What happens next if the UK government cancels or curtails HS2?

(This article was first published by IG – Infrastructure Global 2022.)

As the UK government prepares big spending cuts to deal with its economic crisis, Beale and Co chairman Antony Smith considers what might happen if HS2 is cancelled or scaled back.

Whilst none of us want to believe that the UK’s major rail project HS2 will be cancelled, none of us thought that Brexit would happen either! The implications for the construction industry of cancelling the project, or even just part of it, are immense. HS2 has a projected budget of up to £71bn and the project could eventually employ more than 100,000 people.

Once companies have recovered from the shock of any such decision to cancel or severely curtail HS2, the first question they will consider is the impact on their businesses and in particular their staff. All businesses today care for their people and looking after them and the mental anguish will be of prime importance. Employee retention and the redeployment of a huge number of staff and resources will all need to be dealt with should the UK government decide to halt HS2 when it issues its long-awaited financial announcements on Thursday 17 November 2022.

There will then be a period of real anger at the UK government for taking the decision if it decides to go down that road. Wise heads will no doubt get together and begin lobbying government to reverse the decision. In the UK, we have already seen this year how quickly governments change and change their minds – and indeed their senior ministers. That lobbying should be organised coordinated and as loud as possible.

All businesses involved in HS2 will take legal advice as to what they can recover under their contracts as a result of any termination. Indeed, the first question will be “Can they do this”? Some form of judicial review will undoubtedly be considered.

However, at some stage companies will have to accept that the project is over. At that stage they will need to consider their individual contracts and the remedies available to them. In particular: –

• It is common for HS2 contracts to include wide rights to terminate with limited right of recourse so there will inevitably be irrecoverable demobilisation costs and loss of profit following termination.
• Many contracts on the project include complex pain/gain mechanisms and incentivisation regime which will need to be reviewed carefully. Many depend on project completion for sums to become payable.
• A number of HS2 contracts concern multi-party joint ventures so the impact of termination on the joint venture will need to be considered, such as how any funds will be distributed and whether the joint venture should/can now be wound up.

Each company will need to look at their own contract and work out their own strategy. However there could be strength in numbers. In the past group actions have been considered when large infrastructure projects have been cancelled. An industry and business action group could provide strength to all those involved in seeking redress from the government as a result of any such decision. Of course, care would need to be taken as to setting up any such group.

Let us all hope this will not be necessary, but in 2022 nothing can be taken for granted. So, it’s probably wise to prepare for the worst and be thinking about what to do if the UK chancellor of the exchequer announces the cancellation of HS2 on Thursday 17 November 2022.