HS2 says supplier collaboration will keep costs down

Will Green is news editor of Supply Management
15 November 2016

Collaboration and robust risk management will be the key to securing value for money on the second phase of HS2.

A commercial strategy document, released at the same time the government unveiled its favoured route for the second phase of the railway across the north of England, said the project would be aiming for a cost of £65m per km and suppliers would get incentive payments if they reduced costs below £72m per km.

The report said an “incentive fund” of 7.5% of the value of services undertaken would be allocated across three areas: production of cost efficient design (60%), achieving milestones (20%) and KPI performance (20%).

“The achievement of best whole life value will require the application of collaborative principles across the different HS2 categories of spend and robust risk management processes,” said the report.

“HS2 Ltd will seek opportunities for efficiency and economies of scale by collaborative working between itself, contractors and their supply chains.”

The entire budget for HS2 is £55.7bn for infrastructure plus around £7bn for rolling stock, at 2015 prices. It is the biggest infrastructure project in Europe. Transport secretary Chris Grayling said they had awarded a £900m contract to three joint ventures to allow work on the first phase to begin next year.

Phase two will be split in two, with the first involving a connection between the West Midlands and Crewe, due to open in 2027. Phase 2a is described as “relatively uncomplicated”, covering 37 miles and containing no stations.

Work on Phase 2b of the project, which includes lines between Crewe, Manchester, the West Midlands and Leeds, is due to start in 2023 and finish in 2033.

For procurement purposes, Phase 2b has been broken up in to six geographical areas, which “offers the best balance between manageable contracts and the need to provide consistency across the scheme”. These six areas have been packaged into three lots.

“Given the complexity of the scheme, effective management of the supply chain is vital to ensure that value for money is achieved and that the programme delivers according to the necessary timescales,” said the report.

HS2 said lessons had been learnt from procurement of phase one of the project. “Embedding a culture of continuous improvement and ensuring that the programme takes account of lessons learned from other recent major infrastructure projects is vital for securing value for money,” the report said.

Frameworks for land referencing services and railway systems have been established for the second phase and they will remain in place during the development of Phase 2b.

HS2 expects 60% of contracts to be awarded to SMEs.

Grayling said: “HS2 is an ambitious and exciting project and the government is seizing the opportunity it offers to build a transport network fit for the 21st century; one that works for all and makes clear to the world that Britain remains open for business.

“The full HS2 route will be a game-changer for the country that will slash journey times and perhaps most importantly give rail passengers on the existing network thousands of extra seats every day. They represent the greatest upgrade to our railway in living memory.”

The first joint venture, covering the south of phase one, includes Costain Group and Skanska Construction; the second, covering the central area, consists of Morgan Sindall, BAM Nuttall and Ferrovial Agroman; and the third, covering the north, is made up of Laing O’Rourke Construction and Murphy & Sons.

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