Delivering HS2 for £39.0 bn

Presentation by

Heenan Build and Property Ltd

Author: Patrick Heenan MSc

Twitter: @heenan_build

E-mail: heenanbuild@gmail.com

Tel: 07534057561

© Copyright: P.Heenan September 2013

Delivering HS2 for £39.0 bn

By Guaranteed Maximum Price (GMP)

within 6 years for

Routes - £33.0 bn

Trains - £6.0 bn

Guaranteed Maximum Price

Achieved by innovative project delivery methods (not railway traditional);

Shared risk between project team and government; e.g. design & ground conditions

Project team keeps 50% of any savings from the GMP;

Third Parties get other 50% of savings Using lean management and contracted

labour with required construction skills

Innovative Project Delivery

Contracts of engagement – not contracts of employment to sign up to a GMP;

Capped management structure (100 people) Maximum work force size (1,000) Flexibility of Terms of Engagement – e.g. staff

can working in other roles e.g. at weekends Target Price practices used for procurement

of track components, equipment and parts in advance orders and delivery schedules.

50% of saving to Third Parties

50% as a Legacy Trust Fund investment managed by a Fund Manager;

3rd Party Trust Fund can compensate for future (Legacy or inheritance losses)

Includes if future privatisation - allocation of 10% shares split to project team & 3rd parties

£1.0 bn kept from the shared fund to invest in the power stations (by renewables) or newly operational line, or franchise.

E.g. 50% of savings and its use

Procurement Target Costs can be set by the Project e.g. to total £35 bn so that £4.0bn of GMP is saved

On completion, e.g. savings of £2bn shared between project participants e.g.£100k towards a property purchase; £250k towards a personal pension and not less than £100k in final bonus. (Costs: £495m lowest)

Project participants are workers and management teams. (Max 1100 x £450k = £495m).

Balance of savings put into Trust Fund that pays annually to participants. (e.g. £1.505 bn investment).

Shared risks – ground & design

Government takes risk of unforeseen ground conditions; over and above normal design;

Government underwriting of additional costs for design and extra construction for above

Project agreement that underwriting costs are not part of delivery costs for GMP.

Extra over design as above – not part of GMP Designers appointed by project team Safety and design integrated (e.g. CDM)

Project Cash flows

Tax and National Insurance set at 35% back to HMRC (no self employed persons)

VAT set at 20% for the project duration Yields maximised by innovative procurement Added features – e.g trackside ducting to

lease out to others Option of 2 new renewable power stations

constructed to part supply the route and sell power to others (or use future shale gas)

Future costs recovery (on completion)

Plant and machinery sold off – with first refusal to potential maintainer

Income from stamp duty; VAT and taxes from Trust Funds

Lease out of trackside ducts Revenues from maintainer employments and

business operations Income from sale of surplus electricity Franchising of train operations Part future privatisation of infrastructure

Summary

Innovative project and procurement methods within target costs for a GMP.

Pre-ordering and pre-pricing of materials, track and P-way and fixed cost resourcing

Savings from the GMP are shared between project delivery partners and third parties

5 year delivery programme, with a 6th year for contingency and commissioning

‘NASA like’ mission control systems and delivery programme in a ‘Dunkirk’ spirit

Franchising – points to consider

If value of the franchise set at a 45-year repayment life-span

£867 million franchise costs pa recovered by Capacity of 40,000 passengers per day at

£60 per one way journey – on average £2,375,343 daily target by £85 return journey

costs (28,000 daily passengers) £40 off peak return; £35 on Sundays return Other assets not considered for franchising

i.e. ducting and power stations for operator

Solution

A once in a lifetime project, that deserves a once in a life time solution

© Patrick Heenan 18th September 2013