The cost of the U.K.'s emerging 140-mile London-Birmingham high-speed railroad could exceed its $57-billion government budget by up $14 billion at 2019 prices, the head of the project company HS2 Ltd. told lawmakers at the parliamentary transport committee. Even at that high cost, non-executive chair and acting CEO Jon Thompson could not rule out more hikes.
Thompson attributed volatile costs to the practice of setting a project's business case on flimsy information. "The estimate was poor. The budget was set too early. And then, when you got further into it, you get much better information maturity....and then on that basis...you discover [the] cost is much higher," he said.
"I still can't give guarantees that cost won't rise because if you are going to let cost-plus contracts, and you can't change the basic fundamentals of those contractual arrangements, there’s still incentives for the contractors to spend more money," he added. He would seek to renegotiate terms, he said, but could not predict the outcome.
As well as poor forecasting, Thompson also cited significant scope changes, some "poor delivery" and inflation. He put the overall construction inflation at 27% over the last three years.
When the prime minister Rishi Sunak axed the 51-mile continuation of HS2 to Manchester last October, he also excluded HS2 Ltd. from continuing involvement in the large terminal at Euston and the twin 4.6-mile tunnels from it to the emerging station at Old Oak Common. The government is now exploring the use of private financing for all or some of these elements, said Thompson.
An accountant by training, Thompson became the company's non-executive chair last February. He added the CEO role in September after the previous incumbent, Mark Thurston, left. He hopes a CEO could be appointed by spring, after the government decides on what salary to offer, said Thompson. His pay rose from $356,000 a year for three days a week as chair to an annual salary of $674,000 for five days per work, including CEO responsibilities, he added.