DfT Permanent Secretary Kelly pressed over rising HS2 costs

Department for Transport Permanent Secretary Bernadette Kelly came under scrutiny from the House of Commons Public Accounts Committee at its HS2 spring 2020 update on March 4, regarding when the Department was aware of rising costs on HS2.

Asked by Transport Select Committee Chairman Huw Merriman (invited as a guest to the inquiry) why she told the PAC in May 2019 that the project was coming in on budget and schedule, Kelly responded: “I was actually quite careful in my remarks in 2019. I did not say that the project was coming in on budget and schedule. What I said was that the budget remained at that point £55.7 billion, which it did - it had not been changed.

“I indicated that it would not change other than at the spending review, which at that point we were expecting to have in the autumn. I also highlighted that there were challenges with the scope of choices, and that there were emerging cost pressures. I don’t think I did say at that point that it was on budget and schedule - I was quite careful.”

Pressed on the fact that a breach letter had been sent by HS2 to the DfT in March 2019, but that it was not revealed to the committee, Kelly said: “We didn’t discuss it. I think the questions on HS2 were ancillary to a wider hearing on another subject, so we did not go into detail.

“As I say, I was careful in my remarks. I was acutely conscious in appearing before the committee that those cost pressures did exist, and I was careful in my remarks not to, as it were…”

At this point PAC Chairman Meg Hillier interrupted, saying: “Not to tell us,” to which Kelly responded: “Not to mislead the committee by saying something that would have been factually inaccurate. The budget at that point had not been changed.”

Kelly denied a claim by Sir Geoffrey Clifton-Brown, who asserted: “I put it to you that you had serious knowledge that this project was off track and you didn’t inform the committee.”

She responded: “I did not say that the project was on track. I said that £55.7bn remained the budget, which it was. I think I alluded to the possibility that that parameter would need to be changed in the spending review, which was obviously something that we were contemplating internally at that point.

“Ministers had not determined at that point how they wanted to proceed with this project. Alternatives and options were still being pursued, in good faith I think, to see whether there were choices that could be made to bring the project back within budget around scope, and those decisions had not been concluded.”

Kelly further said the DfT had not understood the scale and complexity of HS2.

Merriman also asked HS2 Chief Executive Mark Thurston what action had been taken to recover from contractor costs overrunning by 83%.

Thurston replied: “We did two things. We supported the Department on the work around scope. We felt there was a lot of opportunity at that time to look at the whole scope of Phase 1, and at where there would be other opportunities to reduce the scope - and hence the cost - to get back to the funding envelope that was agreed in 2017.

“We took more time to work with the contractors. We did a whole series of what we called pilot studies, to really understand the technical requirements and the design that the contractors and designers had put together up to that point, to make sure that what they were designing and pricing was something that we felt was value for money.”