Can Sir David Higgins rein back HS2’s runaway budget?

Prime minister David Cameron, speaking at the CBI annual conference yesterday, gave incoming HS2 chairman Sir David Higgins the task of “driving out cost” from the project’s £42.6bn budget.

Higgins, Network Rail’s departing chief executive, has already said he believes the scheme can come in under the current budget if the £14bn set aside for contingency costs is reduced.

After starting his new role part-time in January, he is now due to produce a full report for transport secretary Patrick McLoughlin by March.

Ian Brooker, WSP’s head of rail planning, also told CM that an “under budget” HS2 should be achievable and that the high level of contingency in itself makes this extremely likely. “The agreed budget for the construction of HS2 – £42.6bn – includes a much higher contingency than would be normal for an infrastructure project. At this level the DfT has assessed that there is a 95% probability of the project coming in within the budget. In other words, there is almost a 95% probability that the project will come in under budget.”

But what further room for manoeuvre does Higgins have? The Financial Times yesterday reported that the former chief executive of the London 2012 Olympic Delivery Authority will focus on cutting down the time it takes to build the line – the current schedule is 15 years – and reducing risk.

Last month, he told the House of Commons transport select committee that he would consider building from the north to south as well as the current build plan, which runs the opposite way.

On shortening the timescales, he added: “I think if you are in the north you would want to see the benefits earlier. I do not think people want to wait until 2032 to 2035 to see the benefits and that is something I will look closely at.”

Construction News has also reported that Higgins intends to pursue early contractor involvement, and that he has said that HS2 should not be a “prescriptive” client.

A report summarising the case for and against HS2 compiled for MPs and published last week shows how HS2’s budget has inflated. In January 2012, when transport secretary Justine Greening announced that the government intended to go ahead with the construction of phase 1, it budgeted £10bn for the construction cost and £6.3bn in contingency.

By June 2013, additional costs amounted to £1.1bn for project management and insurance; £0.6bn for property compensation; £0.8bn for power and signals; and £3.1bn for tunnels and structures, including a new bored tunnel under Ealing and Northolt, west London.

David Higgins believes HS2 can come in under budget if contingency costs are reduced

As these costs had eaten up all but £1.56bn of the existing contingency budget, a new “reserve contingency” of £4.24bn was added, creating a total budget of £21.4bn.

This cost does not include a proposed spur line to Heathrow, which is only due to be decided after completion of the Davies Commission on airports, which might not be until summer 2015.

Phase 2 runs from Birmingham north to Manchester via Crewe, and to Leeds via the east midlands and Sheffield. Here, the £9.9bn construction cost calculated in January 2012 rose by £2.6bn following consultations on the route, lifting the forecast cost to £12.5bn plus a contingency of £8.76bn.

The MPs’ report also highlighted that planning and preparatory work, from pre-2011 to 2014-15, is forecast to cost £937m.

Up until February 2013, the Department for Transport and HS2 Ltd had already run up a bill for £194m professional services contracts.

Overall, the government maintains that HS2 is value for money and that looked at in a wider public spending context it is an “investment that the country can sustain and needs” as it represents only 0.15% of GDP, according to the MPs’ report.

At the CBI conference, the prime minister restated the government’s commitment to the project, saying: “Britain has shown it can build great infrastructure like HS1 or the Olympics on time and on budget. And with Sir David Higgins in charge – the man who built the Olympics – we will do that for the north-south line too.”

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