High-Speed 2 “badly off course”: DfT must demonstrate with regular, open accounts how it is bringing it under control, says PAC

In a report published today, Sunday 17th May 2020, the Public Accounts Committee says the High Speed 2 rail project has gone “badly off course”, and demands that Government gives regular, accurate and open updates on the problems the project is facing and progress on developing the appropriate skills and capabilities.

The Committee finds that the Department for Transport (DfT) Permanent Secretary and HS2 Ltd executives’ appearance before the Committee in March 2020 raised questions about the previous picture, provided by the witnesses, of the project’s health.  

The Department and HS2 Ltd were aware of the scale of the project’s cost and schedule overruns as early as October 2018. In March 2019 HS2 Ltd formally notified the Department that it could not deliver Phase One to budget and schedule (see notes to eds).  However, the Permanent Secretary did not make this clear when she appeared before the previous Committee in October 2018 and May 2019, even when asked specific questions about the programme’s delivery timeline and budget.  

HS2 Ltd’s annual report and accounts for the year ending 31 March 2019 similarly failed to give an accurate account of the programme’s problems. In evidence to the Committee, the Department and HS2 pleaded commercial sensitivity and ongoing efforts to address the problems, but the Committee says this was not an adequate excuse for not disclosing the risk and uncertainty the programme was facing. 

The Committee has previously raised concerns about the Department’s capacity to deliver High Speed Two, as well as its wider programme portfolio, and is not convinced that the Department and HS2 Ltd have the skills and capability they need, now or in the future.  A lack of capability continues to be an issue: by its own recent assessment HS2 Ltd still has gaps in key areas such as risk management and assurance, project management and project control.  

For example, as the legislation for Phase One project passed through Parliament the forecast costs of undertakings and assurances to the communities affected along the route have more than quadrupled: from an allowance of £245 million in HS2 Ltd’s early estimate, to a current indicative estimate of £1.2 billion.  

In oral evidence the Committee questioned the basis for the £46,000 bonus paid in 2019 to Mark Thurston, HS2 Ltd’s chief executive, on top of his £605,350 salary - the highest of any Government official. The bonus was linked to a set of measures including control of the project’s finances, though its estimated cost has almost doubled to more than £100 billion (in current prices - see notes to Eds).

The Committee is not convinced that the Department is learning from problems across its major infrastructure projects to make sufficient and meaningful changes to its management of infrastructure programmes. In its recommendations to Government, the Committee is seeking new, formal assurances that DfT and HS2 Ltd have the capability to manage the programme and its supply chain, into construction and through to completion.  

Commenting on the report, Committee Chair Meg Hillier MP said “The Committee is concerned about how open the Department and HS2 Ltd executives have been in their account of this project. It is massively over budget and delayed before work has even begun. There is no excuse for hiding the nature and extent of the problems the project was facing from Parliament and the taxpayer. The Department and HS2 appear to have been blindsided by contact with reality – when Phase One started moving through Parliament, the predicted costs of necessary commitments to the communities affected have exploded from £245 million to £1.2 billion.  

“The Government unfortunately has a wealth of mistakes on major transport infrastructure to learn from, but it does not give confidence that it is finally going to take those lessons when this is its approach. In the six-monthly reports the Department has now agreed to give us, we want to see an honest, open account, and evidence of learning from past mistakes being applied to bring this project under control, to deliver it within the timeline and budget that have been agreed in justifying the project.”  

The Committee’s Deputy Chair Sir Geoffrey Clifton-Brown MP said: “This PAC report on HS2 is one of the most critical, in both the transparency of Government and the handling of a project, that I have seen in my nine years in total on the committee.

“The Permanent Secretary appeared before the committee in October 2018 and again in May 2019. In March 2019 HS2 Ltd formally told the Department it had breached the terms of the Development Agreement, and would be unable to deliver the programme to cost and schedule - yet the Permanent Secretary did not inform the committee on either appearance that the programme was in trouble.

“This is a serious breach of the department’s duty to Parliament and hence to the public, which as the report says, will undermine confidence. Furthermore, the PAC was in the dark about serious cost overruns and was therefore unable to do its duty to inform Parliament that value for money on the project was at risk.

“The cost overruns have been blamed partly on the speed that the hybrid Bill committee for Phase One proceeded with. I was a member of that committee, which lasted for 20 months: this is complete nonsense.”/ENDS

Notes to editors 

1. In March 2019, HS2 Ltd formally advised the Department that it would not be able to deliver Phase One of the programme on time or within the available funding. The Department’s emerging estimate in December 2019 gave a potential cost of between £65 billion and £88 billion: 17% and 58% respectively more than the available funding of £55.7 billion. These estimates are all given in 2015 prices, and as such will also be revised to reflect inflation and changes in prices into the future.  

PAC Report Conclusions and recommendations 

6.                The Department and HS2 Ltd's lack of transparency has undermined public confidence in the programme. The Department and HS2 Ltd were aware of the scale of the issues facing the programme as early as October 2018. In March 2019 HS2 Ltd formally notified the Department that it could not deliver Phase One to budget and schedule. Despite being aware of these issues, the Permanent Secretary withheld from us that the programme was in significant difficulty when she appeared before the previous Committee in October 2018 and May 2019, even in response to specific questions about the programme’s delivery timeline and budget.HS2 Ltd’s annual report and accounts for the year ending 31 March 2019 similarly failed to give an accurate account of the programme’s problems. The Department and HS2 Ltd defended their actions, stating that there were commercial sensitivities, and that options were still being pursued to remedy the situation. While we recognise that ministers had not yet decided how to proceed, no adequate excuse was provided for not disclosing to this Committee and Parliament the risk and uncertainty the programme was facing. We are disappointed by the Permanent Secretary’s response to our concerns about her failure to explicitly inform the Committee of the programme’s delays and overspend when asked about the general health of the project. This was something that an accounting officer should share with the Committee. Failure of an Accounting Officer to provide accurate information to Parliament is potentially a breach of the Civil Service Code and a breach of Parliamentary Privilege. Lack of clarity and obfuscation about the budget issues with HS2 risks jeopardising the trust between Parliamentary committees and Government officials. The Government has now committed to six-monthly reporting to Parliament on the programme, but it has not yet set out what this will cover and how it will balance providing detailed but accessible information; frequency is not a substitute for quality when reporting on the status and risks of a programme. 

Recommendation: Within three months of this report, the Department must set out the form of its regular reporting to Parliament on High Speed Two. This must cover: how the Department will ensure a realistic appraisal of the programme’s likelihood of delivering to budget and schedule is given at the reporting date; how it will keep Parliament informed of crucial milestones over the short to medium term to inform the timing of future scrutiny; and how it will report on the significant risks to successful delivery. 

7.                The Department failed to provide Parliament with clear warning that the programme was going off-course and value for money was at risk. Accounting Officer assessments are a tool for providing assurance over public spending by considering whether a programme is justified against the four standards of feasibility, regularity, propriety, and value for money. HM Treasury requires that updated assessments should be produced when a programme departs from these standards or the plan agreed when the programme was first approved. A summary of each assessment should then be shared with Parliament. However, the Department did not fulfil this requirement, and failed to share with Parliament summaries of any of the four Accounting Officer assessments on Phase One of the programme made in 2019. Therefore, Parliament did not know the difficulties the programme was facing or the actions being taken in response. We are deeply concerned that the Accounting Officer appeared not to know that summaries of these assessments should be shared with Parliament, despite publishing a summary on the East Coast Main Line Enhancements Programme in January 2019, and despite multiple calls from this Committee to do so in recent years.   

Recommendation: The Department must publish the summaries of its Accounting Officer assessments for all projects and programmes in line with HM Treasury guidance, including those already made and future assessments on High Speed Two. If the programme is going off-course, there must be no delay in informing Parliament. 

8.                Having raised concerns in the past, we are not yet convinced that the Department and HS2 Ltd have the skills and capability they need now or in the future. In 2013 and 2016, previous Public Accounts Committees identified the challenges the Department has faced in securing the skills it needs for High Speed Two as well as its wider programme portfolio. A lack of capability continues to be an issue; HS2 Ltd recently assessed that while it had improved its capabilities in most areas, it still has gaps in key areas such as risk management and assurance, project management and project controls. 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. While the Department tells us that it has retained staff knowledge through the continuity of senior officials on the programme, it will also need to ensure that it has the right skills to oversee and challenge HS2 Ltd’s performance. Both organisations will need to ensure that they secure the right skills, at the right time, as the programme progresses; on Crossrail, for instance, the programme suffered from a lack of people with the necessary skills and experience of integrating different elements of a railway as it approached completion. 

Recommendation: In its response to this report, the Department must set out its: 

·        Plan for and progress in obtaining robust assurance that it and HS2 Ltd have the capability to manage the programme and its supply chain into construction and through to completion; 

·        Assessment of areas where capability is below that needed to manage the programme and how this gap will be addressed, including on commercial skills; and, 

·        Plan to refresh its skills strategy as the project progresses, balancing the need to retain key staff and knowledge, whilst ensuring that it has the skills and new ideas needed for future stages of the programme. 

·         

9.                Several years into the programme, we are concerned by the huge uncertainty remaining with the design and delivery of Euston station. Euston is a key element of the Government’s plans for High Speed Two because it will be the London terminus, and will link to the existing railway, London Underground and the proposed Crossrail 2 programme. Alongside the extension of the station for High Speed Two, the Government has plans to redevelop the existing station and promote economic regeneration in the wider area. It is a risky element of the programme because the build site is in a tight urban environment and on an operational railway. We are told that the station design had already been completed but that the Department, HS2 Ltd and Network Rail are currently working together to revise the plans at Euston, after the Oaktree Review recommended changes to the programme, including the frequency of planned train services. We are concerned by the lack of clarity over the station build at this stage of the programme. Euston is an important transport hub and business area, so ensuring minimal disruption and developing the site in a way that benefits all stakeholders will be crucial objectives. 

Recommendation: The Department must write to the Committee within six months of this report setting out its plan for Euston, including how it will be delivered and how it will ensure effective working between all stakeholders. 

10. The Department and HS2 Ltd did not understand the consequences of changes made during scrutiny of Phase One legislation. During the passage of the Phase One hybrid Bill through Parliament, commitments were made to petitioners about how and where the railway would be built and the effect it would have on the surrounding environment. HS2 Ltd tells us that the speed at which the Phase One hybrid Bill progressed through Parliament meant that more changes had to be made at the Committee stage to satisfy local communities, rather than being dealt with earlier in the process. However, the Commons Hybrid Bill Committee had more than 160 sittings over nearly 2 years. HS2 Ltd’s implication that this was too rapid therefore seems incongruous, especially given that several individuals within the company had experience of Crossrail legislation. HS2 Ltd should therefore have been aware of the potential for changes to be made, and the implications this could have on the project’s budget and timescales. HS2 Ltd recognises that the cost of commitments made were not accurately estimated; for example, the forecast costs of undertakings and assurances have risen from an allowance of £245 million in HS2 Ltd’s early estimate to an indicative estimate of £1.2 billion at present. For Phase Two, HS2 Ltd says that it intends to apply the more granular costing information it has from Phase One to its estimates of any commitments made on Phase Two, and that it has undertaken a greater level of public consultation along the route for Phase 2a to ensure that fewer changes will be needed in Parliament. It is important that commitments made in the passing of the Phase Two hybrid Bill are fully understood by Parliament so that it can make informed decisions. 

Recommendation: The Department and HS2 Ltd must write to the Committee within three months of this report to set out how they are learning lessons from the experience of the Phase One hybrid Bill process for Phase Two. This should include how they will ensure that Parliament is provided with sufficient cost information and time to enable effective scrutiny and decision making on current and future high-speed railway related legislation. 

11.             We are concerned, given the scale of the programme and its future impact on the rail network, that if the Department does not give enough attention to managing the interdependencies within the programme and with other rail programmes, passengers will suffer. The High Speed Two programme has many interdependent elements, such as stations, infrastructure and railway systems, that must work together to deliver passenger services. The programme, particularly Phase Two, also has links with the wider rail network to enable faster services to destinations on the conventional network, and with other rail improvement programmes such as Northern Powerhouse Rail, to deliver the full benefits intended. The Government has given Phase One and Phase 2a the go-ahead, while pausing Phase 2b so that it can review how to better integrate it with Government’s plans for rail in the North and Midlands. However, there is a risk that taking separate approaches to Phase 2b and to Euston, and adding in dependencies with Northern Powerhouse Rail and other projects, increases interdependencies and complexity across the programme. 

Recommendation: As part of its regular reporting on the programme, the Department and HS2 Ltd must set out how they are integrating the different elements of the High Speed Two programme with each other and the rest of the national rail network, and how they will work with other stakeholders to maximise the benefits of the programme as a whole. 

12. The Department did not convince us that it was making sufficient and meaningful changes to its management of infrastructure programmes. We have seen the Department face significant challenges across its major programmes portfolio, including on Crossrail, Thameslink and the Great Western modernisation programme. These complex programmes have been running concurrently and need lessons learned to be proactively shared in real time. Last year, the Department for Transport and Infrastructure and Projects Authority published the ‘Lessons for the sponsorship of major projects’ report that draws from the Department’s experiences, and the Department says that it is embedding the 24 lessons across its portfolio. The Department also acknowledges that it needs to learn from its mistakes on High Speed Two, such as its failure to understand the scale and complexity of the programme and how reasonable it was to expect HS2 Ltd to handle the programme alone. Given the repeated emergence of issues across the Department’s major programmes, we are not satisfied that the Department is yet embedding the lessons it has learned to date. 

Recommendation: The Department must write to the Committee within six months of this report providing a plan for how it will embed lessons learned from programme delivery more effectively in current and future major projects and programmes, including the recent learnings from High Speed Two. 

Full details of the inquiry can be found here: https://committees.parliament.uk/work/34/high-speed-2-spring-2020-update/