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Full speed ahead!: Litigation picks up steam but HS2 contract keeps on rolling

December 2021
Paul Henty, Antony Smith, James Hutchinson and Ellie Eastwood

The Government is set to announce the award of a £2.8 billion train manufacturing project to an Alstom / Hitachi consortium as part of the controversial HS2 project, according to The Times.  The award is likely to go ahead, despite a legal challenge from Siemens, which had tendered unsuccessfully.

Siemens argued that the Alstom / Hitachi bid ought to have been excluded from the contest on the basis that it failed to guarantee the timely delivery of trains or that trains would be fully functional and produced to budget.  Siemens argued that these are minimum standards of the tender process.  Aside from contract set aside, Siemens is also asking the Court for substantial damages.

The reported development would underline the status of rail procurement as a hotbed of litigation and legal scrutiny.  In June 2021, HS2 was required to settle claims from the Spanish contractor, Talgo, in relation to a previous rolling stock contract. Talgo had argued HS2 was in breach of its obligations in relation to the acquisition by Alstom of Bombardier during the procurement process (both were tenderers).

In February 2021, HS2 had to go to Court to defend its decision to exclude CAF for its participation in the extension of the Jerusalem Light Railway into Jewish-only settlements in East Jerusalem (considered an infringement of international law by the UK Government).

Separately in November 2021, the Office of Road and Rail (“ORR”) released its long-awaited study into the UK rail signalling market.  The ORR has concluded that rail projects commissioned by Network Rail (“NR”) are too expensive because of a lack of effective competition in signalling.  That threatens much needed upgrades to fully digitise UK rail infrastructure.  The study documents enormous barriers to the introduction of new signalling technology.  These include sunk costs and lengthy approval processes which new entrants cannot stomach without a guaranteed work pipeline.  The need to interface new solutions with incumbent technology is also a formidable challenge.

The ORR is concerned that Siemens and Alstom enjoy a stranglehold in NR procurements (over both competitors and NR itself!), given their ownership of strategically important interlocking and control technology already embedded into our national railway systems.  The ORR opted not to refer the matter to the Competition and Market Authority, which could have ordered divestments of key technology.  It prefers to seek alterations to NR’s procurement and contract practices, which it considers could open the door to more competition.  For example, obligations for incumbents to co-operate with incoming contractors may be on the cards. The ORR has asked NR to produce an action plan to address these problems by early February 2022.

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