Construction: A sector in the shadow of HS2

On 26 January 2012, standing amid centuries of history at the London Transport Museum, government infrastructure chief Justine Greening was very much looking to the future.

Just five miles east, the gleaming 80,000-seater Olympic Stadium had already been completed by Sir Robert McAlpine under budget and months ahead of a much anticipated summer Games.

The Construction Products Association had predicted a 15 per cent rise in industry output in the coming year, as hopes grew that the worst economic crash in generations was over.

Ms Greening was feeling chipper, telling delegates at the industry event about “the most important transport project in this country since the coming of the motorways”.

The transport secretary then confidently declared: “£32bn will buy us a national high-speed rail network, linking London and Birmingham with Leeds, Manchester, South Yorkshire and the East Midlands – and forming the base of what we hope is an even bigger network extending to Scotland in the future.”

High Speed 2 had been consulted on and confirmed as an important section of a long-term pipeline of projects, she added, “providing certainty about future contracting opportunities following the completion of Crossrail in 2017”.

How optimistic everything about that day looks now.

Fast-forward to 2019 and West Ham play at the Olympic Stadium, against the wishes of many fans, after a publicly funded conversion project found to have cost over £300m. Ms Greening sits as an independent and plans to leave parliament, having lost the Tory whip over Brexit. Construction output is falling. Crossrail may not even be open by 2021. And then we come to High Speed 2.

HS2 chair Allan Cook this month warned that a reasonable budget for the rapid rail link could reach up to £78bn.

He added that the full first phase of the scheme, linking London with the West Midlands, may not be open until 2031, some five years later than promised by Ms Greening’s successor Patrick McLoughlin.

And where Mr McLoughlin had called for the second phase, taking the rail line up to Manchester and Leeds, to be finished before 2032, Mr Cook admitted it could now take up to eight years longer.

That’s if the project happens at all. Prime minister Boris Johnson – who has reportedly said HS2 could actually cost more than £100bn – this summer placed the scheme under review. Former HS2 chair Doug Oakervee now leads an investigation of a range of options, including binning various elements of the project or even consigning the whole idea to the scrapheap.

Contractors – urged throughout the earlier part of this decade to seize this incredible opportunity, skill up their workers and enter into the spirit of a great modern infrastructure project – are left not just scratching their heads, but gnashing their teeth.

“We would always emphasise the importance of delivering large infrastructure projects simply because we have such a history of not doing so”

Rebecca Larkin, CPA

Balfour Beatty, which will lead delivery of the two most northern lots of the first phase main civils works, in a joint venture with Vinci, said in May this year that it had taken on a large number of employees “to enable us to deliver the contracts we are proud to have won on HS2”.

Balfour added in a report: “The delays to HS2 mean these people will now either have to be redeployed […] onto other schemes or, where this is not possible, be made redundant.”

Costain said in a trading update that its 2019 revenue would be lower than expected due to delays to various contract start dates, including main works on High Speed 2. The firm is contracted along with Skanska and Strabag on the Euston tunnels and approaches as well as the Northolt tunnels for the massive rail project.

Arcadis managing director for UK rail Richard Hoare told Construction News this summer that HS2 delays were already impacting the business “at an operational level”. The consultant is working with Eiffage and Kier on an 80-km section of the route from the Chilterns to Long Itchington Wood.

‘The largest job in the industry order book’

This is just the tip of the iceberg. More than £7bn has been spent already on High Speed 2, with 62 sites currently live. While ministers have promised that ongoing works won’t be affected by the Oakervee review, it has already emerged that certain woodland clearances will indeed be paused, raising questions about knock-on effects.

About 2,000 companies have played a role already on the mega-project, with 9,000 people currently employed directly or indirectly by it.

Civil Engineering Contractors Association chief executive Alasdair Reisner says it is “difficult to overestimate the importance of High Speed 2” to the construction industry.

“We are talking about the largest job in the industry order book,” he says. “There are hundreds of companies in the supply chain who are working or looking forward to working on High Speed 2.”

Mr Reisner underlines that the Oakervee review will shape the fortunes of a great many businesses across the UK.

“You have everything from enabling works to utilities, tunnelling, earth moving, specialist trades doing archaeological services, security guards, public engagement activities – this is about more than just construction.”

Civils firms and the many individuals that fill them have been dedicating themselves for some time to preparations for High Speed 2, Mr Reisner stresses.

“We had our first conversations with HS2 Ltd in 2012 and the industry has been focusing since then, getting itself in the right shape to be an effective partner,” he says.

“HS2 Ltd is rightly trying to set new standards of how we deliver construction. It is looking for the most modern plant and the best skills in the industry.

Work at the Old Oak Common site, July 2019

“A number of people have committed part of their career to working on this project.”

He warns that in this context, uncertainty over the delivery phase is potentially very damaging.

“It is such a large scheme with so much committed to it that extensive delays would start to really hurt,” he says. “If you’ve committed resources to High Speed 2 then by definition you have not committed them elsewhere.

“There are not a load of shovel-ready projects for people to move across to. There is a big question about what happens if a project is delayed or cancelled. It is important that where investment has been made in skills and kit, those resources can be redeployed. But it is not an easy process.”

Firms may look to increase their staff numbers on other jobs, getting through them quicker but not necessarily seeing a financial benefit. Others will perhaps be able to take on projects that appear at short notice – but these are not common in a politically and economically uncertain environment.

On a project with the scale and technical complexity of High Speed 2, looking overseas is sometimes the only option.

Aecom has 400 full-time employees working across both phases of the rapid rail project, in roles including design, environmental consultancy and value management.

Managing director for civil infrastructure in the UK and Ireland Mark Southwell says the company’s international reach helps it absorb the slack resulting from the lack of clarity surrounding the scheme.

“As a global business, our size and breadth allows us to be flexible, providing our employees with opportunities to work on high-profile projects all over the world.

“Our global footprint means we are less likely to feel any impact as much as smaller firms who might struggle to retain talent.”

Specialists’ impact

Construction Products Association senior economist Rebecca Larkin says constructing High Speed 2 is a specialist undertaking. “There are certain materials and processes required for high-spec rail infrastructure to cope with the forces exerted by 250 mph trains,” she says.

“People and machinery could go abroad but that makes it harder for the UK to gear up when High Speed 2 does come on stream.”

Ms Larkin says a variety of factors have led to the delays now being seen in the creation of the country’s first high-speed line since the smaller-scale Channel Tunnel Rail Link opened in 2007.

“Difficult ground conditions were uncovered during early works that were not foreseen in the tendering process,” she says. “Land and property purchases were more costly than initially estimated and the legal process added to delays.”

Then there is political pressure.

Consultations, getting bills through Parliament, and of course now the Oakervee review. Before major civils works have started on site, High Speed 2 has seen its third prime minister and its fourth transport secretary.

Ms Larkin doesn’t expect the review to lead to a cancellation of the project, but warns it could lead to – whisper it – further delays.

Demolition work at Euston, summer 2019

“The most likely outcome from the government review is that the work will be spread over a longer period,” she says.

“The two leads on the review are pro-infrastructure so it is unlikely to be cancelled, but the case for spreading it out is to reduce the cost to the government in each year.”

Another feasible option would be to start the rail line from Old Oak Common in north-west London rather than taking it on to Euston at the heart of the capital, she adds.

“Perhaps the scope of the project will be changed. I’ve heard figures that building from Old Oak Common to Euston is £8bn – and it’s a very short distance.”

However, HS2 disputes this, pointing to the revenue available from land receipts at Euston and the extra cost of creating a terminus at Old Oak Common as additional factors to be considered.

But even if this route change was made – an outcome that would be better for the industry as a whole than scrapping the entire scheme – and one that could provide ministers with a saving on paper at least, Mr Reisner is quick to point out it is not without drawbacks.

“If you slow down work, or change scope, you won’t get optimal delivery,” he says. “You’re moving things around after making the plan, which was put together to be the best way to do the job. Also you reduce benefits, or get to them later.”

Knock-on effects

Meddling with High Speed 2 at this stage, almost eight years after telling the industry to get ready to deliver an exemplar project, will have a knock-on effect for many years to come.

“Part of the benefit of High Speed 2 is that it can drive change in the way smaller projects can’t, by bringing the whole sector together to do new things,” Mr Reisner says. “By salami slicing it up, some of the benefit is lost as you don’t have the volume to make exciting innovations.”

As well as not learning new things, the industry could be forced to reassess its approach to major projects in the wake of how High Speed 2 has been handled.

A number of major contractors signed a recent letter to Oakervee, organised by the High Speed Rail Industry Leaders (HSRIL) group, pointing out that governmental dithering has added to the cost of tendering.

“Political uncertainty surrounding HS2 adds to the costs of bidding, driving up costs in the UK infrastructure market,” read the letter, signed by names such as Balfour Beatty rail and utilities chief Mark Bullock and Eiffage-Kier director David Lowery.

“Part of the benefit of High Speed 2 is that it can drive change in the way smaller projects can’t, by bringing the whole sector together to do new things”

Alasdair Reisner, CECA

“By now, HSRIL members have spent well over £100m bidding for High Speed 2 contracts. If it is cancelled, future construction projects will unfortunately attract an added risk premium. UK construction will cost more.”

A lack of political clarity – something witnessed all too regularly in the UK recently – could also put firms off bidding for major schemes.

“We are already seeing a lack of interest from contractors in remaining HS2 work, with Curzon Street being retendered,” Ms Larkin says. “The main reason is lack of confidence and fear of prices rising. Delays exacerbate this with contractors asked to put a price on a project when they don’t know when it will take place.

“We would always emphasise the importance of delivering large infrastructure projects simply because we have such a history of not doing so and we need one that can demonstrate how the industry can work.”

Mr Southwell agrees. “A commitment to progressing vital infrastructure projects like HS2 is critical for the UK’s competitiveness,” he says.

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