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GW electrification cost estimates treble since 2012 – could hit £2.8bn

Estimated costs associated with the Great Western electrification programme have nearly doubled since last year and now stand at up to £2.8bn, Network Rail boss, Mark Carne, confirmed today (21 October).

The cost estimate, which stood at around £1.6bn last year – and just £874m when Network Rail’s Strategic Business Plan for CP5 was published in 2012 – now range from £2.5bn to £2.8bn, although this is subject to further scrutiny and review.

Speaking at a Commons Public Accounts Committee inquiry this afternoon, Carne said he was providing a range in order to avoid giving a “frankly spurious accuracy around a single number”, given that Network Rail is only around a third of the way through the programme.

Meg Hillier MP, chair of the committee, denounced it as a “staggering” increase and questioned Network Rail’s confidence about these costs, but Carne assured he was trying to be as transparent as he could.

Carne blamed the cost spikes across the CP5 portfolio, underpinning the material cost changes in the Great Western programme, on three main facts: inadequate planning and scope definition of the project in its earlier phases; poor cost estimation, particularly around electrification projects; and less flexibility in the regulatory regime since the reclassification of Network Rail’s debt onto the public balance sheet.

He added that around 75% of total cost increases in the 2014-19 are associated with electrification programmes – the “lion’s share” of the problem Network Rail has on its hands at present.

Carne admitted that, looking back now, the way in which Network Rail set itself up for the electrification programme was not adequate.

But he said that cost estimation processes, while unsatisfactory, were done at a very early stage of design and scope of works.

Regardless, he fully accepted that the soaring costs were an extremely serious disappointment – albeit did not represent Network Rail’s performance in delivering other projects.

The Office of Rail and Road’s (ORR’s) boss, Richard Price, another witness at the evidence session today, said he stood by the fact that £1.6bn – the original estimate for the Great Western programme – was what it should take to deliver the project efficiently.

But Price said that a number of things had changed since that estimate, including a greater understanding about the conditions in which Network Rail is carrying out works.

However Hillier said that these risks, regardless of slumping productivity levels, should have been predictable by Network Rail, and accused both leaders of “falling asleep on the job” that they are paid to do properly.

Yet Price pointed to the fact that the ORR  had identified a series of risks embedded in the project right at the start of CP5 – and reminded the committee that the regulator had launched a formal investigation in March as to whether Network Rail was doing everything to address these risks.

Last week, the ORR concluded that Network Rail had not done everything it could and found systemic weaknesses in Network Rail’s handling of projects, but only enforced an improvements package as punishment.

Hillier also asked whether the nearly doubling price tag of the Great Western programme posed a risk to other projects, to which Carne responded that further details will be contained in Sir Peter Hendy’s review of CP5.

But he added that “obviously the overall cost of the portfolio of projects increased significantly”, which meant that eventually, something else had to give.

(Image from the committee hearing this afternoon is a screengrab from parliament.tv, Open Parliament Licence)