Home Working and Inflationary Pressures Slowed Down HS2 Project: Watchdog

An HS2 construction worker at Curzon Street station in Birmingham, England, on May 10, 2021. PA

Working from home is slowing down all infrastructure projects in the country, including HS2, an expert in the sector has told the Treasury Committee, adding that the impact of inflation on the costs was also significant.

Speaking about the impact of hybrid working on keeping to deadlines in major infrastructure projects, Nick Smallwood said, “All infrastructure projects are impacted in the design phase if those designers don’t work directly in the office.”

Mr. Smallwood is the chief executive of the Infrastructure and Projects Authority (IPA), a body that consults the Cabinet Office and the Treasury on infrastructure ventures.

Mr. Smallwood said that working from home had affected the delivery of HS2.

“I’ve seen a significant extension of design duration on projects as a result of hybrid working, so where you had designers in one office all working collaboratively together, the durations were pretty normal.

“What we’ve seen post-pandemic is a 9- to 12-month extension of those durations; that translates into cost and delay,” he added.

Last month, Prime Minister Rishi Sunak scrapped the northern leg of HS2 connecting Birmingham and Manchester owing to concerns over the project’s soaring costs.

The government’s decision was met by criticism from political leaders in the north, business groups, and union leaders. Downing Street vowed to redirect £36 billion of funds in new transport projects in the north and the Midlands and across the UK.

Before the second phase of HS2 was cancelled, the Infrastructure and Projects Authority provided the government with advice on the project.

Speaking about his involvement in reviewing the HS2 project, Mr. Smallwood said that the IPA advised the government in 2019, when an estimate of £44.8 billion was tabled to deliver phase one.

“We had concerns about the deliverability consistently,” he told the committee.

Although the IPA was not consulted on the decision to cancel phases 2a and 2b of HS2, it provided advice to the government on the project’s roll-out for years. The IPA reviewed the estimated costs and the programmes “for some time,” Head of Infrastructure Stephen Dance said.

Flashing Red

A three-colour assurance rating system was used to advise on HS2. The system ranged from green to red, where a “red rating” meant that the IPA had no confidence on the cost or schedule of an infrastructure project.

The committee heard that the rating for HS2 phases 2a and 2b remained “red” for the “last 12 months.”

Explaining the reasoning behind the rating, Mr. Smallwood pointed to the impact of hybrid working, working from home, and the significant effect of inflation.

“In one year alone, there was 26 percent material price inflation. We’re now seeing labour inflation cots come through and so the cost premises for the phases will be impacted by those inflationary pressures,” Mr. Smallwood said.

He added that phase 1 of the HS2 project was also “flashing red.” Among the causes are inflationary pressures, designers working from home, and underestimation of the scale of the design work needed to deliver the project.

The cost of phase 1, as estimated by HS2 Ltd. in September, is between £49 billion and £57 billion, at 2019 prices.

On Wednesday, the government said it “disagrees” with this estimation because it was drawn before the decision to cancel phase 2.

Rail minister Huw Merriman added that the Department for Transport had different estimates of the cost risks. The minister is to update Parliament with the revised estimate once it is provided to the department.