Cost-plus contracts blamed for 90% of hikes

Gardiner & Theobald (G&T) has been brought in by HS2 Ltd to figure out why costs on the job have risen so much since 2019. 

The cost consultant has been awarded a £490,000 contract to conduct a commercial review of main works civils contracts (MWCC) on the first, and now only, phase of the high-speed rail project. 

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Sir Jon Thompson giving evidence to the public accounts committee earlier this month

HS2’s latest forecast of costs showed the MWCC element had risen by £6.1bn in prices, with the final costs now anticipated to be between £21.8bn and £23.4bn. 

Incoming executive chairman Sir Jon Thompson recently said that 89% of the cost increase from 2020 till now was down to cost-plus MWCC contracts alone. 

Building understands the review will include looking at existing contractual arrangements, which HS2’s executive chair has blamed for 89% of cost increases from 2020. 

Sir Jon Thompson told MPs at a recent public accounts committee hearing: “The government decision to let a cost-plus contract where there are very few incentives or penalties around them, does not provide me with any real levers on those contractors to do better in relation to schedule and costs, because they receive a marginal reduction in their fee.

“If they spend 100% more than what was originally agreed, they only get a 1% reduction in their fee.”    

The contract with G&T is for an initial six months, with an option to extend by up to a further six months. 

A spokesperson for HS2 Ltd said: “This is a project of unprecedented scale and complexity.  

“Rising costs were caused by multiple factors including delays in planning and environmental consents, programme scope changes, and supply chain pressures linked to the pandemic and Ukraine war.  

“With hindsight, estimations made prior to full construction by the government and HS2 Ltd were overly optimistic and delivery performance did not fully match expectations.  

“HS2 Ltd, under the new leadership of Sir Jon Thompson, is committed to learning lessons of the last few years and controlling costs.”