Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Rejected
Report progress on HS2 contract renegotiations and plans for achieving cost savings
Conclusion
HS2 Ltd’s construction contracts are unacceptable to the public purse and it is imperative that HS2 Ltd deliver on its assurances to us that it can renegotiate these and deliver significant cost savings. The terms and operation of these contracts provide extremely poor value for money. HS2 Ltd did not heed the warnings that the previous Public Accounts Committee made in 2020 that, in bearing more of the risk of cost increases, it would need to ensure the contracts were managed carefully and accepts that it has not done so effectively. HS2 Ltd is now seeking to renegotiate these contracts on more favourable terms. However, we are unconvinced that there are incentives for the contractors to make significant changes and deliver significant cost savings. There is also a risk that the main contractors pass any financial consequences down the supply chain to small and medium–sized enterprises who may find it more difficult to absorb such changes. recommendation a. The Department’s six–monthly progress updates to Parliament should include progress on contract renegotiations and the level of savings made. b. HS2 Ltd should write to the committee before the 2025 summer recess, setting out what steps it will take if the contracts cannot be negotiated on more favourable terms.
Government Response Summary
The government disagrees with the specific recommendations, stating that due to ongoing, commercially sensitive negotiations and a programme reset, they cannot provide details on savings or commit to writing to the committee by the specified deadline. Updates will be provided through future six-monthly reports.
Government Response
Rejected
HM Government
Rejected
The government disagrees with the Committee’s recommendation. The department agrees with the substance of the recommendation but will require more time before it can update the Committee. HS2 Ltd has concluded the first phase of commercial renegotiations, however further work is still needed to conclude this process. The negotiations are highly commercially sensitive, and it may not be possible to set out details including of levels of savings while they are still ongoing. Following his appointment, the new CEO of HS2 Ltd committed to a complete programme reset over the coming year, which includes developing revised ranges for both cost and schedule, as well as a new baseline which will be contracted to HS2 Ltd’s supply chain. To ensure a holistic overhaul of the programme, work to renegotiate contracts has been subsumed into the programme reset, and until this work concludes HS2 Ltd will be applying pressure through robust contract management of their existing contracts using all available levers. Further updates will be provided through the department’s future six-monthly reports to Parliament on HS2.