Paul Chapman, managing director, High Speed 1
“The thing is that a rail project of this size is going to have a long timescale and someone is going to be faced with the decision to use proven or unproven technology — there is greater risk in the latter,” says Paul Chapman, managing director of High Speed 1. Chapman was commercial director for construction of the £5.8bn rail route that brought Paris and Brussels half an hour closer to London, and ended at St Pancras, arguably now Europe’s most stylish terminus. For Chapman, the benefits of high-speed travel within Europe have already been proved in practice.
So the decision on whether to build High Speed 2 connecting London to Birmingham and beyond to Manchester and Leeds and on to Scotland, is a no-brainer.
But the burning question is: does the British Isles really need a rail network that runs at the speeds necessary to unify continental Europe, and if we do, how do we get a handle on the costs of such an endeavour and manage procurement and delivery to ensure that we stay within the budget constraints?
Having delivered HS1 on time and to budget, Chapman, who is now leaving the company to set up his own sustainability firm, is the perfect man to put these questions to.
For HS1, Chapman’s only consideration for procurement was finding the most cost-effective and optimal methodologies of delivering it — a fact not lost on HS2, which is currently analysing HS1’s programme and costs to see what lessons might be learned if the new high speed route goes ahead.
Chapman suggests an important lesson has already sunk in. “For some reason we’ve never been that good at knowledge transfer, but I think that culture is really changing,” he says. “But I think it’s telling that the people who delivered HS1, like John Armitt, CE at Union Railways, have now moved on to take up Olympic delivery roles. It suggests that we’re finally recycling knowledge in new applications, without having to rethink the actual delivery mechanisms.”
It also suggests that in terms of risk management, which he puts at the core of everything, Chapman sees no difference between building an Olympic venue and building a railway. “In fact, in real construction terms, HS1 is really no different to a road,” he says. “Both involve earthworks, cut and fill and tunnelling, the same basic engineering processes.
For HS1 we built more roads, cuttings, viaducts and bridges than we installed rails, so we found that the best approach was to keep the complexity of the rail construction within specific packages, and so keep the general civils packages accessible to the wider market, and therefore more competitive in cost terms.”
That meant that the specification of the specialist TVM 430 in-cab signalling, for instance, would never interfere unduly with a general works package. Chapman also emphasises that risk mitigation was also about optimising the size and scope of various packages — “too big and you might overextend the organisation and force joint ventures, thus reducing competitiveness; too small would mean multiple interfaces, with every interface adding risk”, he adds.
The contract was also crucial to the success of HS1. “The NEC2 contract allowed for a ‘target cost’ arrangement which allowed us to transfer risk to the private companies that were signed up to it,” he says. It meant that cost over-runs or under-runs were split in pre-agreed proportions between the client and contractor. This transferred and reduced the risk at the front line of the project and created incentives for the team to meet the target cost.
“It meant that when the inevitable changes happened, the Department for Transport as the client could still maintain control of the project and act in a decision-making capacity — it just meant the re-scoping of the packages,” he explains. But the fact remained that everything was targeted to reduce the exposure of any project partner to unnecessary risk levels.
But for Stuart Westgate, KPMG’s director of major projects advisory, the notion of risk goes back to the very concept of the route itself. Regarding the viability of the Rail Package 2, the HS2 commissioned theoretical appraisal for an upgraded West Coast Main Line — posited as a “stress scenario” to prove the case for HS2, but which is now being used by anti-high speed rail lobby groups as a stick to beat them with (see box below). Westgate questions whether, in fact, the low £2bn upgrade costs of the line are realistic.
The problem is that the line would have to stay in use, and this has implications in terms of cost. Last year’s McNulty Review on Value for Money on Rail revealed that the maintenance of the UK’s railways was regularly coming in at 30%-50% higher than our European counterparts — due to the fact that there was an assumption that works should be done without disruption to rail lines, making maintenance absolutely time-critical and therefore costed at a premium.
“The rail industry has learned that the complexity of working on an operational rail network is enormous, as working within defined constraints, costs go up accordingly,” Westgate remarks. “From a delivery point of view, a new rail link would bring the opportunity to undertake works in a lower risk way. Strategically as a country, to reduce risk, get more cost efficiency and certainty in delivery, we need to plan our long-term infrastructure enhancements.”
Westgate argues that with contractors in full control of sites, with a well-defined scope of works and with supply chains fully geared-up, efficiencies increase and cost targets can be met without the contingency needed for upgrading the existing network.
Westgate also believes that an upgrade is merely pushing the need for a high-speed track further down the line. His concern is that with “a strategy of incremental capacity improvements, we are approaching the point of diminishing returns, as the more we exploit the spare capacity, the less resilient it becomes”. He also argues that the risks associated with a piecemeal upgrade to the network would have cost implications as there will be a “premium to pay to have contractors dancing around an ever-changing scope”.
Of course, this argument simply does not wash with the anti-HS2 lobby, who are not convinced by the “favourable” risk arguments for a project that they feel is just a facesaver for the U-turn on the third runway at Heathrow, and which should not be going ahead in the first place.
On top of the political arguments, there are practical considerations to be discussed, such as the signalling equipment to be used. Chapman admits that with HS1, it was high tech items like the signalling package for the trains that proved to be most difficult. “We ended up adopting a package that used both the European TVM430 system and KVB, which was specific to the UK ‘Classic Network’,” he explains. ”So the signalling approach was experimental and compromised from the outset, and hence proved to be problematic. HS2 will have to deal with the same signalling decisions.” Chapman thinks it will be the proven technology of the TVM430 system — an assertion that KPMG’s Westgate agrees with, saying: “Whilst there might be a revolution in signalling technology by 2026, they should only be embraced if proven. For projects of this scale, no-one should be looking to untried technologies.”
Strangely, the HS2 Action Alliance view for RP2 is that the East Coast and West Coast Main Lines should adopt the ERTMS (European Rail Traffic Management System), a pan-European signalling approach, currently in development, saying that “HS1’s was a first-generation version of the system”.
Of course, the greatest unknown and unquantifiable risk is the economic benefits HS2 would bring to the UK as a whole, and here interested parties fall firmly on either side of the tracks. The Atkins report that inadvertently highlighted the RP2 scenario claimed a net benefit ratio of £3.63 for every £1 of the £2bn public subsidy invested, against HS2’s £2.40 over its £12bn. In real terms, that’s a return of £7.26bn against nearly £30bn, but look at the initial investment.
Paul Chapman is no gambling man, but even he would admit that there is no profit without risk — and for UK plc, it looks like HS2 could yet turn out to be the country’s million dollar question.
The ongoing public consultation organised by HS2, the company set up by government in early 2009 to advise on the development of a £32bn high-speed route between London and Scotland, closes at the end of July, and is now trying to build support for the proposal.
The route, intended to be operational by 2026, would shave half an hour off the journey time from London to Birmingham, and an hour off times to Leeds, Manchester, and on to Scotland.
According to the secretary of state for transport, Philip Hammond, the new route will deliver £44bn of economic benefits to the UK, and generate £27bn of revenues. But high-speed routes are predominantly straight ones and this fact means part of HS2’s initial 200km Phase 1 stretch running through the Chiltern Hills in what is likely to become the epicentre of a huge planning battle.
In addition, there is support for an upgrade to the West Coast Main Line, known as Rail Package 2 (RP2), which, it is claimed, will meet passenger demand without the environmental consequences.
February 2011 Launch of the main high speed rail consultation.
End of July 2011 Consultation ends.
End 2011 Secretary of state to decide on whether to proceed with high-speed rail or not and, if so, on the line of route between London and the West Midlands.
If yes, the following steps would follow:
Early 2012 Launch of a consultation on safeguarding and additional support arrangements.
Summer 2012 Safeguarding directions, statutory blight provisions and additional support arrangements take effect.
Spring 2013 Consultation on Environmental Statement based on the environmental impact assessment (EIA) process.
2015 Target date for Royal Assent for hybrid Bill containing legal powers to construct HS2.
2017-2025 Construction starts and ends at different times at different points along the route.
2024-2026 Commissioning and testing.
End 2025/Early 2026 Line opens to passengers.
Hilary Wharf and Bruce Weston, rail consultants and directors of the HS2 Action Alliance, strong opponents of the high speed link, believe there is no need to relay track through virgin countryside and purchase untried signalling systems, when the issue is really about rolling stock solutions and addressing seven “pinch points” on the West Coast Main Line.
For them HS2’s £30bn cost makes huge assumptions about the work hours lost while in transit and contains construction risk premiums that simply have no validity or justification if passenger capacity projections to 2043 are correctly analysed. Part of this expense — the projected eight-year complete tear-down and rebuild of Euston station, including new platforms that will be 3m lower than current levels — Wharf describes as “open heart surgery on a conscious patient”.
Wharf and Weston also refute Philip Hammond’s assertion that RP2 could only ever deliver 54% more capacity, saying that with the lengthening of Pendolino trains to 12 carriages giving an increased proportion of these over as standard class carriages, the West Coast Main Line can deliver 151% capacity to 2026 and 102% to 2043, compared to the 2008 capacity baseline. Furthermore, they argue that the government has manipulated RP2’s “optimisation bias”, or the project “risk factor”, so that it compares unfavourably with the HS2 proposal.
“It’s effectively a risk contingency sum that has to be factored in to a project costing,’ says Wharf. “But it actually ranges from 41%, where everything about the project is an unknown, such as is the case with HS2, to 0%, which is an evidence-based surmising. The DfT have attributed the 41% optimisation bias to both scenarios, but we would argue that with RP2 you have an existing line with the same trains, the same tracks, the same power source and the same operating costs, so we’re not quite sure what unknowns Hammond is factoring in.”