Source · Select Committees · Public Accounts Committee
Recommendation 16
16
Deferred
HS2 Ltd revised Phase 1 construction contracts in 2020, increasing its liability for cost overruns.
Conclusion
In July 2017, HS2 Ltd let contracts with four joint venture companies for the main civil construction work on Phase 1. However, in 2020, once the cost of building the railway became clearer, it revised the terms of the contracts in an attempt to ensure an affordable programme at that time. Contractors would no longer be liable for cost increases above a fixed target price. Instead HS2 Ltd would be responsible for funding increases above the estimated cost although contractors would lose a proportion of their fee for building the railway if they did not meet performance indicators on cost and schedule.28
Government Response Summary
The government "disagrees with the committee's recommendation" but "agrees with the substance," stating that contract renegotiations are ongoing and subsumed into a wider program reset, and further updates will be provided later.
Government Response
Deferred
HM Government
Deferred
3.1 The government disagrees with the Committee’s recommendation. 3.2 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. 3.3 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. 3.4 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.