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15.11.18

HS2 Phase 2 could be almost 30% cheaper, Armitt’s PwC review finds

Costs for HS2’s Phase 2 could be 27% lower if the company succeeds in implementing a series of opportunities to make the project more efficient compared to its European counterparts, a long-awaited report has revealed.

The findings come from an independent PwC investigation commissioned by former chancellor George Osborne in 2014. The review was finished in 2016 but had not been published until this week, with HS2 Ltd repeatedly resisting FoI requests to release the information – despite the Financial Times obtaining a leaked copy last month.

The two-year study, led by an expert panel headed up by NIC boss Sir John Armitt, looked at 32 comparator high-speed rail schemes.

It found that the early cost estimate of £81m per route km for HS2’s Phase 2 is at the high-end of the range of costs of similar international projects, although this must be taken in context of “significant differences” in the strategic objectives, UK conditions, and sponsor requirements of the scheme’s northern leg when compared to most European lines. It is also expected that this early-stage estimate will mature as the scheme progresses.

However, opportunities have already been identified to cut down costs to just £59m per route km, or £20bn overall – a saving of 27% compared to original forecasts.

The lion’s share of this – up to 12% – would come from supply chain efficiencies and by adopting different ways of designing and building high-speed assets “in a more integrated way.” This includes implementing delivery, contracting and procurement models that “reduce layering, create a closer affinity between design and construction, and encourage investment in staff development, innovative designs and construction equipment.”

According to PwC, the large potential saving is owed to the fact that the construction industry in the UK is more fragmented than in other countries, which then puts up supply chain costs, reduces investment, and creates inefficiencies in design and construction.

“This is not a new finding, but the scale of HS2 presents opportunities for cost and schedule reduction,” the report said. “There is also an opportunity for Phase 2 to benefit from the improvements in these areas that are realised through Phase 1.

“In other countries, the benefits of a multi-year programme of HSR schemes were seen in terms of: the continuity of client professionals; industry investment; innovation; affinity between design and construction functions; use of historical data for structures and risk allowances; and collaboration between client and supply chain.”

A smaller proportion of the savings – up to 5% – would be delivered through localised route and scope refinements; up to 4% could be saved by slashing asset costs, namely through reducing requirements and specifications and using efficient construction methods; 3% by reducing requirements for rolling stock and infrastructure maintenance depots; and 3% by learning from other schemes to deliver stations at “significantly lower costs.”

“There might also be opportunities to reduce costs further through delivering the scheme in phases or making passive provision,” the report noted. “Of course, any options to do so should be carefully assessed so that the deferment of parts of the scheme does not result in a failure to attract passengers.”

Top image c. Nick Ansell/PA Archive

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