Recommendations & Conclusions
6 items
3
Conclusion
Sixty-Third Report - HS2 Euston
Rejected
The Department does not yet know the costs and impacts of pausing construction. Neither the Department nor HS2 Ltd know the likely costs of pausing construction work for the next two years. They had been developing funding scenarios for the HS2 programme since the 2022 Autumn Statement but, with the …
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The Department does not yet know the costs and impacts of pausing construction. Neither the Department nor HS2 Ltd know the likely costs of pausing construction work for the next two years. They had been developing funding scenarios for the HS2 programme since the 2022 Autumn Statement but, with the decisions now made, HS2 Ltd still needs to work with its supply chain and with the local community to determine the full extent of costs and impacts. This would include making the site safe and potentially useable by local residents during the construction pause, 6 HS2 Euston and meeting contractual obligations. HS2 Ltd hopes to find an interim solution that is amenable to local residents and businesses, while it intends that much of the supply chain will be redeployed to other parts of the HS2 programme. However, we are not convinced that the impact on the supply chain, particularly on the smaller businesses, will be mostly mitigated by their employment elsewhere. Recommendation 3: We expect departments to have identified the costs associated with decisions on pausing projects so that Ministers can make fully informed decisions and so that departments can manage these costs effectively. • For Euston, the Department should produce an interim report in three months on how they and HS2 Ltd are managing the costs of the pause, exactly how much has already been spent including costs associated with Network Rail and how much more they expect to spend to complete the project. This should include the cost of settling contractual obligations. HS2 Ltd should also include in that update the proportion of the supply chain at Euston, in particular small and medium sized enterprises, that have been re-employed elsewhere on the HS2 programme. The Department should also report on how much of the design work for the revised projects had been done and how much remains to be completed.
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Government response AI summary
The government disagreed with producing an interim report in three months due to affordability pressures, stating it will provide spend to date and contractual obligation details once available, but further details will follow after the Euston Reset Programme.
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HM Treasury
5
Conclusion
Sixty-Third Report - HS2 Euston
Rejected
The Department’s reports to Parliament on the HS2 Programme did not reflect the significant level of uncertainty in its estimated cost of Euston station. From October 2020 through to its six-monthly update in October 2022, the Department HS2 Euston 7 has reported to Parliament that the cost pressure at Euston …
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The Department’s reports to Parliament on the HS2 Programme did not reflect the significant level of uncertainty in its estimated cost of Euston station. From October 2020 through to its six-monthly update in October 2022, the Department HS2 Euston 7 has reported to Parliament that the cost pressure at Euston was around £400 million, and the focus of its accompanying narrative was that work was ongoing to reduce this. However, this reported cost pressure is less than one-fifth of the £2.2 billion amount by which HS2 Ltd’s latest cost estimate exceeds the original £2.6 billion budget for the station. The Department claims that until February 2023, £400 million was the only known and validated cost pressure, and it had hoped that the move to a 10-platform single-stage build would enable it to manage that pressure. HS2 Ltd says that it was aiming more for a cost of £3.3 billion, which was its estimate in April 2021 (£700 million above budget), but that it was only when it got the construction partner’s assessment at the end of 2022 that it had a clear understanding of the construction costs. This was as part of the two-stage procurement process that HS2 Ltd is employing on the programme. Previous updates to Parliament now appear to have been unrealistic in respect of cost pressures at Euston, with the risks that the costs of construction could be significantly higher not having been disclosed in the Department’s updates. Recommendation 5a: The Department should provide, as part of its six-monthly updates to Parliament on the HS2 programme, clear explanations of the maturity of its cost estimates and the risks that could result in material changes to provide greater transparency. (b) We note that our sister committee the Transport Select Committee asked questions at their hearing on the 21 June 2023 (Questions 163 to 167, Oral Evidence) in relation to the six monthly reports to Parliament. They queried:
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Government response AI summary
The government disagreed with the recommendation to include clear explanations of cost estimate maturity and risks in six-monthly updates, stating that while committed to transparency, Benefit-Cost Ratios will not be included in these reports.
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HM Treasury
12
Recommendation
Sixty-Third Report - HS2 Euston
Rejected
In March 2023, following an announcement by the Secretary of State for Transport, the Department paused new construction work on the HS2 Euston station for the next two years to reduce spend over that period and to give it time to develop an affordable and deliverable design.24 The Department and …
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In March 2023, following an announcement by the Secretary of State for Transport, the Department paused new construction work on the HS2 Euston station for the next two years to reduce spend over that period and to give it time to develop an affordable and deliverable design.24 The Department and HS2 Ltd do not yet know the cost of pausing construction. When asked about how much that would be, both the Department and HS2 Ltd referred to the £2 billion spend to date at Euston and the surrounding area on preparing and enabling the site for construction as “no-regrets work” that it would expect to be relevant to any future design.25 The Department told us that it will not know what the pause at Euston will cost until it finds out how much of the first two designs it can use in its next attempt at getting an affordable design.26 The Department stressed that it hopes and expects that the costs associated with the pause will be offset by finding a more affordable design.27 However, as the NAO has reported, there will be more costs from its supply chain stopping and re-starting work, for example from demobilising and remobilising staff, contractual changes, and project and site management costs being incurred for a longer period.28 HS2 Ltd told us that it expects to spend more than £200 million at Euston to wind up the works and make the site secure.29 18 Qq 30, 32 19 Qq 28, 30–31 20 Qq 8, 57 21 Q 31; C&AG’s Report, para 8 22 Q 23 23 Qq 37, 45, 59 24 C&AG’s Report, page 4 25 Qq 23, 38 26 Qq 44–45 27 Q 38 28 C&AG’s Report, para 2.24 29 Q 39 12 HS2 Euston
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Government response AI summary
The government rejects the implicit recommendation, stating it considered costs but paused construction due to affordability pressures. It commits to providing the Committee with spend-to-date, contractual settlement costs, and supply chain re-employment details after the Euston Reset Programme.
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HM Treasury
13
Recommendation
Sixty-Third Report - HS2 Euston
Rejected
We asked the Department if Ministers had looked at the impact on businesses when they made the decision to pause construction. The Department told us that the decisions Ministers were trying to make were about trying to protect the supply chain as far as they could and that this was …
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We asked the Department if Ministers had looked at the impact on businesses when they made the decision to pause construction. The Department told us that the decisions Ministers were trying to make were about trying to protect the supply chain as far as they could and that this was an important part of the advice that was being given to Ministers as they considered options.30 HS2 Ltd told us that it had been working with the Department to develop various funding scenarios and best options for the HS2 programme since November last year but, with the decisions now made, it needs to determine the full extent of the impact of the pause on the contractors and subcontractors working at the Euston site.31 It intends to work with its existing suppliers to redeploy as many resources as it can to other parts of the HS2 programme but it was unable to confirm what proportion of the supply chain that would cover.32
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Government response AI summary
The government rejects the implicit recommendation, stating it considered costs but paused construction due to affordability pressures. It commits to providing the Committee with spend-to-date, contractual settlement costs, and supply chain re-employment details after the Euston Reset Programme.
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HM Treasury
14
Conclusion
Sixty-Third Report - HS2 Euston
Rejected
We asked HS2 Ltd whether it was receiving notifications from contractors of their intentions to make contractual claims due to the pause. HS2 Ltd told us that this was not the case and that it is in discussion with contractors about how it can slow down or defer works, and …
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We asked HS2 Ltd whether it was receiving notifications from contractors of their intentions to make contractual claims due to the pause. HS2 Ltd told us that this was not the case and that it is in discussion with contractors about how it can slow down or defer works, and agree the mechanism by which it will resurrect the work when the funding becomes available to do so.33 HS2 Ltd also told us that the funding settlement it has agreed with the Department for the next two years includes its estimate of the sum needed to wind up the contracts affected by the pause.34
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Government response AI summary
The government disagrees with the implied recommendation, stating that despite considering the costs of pausing, it was not affordable to continue due to budget pressures. It is working with HS2 Ltd to manage pause costs and will provide the Committee with details of spend and …
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HM Treasury
23
Recommendation
Sixty-Third Report - HS2 Euston
Rejected
Prior to our evidence session, the Department had published its latest six-monthly update to Parliament in October 2022. It did not publish an update six months later in March 2023. Following our evidence session on 24 April 2023, the Department published its next six-monthly update on the HS2 programme on …
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Prior to our evidence session, the Department had published its latest six-monthly update to Parliament in October 2022. It did not publish an update six months later in March 2023. Following our evidence session on 24 April 2023, the Department published its next six-monthly update on the HS2 programme on 19 June 2023.58 Our sister committee, the Transport Committee, held a session with the Department two days later, where it asked why the update had been delayed. The Department explained that a large part of the delay was due to the local election purdah period and that it would seek to return to the original timetable for future updates. The Transport Committee was also concerned about the lack of new information that would be expected in the update, for example updated costs using a more recent price base and an updated benefit-cost ratio. The Department told the Committee that work was ongoing and, if that was not completed in time to report as part of the next six-monthly update, it committed to find other means to provide the Committee with an update on the costs and benefits.59 Learning lessons
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Government response AI summary
The government rejects the recommendation, citing external factors for past delays but committing to timely future reports within 6 months. However, it specifically states that Benefit-Cost Ratios will not be included in these six-monthly reports, and updating the price base is subject to future agreement.
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HM Treasury