PROVIDING an update on HS2 since the decision to cancel Phase 2 of the high-speed project, Britain’s National Audit Office (NAO) says that the Department for Transport (DfT) and project delivery company HS2 Ltd need to successfully reset the programme in order to avoid past failures and maximise its value.

The NAO report published on July 23 says that HS2 remains “an extremely large and complex project,” despite being smaller in size after the government decided in October 2023 to abandon all new construction north of Birmingham.

DfT and HS2 Ltd now need to be clear on what benefits they want the programme to achieve and how they plan to achieve them, NAO says. This will include agreeing a realistic budget, and re-establishing control so that risks and costs can be managed effectively.

NAO recommends that DfT should agree with HS2 Ltd a revised methodology for estimating the cost of the programme and use that estimate to set a revised funding envelope.

As of March 31 2024, DfT and HS2 Ltd had spent £30.1bn at 2019 prices on the HS2 programme, including £27.8bn on Phase 1 from London to Birmingham. Both parties agree that the current funding envelope of £44.6bn will not be sufficient to complete Phase 1.

However, while DfT estimates that it will cost £45-54bn to complete Phase 1, HS2 Ltd puts the figure at £49-57bn.

NAO recommends that HS2 Ltd should finish developing its action plan to lower costs. An important element of this will be renegotiating the four main construction contracts for Phase 1.

“DfT and HS2 Ltd acknowledge that renegotiating major contracts that are already in progress will not be straightforward,” NAO notes.

In its recommendations for the Treasury, NAO says that it should agree revised financial controls with DfT and HS2 Ltd. These should include multi-year funding settlements to provide the longer-term certainty needed to plan activity, manage the supply chain and avoid higher costs.

The Treasury should also adopt the recommendations made by NAO in 2023 on how to best protect value for money when managing the HS2 budget. These include resetting costs and budgets in current prices and considering how inflation risk would be managed in future.

Outside of the construction programme, NAO recommends that DfT should continue to assess HS2’s role in supporting the wider rail network, and consider other options for increasing capacity on the West Coast Main Line (WCML).

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