In its second report on the HS2 project1, the NAO said that the London-Birmingham first phase was unlikely to be completed by 2026 as planned. However, HS2 Ltd, the government company tasked with delivering the project for the Department for Transportr, said it remained confident the project would remain both within budget and on schedule.
NAO head Amyas Morse said: 鈥淗S2 is a large, complex and ambitious programme which is facing cost and time pressures. The unrealistic timetable set for HS2 Ltd by the Department means they are not as ready to deliver as they hoped to be at this point. The Department now needs to get the project working to a timescale that is achievable.鈥澛�
The NAO report says that phase 1 is currently forecast to cost 拢27,384 million, exceeding available funding by 拢204 million. There is less contingency to deliver phase 1 than the Department for Transport (DfT) and HS2 Ltd were aiming for at this stage, and this forecast assumes that planned efficiencies totalling 拢1.47 billion will be realised. Cost estimates for phase 2 are at a much earlier stage of development and some elements are unfunded. At the 2015 Spending Review, the estimated cost of phase 2 exceeded available funding by 拢7 billion. Since then work by the DfT, HS2 Ltd and a review commissioned by the Cabinet Office has identified potential savings of 拢9 billion, 拢2 billion of which have been secured.
The NAO says that there is a risk that the combined impact of cost and schedule pressures result in reduced programme scope, and lower the benefit cost ratio. The benefit cost ratio for phase 1 assumes that the programme is delivered well within its available funding. If the outturn is closer to, or exceeds, available funding, which, given current cost and schedule pressures, is a possibility, then the benefit cost ratio, including wider economic benefits, would fall from 1.7 to around 1.5. If the programme is delayed, then benefits would be deferred. The government has asked HS2 Ltd to explore options for reducing the programme scope in ways that do not have a significant impact on programme benefits.
According to today鈥檚 report, 鈥渆ffective integration of HS2 with the wider UK rail system is challenging and poses risks to value for money鈥�. The NAO says that the DfT needs to address how HS2 services will complement or compete with other rail services, and how HS2 will interact with proposed improvements in the north. 鈥淔ailure to fully understand these interactions and make decisions in the right sequence will make delivering the programme more challenging,鈥� it says. 鈥淚t could also mean decisions are made now which reduce benefits or increase costs across the network in future.鈥�
In response, HS2 said that the NAO report confirmed that 鈥渨hilst many challenges remain, the project is on track both to deliver its strategic scope and to do so on budget鈥�.
HS2 said: 鈥淎t each stage the combination of value engineering, plus the lessons we have taken from international best practice and innovation is helping HS2 both to drive down cost and increase our confidence in our ability to deliver, and that is a process that will continue.
鈥淭hat increasing confidence allowed the project earlier this month to invite the industry to bid for around 拢11bn worth of contracts for Phase One.
鈥淎s the report acknowledges, each of those contracts also contain specific incentives for partners to work with HS2 to keep identifying further ways in which costs can be saved and efficiencies realised, without compromising the strategic scope and objectives of the project.
鈥淭hose lessons from Phase One are already being applied to, and will continue to be applied to Phase Two as well where the scope for efficiencies is even greater precisely because it is at an earlier design stage.
Responding to the NAO report, HS2 chief executive Simon Kirby said: 鈥淭he role of the NAO is to challenge projects such as HS2 and through that challenge improve the way they deliver for the taxpayer. This report does this and we accept that challenge.
鈥淚t also, however, recognises the real progress we have made in taking the concept of HS2 and moving it nearer reality.
鈥淎s the report says, HS2 remains a highly ambitious project, but as it also demonstrates there are real and substantial grounds why the public, government and parliament should have increased confidence in our ability to deliver the project. Our job is to keep earning that confidence going forward.鈥�
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