New HS2 commercial model means it bears more risk

HS2 is using a revised commercial model with suppliers that means it bears more of the risk of cost increases, according to MPs.

In a report the Public Accounts Committee (PAC) said this meant the organisation had better visibility into emerging risks through a “more collaborative, less transactional” relationship with contractors.

However, MPs said they were “not yet convinced” HS2 has the right commercial skills in place and it needed to complete an assessment of where capability is “below that needed to manage the programme”.

The report said estimated costs on the project were up to £88bn, compared to the original budget of £55.7n, and MPs were “unconvinced that there will not be further cost increases, such as those we have seen in Crossrail and many other programmes”.

“We heard from HS2 Ltd that it is using a revised commercial model with its main civil contractors, which means it bears more of the risk of cost increases,” said the report.

“HS2 Ltd informed us that it has much better visibility into emerging risks through its more collaborative, less transactional relationship with its contractors and the use of integrated teams, and that the contractors are incentivised to beat cost and schedule targets to generate profit. It also told us that there is a clear definition on what risks the contractors and HS2 Ltd are each responsible for.”

MPs called for the Department for Transport to set out a plan to obtain “robust assurance that it and HS2 Ltd have the capability to manage the programme and its supply chain into construction and through to completion”.

“Now that it is bearing more of the risk of cost increases, HS2 Ltd also needs to ensure that it has the right commercial skills to manage its revised contractual arrangements with its main construction contractors,” said the report.

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