This document proposes delivering HS2 for £39 billion by establishing a guaranteed maximum price and using innovative project delivery methods. It involves sharing risks and potential savings between the project team and government. The project team would keep 50% of any savings from the guaranteed maximum price. Half of these savings would fund investments like a legacy trust fund, while the other half would go to third parties. The proposal aims to complete the project within 6 years using lean management practices and a capped workforce.

1. 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

2. Delivering HS2 for £39.0 bn
By Guaranteed Maximum Price (GMP)
within 6 years for
Routes - £33.0 bn
Trains - £6.0 bn

3. 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

4. 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
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.

5. 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.

6. 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).

7. 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)

8. 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)

9. 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

10. 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

11. 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

12. Solution
 A once in a lifetime project, that
deserves a once in a life time solution

© Patrick Heenan 18th
September 2013