Welcome to this morning’s session of the Transport Committee. This is a one-off, oral evidence session in which we seek to learn the lessons from the experience of HS2 as to how major infrastructure projects can be delivered better. I welcome Sir Geoffrey Clifton-Brown to our Committee today. He is the Chair of the Public Accounts Committee and is guesting with us this morning. We set up this session as an opportunity to hear from the chief executive of HS2 Ltd, Mark Wild, about what he has learnt about the project to this point since he took up the role in December in order to sort out some of the past challenges. We are also joined by the Minister, Lord Hendy, and Alan Over from the Department for Transport. Welcome to you all. Could I ask you all to introduce yourselves?

I am Mark Wild. I am the chief executive officer of HS2 Ltd.

I am Peter, Lord Hendy of Richmond Hill. I am the Minister of State for Rail at the Department for Transport.

Good morning. I am Alan Over. I am director general for major rail projects at the Department for Transport.

Thank you. Mr Wild, you were brought in to sort out some of the mess. In a nutshell, why is HS2 running late and over budget?

We are five years into major construction. Notice to proceed was granted in April 2020. In that time there have actually been several exogenous events that we should acknowledge. The war in Ukraine caused hyperinflation. I am sure that covid had a big effect, and there were various other matters. They are very much in the minority about why the delays occurred. Five years into major construction, against the original baseline, the construction of the civil engineering should have been largely completed by now. The reality is that we are about 60% complete. There are 34,000 brilliant people working every day. Let’s acknowledge the efforts of all the people working on the project. The failures of HS2 are not down to individual people. I want to acknowledge that. I have identified three systemic, enduring issues that have caused the delay. First, at the notice to proceed the company proceeded too fast. It did not have maturity of design and consent. It mobilised too quickly. The second reason, related to the first, is that there is an imbalance of risk in the contracts we have with our main works civil contractors. All the risk is held by the Government, HS2 Ltd, and virtually none of the risk is held by the supply chain simply because, related to the first issue, they could not price the risk. We started without enough design in the bank. Thirdly, unfortunately, it is right to acknowledge that HS2 Ltd has not managed that risk profile. Broadly, after five years of civil engineering, we are at least two to three years behind, all related to the issues that I have identified.

Thank you very much. Your letter to the Secretary of State stated that the construction was only one third finished rather than being three quarters complete as planned. They are slightly different figures than you have just stated, but the point is that it is nowhere near where it was planned to be by this stage. Can you explain what caused the slippage in that schedule?

I will just explain the difference in those numbers. In my letter, in relation to the whole scheme, which of course includes the tracks, the overhead lines, the trains and the system integration, we are about a third complete against the whole scheme. The civil engineering is 60% complete. The reasons, very simply, are that to put the track down and the overhead line up, you obviously need the civil engineering. This job is a unique challenge in this country. A third of the route is underground or in cuttings. It is huge, considerable and may be the biggest civil engineering project ever undertaken in this country. The facts are that in the first two years of effort we simply did not make enough progress. The reasons for that are the lack of design maturity, the lack of consenting and, in the five years of main work civils, we might have achieved two and a half to three years of planned work. If you look at it closely, there is obviously the effect of the exogenous events and the lack of design maturity. I also think that the original estimate was optimistic. There was what is termed “optimism bias” at the very beginning. That collection of events means that the thing really in delay is the civil engineering. The stations and the system engineering haven’t got going, apart from at Old Oak Common where we are making good progress. The real delay is in the 100 miles of civil engineering between Old Oak Common and Curzon Street. We simply have not made the progress that we thought we would. That is not because of lack of effort. We have simply been blocked by not having the design and not having the permission to do it. All those things should be done up front before major construction commences.

Thank you for that, Mark. As a civil engineer, I am getting a little bit embarrassed by how often you mentioned civil engineering being associated with all these issues. Do you think the problems should have been known at the start, particularly optimism bias, which is a well-known issue in the profession? Are you sitting here as the new person in charge and benefiting from hindsight and the ability to play mother? Could the problems have been foreseen?

I would say that I am responsible for it all, including the past. In the reset, it is very important that we know the lessons of the past to make sure it does not happen again. I was not there at the time. I have the benefit of hindsight and of completion of 60% of the work. The key in all major programmes is two things. First, we all know that in every major programme, including the one I was involved in, Crossrail, optimism bias exists at the beginning, at the very beginning of estimation—I am sure the Committee will get into it. Clearly in HS2 the estimates have been proven to be too optimistic. There are lessons, particularly as we look forward, about getting a realistic budget. Optimism bias is a well-known effect. It has been written about by the Department for Transport and by the IPA, now NISTA. There are tools and techniques that, clearly in this case, simply did not detect the extent of the problem. Secondly, as you will know as a civil engineer, the foundation of civil engineering is to get the design right before you mobilise. There are 34,000 people on this project working very hard, but they need to build the right thing. Aligned to design is that we have had to get over 7,000 individual consents for the civil engineering. The hybrid Bill did not gain us local consent for section 17 to actually build the structure. There are two things happening. There is clearly an optimism bias that we need to learn from. The more dominant effect is the fact that we commenced too early. It is like everything in your private life—building a house extension or building a supermarket—if you are designing something in the morning and trying to build it in the afternoon, you end up with a lot of inefficiency. The two key learnings are about the prevention of optimism bias and, secondly, about the design maturity. I am sure we will get into both those cases. We are in a much stronger position now than we were five years ago.

Mr Wild, you have quite clearly articulated the role of the designs not being complete before construction started and a lot of stuff to do with consents. Do you have any thoughts as to why construction started too early, given those issues? What were the causes and pressures that led to that?

I have looked at it extensively, to learn and so that we do not make the same errors and mistakes. To be fair to everybody who was there at the time, it was the first month of covid. We all remember that time. There were several thousands of people already on the job. The context in which that decision was made is not for me to comment on; I wasn’t there, but you have to understand the context that the project was in. If you fast forward to now, we are in a much stronger position. We know how much it has cost to do 60% of the job. The design is currently 84% complete, and by the end of this financial year I will make that 91% complete. Contextually, we are in a very different place. I cannot speak for the decision at the time, but we need to respect the context in which it was made.

A number of academics and HS2 senior managers have suggested that the political culture and politicians have some responsibility for starting early and for some of the wider problems facing HS2. Is it all our fault around this table?

I will let the politician speak to that, but for me all I can say is that, right now, I am very grateful for the time and space I have been given to get it right. I feel very supported by Government Ministers and the Department for Transport. That is why it will take a year to at least get to reliable ranges. It might take a little bit after that. Right now, I do not feel any of those problems, but I defer to Peter.

I am sure I should say that politicians are the decision makers so they must ultimately be accountable. There have been a lot of politicians since 2010 associated with this and we must all bear some responsibility. I think mine is mostly to come, though to be fair to the Secretary of State and I since this Government took office, we have taken all the steps we can to uncover and start to sort this issue, for which Mark’s arrival is clearly very significant. The truth is that these are long-term projects, far longer than any political cycle. What do you need to do? You need to remember what the outcomes are for the project. I am sure we will get into that too. What is it for? We must remember why it needs to be done. As Mark outlined, we need to be extraordinarily cautious about how hard it is to deliver, to avoid rushing to start until we are sure, and to keep the scope and funding steady. My observation, looking backwards, is simply that there were a number of years when the speed of construction of the project appeared to have been rather more important than its cost. We are now living with the consequences.

The Stewart review praised the existence of an HS2 Minister for part of the last Government. What do you feel the pros and cons are of having a ministerial post dedicated to projects such as HS2? Is that something the new Government would consider recreating?

At the time, the project was envisaged to be far larger, with both phase 2a and phase 2b reaching to Manchester and Leeds. Now it is phase 1. It is really important to have clear ministerial oversight and accountability for our biggest projects. The Secretary of State and I have restarted the ministerial taskforce, which I remember from my previous job, but which seemed to languish and fall into disuse, and we’ve got a Minister and it’s me. One of the reasons for that is that now, as configured, what Mark is building and what this railway will be when it opens is part of the national railway system. Most of its trains will spend quite a lot of their time on the national railway system, so I think it is right that there is a single Rail Minister. One of my objectives is to make sure that it is built as part of the system, whereas if you go back I think some of my predecessors—certainly the originators—thought that it was going to be a completely separate railway network and nothing to do with what we have. That is no longer true, so I devote quite a lot of my time to HS2 alongside my other responsibilities, as you would expect, and I see Mark, his new chair Mike Brown—although he has not yet arrived—and Alan very frequently as a consequence.

Thank you for that. It would be very concerning if your predecessors thought that, as the original scheme always envisaged a lot of running on the west coast and east coast main lines north of the extremities of HS2, but perhaps we will explore that a bit further on.

As a railway operator, I have always been slightly incredulous of it, actually. The new system will always have to interface with the old one. The passengers, frankly, would probably like some new trains but they won’t really care. They want the train to get where they are going.

Indeed. Such interfaces are very common with high-speed networks in other countries as well.

Yes.

I think Mr Over wanted to respond to the question on optimism bias. Do you want to pick up on that?

I just want to be clear that the Government try to make adjustments for it, and those techniques were applied but they did not work. The lesson is: why aren’t we applying them significantly enough? That goes back to Mark’s point that we need to have a stronger view that the evidence is right and that we have made all of those adjustments, which have been correlated from multiple, independent sources. Even adjusting for optimism bias, it gives you some comfort that the mechanical corrections have been undertaken, but if the point cost—the base cost—is not right in the first place, the adjustments still won’t be sufficient. We need to get into the depth of it. It is right that some of the accountability is with officials and the experts in HS2 Ltd to make sure that our Ministers are advised properly on the technicalities. They are not things you run into on a day-to-day basis.

Optimism bias seems to be historic in most of the major projects in this country for the last 50 or more years.

Good morning. The hybrid Bill process has already been raised in this session. The phase 1 hybrid Bill Committee had a high degree of freedom to make changes to the design of the scheme, particularly outside the urban areas. I have two questions. The first is whether either HS2 Ltd or the Department holds a current estimate of the share of the additional costs that can be attributed to the changes made by the hybrid Bill Committee. The second is about the relationship between the hybrid Bill process and those 7,000 additional consents which had to be sought. With almost 10 years to reflect on the process, do you think that the hybrid Bill process is the right one for taking forward comparable projects in the future?

There are choices for smaller-scale projects. You can consider Transport and Works Act orders or development consent orders. For very large rail projects, where you are combining very big public interest with lots of significant impacts on a large number of private interests, I think the hybrid Bill approach has the right balance and it is the best way to strike those compromises and to do so transparently and openly. That does expose the tension. There is no doubt that some of the changes that were made in petitioning led to additional costs for the programme. That is a thing that has to be balanced across Government and society as a whole. Those compromises are an important part of the process, otherwise we are imposing improper impacts on private individuals. The hybrid Bill process provides some protection against judicial reviews on whether the line of route is the right one, and whether the scheme should operate in the first place. It has been proven reasonably successful on that. We have had several judicial reviews, and they have found in favour of the line of route. That is on the basis that Parliament said that that is how it should be, and the court ultimately respects that. It is also right, though, that there is local planning consideration of the impact of the line of route when it is built individually. That gives the opportunity for both further challenges and further costs. Again, it is a matter of balance. If we propose something unduly disruptive or out of kilter with the needs of the local community, it is right that the local authority has a consenting say. That introduces the risk of further costs and the risk of vexatious opposition to the scheme if that is the way the local politics is going. We have powers—Ministers can choose to use them—to disqualify authorities that are acting improperly in the use of those powers. What we have to do is strike a balance, first in the overall scheme layout and then in its detailed design, so that the national interest is married with the local impact. Both balances play out in additional costs for the programme in some areas. Part of why more of the railway is underground and tunnelled is to reduce the impacts on local communities that do not necessarily get the immediate benefit. We have to recognise that in our system. We are refining the way that we conduct the hybrid Bill process. We are also conscious of the impacts on parliamentarians’ time in conducting that process.

I have two follow-ups. First, you said that there are additional costs. Do we know what those additional costs were?

We can write to you with an estimate. I don’t have them to hand.

You said that the Government are looking at refining the process. As far back as 2016, a Select Committee on the Bill said there was too much focus on petitioning and not enough focus on serious detriment. Some concerns were raised at the time about the limits of deviation. What refinements are you looking at making?

It is how you give guidance to the Committee on how the balances should be struck. There is always going to be a level of interpretation about where those things are struck. What is the overall impact? What is the impact on petitioners? What is the impact on the taxpayer? The quasi-judicial process that forms the petitioning, and the undertakings and assurances that are given, is an outcome of striking those compromises, but I think the guidance that we give to the Committee and to petitioners needs to properly recognise both sides of the equation.

The National Audit Office 2025 report on mega-projects emphasised the importance of establishing the purpose of mega-projects across Government. With that in mind, beyond the economic case for HS2, how well do you think the strategic case was made and articulated?

The case for better connectivity is pretty clear and widely understood. Better connectivity delivers growth, jobs and homes. As an observation, if you roll into Birmingham New Street from the south, you can see a forest of cranes and buildings on the skyline of Birmingham, which have been built in anticipation of this railway getting there. Clearly, that is justified. There is a clue in the name; HS2 sounds good and exciting. I can absolutely understand why that name was used. More prosaically from a railway point of view, the fundamental reason for promoting it has always been that the west coast main line was predicted to be nearly full. It is nearly full, despite covid. There was some suggestion that it would never be full as a consequence of growth in rail travel permanently stopping, which is clearly not the case. The west coast main line is under huge pressure, both south of Birmingham and in fact north of it too. The originator clearly thought, wisely I think after some of the experiences of full railway upgrades in the 1980s and 1990s, that building a new railway would be a good thing to do. There are two questions that that does not answer, one of which is why we needed an exceptionally fast railway rather than just a fast railway. One of the questions that Mark and I were discussing yesterday is why HS2’s spec is higher than HS1. We have built 1, and it is quite fast as it is. The other thing is that the speed of delivery issue, which Mark referred to, has been there from the outset. I am not sure that I can make a case for making it part of the strategic case that it was desperate. I don’t think it was desperate. We need relief for the west coast main line, and a new railway is the right answer. Why it was pursued with such speed, and now we are suffering the costs of that, is hard to say. I hope that is a rounded answer.

The thing that keeps coming back is the desire for speed. Everyone talks about speed—the clue is in the name—versus the capacity constraints. With that confusion, do you think it has had an effect on the delivery of the project?

I do, because there are some aspects of the design, and moving into operation, which even now are relatively untested. One of Mark’s challenges is to test out a high-speed railway in circumstances in which we want it to be open. Everybody here wants it to be open but, actually, we do not have a test facility for trains as fast as the ones that were planned. This is all hindsight, but it is hard to understand why there was such zealotry about the highest-speed high-speed railway in a relatively small country when the origination of it was to relieve capacity. Clearly, to relieve capacity on the west coast main line you would not stop at all the stations. Indeed, one of the consequences for this railway is that there will be better services at places like Coventry, Milton Keynes and so forth. It is now very hard to understand in retrospect.

There are a number of questions that are coming up, but could I take Chair’s prerogative and ask this? Mr Over, you were in the Department through this time. Do you have any recollection of why the super high speed—360 kph or something like that—was chosen as the speed for HS2? Was that ever questioned? Obviously, it brings much higher costs and a much more rigid route line.

That predates even me, I am afraid. The origins of the scheduled target and the overall concept for the railway emerged from 2010 to 2015. Sometimes, we need to look back that far because some of the pre-conditions for the problems we face now are set in the early stages of the project. I would focus on a lesson, which is how we get the concept and the early definition of it right. My understanding, having obviously read around it, is that if you are going to build a new railway you might as well make it faster than our historic railways. If you can build it straight, up to a point, that is helpful. The speed helps a bit with capacity as well because you can get more trains through in a given amount of time. The question is why the country chose to do it faster than the French, faster than the Germans or faster than the Spanish. It will not be as fast as some Japanese and Chinese trains will be. I think there was a bit of, “We want to join the high-speed revolution and be as good as everybody else in that regard.” It is not bad to have a national ambition, but you have to have the understanding of the consequences that you are then pushing the boundaries and introducing more risk, leading to more cost.

Can I let Mark Wild also answer the broader question about the impact of the lack of focus on the original aim, and how much that has impacted on the delivery of the project?

As my colleagues have said, the design is now cast in stone. The railway is very straight and very stiff. When we deliver it, which we will, it will be quite something as a railway, but I agree with my colleagues that if you look back it has actually been built to too high a specification. The die is cast now and we must make the best we can of it. Regarding the purpose of the railway, I completely agree with Lord Hendy; this is a foundation stone of national rail. It is not a graft on top. It will be a fundamental and strategic pillar of the railway. On HS2 Ltd we have conducted some recent research which shows that even now—to Lord Hendy’s point about cranes in Birmingham—there is £10 billion of GVA in this decade in anticipation of the railway. There is a new stadium for Birmingham City. There is a huge amount of work around Old Oak Common and the Arden Cross area around the interchange. I get the point that we most likely over-specified the railway. We clearly got into terrible trouble with the estimate, but when all is said and done this railway will be a foundation stone and it will be successful. You just need to look at the economic activity in the west midlands and around Old Oak Common. Birmingham and London will become two conurbations joined together in economic union. That will be growth. The mistake made years ago—Alan is right—is that the railway is just too fast and too stiff, and that has produced very significant civil engineering costs.

I think you would agree, Mike, that what is happening in Birmingham is fantastic but a lot of that GVA would have been delivered probably even if the train was quite a bit slower. I agree with Lord Hendy, in that I come down here every week by train, and I am quite happy to be in the train for four hours and 20 minutes—I quite enjoy it—but what I want is a seat and a clean toilet, and the good wi-fi that I understand is coming someway down the line. There is a real feeling that this has been completely over-specified. Going back to the point that Lord Hendy made, it was a political decision. The macho situation, if I can use that word, around being faster than our neighbours is ultimately a political decision. It comes to the question of whether or not politicians were aware of the implications of having a faster railway in terms of uncertainty and cost.

That is why concentration on early optimism bias is so important because the sort of advice that would have been given at the time will have supported that case: “We can do what the Chinese and the Japanese have done. The technology must be there, so we’ll use it.” Sadly, I am a seasoned operator. I don’t ever want a brand-new, first of the line, car. I want one where somebody has made 50,000 of them so that all the bits that might fail have already failed. There is some truth in that. In railway terms, some of the things that you have seen over the last 25 years have actually demonstrated that stepping too far too quickly is not always a good idea. At the time these things were formulated, there is one other characteristic which, sadly, is certainly a product of my experience. When these things are brand-new, shiny and exciting, the people who crowd round them to help specify them are not grubby-handed operators who have been wrestling with 40-year-old rolling stock all day. They are experts, muses and people who will advance. Maybe that is right, and maybe it is also right that calling it HS2 has given it, like HS1, a cachet that has enabled it to proceed. But in the process, as you have heard very graphically from Mark, it has created a set of costs that clearly were not considered and not estimated at the time the thing came into effect.

I am guessing that, at the time—going back to civil engineering, Mark—a lot of the contractors who would want to build this piece of infrastructure would have a vested interest in its being over-specified, because they would be delivering bigger-value contracts.

No, I don’t think so. One of the misunderstood things about HS2 is the supply chain. The reality, as you know, is that the supply chain responds to the specification. The fact that the notice to proceed was a known issue, and the supply chain could not price the risk, should have been a red flag. If the supply chain can’t price the risk, that is an indication that we are heading to optimism bias. There is no evidence at all that the supply chain influenced the design. The technology is actually relatively straightforward. The issue is the speed and the large number of trains per hour, which is very significant, and beyond what other railways would do.

Alan?

I characterise this as a potential lesson, for future decision making by politicians. It is crucial that strategic choices are made on these big projects, and that alternatives are put forward. There is not a lot of evidence that there was a disciplined iteration of the scope, specification and potential cost ranges. The evidence suggests that politicians were told that it could be done affordably to a high specification, rather than a different characterisation, which would have been, “Here’s the large range of cost of a high specification, and here’s the large range of cost of a lower specification, which will be cheaper, but still with a big degree of uncertainty; we will end up somewhere in between those. Let’s go through a process of working out the optimal position.” That is the discipline that I think we need to use when thinking about these things in the future.

This is the challenge, isn’t it? You are speculating about what happened in the past, but am I correct in saying you do not really understand or know how all those decisions were reached—that the evidence trail is not there? Is that the case?

As I said, I have looked at that and I don’t see evidence of a strategic iteration of cost and scope in the past. It is something we should build in. I might be misinformed. We should look at that as part of our lessons learned work, and we will. It is an important lesson that it should be discipline that is applied to every project: the honesty to our political masters that we will not really know what the costs will be until a hell of a lot more work has been done, and if it turns out that the costs are higher than the Government want to pay, we will have to make some compromises in the specification, scope or intent of the project. Setting that out clearly at the start—as the Office for Value for Money is trying to get everyone to do through the strategy and delivery plan concept, which we support—is a really good discipline. The other technique that I think we should build in is willingness to consider pre-agreed scope reductions that we are already prepared to contemplate and execute when the costs start to go up. That provides good discipline on the political side and the project delivery side.

May I allow Sir Geoffrey to come in? He wants to pick up on this issue.

There is a choice of the level of confidence on which you want to make the investment decision. That confidence improves, the more information you have at the point of investment. The P50 levels were the target price, and the P70 levels were the level at which the Government understood they were insuring themselves, in terms of the contingency, at the top end of the funding envelope. We were trying to use optimism bias adjustments correctly, and to build in contingency correctly. The issue was that the point estimate on which those calculations were being developed was a significant underestimate. We had done benchmarking to try to validate that, and it suggested it was in line with UK comparators, looking at extrapolated costs of HS1 and a toolkit of alternate projects, and we benchmarked it against some overseas projects. There was reasonable confidence that the contingency level and the core costs when put together had been adjusted for optimism, but that proved incorrect. In retrospect, yes, we should have insured at a higher level of confidence. There is still discipline as to the choice about how you allocate the contingency. Setting a target at a lower level of confidence and a funding envelope at a higher level is probably a good discipline, and one that we might want to repeat. We were deluded by the false accuracy of the core estimate and the questions, and we were arguing about whether P48 or P50 was the right answer. We should have been arguing about whether the core estimate of £35 billion was out by 5% or 50%.

I don’t have an answer as to where they were taken. I come at this with, I hope, some very practical understanding—I was there at the origination of Crossrail. One of the interesting things about HS2, although it might sound extraordinary, is that it is a relatively quick project from inception to delivery. Depending on where you look, Crossrail is either 1890 or 1940. It had been contemplated for a good many years, and the substance of what went in, at the time it was funded in 2007, was really well known. It was quite clear what that railway was, what it would do and where it would go. Still, as Mark can tell you another time, there were some fundamental difficulties in delivery, but it was very well understood. I think that we are talking about something that frankly was not terribly well understood. As I have described, it had turned from a capacity release scheme—probably rightly, because you need a headline—into a high-speed railway; and then it turned into an extremely high-speed, high-spec railway, without its being possible to find out where those decisions were taken. There is a maturity of all this, which needs to be part of the political system for large projects. I hope that is a reasonable answer. It is not terribly exciting to know that it is a long-term prospect, but connectivity and the investments that go into it are long-term investments. They are also incremental, aren’t they? There are some real lessons from long ago, because even the original main lines were sometimes not built with the grand stations everyone thinks of. Paddington was not built for 20 years after the Great Western Railway, because they could not afford it; but they built the railway. This was conceived as an entirely separate railway, with very high specification for stations, lines and speed, and everything. It is really not clear, when you look back on it, how those decisions were taken and what optionality was considered at the time.

As Alan says, speed and capacity are connected. The faster you run, the more trains you can pack on to the track. Considering that HS1 had been opened and was running, the optionality, and what the relative choices were, was not fully considered, as you might now think they should have been.

Absolutely, and the increment I am describing is the increment between a high-speed railway, as HS1 is, and an extremely high-speed railway, which is what HS2 is. That increment has not been understood until now. Now it is understood, and it is a very large increment. We will come on to some famous, or notorious, structures; a less high-speed railway would have gone round them, not through them.

Yes. Flyvbjerg is the Oxford professor of major programmes, and probably the world’s leading academic in major programmes—proper academic research. Yes, this is the idiom of getting the design to maturity before you start. Famously, in his book, he reminds everybody that the Empire State Building was built in 22 months, but there was only a year of construction, because even in 1922 they spent a lot of effort at the draughtsperson’s desk before going into construction. It is a very important lesson that projects must not be mobilised and commenced if you don’t have the design and consents, because the productivity of the hardworking teams is so leveraged if you are waiting for the design. It is probably much more important than the effect of speed. I agree that the speed, trains per hour and tonnage have had a huge effect on the spec, but when all is said and done the excess cost has mostly been inefficiency of work, because we started too soon. I think that will be revealed as the most dominant effect. I agree entirely with Flyvbjerg.

Sir John Armitt said to us that a similar principle is in place in countries like France and Spain with their high-speed rail; hence their lower costs. Would that be roughly correct?

Yes. There is a lot of talk—to pick up what Lord Hendy said—about the international comparator. Tours-Bordeaux was commissioned in 2017 and took six years to build for €8 billion. How on earth can the French build something in five years for a dramatically low cost? Well, they started in 1972 and Tours-Bordeaux is one of many schemes. They have got into something repetitive—cookie cutter, you might say. Like everything in our personal lives and everything we do, the learning curve is dramatic. The French process has been to mechanise and modularise the design. It is the same rolling stock and technology. The land was reserved in Tours-Bordeaux in 1972. It was planned for 50 years. The way to get into major programme delivery is to get into that repetitive modularisation. If you try to design something bespoke from scratch, with a very high specification, and then you start without the design, you are going to get into a lot of trouble. That is where we find ourselves now.

Alan Over, I think you said that people may have been of the view that we want to join the high-speed revolution. Why is it so hard to identify the “we”? I do not really understand—we seem to have heard about it again and again—who was determining the options and taking the decisions. I am astonished that the answer seems to be, “We don’t really know.”

I am saying that I personally was not around at that time, so I cannot give you as credible and evidenced an answer about that period of the programme, between 2010 and 2015; but from the published documentation there was clear high political ambition. The advice that came from HS2 Ltd, which was set up to develop and promote the scheme, and passed through the Department, was that those ambitions could be met at a certain range of cost. What I am saying is that over-confident advice was given to Ministers about what the costs of achieving that level of performance would be. It is fine to have high political ambition, but that has to be tempered with a proper set of advice about the consequences in terms of cost. If the political system does not want to pay that price, or we cannot be confident that we can reliably deliver it within that ambition, we have to say that honestly and openly, and have the space to create the debate. There was a long period when the ambition reigned. That resulted in a specification. When the consequences of that specification in the real world played through, the numbers kept coming back at higher levels, and there was pressure from the political system to find a way to deliver it against the expectations that had been set. In 2010, the schedule was set to deliver in 2026. We only reset that in 2020. The costs originally set were done on the basis of very high-level estimates in the mid-2010s. The lesson there is that we should be very cautious about setting any expectation on schedule or on cost that everyone will be held to, because as soon as it goes into the public domain we set legitimate expectations from our public. That is why, I think, the move to ranges is crucial, and the iteration of requirements is crucial, but difficult advice needs to be given to Ministers. Ministers need confidence that that advice is mature and balanced, and we need to be able to say “We can’t give you that confidence until we have done some more work, so please hold off on making the commitments.” That is difficult. It is a real pressure in our democratic system that needs to be exposed and balanced. One thing we are looking at, in terms of how to do that, is moving to ranges. That is in the Office for Value for Money scheme, and it is an important move. Those ranges will be very unpopular, and very wide, at the early stages of schemes. That is because we are signalling the uncertainty. The time to iterate it, and to develop better-quality cost advice and schedule advice before we commit to going, will cause the media, the public and politicians to say, “You’re going too slow. Why can’t we do it quicker? The French and Chinese can do it quicker.” You need a countervailing force that creates the space for difficult discussions, or we will get into the position we are in now, where we think a high specification is deliverable because we trust the advice that it won’t be as expensive as it actually will, and we want to get on with construction, so the best way of getting the project going is to cut steel, in the case of ships, or pour concrete, in the case of railways, before we really understand that we have it under control, and understand the staged programme that will really drive value for money. That strategic choice between ambition, scope, schedule and cost is what we need to create the space for really difficult discussions.

You have talked about that kind of optimism and too much specification in the early stages, but Sir John Armitt, the former chair of the National Infrastructure Commission, said that every time a new Secretary of State came in the scope of HS2 changed. Does it also need the same level of challenge and transparency each time scope changes?

Yes, and sometimes if you start with a very large scope and strategically reduce it, you end up having made decisions that will not properly pay back. The speed is a big determinant of the cost of the railway. There is another cost injected in making it able to support very high frequency operations—14, 15 or 16 trains an hour. That is a good plan. If we are going to build an expensive asset, let’s thrash it. Let’s get maximum return on the investment, by running that many trains, and getting that many passengers where they want to be. That causes us to engineer a high-reliability, high-resilience railway and to use, for example, slab track rather than ballast, which is capable of withstanding the frequency and is easier to maintain. If you then decide not to connect the network to Manchester or the north-west or north-east, you don’t have the available capacity to run the frequency that you just designed and built the railway in the south to support. We need to consider two sorts of scope changes in applying these lessons. The first is strategic. What all project people ask for is a stable strategic scope with clear aims and objectives, and a clear prioritisation between scope, schedule and cost. They are the real basics, and I think it is officials’ and Ministers’ job to try to hold to that. There are then tactical scope choices—how fast does it go, how many stations has it got and what technical systems do we use?—where you can make compromises and still deliver many of the benefits in different ways. It is important to distinguish between the two. Changing scope on a national-scale project after you have started it is always going to be difficult and costly.

Can I add some political colour? The last really major scope change was the abandonment of phase 2a north of Birmingham. If you went through a realistic process you might well have decided that you could not bear the cost now or later, but you might have asked what would be the consequence of not doing it. Since I was the chair of the national railway infrastructure company at the time I can tell the Committee clearly that the first that Andrew Haines, the chief executive, and I knew of that decision was when we were told the night before. Nobody said to us, “What is the consequence on the west coast main line of not delivering HS2 phase 2a north of Birmingham?” We were told that it was abandoned. The reason why this Government cannot yet answer your questions about what you do instead is that that peremptory decision was not accompanied by any rational analysis, at the level that you would expect it in order to be able to describe the consequence for the existing railway, what you might do instead, how much it might cost and, indeed, the consequence for the scheme. Mark will tell you, if you ask him, that there are some pretty profound consequences for the existing scheme of abandoning it, notably that trains of the originally planned length won’t fit into Manchester Piccadilly station; they could block the whole place up. What you are looking for—I think we were there earlier—is this: these things are so long term that you have to take rational decisions about them. Scope changes in particular, after you have started the project, are always going to be extraordinarily difficult, and need to be contemplated with considerable care.

I was going to ask if you think there is enough accountability, in terms of having the consequences and the associated costs clearly set out against the decision makers. When you have these long projects there is a series of different decision makers, and we get into situations like the one we appear to be in, through some early decision making, when there appears to be real vagueness about who took decisions, and how and why.

I feel I was practically bound to give you the account I just did, because it is clear to me, and it must be clear now, that one of the reasons this Government cannot yet say what they plan to do about the capacity on the west coast main line is that no work had been done. I think that is very clear. I cannot go back long enough, like Alan and Mark, to when this was initiated, except for one further observation, which is that if it had been considered, when it started, as part of the national railway system, the people who then ran the national railway system should have been much more closely associated with the decision—even if they did not want to be. Even if they said, “My job is just to run this now and it’s too difficult to do anything else,” that is not sufficient. I have been on the other side of that, and it is very hard to get operational railway people to lift their eyes from today to look 15 or 20 years ahead; but they should, because from where we are now, even with the original plan for phases 2a and 2b, those trains would have gone on to the national railway network. I still don’t think—Mark can confirm it if he would like to—that enough thought has yet been given to it. One of the reasons why I think HS2 belongs in my portfolio now is that we have to turn it into an operating railway that runs as part of the national railway network. Not enough thought was given to that, and not enough thought has yet been given to it, although it will turn up in the estimates.

You will be coming back to us in the autumn and we have quite a clear focus today on what went wrong and what happened in the past, so I don’t think we have time to pursue that line now, but it is very interesting and important, nevertheless. Can I go to Sir Geoffrey now, on contracts?

Well, three of the four main works civils contracts are the biggest civil engineering contracts ever let in this country, so let’s acknowledge the epic scale. That is not to excuse what has happened, but these are extraordinary contracts. I always go back to the fact that today 34,000 people are out there, working really hard to deliver it safely. We have a good safety record. In a lot of ways, the contractors are at full production now. We have a tailwind. I have made sure, with Alan, that this year we are very clear on the work we are doing, and we are lifting productivity. These are not problematic contracts, where we will never get to the end. The issue is the estimation of the cost, and the risk balance. I go back to the fact that when they all started, they could not price the risk, so they made many exclusions in their contracts. They were all very transparent and visible. The contracts are completely normal, well-constructed legal contracts, but the bottom line is that, at the notice to proceed, the contractors could not price the risk. That was a conscious decision, and the notice to proceed was granted, and the contracts were let. We are seeing the crystallisation of risk. They should have cost £19.5 billion. We have already spent £26 billion and we are just over halfway done. I know that there is an inflation effect in there, but the contracts are going to be considerably over budget. We are doing the estimate now. That will be part of the reset, but there will be many percentages; the likely overspend is probably between 50% and 100%. The overspend is significant, but the roots of it are contractors not being able to price the risk, and those risks crystallising, compounded by the fact that there is no financial incentive on the contractor to minimise the spend. That is not saying that they are being frivolous. It is simply saying that there is not the commercial tension you would normally expect for them to mitigate the costs. It is certainly not saying that they have done anything wrong, or are not working hard; but we have the combination of no financial tension to stop cost spending, and the fact that, quite rightly, at the notice to proceed, they asked to be removed from the risk of the cost increases. That combination has produced the effect we have now. I am sure you might want to get into it. We have a plan, though, and in the reset we aim to rebalance the situation.

I wasn’t there, but, with the benefit of hindsight, the only way to mobilise the project was to remove the risk from the contractors, because, as has been envisaged, the crystallisation of the risk, even with some of the biggest contractors in Europe, could have destroyed their companies. I would have done the same if I was in their shoes. To proceed meant that the contractors could not price the risk. The risk, therefore, had to be priced and retained in the Government. That has subsequently been proved to be an inefficient provision—back to your P50 or P75. We are where we are. We are now 60% into the project. The reasons to be confident we will get a reset are in three things: first, at 60% complete and with over 75% of the consenting, there is a lot of clarity about the risk crystallisation. The risk problem has greatly reduced. Secondly, with the emergence of a coherent programme everybody can see their part in it, where they will play, and where they are to end. I have engaged with all the CEOs. All of them are willing to engage in a conversation to rebalance the risk and reward. Clearly, we are not going to be able to put all the risks straight back on to them, but those contractors are in the business of getting the job done. They want to take their resources to Sizewell. They want to build national grid. Staying on our job for a long time is not in their mindset. Thirdly, and the Minister and the SRO might want to comment, all of these contractors work across Government, building hospitals, schools, prisons, the grid and Sizewell C. We are working across Government to make sure the contractors understand they are part of a much bigger game than just HS2. To date, all of the CEOs have given me their firm commitment that in the autumn, when we have a programme, they will enter into a conversation and look at the rebalance of risk and reward. I am not saying it will be perfect, but I am confident we will get there. If we don’t get there I will just manage the contracts anyway. I am considerably increasing the commercial resources in HS2 and the scrutiny. It is not that this is the only chance, but it is now very important to try to rebalance risk and reward and incentivise the contractors to get off this job and get on to their next one.

One of the benefits of the ministerial taskforce is that we can share with the Chief Secretary what Mark is doing and where he is with these things. The Chief Secretary is looking at the effective management of costs of projects across Government. As Mark says, we can share this because the same contractors want to do and are doing many other things for Government as well.

Anybody who runs, sponsors or manages a project knows that delays ultimately cost money. You now have a very difficult task and negotiating contracts is part of it. That, hopefully, gives you benefit on the money side, but you must be mindful that any delays will cost as well. How do you balance that and trade it off?

We have identified that one of the most pressing issues in the reset is that we are five years in and we have achieved 60% of the civil engineering. How long will the civil engineering take? There are two determining factors. One, which I cannot control, is the weather. We are having a very productive year. The weather has a very strong effect on civil engineering. In weather like this the ground is very hard and we are making a lot of progress. I can’t be responsible for the weather, so that remains an uncertainty. Even in the reset of a contract, will it take us three, four or five years to finish the civil engineering? We will always be uncertain. The second effect, to your point, is that all of the contracts are now fully mobilised. There is a heavy-overhead standing army. The key is: can we get the civil engineering done as fast as possible so the work to put the track on the civils can start? That is why in the renegotiation of the contracts there is the incentivisation of contractors to do their very best. On the other side of the coin, these are the best contractors in the world. You have been on the site. The work we are doing is absolutely extraordinary. Some of the milestones we are achieving every month are lifetime milestones, so the quality of the work is right. There is inevitable uncertainty about the weather, but the key is to get the contractors incentivised in the context of a new programme to be productive. Again, I think there are reasons to be positive. Unfortunately, the programme has not had a reset for five years. In the autumn and the beginning of next calendar year we will have a clear programme where everybody knows their role. We are very clear on the design. The design is of the right maturity. We have the consents. There is no reason why we should not make a lot of progress. The uncertainty about the weather is real. If we had a deluge for the whole of the summer we would have a problem, which is why in years like this year making progress is very important. To date, we are at about 15% of the target we set, so it is not as if we are not productive out there. The question is how long the civil engineering will take, and that is a question for the reset.

Mr Wild, I want to pick up one particular thing you just said. You are renegotiating the contracts. Do you have a plan B if the contractors refuse to play ball on the negotiations?

The contracts we have are completely normal; they are the usual contracts used in construction. We are very clear on the scope of work and the SRO, Mr Over, has given us great clarity. There is no ambiguity about what we are doing. If we do not manage to rebalance the risk and reward we will do two things. In areas where we have a little bit of flexibility to reallocate work we will do that, but for the majority we will simply manage the contracts in a much more assertive and firm manner. In my letter to the Secretary of State I identified the deficiency in HS2 that, despite the fact that we started without the design and the consenting, the reality is that HS2 Ltd has not done a good enough job in managing the contracts. You call it plan B; I would say it is business as usual and it has started already. Regardless of that, we will make progress on these contracts. It would be much better and provide greater certainty in the reset if we could rebalance the incentivisation. If we don’t, I’m just going to manage it anyway.

From the Government’s point of view, it is relevant that these contractors are seeking to work and are working across Government, so we would expect them to lean into the discussions that Mark is talking about. We will watch those discussions.

Can you give us a bit more understanding of what that means? You are talking about going deeper into the supply chain and being part of the negotiation of supply contracts? What is the business as usual approach, as opposed to the plan B approach?

Unfortunately, it leads us to the capability of HS2. What I have found in HS2 is a very unbalanced organisation, with too many people in quite a bureaucratic centre and not enough people at the frontline. I found well over 150 vacancies in the frontline managing the contractors. My real objective is to rebalance the resources. I am in the latter stages of recruiting a new chief commercial officer. The key is greatly to increase commercial scrutiny all the way through the supply chain and improve my leadership on the ground. I have been very pleased with the start of this financial year. It is about momentum. I wouldn’t want anybody to think I am critical of the supply chain. I am simply saying we need to up our game. In HS2 we have had a deficiency of frontline. For Mr Over, we have been very poor at the quality of our information and measuring the right things. One thing I have taken from Crossrail is to get focused on what is really important. We are now very clear what is important and we are measuring it like a hawk. Every week I give Mr Over a report of what I have achieved. That laser focus on upping productivity is the key.

Just for my clarity, with a cost-plus model it is not that many contractors are gobbling up profits from across the supply chain; it is just that they are not incentivised and, by the sound of it, nobody is incentivised to improve competitiveness and reduce price in the supply chain.

It is a bit of a deeper cut in the lack of risk transfer. In the notice to proceed, the contracting model was what is called a moderated fee based on the out-turn costs. The actual incentivisation of the project was not to get the project overall done in the fastest time; it prioritised production in that year. I believe it was a very flawed incentive model that was needed to get the contractors going. Without wanting to have the negotiation in front of everybody now, the key is to incentivise the contractors to get to the end.

It was almost a blank cheque.

I wouldn’t go that far. It was just a process to get the contractors mobilised in an environment where they were unable to shoulder the risk. I would have done exactly the same. We certainly have no evidence of people making windfall profits or ripping us off. We might come back to fraud, which is a different angle, but the contractors themselves need to be incentivised to get off this project.

It was progress over price before.

Precisely.

Who links specification with contracts? My feeds and those of other people will be full of super-duper first-time-in-the-world engineering projects—viaducts and things—which look very sexy, but you said, referencing France and Spain, that they use standard processes for a lot of the key bits of engineering. Where does the decision lie, and what techniques are used? Is it with the contractors or the client?

My starting point is the Bill. Other people in this session have already talked about the process before the Bill, but the Bill delivered me a very straight and very fast railway that goes through some of the most sensitive areas of this country—the Chilterns and various other areas. Further, unlike a lot of continental schemes, we have built a lot in urban and suburban areas. It is not uncommon in France to build in an urban area, but it is not the typical case, whereas if you go on the train to Birmingham New Street and look out the window you will see the viaducts we are bringing right into Curzon Street. That has two effects. First, the railway is in a lot of cuttings and tunnels. That is not typical of high-speed rail. Secondly, we have built it in very sensitive areas. The world first that you see is not engineering for engineering’s sake; it is a response to something that is as straight as an arrow. Somebody might come to the bat tunnel at some point. That is a consequence of the railway being close to a very sensitive ancient wood that could not be avoided because the alignment is dead straight. Alignment and speed have driven a lot of the engineering choices. It is not the case that the engineers have gone away with the fairies. These are engineering responses in some of the most sensitive bits of the country.

That is useful. Q40            Dr Arthur: I want to talk about capabilities. You have touched on that a little bit. You mentioned the 150 staff who oversee the contracts. Have you been able to recruit those 150 staff now? That seems like quite a lot of staff in a somewhat niche field.

As of this morning, I have 90 of the 150. Yesterday, we commenced a consultation in HS2 Ltd to reorganise our central functions. We need to move staff in HS2 from central functions to the frontline. Inevitably, you might have a capability gap, but we have too many consultants who have been there for too long. We will always need support from consultants; we need a lot of it now to do the research, but, broadly, this is a two-pronged attempt at filling roles from our resource partners and agency supporters and, crucially, it is about moving capability from the centre of HS2 to the frontline. One thing HS2 has done very well over the years is its early careers. Way before my time my predecessor did a tremendous job in the recruitment of graduates, apprentices and lots more women into engineering—people from different backgrounds. Unfortunately, we have ended up in a situation with HS2 being locked in our own bureaucracy. My job is to move those great young people to the frontline. I am very confident that we will fill our resource gaps, and that process continues.

Early on, HS2 had quite good links with universities and colleges, which is fantastic. Of the 150, what kind of gap is that in the workforce? Is that half or a quarter?

It is about 30%. It is a significant gap. From the notice to proceed until now—this is an area where HS2 may need to improve—typically our frontline teams have only been resourced to between 60% and 70%. The reason for that is the difficulty in getting staff, but it has also been a product, which I am sure Mr Over would speak about, of why HS2 struggled to give reliable information to the Department. HS2 Ltd has to take responsibility for that. It is not that the people of HS2 have not worked hard. I don’t even like saying it because it implies some element of failure in HS2. The fact is that HS2 has become unbalanced and not focused on its job at the frontline. We are going to fix that. My aim is to get HS2 fully resourced at the frontline and as lean as possible in the centre. I can’t do it overnight, but that process of rebalancing is fundamental.

The Stewart review said that sometimes it took six months to recruit staff and getting sign-off for some posts from the Government or DFT was taking a further six months. It is a big barrier to attracting people if you are saying to them, “Your start date will be in about a year’s time.” Have these issues been resolved?

I can speak only from my point of view of doing this job for six months. From my perspective, I have had no barriers from the Department and the Government and have had no difficulty recruiting people. I cannot speak for my predecessors, but, looking forward, I now have everything I need to proceed. James is probably referring to historical things. They certainly do not affect me now.

Those controls were restricted to a basket of senior roles and there were onerous checks in the Department and the Treasury. Working with the Treasury, we now have a more liberal regime that allows Mark much more flexibility, but I should emphasise that it was only ever limited to the highest-paid roles. Q43            Dr Arthur: But these are people you often need to get in place quickly, and waiting a year seems incredible.

That is why we have acted to resolve it. If Mark has problems in that we will tackle them.

Another benefit of the ministerial taskforce is that it is a forum that would enable it potentially to be brought directly to the Chief Secretary, were it necessary to do so. It has not been necessary because we have consensus across Government that Mark needs the resources to do the job he has been asked to do. If he hasn’t, Alan will know, and then I will know very quickly and we can do something about it.

When HS2 is in the media it is not always a positive story. That is just reality. Is that a barrier to recruiting the best people to the project both on your side and on the contractors’ side? People want to be part of a success, don’t they?

I came to do it.

Of course; you are the example.

This is the largest construction project in Europe. If you are in railways, this is the project to be in. I am sure Peter and Alan would agree there is an esprit de corps to get the job done. I have had nothing but offers of support. I am very proud of the HS2 team. People have given decades of their careers to this. Just because HS2 failed its mission doesn’t mean that we don’t have great resources in HS2. I go back to the generational opportunity that we have. We have such a well of talent of younger engineers. I am sure that with the extended timeframe of this job one of those will come forward and be the CEO of HS2. We have really great talent. There will be no problem in getting people to come and help us deliver this job. It still has great cachet.

As I mentioned in the Chamber the other day—some of us have seen this on site—it has some really progressive HR and employment processes, bringing EDI in to help at the centre of safety issues. It is very progressive in that way.

With credit to my predecessor, the whole scheme set a target for 2,000 apprenticeships when it was going to Manchester and Leeds. We are already at 1,850 apprenticeships. On top of that, in the supply chain, 5,000 people who were jobless are now in work. I get the fact that it is difficult to talk about success stories until we reset it, but underneath it there is a tremendous story about the future capability that I am sure will go on to build other national rail projects.

It is important to recognise the efforts of everyone working on this on the frontline—the 34,000 and the people in the company and the Department. The problem is that it has gone wrong at the systemic level. It is not the fault of the individuals. They are doing a great job in very difficult conditions.

I want to ask about industrial relations. Mr Wild, you said in response to an earlier question that these are well-constructed contracts. In the case of industrial relations the initial framework agreement with the TUC was agreed by one team in HS2 Ltd—this goes back a long time—but the main works civils contracts were written without regard to many of the things agreed in that document. An enormous amount of time was spent subsequently trying to get the joint ventures and their subcontractors to agree to the principles and practices in that IFA. Have the lessons of that experience been learned for the current reset and any future contracting? Nine years on from what was described as an initial framework agreement, do you think that that document is fit for the current times, or does it need to be revisited?

I recently met Paul Nowak, general secretary of the TUC, and agreed with him that we will decouple the civil engineering effort, which I have to say is now locked in. We have to get this job done. The thing we have not really spoken about yet is that we have awarded the contracts for systems. We have the train contract with Alstom and Hitachi. I gave my commitment to Paul Nowak that we would sit down together and look at the framework agreement in the context of the work coming forward. That is important because HS2 will need a lot of electricians. Are the electricians going to go from Hinkley to HS2 and then Sizewell? That is a real industrial strategy question. My commitment is to work with the TUC and our unions constructively. We have agreed to have a look at it and we will do that in the next year or so.

Mr Wild, HS2 Ltd was heavily criticised by the Secretary of State for providing a revised plan for Euston station that was supposed to be more affordable, but in reality was £400 million more expensive than the previous plan. Can you give any insight into how that might have happened?

I might defer to Mr Over. Maybe then I can pick up a systemic estimate.

The original budget set out the advice of the company at that time at about £2.6 billion, but in retrospect that was a significant underestimate. The first design came in at about £4.5 billion. The Department said, “That’s nowhere near the budget and we can’t afford it. Please make some changes.” HS2 sensibly tried to adjust the construction method and move it from two stages to one stage, and make a minor reduction in scope from 11 to 10 platforms. They were confident that that would deliver the budget savings, but when it was worked through in developing the detailed design, as the Secretary of State set out, it came in at around £4.8 billion, which was even further from the target set. Some of that reveals the challenges of a design of that complexity. The problem we need to reflect on is that it came out at the end of the exercise, after another 15 months’ work or so. We should have been able to see those pressures coming early in the design process and stop it, saying, “This isn’t going to get to where we want.” We need to get confidence that the third Euston design, on which we are now doing the early stage works, will end up in a better place. We have significantly reduced the scope. We have a significantly better construction methodology, but until it is priced by the market there is still the cost risk. It is a very disappointing sequence of events. It needs to be designed to budget, not, “Let’s do a design that meets everybody’s requirements and then see how much it costs.” That message, through two different design iterations, did not land. I hope the third one will land and we will get to a disciplined place. I think the original budget was set at too low a level, but the design process from that did not pay due attention to designing to budget.

Third time lucky? What are we doing differently?

Mr Over can talk very specifically about Euston, but there is a systemic issue. HS2 failed to produce any reliable estimates. Let’s be clear. What has happened in HS2 with estimates, which the Government and the Department will rely on, is that HS2 has failed to produce one reliable estimate. As for the systemic gap, which we are going to fix, every major programme needs something called a should-cost model; before you go to the market, how do you assess “reference cost forecasting”? It is a kind of Bent Flyvbjerg thing; he uses those words. What we are building in HS2 right now as part of the reset is a should-cost model, an estimating model, based on demonstrated historic performance. That will greatly improve the reliability and fidelity of the information that HS2 can provide to the Department. The Euston story is a systemic problem we have had. We are going to fix it because the inevitable question in the reset, which somebody might ask me in a moment, is, “Why would you rely on the estimate this time?” The reason is demonstrated performance. We know how much it costs to move a cube of earth, and the gap in HS2 has been lack of estimating capability and a specific model to do it.

What an excellent question. The answer is that the Government are absolutely on that case. Some of you may know that I have some history here. The Government asked me in my previous role to chair the Euston partnership board, which I did for five years. I was the recipient of the two designs; in fact, another one came through, which was extraordinarily different, but that is another story. You are absolutely right. The way we are now moving is to treat Euston holistically. One of the reasons the original HS2 station was unaffordable was that it was being regarded as a second station next to the first station. One of my best stories is that when I turned up at the partnership board there were going to be two platform 1s at Euston, because HS2 thought they were building a new and completely different station on a completely different railway, so you would obviously start on platform 1, regardless of the fact that there is already a platform 1 and most customers would have been thoroughly confused. We are in a much better place now. One of the things that is being done by the good people on the partnership board and the Department, not by me, under Alan is to persuade all of the participants at Euston—HS2, Network Rail, the train companies, the Mayor, the GLA, TfL, which has an important tube station with lack of capacity, particularly Camden which has leaned into this and been extraordinarily helpful over a long period of time, and Lendlease with new collaborators, the Crown Estate, which we are very pleased with—is to accept that the whole design will need some compromises from each party to get to the end position. We will treat it as a different project. We are moving towards the end of the discussions with Treasury about use of private finance and, therefore, a vehicle to build the station, which will be separate from HS2. We are looking very closely at, and are enthusiastic about, a development corporation. Quite whose it is, whether it is a mayoral one or run by Camden, is substantially a matter for the Mayor and Camden. It is the largest undeveloped site in central London, so taking the benefit of the development that will arise around the station’s red line and a much bigger red line, and extracting value from the inevitable growth in density which will occur both in housing and in commercial development, is very important. You all know that it is next to the Crick and a growing life sciences community. We know that there is massive commercial potential, not only on the station site but around it as it is built. The answer to your entreaties is that we have taken all of them on board. It is important to treat it separately. HS2 has an element in it of course. Some of the construction on the northern approaches is quite complex and needs to be carried out with great care; otherwise, apart from anything else, it will get in the way of the operating railway, but as to the station site itself all of those entreaties are being taken on board.

On the same point, I neglected to draw attention to the register of interests in respect of donations to my constituency party from GMB.

Before we move away from the cost culture—this is to Mark Wild—are contractors being incentivised via bonuses or some other form to achieve certain milestones by certain times?

The main works civils contracts have a degree of incentivisation on the fee that they charge. The fee, which is the margin and the profit that people put on top of their annual spend, is moderated by their performance in the year against milestones. This year, we have set much more challenging milestones for the supply chain. Previously, one area where I wanted to see an improvement was an upping of the game this year. The milestones set this year have been more directional from us to the supply chain and, as I said earlier, they are achieving them. Yes, there is a degree of incentivisation for in-year milestones, but it is relatively modest in the scale of the whole expenditure.

I know, Mark Wild, that you are doing your own assessment for the reset, but when it comes to governance the Stewart review went into great detail about the failure of governance at HS2. How are you taking on board the recommendations and the concerns set out in the Stewart review?

Undoubtedly, it is plain to see that, despite all the issues about notice to proceed, HS2 has not managed the situation adequately, so change is needed. I found that in my review. It is in the James Stewart review. There are three things. The new chair, Mike Brown, will join us soon. Mike clearly is a very experienced person, although I give credit to Sir Jon Thompson, who did a very good job in the interim to help. Mike brings with him deep experience of transportation. Clearly, he has worked with me before and the Ministers and the Secretary of State. Secondly, the Department is in the process of adding to the HS2 board discrete skills, people who have knowledge of major programmes, knowledge of commercial negotiations and knowledge of railways. An obvious gap on the HS2 board has been people to scrutinise people like me, and those appointments will be made in the next few months. Within HS2 itself, though, we are in the process of a considerable improvement plan. It is not just the board and its sub-committees; one of my key priorities is to improve the control environment. A lot of work is going on in fraud protection. We have just appointed a new fraud and ethics lead under the auspices of the Government’s fraud authority. There is a huge amount going on within HS2 to improve scrutiny, largely by improving the quality and capability of people, as well as governance changes in HS2.

Thank you. Lord Hendy, what lessons are you taking on board for the organisation of future projects? I am conscious that Mark Wild said he would not go as far as saying that a blank cheque had been written, but when you don’t have the pressures of trying to ensure that there are cost efficiencies that sounds a bit like a blank cheque to me. How would you stop that happening in future?

Mark talked about the appointment of a new board. One of the criteria that the Secretary of State and I used for the appointment of Mike Brown, and for that matter Mark as well, is appointing people we can trust and who are honest and utterly transparent. That is a characteristic that we absolutely need. Let me turn to Alan and ask him to give you some detail.

Applying the lessons both to the big transport projects and across Government, we have been clear that we accept all of James Stewart’s recommendations and we are getting to implementing them. That, for me, is applying them immediately to HS2 and the reset as well as to Euston, and as we have just talked about, the whole scope of Euston, not just the HS2 bit—and Northern Powerhouse Rail. We are extending that. We are working closely with David, our colleague in East West Rail, to make sure that we apply the lessons there and to the lower Thames crossing as it emerges. It is important that that is communicated across Government. I have been talking to DEFRA colleagues in the projects profession. The things we have done already are making sure that we give clarity on the upstream bits of what the Government are responsible for: the Government’s policy to finish HS2; the funding for this year and the next four years; the absolute clarity on the geographic scope, what we need to build out; and clarity on the technical scope where we have had advice from Mark on which bits we could consider doing less of to reduce risk and cost. That upstream stuff has been important. In terms of the interface between the Department and the company, colleagues have talked about the board. We have instituted the programme and performance board, which is the way that the Department measures Mark’s performance against the in-year delivery of the scope and the cost at the moment, and that will be the forum we use, once the programme is reset, to measure the performance against the outturn. That is clearly now between the executive of the Department, my team and Mark’s team. The board supports that, but the predominant responsibility is with us. Lord Hendy talked about reinstituting the ministerial taskforce and getting that in the right rhythm, and that is where we take the big strategic issues. The permanent secretary has instituted the shareholder board, which brings together the Department’s perspective and the Treasury’s perspective as the funders of the programme and focusing on that, so that the financial consequences of the total cost position are understood. Also, where we might have strategic issues, are we prepared to spend more on capabilities in this area or that area and how much risk do we want to take as Government? That is where that will be taken forward. The real thing is to get some of the structural issues out in the formative stages of our other projects, so I want to touch on how we are going to try to apply some of those lessons. It will not be a process-based, “We’ve looked at James’s report, and everyone can be assured that everyone has read it.” It needs to be the substance under that. We are working out how we get structures in place that avoid premature commitments to budgets and schedules before we have confidence in them. How do we get the robust independent view of the potential costs and the iteration of requirements against those costs that we discussed earlier? Should there be cost modelling from our arm’s length bodies or from our own capabilities in Government to judge whether they are reasonable estimates? We need predetermined de-scoping options, and we are looking at how we build those into the requirements that we set. A key point is strong control gates. We should not proceed to the next stage of the project—moving out of formulation into design or moving out of design into construction—until we are absolutely sure that the cost position is the best we can get and the design position is as mature as we can get it and we know what residual risks remain. That structure is crucial between us and Ministers to balance the pressure to just get on with it and show progress and sort out the problems later. Single integrated assurance and approvals plans mean that when we work across the company, the Department and the Treasury we are not duplicating controls and we are not duplicating assurance; we get it right in the first place, and then we have a coherent check that we got it right. The problem with the layered assurance that we have seen in the past, where there are three lines of defence in the company, three lines of defence in the Department, the Treasury will have a look at it and the Cabinet Office will have a look at it, is that it is duplicative, and in cumulation it does not strengthen the quality of assurance; it undermines it because everybody relies on everybody else. The findings in the Office for Value for Money report in that regard are crucial and we will be applying them. You will need to judge us as to the substance of whether you see that coming through in the way that we set up our future projects, but that is what will make the difference.

And, dare I say it, processes and structures that possibly should have been in place many years ago.

Going back to the effective functioning of the board, at the January meeting, which, Mr Wild, may have been your first meeting, it was recorded that the board raised concerns regarding “the timeliness of Board papers being received and issued, which impacted the effectiveness of Directors to be prepared for meetings…The Board provided challenge on the quality of the papers submitted and queried the asks and governance requirements therein.” Reading that, it sounds like there was a problem with the effective scrutiny that the board was able to provide and with the quality of information that was reaching the board as recently as six months ago. Is that fair characterisation?

I joined in December. I am not sure where that minute comes from.

It is the published minutes.

I would agree. I cannot actually recall the instance. Certainly, HS2 Limited in the management, not the board, has a lot of improvement to do. It had got itself as a management team sucked into the tactical. It also lacked capabilities that we are building into it. Again, it is no criticism of individuals, but that observation is a symptom of a leadership team deficient in some skills, hence I am recruiting a chief commercial officer. We have a chief programme officer now. That minute reflects the situation then. We aim to really improve that.

I want to go back to the points Alan made—the reflections. All of it, as the Chair suggested, seemed like common sense. I am sure that if anybody is watching at home they will be saying, “Why wasn’t all this done before?” Is it more about culture than process? Forgive me.

That is a fair question and a fair critique. These are genuinely deep-rooted problems and there are strong forces in play. It is easy to pay lip service to the fact that we are treating them. You need strong structural interventions to make sure that you are not caught out by those cultural dynamics. There is immense pressure to get on with it. How do you resist that pressure in practice? The first stage is to know that there is an effect that you might be pushed into premature commitment on a schedule range. The second is to say, “Let’s not commit to point estimates. Let’s commit to ranges.” You can teach that to everyone involved in the system and to our political masters, but you need binding structures to make sure that the people who are experiencing it for the first time, even though they know that it is a dangerous position to be coming into, have some support in resisting those temptations. It is how we convert the theory into really good practice and have checks and balances bound into a system. It still requires quality of information, quality of judgment and quality of decision making for everyone participating in that. We cannot get away from that. We cannot proceduralise our way into a problem-free situation. The final thing is that some of these things are very complex and very difficult to solve, which is how you get the right balance between risk allocation on a commercial contract at the scale that we are talking about. It is crucial that we do not trivialise that into a superficial treatment that this is the right way and that is the wrong way. It is the time taken to refine it, test it, validate it and be very confident that we have the best situation. Some of the stuff that we are trying to do is first of type and is genuinely world-class difficulty level, and we should not gloss over that.

I appreciate what you have already said about the lessons learnt and oversight, Alan. I accept that you cannot proceduralise your way out of having problems. That is a very fair statement. I am interested in the relationship, though. Trust came up in the Stewart review. Do you have any reflections on what was stated in that review about the breakdown in trust between the Department and HS2? Is there anything specifically on your radar to be working on and improving in the future?

I am very happy to comment on that. Delivery has to be a collective effort between the Government, HS2 Ltd and the supply chain. It is hard enough anyway, so we all need to be pulling as one. We all have a singular aim. That is one of the powers of setting up HS2 Ltd with that single-purpose vision. I would not characterise it as a breakdown of trust. Our colleagues in HS2 Ltd and the supply chain want to deliver the programme effectively in the same way we do and in the same way taxpayers want us to do, but, as the sponsor Department, sometimes we have to be challenging as well as constructive. Last year, we got to a point when we could not advise Ministers that we had confidence in the cost projections that were coming out, as they were continuously going up, and that puts us in a very difficult position. They were not based on what we could see to be reliable supply chain information, and we could not see a clear plan for how we would stabilise the cost position. The point of breaking out of that cycle of cost increases is much of what the reset is about. That did not cause us to lose trust in the collective endeavour; it caused us to lose confidence in the information that was being shared with us and the capability that was underpinning it. To be balanced on this, at the same time, HS2 Ltd colleagues would say that they did not feel that the Government and the Department were doing the bits that they wanted in terms of providing stable policies, stable scope and predictable funding, and that we were predisposed to blame everything on HS2 Ltd and the supply chain rather than reflecting on our own accountabilities. We in the Department are the system architect, between the officials and the Ministers. It is us who caused HS2 Ltd to come into being. The contracts that were let were not let in isolation; they had a whole set of Government scrutiny over them. It was not Mark’s predecessor’s opinion that this was the right way forward. It was checked across Government, and lots of people got it wrong. We need to put that behind us now and reflect that it is possible for the Department and one of its arm’s length bodies not to see eye to eye, and there is some degree of tolerance that needs to be given to that, because that constructive tension is part of the distinguishing features of the roles and the set-up that we have done, but it does not serve us well. Mark and I are very much putting the priority on getting to a common view, and we work closely together. We are actively working between our teams on how we foster a collaborative culture. We have made massive progress already, and we will need to keep at it. That is what Ministers need to see from us, and that is what the public need to see. We might have some difficult discussions on the schedule range and the cost range, and it is right to do so.

The Government have shown that they now have a consistent policy on this. We have a process for discussing necessary scope changes that will help Mark deliver. We have been clear about prioritisation, and the spending review has established some stable funding. That is all good progress. My observation when I came into this job a year ago is that it was hard to have a discussion with the then executive chair when his numbers were different. Alan could not advise me that we could have confidence in his numbers. There is not much to talk about if you cannot have between you a consistent understanding about where you are and how much it will cost to completion, which is why he had been asked to do the job. My third observation is simply this. I know the Secretary of State put a lot of time, effort and thought into Mark’s appointment, as we both did—knowing what he has done before, particularly on the Elizabeth line—and into the appointment of Mike Brown. We need some mutual personal trust between us. I trust Mark and I trust Alan, whose advice has been exemplary since I took this job. We need a bit of personal trust in all of this in order to have the difficult decisions that Alan is talking about. I can’t believe that we will not question some of the things that Mark comes up with as to the range of costs to completion and the timescale.

I have one more follow-up. Thinking about the role of the delivery organisation, the client, which is the public and the Department, and the extent to which you have to be a very informed expert client to make these relationships work, Alan, is there enough commercial engineering experience in the Department to make it that expert client? It is a bit like the question that Mark answered earlier about the 150 commercial vacancies.

It is right that we put most of the capability in the engine room, which is in HS2 Ltd, and we would not want to take our best engineer out of HS2 Ltd so that we could use that person to check the work of the company. Let’s keep the frontline-first concept going. At the same time, the Department needs to have an opinion on whether it is sensibly specified and how much it is likely to cost and how much confidence we can place in the information that is coming through. The sponsor organisation, which is what we would call the Department, needs those abilities, and it needs to have the confidence to challenge, but not in a way that is trying to take over the role of HS2 Ltd or the supply chain, where the genuine expertise needs to be had. Equally, we do not need five sets of Government checking HS2 Ltd; we need one bit of Government. We work very closely with the Treasury to make sure that we have combined financial discipline. We work closely with NISTA to make sure that we have combined project discipline. The Department has an engineering capability, and we very much value that. I would like to invest more effort in our cost estimation capability and building that up, not so that we have a better estimate than Mark and his supply chain, but so that we can test the early stages and have a reasonable view of how much we think it should cost.

Thank you. Does anyone else have anything to add to those comments?

From an arm’s length body point of view, what matters is reliability to build confidence. That is the key. If you are an arm’s length body and you lose control of the programme, you end up at the extreme end of optimism bias, which ends up in delusion. In delusion, it is not unnatural—it’s obvious—that the SRO and the Department would lose confidence. The key for me in the reset is a programme and a budget that we can all deliver within. My job is to get to the front edge of the window, the range, but to communicate to the Government and the Department that there is a downside risk. That is the art of major programme management. The problem in HS2 is that we lost control of the programme, and that is HS2’s accountability. That was the root of what James might have said about trust. I agree with Alan. It is about losing confidence. We will regain it through the work and through the actual programme.

Lord Hendy touched on the disagreement over the total cost. Laurence, just in time, do you want to pick up that issue?

Thank you, Chair. There has been a well-advertised disagreement over cost estimates between HS2 Ltd and the Department. The Stewart review recommends an independent evaluation of costs. When will revised cost estimates be published?

The process for the reset is three distinct things. The first is to put all the activities back into the right sequence, making sure that everything is watertight. We are just about to enter a process in the next six months to do exactly that—wire everything together. Secondly, there is the assessment of uncertainty. How long will the civil engineering take? Will it take three years, four years or five years? That uncertainty is an important calibration. Thirdly, you have to attach money to it. The process we will go through is to make sure that we in HS2 have 360 degree assurance. It will be a measure of demonstrated performance in the past, expert panels of global experts who will look at it with us and a formalised assurance process. That will go through our board and we will make ourselves confident. I have discussed this with James Stewart directly. We will build assurance and independence into the work. If you don’t do that, you get the effect that Alan described; it could become superficial. At this very moment, I am gathering a group of very experienced global experts who will be entirely independent and who will scrutinise it. Then, and I am sure Mr Over will want to comment, there will be a whole other layer of scrutiny from the SRO’s point of view.

Just to understand the six-month process that you have outlined, is the uprating of prices to align with the spending review period part of the same process that you are describing?

Yes, the spending review is very helpful. We know exactly what we are going to spend the money on. Predominantly, it is the civil engineering. The question is how much of that money we will spend, and that is the process that we are going through to make it all consistent and all in nominal prices so that we get out of the 2019 nominal confusion that we often get into.

A six-month process. Is it reasonable for us to take from that that towards the end of this year we should have a new cost estimate in 2024-25 prices?

There is one distinction. I am confident that I will provide those ranges to the Department and then the Government. The acceptance of those ranges is not really for me, and that is an important distinction. I agree with Alan; there has to be some tension between the Government and the Department’s position and the arm’s length body. We would not want to commit to an exact date.

Both the Secretary of State and I have been very clear with Mark that we have had too many difficulties there. He has to have the time to get it right, and then we need the time to have the discussion with him about what he is saying and what it means for us both in cost and delivery. This is an occasion when one wants to be vague, because the last thing we want is for him to feel pressurised to come up with a number and we are all sitting here in four years’ time saying, “Oh, well, there wasn’t time to do it properly and there wasn’t time for us to consider it.” The spending review commitment from the Chancellor is terrific because it gives him a background to do this work, which is one of the things that has been needed. We want to see it done properly.

Providing the time to get it right is one thing that the Department and Ministers are providing. Mark, do you have other key asks of the Secretary of State and Ministers to support you in your delivery of HS2’s objectives?

Today, my main ask is just to be given the time to do the work at the right fidelity, because this is the only time we will reset the project until the end of the project. That is the objective: we create cost and time ranges that can be relied on that progressively narrow as we demonstrate performance. At the moment, I have been given that time and space. Equally, I know not to abuse it, because all the time that I don’t have it creates uncertainty in my supply chain. Everybody is incentivised to get to the right result.

We will need to look at the breadth of the range against the confidence of the work and where it is situated, but there will be one range and we will agree on it. I am not prepared to say at this point whether that range is too wide or too narrow. Clearly, wide ranges are bad from a confidence point of view. Narrow ranges are bad in terms of having confidence that we can actually deliver within them. You can see the balance that we have to work through. There is a well set-out process about how we weigh optimism bias, which you might think more likely to come from me, and pessimism bias, which might come from Mark, to get to a position. Some of it will be judgment about how much risk we apply, but it has to be evidenced by the work that has been done and the productivity that has been observed and how we extrapolate that into the future. Can we drive a bit more productivity where the risks may or may not present on the rest of the civils, and how productive are we in rolling out the system? As Mark said, a lot of the intrinsic risk has been retired. We have a good dataset on the observed performance, and that is the basis on which Mark will do the estimate. We will be involved with the Treasury in the process as we go through that, so that there isn’t a big reveal at the last moment that we then start to have a fundamental discussion about.

The Secretary of State and I take at least some comfort in the fact that Mark is reviewing the project at the stage when a lot of this work has started. You would expect to see betterment of rates achieved so far, but if it looks too optimistic we are bound to ask that question. We will equally ask the question about whether things could be done faster. Looking into the future, the one advantage of the railway systems contract is that it is a more understandable thing; the parameters of the costs per kilometre and so on are much better known. Mark will have his view about that, and we will have that discussion. From where we are now, we ought to be able, in the end, to get an agreement based on the level of real risks that we understand and are prepared to take, and then on the range that you get in both cost and delivery time.

It will be the start of the negotiation in the autumn.

If I could take a step back, we are following exactly the same process that we followed in Crossrail, a five-stage process. We are about to finish stage 3. The end of this year will result in, I hope, cost and time ranges on the EAC that we will all get aligned on. It will also be the initiation of a significant negotiation. Everything needs to be lined up to the point where we could sit down with a negotiating remit in the autumn. That then enters something called stage 4. We aim by April 2026 to have the commercial negotiation complete and the commencement by April ’26 of a new baseline schedule. There will be a further refinement in autumn 2026 to produce what you would recognise as a high-fidelity granular baseline that will be called baseline 8.1. That whole process will take until autumn ’26, but the key milestones are: end of this year, reliable ranges and substantive negotiation with the supply chain; April ’26, the commencement of a new production year in the context of a new baseline; and then what you might term tidying up in the autumn. It is very important that we do it in that sequence. It is exactly what happened in Crossrail. We made a bad mistake in Crossrail by missing out one of those steps, and we had to go back to the beginning. The reason it is done like that is this. If you imagine it as more like pixelation, we are progressively building something from low definition to high definition. The process, though, of negotiation with the supply chain will be between autumn this year and spring next year, because we need the baseline to commence the negotiation.

I am very confident. I will give a range of outcomes on the EAC. It will remain a range, I predict, until well into this project. Crossrail’s range only narrowed to a point estimate four weeks before we opened it. That is what I think people got wrong with the notice to proceed. This is a process of creating a large range and progressively narrowing it. Towards the end of this year, I am to give the Department and the Government reliable ranges of the EAC in time and cost. They are not going to be crazily wide. As the Minister just said, it is a very sensitive moment to get that right—not too optimistic not too pessimistic, but realistic. There will always be a range. It is identified by Flyvbjerg as the best practice of a major programme. The minute people start pushing to point estimates, you get the usual story of optimism bias and lack of transparency. It is better to have a range and be transparent on the range and narrow it over time.

Thank you. Time is moving on. I am not suggesting that any of your answers are waffling, but I am very conscious of the time. We are going to move on to wider structural issues.

There has been criticism of the benefit-cost ratios in assessing projects. We have spent a lot of time talking about optimism and about costs and how we can get that right, but the Stewart review also considered that the benefits of HS2 were being underestimated. How do you think we need to reform how we do benefits and costs in mega-projects going forward?

The Department has a rigorous benefit-cost appraisal framework, and it is important that it is rigorous. That distinguishes between directly transport-related benefits, such as journey time savings and avoidance of congestion, and wider economic benefits that we typically class as level 3 and are excluded from some of the core benefit-cost ratios. That makes a lot of sense when we are talking about enhancements to our rail system or road system and how we compare which are most attractive in an area where we have capital rationing. When the whole purpose of the transport project is to drive the economic benefits, the jobs and the homes, and to make sure that we are not constraining future growth through a lack of capacity, there is a question as to whether we are putting enough emphasis on the economic benefits part of the argument. They are harder to measure, though, and harder to evidence, and therefore people will attack them, correctly, more rigorously. Are we just moving jobs around or are we creating jobs? How can we be confident that that level of assumed job and home generation is going to follow through from the transport project that we have delivered? There is a tension. Mark has talked already about the early economic benefits that are being seen in anticipation of the programme. We have a great case study with the Elizabeth line where we can see evidence of genuine economic benefits as well as the transport benefits already emerging. We are working closely with Andy Lord and TfL to make sure that we extract all the evidence there. We can also look at some of the more successful and less successful interventions from big transport interventions overseas in Germany, France, Spain and Italy. We have to do that consideration so that the economic benefits are properly valued and properly assessed and we are not subject to optimism in those. There is a sensible framework. Its application to very large economically driving projects versus smaller transport projects is worth examining. We are pretty keen that the work on place-based business cases that the Treasury, we and other Departments are working on is a good way into that. That also allows the perspective of mayors and local authorities, who can see the economic benefits much more clearly than we can, to be brought fully into view.

I had understood that the benefits of the Elizabeth line were wildly underestimated. If you are still saying that we are taking that learning and considering that learning, can we be confident in the way that we assess projects at the moment?

We can be confident that the transport-related direct benefits of the Elizabeth line are exceeding expectations, and there is clear evidence for that. Obviously, the economic benefits take longer to materialise, and materialise progressively. You have to take a longer-term evaluation of whether your prior assumptions are realised in practice. The real-world delivery of those economic benefits will end up being different from what you projected. It is okay that we take time to do that over a timeframe that shows those benefits materialising as economic development matures and progresses. We need to keep looking at it as we go, though, and then play that into how we value future projects, especially when they are predominantly trying to deliver economic effects rather than transport effects.

It is a long-term thing, isn’t it? At least some of you will recall that the Jubilee line was thought to have a very marginal and rather poor business case originally, yet the consequence of it is an astounding increase in economic activity in east London, which has not been drawn from elsewhere. It would not have been possible to foresee, at the time it was built, the Olympic effect. Now, of course, that is all ancient history. It is important to keep that in mind. One of the things that we in the Department try to keep in mind is that transport is not there for itself; it is for a reason, and the reason is homes, jobs and economic growth. Trying to keep that in mind all the time is one of the questions with HS2. It is why Mark and I at least are always referring to the skyline of Birmingham and the development that has already started. It is very easy to get into the culture of transport and the project itself and not understand what you are trying to do in the wider economy, which is the reason you are doing the project at all.

Isn’t it a concern, if transport projects are hugely underestimated in terms of their benefit, when they are competing with the Treasury against other projects across the country?

It is certainly a reason to consistently ask those who advocate a transport project to enumerate what the growth, jobs and homes reason for it is. I must have met many of your colleagues who are interested in individual enhancements of various sizes. The one thing I always say to them is, “Where is the justification in growth, jobs and homes?” If that is what the Government want to do, whatever you want to spend the money on has to contribute to that aim. It is not enough just to say, “We used to have a railway, and we’d like one again,” or, “We’d like a better railway than the one we’ve got.” It has to be justified by some evidence that that is going to happen. Even better, and sadly not in the case of HS2, the evidence that is really compelling is when a third party comes along and says, “I’ll put money into your project because I can see my own value being created by it.” That is really helpful.

As Lendlease is doing.

Indeed.

The Stewart review states: “In my opinion there is a history of gold-plating in railway projects in the UK, especially compared to international benchmarks.” Is this a culture that you recognise? Are people still coming to you prioritising best over affordable?

I certainly recognise it. In the case of the national railway network, of course it was massively distorted by the curious state of Network Rail from 2001 to 2014 when it could undertake borrowing with a Government guarantee but apparently not on the Government’s books, which was corrected finally—sadly, before I got there. That organisation had much more largesse before I arrived. That contributed in major enhancement projects to gold-plating. The phrase “minimum viable product” is now quite well used both in the Department in railway projects and in Network Rail, which is right. We have already talked about the top-down vision that translated a very necessary capacity increase into not merely a high-speed railway but the highest-speed high-speed railway. I don’t think the words “minimum viable product” had ever entered anybody’s lexicon in the years from 2010 to probably last year, but, my word, they are there now. One of the things that the Secretary of State and I will be asking Mark, in respect of where he is going with the project when he comes forward in the work that he is doing, is whether every aspect of what he is now talking about is all that we need to get the job done. If MVP had been a term used at the time that HS2 was conceived, as a capacity release scheme that could allow a high-speed railway, we would have wound up with a very different design and a much lower cost.

As part of the reset, one of the most important things is to work out the railway on day one. We have made a lot of progress on that with the Department. Lots of what you might term gold-plating is actually under the skin and invisible to customers. We have made a lot of progress. You can be assured that, to the extent that we can effect it now, we will be taking out a lot of technological first-of-a-kinds that will minimise the risk in the future. Lots of this is invisible to customers. The big decision, as we have discussed already, is about the straightness of the line and how fast it is. There are examples in HS2 where we have—I wouldn’t use the word “gold-plating”—first-of-a-kind technology, and we are going through a process of making sure we remove those.

Some of that has happened already. When I turned up at Euston, one of the very first designs, rather unbelievably, had air-conditioned platforms. The railway in Saudi Arabia doesn’t have air-conditioned platforms. It has air-conditioned waiting space, but when you are on the platform all you do is get on and off the train. That is a real example that is very far from minimum viable product.

The Office for Value for Money’s report on mega-projects showed that all but one had been late and over budget. Why are we so poor at learning from past failures with such projects? When are we going to get to the point that we start getting it right?

It is a good report from David Goldstone. In my belief, the roots of major programme failure in the UK are two distinct things: first, getting the estimate wrong at the very beginning; and, secondly, the pipeline of work to get over the learning curve. We get the estimate wrong at the beginning. That is easy to fix; it is all the things we talked about. The key for major programme delivery is repetitively learning the lessons and keeping going. The stop/start mobilisation/demobilisation is very expensive. The Government’s new 10-year infrastructure policy is a good example of how you could get around that. Economies of scale and modularisation are generally the reasons other countries build mega-projects faster. There is a lot of talk about China. Chinese projects are built on a production line with a lot of focus on modularity and buildability—building things in factories and bringing them to the site. The correction of those two things is the key.

I really support that and agree. The gap between doing the same sort of thing gets too large however good your documentation, your lessons and your records. The people who got it right or wrong last time aren’t around to do it better the second time. The gap between HS1 and HS2 is a good example, as is the gap between Sizewell B and Hinkley Point, but we are trying to eliminate the gap between Hinkley Point and Sizewell C. Mark’s point about the real learning and application of the learning, not just in the Department and the ALBs but more particularly in terms of the skills and capacity that the supply chain brings forward is crucial. If we want to do better, we need to have the better pipeline that the 10-year infrastructure strategy is trying to get to.

When do you think the supply chain is going to be put in a place where they have that confidence? I know that there is a lot of work being done in relation to the infrastructure plan, but aren’t we still in a place where there isn’t sufficient certainty that would enable consistency so that we can make sure that that is in place?

That is one of the reasons why the Government are proposing to have a plan. Once they have seen one, the supply chain can evaluate it. It is also important that it evolves over time because national policy evolves over time. Not having one leaves inevitable uncertainty for the supply chain. It makes them very angry, as you probably know from your constituency experience.

Absolutely. I understand the need to make sure that we get the pipeline in place, but it is about how much of the supply chain will still be there if there is much more delay in getting it in place.

The Government are working as fast they can to publish that. The outcome of the spending review, whether or not everybody likes every element of it, its translation into specific authorisation for projects, and then bringing them together in the 10-year infrastructure plan is all work being carried out right now.

Going back to the Olympics being the exemplar of a successful project, that had a very hard deadline. Is one of the problems with these projects that they do not?

No. They are always different after they are done, aren’t they? We all bask in the glow of glory having finished it, but at a much earlier stage there was considerable anguish because the costs went up enormously quite early on, at the point, for example, when it was really understood what the land remediation at Stratford would be. It was successful, but apart from anything else the proportion of construction work compared with the other preparations was different and the nature of the construction work was different.

The Olympics is both the best and the worst example. It is the best because it was expertly done. I wasn’t there, but the people who did it were brilliant. The lessons of the Olympics are fantastic. It is the worst example because they uniquely had a fixed deadline. Fixed deadlines are bad things. It is what did in for Crossrail. It is better to think about this as a range of uncertainty that narrows over time. The Olympics might be unique in the whole of the world in that they have the ability to state a date when it will occur. There are lots of lessons from the Olympics that are fantastic, but I don’t think the fixed end date is a helpful one. What fixed end dates do for people like me is they start to tune up your optimism bias to even more excessive events. That ends up in hubris eventually. It is much better to have a range of uncertainty that is transparent and narrowed progressively. What you should be saying to people like me is, “Narrow the range and get the range to the front edge of the window, rather than deliver it to a date.” It could be very dangerous. Like I said, Crossrail’s range only narrowed within four weeks of opening. Why is four weeks important? It is the time needed to roster a driver on to the front of the train. Crossrail’s window narrowed to the latest possible moment to open it, and it will be the same with HS2. That is the best way to approach it.

We haven’t talked much about the railway systems and getting the railway to operate both in itself and in the connection with the national railway network.

Shall I ask that, then? The next stage of HS2’s construction is moving from the civil engineering stage towards railway systems and integrating with the national network. How are you drawing on your experience at Crossrail to ensure that this stage is going to be a success?

All three of us here would agree that the outcome of HS2 is a railway system, not a civil engineering project. The most important person to me does not exist yet, and that is the person we will put at the front of the train on the first day of passenger service. We learnt a lot in Crossrail about the idea of right-to-left thinking, so what are we doing? First of all, separation of the civil engineering from the systems. It is important that we have what we call clean handovers. The thing that Crossrail got terribly wrong is that, in a panic because of the fixed end date, they mixed the electricians trying to wire up equipment in rooms that were not completed. In HS2, it is important that we hold the line, hold our nerve, to get the civil engineering done so that the process can start to put the track on top of it. The biggest lesson from Crossrail is to get a clean handover from the civil people to the systems. Once that is achieved, we are in the business of working together right to left, from the end to the back. Mr Over and I spoke earlier in the week. We have some improvements to make about bringing our operations people together and bringing them a voice at the table. That is one of our key improvements to make over the next few months. The good news about HS2 is that the technology is largely vanilla and standard. It will be challenging, of course, to bring together, but it does not include the complexities that Crossrail had of signalling systems that had never been used before. With a clean handover from civil engineering, we will be able to produce a very coherent plan for the integration, starting with the track, then the overhead line and then to the systems. The train is a fundamental part of the system, obviously, not only because it carries passengers but because it is a technological platform that moves at high speed. One of the challenges that we have with trains at very high speed is that we have to work out a discrete, unique way of testing them, which we will work out. That might be one of our risks, but with Alstom and Hitachi we will overcome it. The key is clean handover from civils. That is why I am nervous. The range could still be quite wide because I do not know today the day the civil engineering will end. I know that, once the civil engineering is ended and the systems engineers have access to the railway, it is a straightforward, although complicated, task. The key is to get the civils complete and allow the systems people to come on.

Finally, the Oakervee review said that HS2 required more than just phase 1 to be worth while, but the Stewart review was not asked to assess whether HS2 should continue and, if so, to what extent. To those who are sceptical, can you explain why it is worth persisting with HS2?

Yes. Let’s go back to the purpose of connectivity, which is growth, jobs and homes. The skyline of Birmingham is already full of development. Mark also mentioned the new stadium, sports quarter and so forth, which is predicated on it happening. Without it, we will be in very serious trouble on the south end of the west coast main line with capacity, and therefore with reliability. Those are all good reasons to carry on with it. The Government are determined to create economic growth, and connectivity is a very good way of doing it, even though this project has been so difficult so far. There is also a connection. Once you have a different line from London to Birmingham, there is far more capacity that can be extracted from the existing west coast main line, including support for the sites of several projected new towns and better commuter and medium-distance trains to London. That is the Government’s reason for carrying on. In respect of, “It’s just phase 1,” I don’t think anybody would doubt that the most important thing to do is to get HS2 phase 1 under control. I don’t see how we could contemplate what else to do without being able to prove that we have this under control, and that is the aim in a lot of the discussion this morning. We are very aware of the capacity and connectivity constraints north of Birmingham to Manchester and with the rest of the railway network, and we are looking at that very carefully in the light of the additional capacity that we will create from, first, Old Oak and then Euston to Birmingham and Handsacre. We hope to come back and say more in a few months’ time. That is the work I was referring to earlier, which could have started. It should have been done before ceasing phase 2a. It could have started afterwards, but it has only just started with this Government.

Could we have some indication of the timescale when we might get something from Government on what happens north of Handsacre? Mr Wild talked earlier about his phasing of reporting and renegotiating. That went on well towards the end of 2026. Do we have to wait that long until we get an announcement from Government?

I hope not. I hope that we can prove that we have this under control sufficiently to enable us to set out some further decisions. There are also quite a lot of decisions to be taken about northern connectivity, which are of course related because there is a hybrid Bill rolling about on the deck currently, which could be used both for northern connectivity and for increased connectivity down to HS2. I don’t think we have to wait for Mark—for 2026—but we have to do that work properly. It could have been started sooner, but it was not. We are doing it now. Alan’s people are also deeply involved in that. They are serious decisions and quite big decisions for Government. I am very clear, as is the Secretary of State, that we are going to learn the lessons that we have talked about this morning when we talk about what we then need to do, when it might happen and how much it might cost.

Thank you, that is really helpful. I quite appreciate that the Government may want to be careful about saying what needs to happen, but can I just be clear? Is it the Government’s policy that there needs to be some form of new capacity with some kind of new line going north of Handsacre towards Manchester, Leeds, and so on? Is that basic principle the Government’s preference?

We are certainly very aware of the capacity constraint, and we have looked very carefully at the work that the Mayors of both Greater Manchester and West Midlands put forward. I don’t think I should be drawn about the conclusions of it, but you can take some comfort from the fact that we have looked at that very carefully. We looked at it in the light of what needs to be done to drive the benefits of connectivity, which are growth, jobs and homes north of Birmingham. We will also contemplate carefully whether, in the light of some of the discussions we have had today and the circumstances that have led to them, doing it in sections might produce a better and cleverer answer than just thinking of very grandiose, very long, very large railway schemes.

Before we jump to infrastructure solutions, we need to make sure that we cannot get capacity challenges solved in other ways using our existing capacity and capability. That needs to be worked through, and then conclusions on the need for future infrastructure can be safely drawn.

I appreciate that, but we don’t have long to go before both the west coast main line and the motorway system up the western spine of England are going to be absolutely reaching capacity, so time is of the essence.

To come back on it again, the existing railway has also to contemplate those pressures. It is very easy to say the whole of the west coast main line is full of trains. It is nearly full of trains, but different parts of it are under more pressure than others. In the light of the fact that we have not inherited a financial situation in the way that we would have wanted—money is very tight, and investment in new infrastructure is, as Alan says, the last resort—it will pay us very carefully to understand where the greatest pressures are, when they might occur and to what extent we can solve them without being grandiose in a way that you might now look at the original idea for HS2 and say, “My word, that was brave.”

I appreciate there are opportunities for some additional capacity that will help relieve some pressure, but it is generally agreed that the pressure will be there for a new line sooner rather than later.

Noted.

Thank you very much for coming to give evidence to the Committee today. Feel free to write to us if there is anything you have not been able to say to us in your answers this morning. It has been really illuminating, and your answers have been very thorough and very informative. We may well ask you back once the current HS2 reset is complete to talk about management of the project in the future through lessons learnt. We look forward to hearing from all of you again. That concludes today’s meeting.