Chancellor starts HS2 procurement with offer to the Chinese

Chancellor George Osborne was urged to clarify whether he wants money, or skills or both from Chinese as he launched the HS2 procurement process in Chengdu. Construction of Phase One of the £50bn project between London and Birmingham is due to start in 2017.

Osborne has announced that seven HS2 civils contracts worth £11.8bn would be “opened up” to bidders including those from China at an event which Government said was “aimed at wooing some of China’s biggest investors to be part of the project” along with other schemes, many in the Northern Powerhouse.

"If the UK Government’s thinking is about encouraging finance from Chinese investors then it may be helpful to see more clarity and detail as to the timing and forming such an opportunity might take” - Jon Hart, Pinsent Masons

He revealed plans for a new HS2 partnering day between British and Chinese firms to explore joining up on bids for contracts and invited Chinese “participation” in the HS2 skills college which is due to open in 2017.

ICE and the China International Contractors Association have also signed a deal which will see employees from Chinese and UK companies take part in a special exchange scheme, to develop new skills and insight into each country’s infrastructure development. Mott MacDonald will be the first UK company to participate with an employee from the China Railway Construction Company (CRCC) joining its Manchester office next month for a three month placement.

“A skills-swap programme would allow the UK to benefit from China’s expertise as a world leader on high speed rail and help Chinese investors better understand the UK market,” Government said.

However the announcements do not make completely clear the type of the involvement in HS2 that the Chancellor is hoping for from the Chinese.

"If the UK Government’s thinking is about encouraging finance from Chinese investors then it may be helpful to see more clarity and detail as to the timing and forming such an opportunity might take,” said Pinsent Masons infrastructure partner Jon Hart.

"However, if this is a reference to participation in the construction works, then clearly for Chinese contractors there will be a need to prepare and be ready to address the particular legal requirements of the tendering process,” he said.

"The process for pre-qualifying bidders to build the first enabling works packages is due to begin imminently and so far, there has been relatively limited public pronouncements either from HS2 Ltd or the Treasury as to the long-term funding and operation of the railway line.”

Hart pointed out that EU procurement requirements “could be a barrier for the Chinese”.

"HS2 must be built in a way that maximises high-skill jobs and apprenticeships. And it must deliver real benefits to passengers, communities and the environment" -TUC general secretary Frances O’Grady

“And Chinese companies will need complete transparency and certainty when it comes to policy decisions around infrastructure, including the planning process and labour market regulations.”

Get the balance right though and “the next 10 years will be full of opportunities for both UK and Chinese companies, Hart said.

The Chancellor launched the HS2 civils procurement process while travelling on part of China’s vast network of high speed railways.

“This government is committed to rebalancing our economy and building a Northern Powerhouse, and improving transport links and launching HS2 is key to supporting long-term economic growth across the North and Midlands,” he said.

“That’s why I’m here in China today opening the bidding process for construction contracts worth £11.8 billion, which will propel HS2 forward.

“We are truly entering a golden era of cooperation between our two countries, and it’s crucial that businesses and communities from across the UK feel the full benefit of forging closer economic links with China.”

Transport Secretary Patrick McLoughlin said:“The start of the procurement process for these significant contracts is a major step towards construction on HS2 getting underway in two years’ time and a massive opportunity to help rebalance our economy long before the trains start running in 2026.”

HS2 Ltd chief executive Simon Kirby gave some detail on the contracts about to be offered.

“The start of the civil engineering bidding process is a major milestone for HS2 as we continue to move towards the start of construction in 2017,” he said.“Over the next decade, the winners of these contracts will go on to build 230km of bridges, tunnels and earthworks and create thousands of jobs across the construction industry.

Together we will transform intercity rail travel in the UK, build specialist skills and expertise across the country, create at least 2,000 new apprenticeships and build a legacy to inspire the next generation of young engineers.”

Industry welcomed the news of the start of civils bidding.“The debate is over. HS2 has passed the point of no return and is now moving ahead at pace. The news is a huge boost to the industry and with that comes the responsibility to deliver. We are ready, willing and able to do so,” said director of the High Speed Rail Industry Leaders group Mike Napier. 

“This is welcome news for the entire construction sector and the UK as a whole, and we applaud the government’s continued strong commitment to this vital project," said ACE chief executive Nelson Ogunshakin.  "ACE members have been instrumental in the development of this project to ensure its financial and environmental viability, and will hopefully continue have a fundamental role, drawing on recent experiences gained on London 2012, Birmingham New Street Station and Crossrail projects.

But Ogunshakin stressed that the railway should be seen as investment in future skills and export expertise of UK construction firms.

"We would, however, emphasise to the Chancellor, the strategically significant nature of this project and, in his rush to secure foreign investment, he risks undermining the ability of UK firms to benefit from the work," he said. "We must ensure that UK engineering companies do not miss out on what would be an outstanding opportunity to develop the skills of its workforce, increase their expertise, and export what they have learnt to the global market. This will be more difficult to accomplish if a deal was struck to tie foreign investment to the delivery of the project.”

The TUC also warned that building of the railway should be done in a way to benefit the people of the UK.

“HS2 has a key role to play in boosting the construction and rail engineering sectors, narrowing the north-south divide and speeding our economic recovery.It must be built in a way that maximises high-skill jobs and apprenticeships. And HS2 must deliver real benefits to passengers, communities and the environment,” said TUC general secretary Frances O’Grady.

“This is an opportunity that we simply cannot afford to squander. We need more investment in infrastructure on this scale to boost productivity and help UK companies to compete globally." 

HS2 – the bidding process

The launch of the bidding process takes the form of a pre-qualification questionnaire (PQQ) for the ‘Main Civils Works’, ie the surface route and tunnels for phase One. At this stage suppliers will be allowed to express an interest into all seven packages.

Following the PQQ, successful applicants will be invited to bid for a maximum of four packages at tender stage, with a maximum award of up to two contracts per tenderer.

The seven contracts are split over three geographical areas (North, Central, South), along the Phase One route from London to Birmingham. There will also be the option for additional contracts covering the route North of Birmingham, subject to ministerial decisions on this later in the year.

The civil contracts are the first tranche of the Main Works Packages and cover surface routes and tunnels.

‘Tranche 2’ comprises stations, and ‘Tranche 3’ comprises railway systems. These will be launched in 2016 and 2017.

Construction works will commence following Royal Assent of the Phase 1 Hybrid Bill which is currently being considered by Parliament.

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