Key facts
- HS2 Ltd and the Department for Transport are renegotiating contracts for the High Speed 2 railway project.
- The goal of the renegotiations is to rebalance risk and reduce costs, as the government currently bears most of the risk.
- Previous contract structures are identified as a contributing factor to cost overruns due to a lack of performance incentives.
- A comprehensive programme reset is underway, led by new HS2 Ltd CEO Mark Wild.
- Contingency plans are being developed in case contract renegotiations are unsuccessful.
High Speed 2 Ltd (HS2 Ltd) and the Department for Transport (DfT) have detailed their strategy for renegotiating contracts related to the construction of the railway line between London and Birmingham. This initiative is part of a broader programme reset aimed at controlling escalating costs and addressing mismanagement.
The current contract structures, particularly for main civils, stations, and systems suppliers, have been identified as a significant factor in the project's continuous cost increases. Former HS2 Ltd chair Jon Thompson noted that these contracts offered little incentive for contractors to accelerate work or penalties for poor performance, while also allowing for ongoing renegotiation of scope and value.
Under the new leadership of HS2 Ltd chief executive Mark Wild, the project is undergoing a comprehensive reset. The primary objective of the contract renegotiations is to "rebalance risk in order to drive down costs," as current risk is largely borne by the government and HS2 Ltd, with minimal risk transferred to the supply chain. This imbalance is attributed to the procurement of contracts when designs were still immature, making risk difficult to price.
Successful renegotiation hinges on agreements regarding the verification of historic expenditure, a revised baseline schedule, and the supply chain's willingness to amend contract terms. HS2 Ltd is also establishing a Supply Chain Task Force to review its delivery model and commercial approach, focusing on addressing historic claims, improving incentives for 2025-26 delivery, and refining the commercial framework for subsequent work.
If negotiations do not yield favourable terms that incentivize cost control, HS2 Ltd will develop specific contracting strategies for each contract. These strategies will include contingency measures, utilizing existing contractual provisions, and exploring alternative delivery and contracting options. In the interim, improved processes and commercial models are being implemented to enhance productivity and cost management.
Despite the challenges, the government has allocated £25.3 billion in nominal prices over four years for the project. However, some key suppliers, like Balfour Beatty, express reservations about the renegotiation strategy, with its outgoing chief executive Leo Quinn stating that the original contracts were appropriate for their time.