very badly managed, that is not the worst thing about HS2. It is simply a very bad scheme. In the Lords debate on HS2 on 31 January, Lord Framlingham put an amendment to the bill, which, had it passed would killed this project. Among the people who supported his amendment were Lord Burns and Lord MacPherson of Earls Court, both former Permanent Secretaries to the Treasury. Lord MacPherson held that post from 2008 to 2016, so must have been very familiar with the arguments about HS2.

    Lord Framlingham’s speech is well worth reading in Hansard. He wondered whether the supporters of HS2 had been bewitched. He did get one thing wrong, though, in suggesting that the arguments about capacity had been introduced fairly recently when it be had become clear that other arguments for HS2 had failed. In fact, the capacity argument had been there from the start, but it is not a good one. Even if you think that providing capacity is so important that it is worth any expense or environmental damage, there is no need for HS2. As the 51M scheme has shown, all the capacity needed to meet the forecasts can be provided by getting rid of three bottlenecks on the existing mainline, lengthening trains and platforms, and on each InterCity train substituting one second-class carriage for one first-class one. Even if it were true that only a new line could provide the capacity alleged to be required, it need not be a high-speed line. A line built to carry trains running at current InterCity speeds would, according to the official estimate, cost about £5 billion less to build even if built on the same alignment. It would use much less energy and therefore emit less CO2 and noise, and would generate less extra travel. According to the official forecasts, 69% of trips that would be made by HS2 would otherwise be made by conventional rail, a much more friendly mode, 26% would be generated journeys, only 4% would be diverted from road, and only 1% from air.

    The estimate that four percent would be diverted from road is extremely doubtful. It seems to based on a conventional time and cost model, but if people are now travelling by road on InterCity journeys, it is likely to be for reasons not reflected in such models: for example, the car is needed for shorter trips at the end of the long-distance journey; there are people in the car who would find using public transport or access to it difficult; the car is carrying a lot of awkward luggage; some occupants want to smoke; people want to carry on private conversations. All these considerations would still apply if HS2 were built. Moreover, even if HS2 did lead to a significant diversion from cars, the easier conditions resulting from freeing up some road spacewould lead to generated car travel, so the claimed benefits in reduced casualties, carbon emissions and noise from car travel would not be achieved.

    1. Dan says:

      HS2 is, and has always been, a vanity project. The argument is that France and Japan have high-speed trains, therefore the UK needs one too.

  2. Paul Wright says:

    One argument for HS2 is to free up the existing line for freight.

    Myself I’d start with HS3 (why yes, I do live on the M62. Why do you ask?)