The Department for Transport this month delivered yet more humiliating news on the HS2 railway, the high-speed rail project that first broke ground in 2011. Transport Secretary Heidi Alexander explained to the House of Commons that completion of the line, now reduced to a single route between London and Birmingham, can cost between £87.7bn and £102.7bn, against an original 2012 estimate of around £33bn.
The first trains are announced not to run until, at the earliest, 2036, and full operation has fallen somewhere between 2040 and 2043, with no confirmation given that deadlines may not change further. In the interests of saving money, the high-speed trains will be slower, at only 320km/h, rather than the originally promised 360km/h.
As previous Canary coverage of Britain’s outsourcing state has set out, the temptation is to read this as a story about incompetence. To do so presumes good intentions frustrated by bad management, when the truth is that this outcome was written into the structure of the project from the beginning through the infrastructure contracts themselves.
The contract model
The story of HS2 has been one of continuous failure, and a key demonstration of the incapacity of the modern British state to execute large-scale infrastructure under the immense weight of its immobile bureaucratic machinery. Contrary to endless ministerial briefings about complex engineering challenges, Britain has not forgotten how to build railways.
As Mark Wild – the chief executive of HS2 Ltd brought in to reset the project – set out in his assessment to the Transport Secretary, the contracts operate on a ‘cost-plus’ basis, whereby contractors were paid whatever they spent with little penalty for overshooting. The Institution of Civil Engineers described the resulting arrangement as an “imbalance of power” tilted toward the construction firms. The Guardian‘s financial editor put it more plainly, noting that the companies:
rang rings around the department and its arm’s-length body.
Almost the entire long-term downside risk sat with HS2 Ltd, the public body, rather than with the firms responsible for delivery.
The consequences naturally followed from that design. Freed from the risk of their own overruns, contractors chased short-term construction schedules and juggled multiple contracts at once, in tandem with engineering problems and unforeseen difficulties that were billed back to the public. Concrete was poured and tunnels were dug before planning consent would be secured and blueprints finalised, forcing mid-construction redesign to adhere to local regulations, halting work and leaving expensive plant and labour idle.
There was, in short, no party to the contract with both the power and the reason to keep costs down. The public had the reason but not the power; the contractors had the power but not the reason.
The State as a conduit
HS2 is only the largest example of a much broader pattern. It is the clearest available illustration of a model that has governed British infrastructure since the 1990s, under which an asset-deprived state exists to funnel public funds into the hands of private capital for the continuation of fickle-profit margins, thereby absorbing risks and reaping the rewards.
Where the state nationalises, the form of nationalisation is such that it rarely means the public taking command of an asset and running it in the public interest. Rather, it means the public takes the liabilities, debts and long-term risks, while day-to-day operations, and the profit that flows from them, remains contracted to private firms.
The same logic recurs across the public sector. The railways, even after nominal return to public ownership, still run on private operators, private maintenance firms and rolling stock leased from private financiers, with the state underwriting the structure and absorbing the losses. The PFI deals struck under New Labour saddled the NHS with decades of repayments for hospitals, which it will end up paying several times over, long after the firms that built them banked the return. However the arrangement is dressed up, from one part of the public realm to the next, it works to the same end: sparing private firms the consequences of their own failures and socialising the costs to the people that fund them.
Allegations of outright fraud now hang over the HS2 supply chain. HS2 Ltd has referred a subcontractor to HMRC over claims that workers were misclassified and inflated rates charged. But the fraud, real as it may be, is the smaller scandal. The larger one is entirely legal, and describes a state that has stripped itself of the capacity to be the prime mover of the economy, contracting its capacity to build to the private sector at a price it cannot negotiate.
More workable models exist
Workable models have been shown to exist. France’s maîtrise d’ouvrage tradition keeps the public legally in command of its own projects and Italy’s contratto di rete binds multiple firms into a single transparent framework with shared risks and obligations. The barrier has never been knowing how to do this differently; it is that too many powerful people have grown comfortable with it being done badly.
The same financial logic that made HS2 a vehicle for private extraction and criminal enterprise is hardwired into the basic operation of the state. Any government that seriously proposed a plan to claw back public control over money, to build through capable public bodies rather than rent that capacity back from the market, would be met by a run on the pound, a spike in gilt yields and a familiar invocation of the spectre of Liz Truss.
The country deserves a full accounting of where the money has gone. That means a thorough investigation into the nature of HS2 contracts, the naming and holding to account of the politicians and contractors responsible, and an argument the political class has so far refused to have – namely, the wholesale overhaul of UK public contract law toward a system that is fair, transparent and flexible.
Featured image via Christopher Furlong/Getty Images
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