Q101 Chair: How much?
Michael Hurn: If I can explain, overall we have a project within the Thameslink programme called key output 2, which is the whole London Bridge works. It is not purely the station; it is the approaches to the station in terms of track and infrastructure, some power supply works elsewhere and the provision of some stabling for the trains. All of that, taken together, had a £600 million overrun, and we worked very hard with the rail industry to say, "Look, that cannot be tolerated. There is no more money for this project. We want to have the same functionality, with 24 trains an hour through the centre of London, by the end date of December 2018. Go away and work out a scope that delivers that." We were utterly ruthless across the rail industry to get back within budget. We made significant savings in the area of stabling. We also looked at London Bridge station itself. There was a lot of work beforehand to think about an overhead development, which made a lot of the engineering more complex. We stripped all of that out and got rid of the overhead development.
Q102 Chair: That is all in the Report. It is very interesting, but it is all in the Report, which we have read. I really want to get from you what the financial saving was from that changed plan for London Bridge. The figure was about what?
Michael Hurn: I need to go away to double-check, but, broadly, the figure was about £100 million.
Q103 Chair: The reason I ask is because, according to the Report, you will lose £0.9 billion.
Geraldine Barker: I would just refer you to paragraph 2.13, which states that the plans for London Bridge were revised and developed but that the cost is still more expensive than anticipated in 2007.
Q104 Chair: But you are losing £0.9 billion in lost revenue.
Michael Hurn: Yes, but that was mostly the overhead development and retail.
Q105 Chair: Is that a sensible decision? I can understand how you got to the decision-you get to the decision because you have a cash limit, so you have to chop something-but you then lose revenue over time, and I do not know how you get to the £0.9 billion. The Report somewhere states that £0.9 billion-everyone is looking puzzled, but I got it from the Report-will be lost in revenue because presumably it is less attractive so fewer people will come to shop there.
David Higgins: Can I answer that one? The £0.9 billion figure is more theoretical, because it involved a heavy high-rise structure with a podium area above the station itself. Since then, of course, the Shard has been developed on leased Government land. To put more high-rise and heavy structure above London Bridge would mean extensive piling, and the only way to do that is to shut and demolish. Some of the biggest things that had to be resolved in London Bridge were in the construction sequencing. Money was saved by being able to extend the programme a bit and progressively demolish the station from the Guy's hospital side across. The idea that you could shut the station, demolish large parts of it and pile very heavily to build a superstructure above it is unrealistic. I do not think anyone could have afforded to shut London Bridge for the time it would have taken to do that.
Q106 Guto Bebb: I apologise for missing half an hour, but I had to attend a Delegated Legislation Committee. I would rather have been here, to be perfectly honest.
I want to go back to the benefit-cost ratio, which the analysis says is 1.4:1. When asked by the Chair whether there is an example of something better, you mentioned HS2, but are there examples of actual projects that have been delivered that you would have scored at a higher level than 1.4:1?
Philip Rutnam: I think Crossrail has a higher benefit-cost ratio than 1.4:1, for example.
Q107 Guto Bebb: But Crossrail will primarily be looking at like-for-like, because it will be looking at commuters, rather than business travellers.
Philip Rutnam: It will principally be commuters, but with some business travellers and some leisure, too.
Q108 Guto Bebb: Just a quick question on those ratios. When a project is actually implemented, do you go back to check whether the delivery is providing the value that was anticipated?
Philip Rutnam: At each point where we are facing a major decision in the project, the ratio is recalculated-that is discussed in the Report-on the basis of both leaving out costs already incurred and sunk costs, so that you are looking only at the future cost to be incurred, to make sure that the decision makes sense, and also adding sunk costs back in. We do that when we come up to key decision points during a project.
Then, when a project has been completed, we should do an evaluation. There is a question about when exactly is the right point to do an evaluation. In fact, I think that when I came to see you to talk about High Speed 1, we talked about the need to do an evaluation of HS1. Since I have been to see you, we have developed our evaluation programme and methodology. We have a programme of evaluations, which is still being developed. You should do evaluations on key projects and programmes. It is not going to be realistic to do every project, but you do need to do a representative group of them, in particular to pick out the most important ones. That is a part of the Department's approach. Putting it into practice is always a challenge, but it is a part of the approach.
Q109 Chair: Amyas, do you have a question?
Amyas Morse: Can I just check something about the last little bit of discussion about the London Bridge decision? By the way, I, too, can perfectly well see why you made the decision. My understanding is that you decided to change the development pathway in London Bridge around 2010. Is that about right?
Michael Hurn: That is correct.
Amyas Morse: I was listening to Mr Higgins' comments about how this did not make sense and that we have been deep-piling and all that stuff. Surely you knew all that beforehand? I am just trying to distinguish between what I would describe as perfectly understandable, agile and ad hoc decision making, and presenting it as being all part of a deep-laid plan. This was, to my mind, an understandable and appropriate adjustment in-course because of the pressures that you were under on the programme; that is right.
Michael Hurn: Can I also use the opportunity to clarify that the savings that I mentioned about London Bridge were mostly about the track around it? Forgive me if I inadvertently misled anyone.
In terms of your question, going right back to the beginning here, we did underestimate the work at London Bridge as a rail industry; there is no question about that. Using the lessons that we learned in the first phase of the project, we have applied better planning of the scope and, importantly, how we are going to build it. It is a major operation to get London Bridge built. That all came out of the 2010 review. At the same time, we had the cost overrun of around £600 million. But there were a lot of things going on during that period, and we have reset that element of the project much better as a result of it.
Amyas Morse: I am really not arguing; I am just trying to elucidate. May I ask one more thing? I just wanted to visit another bit of testimony that we had earlier on. When you were asked about the size of your team, you said, "Well, but it's not so much the size of the team; it's what you get out of it"-things like that; skills and everything. But isn't it fair to say that when you described things not being done earlier and the speed of the response, your team must have been under enormous pressure at such a size? When you were looking at method, you underestimated the PFI-I am not blaming you; I am just drawing out what you said-and here we have the complexity of the project. Isn't it true that you must have been operating at the limit of the size that was viable for a team like this? Is that a fair comment?
Michael Hurn: As I mentioned before, it is not just that. I do not see it as just that team of five people.
Amyas Morse: I appreciate that, but what I would like you to do is to tell me about the size of the core team. You have talked about all the extension. I am not denying that; I am just trying to understand. I think there is a wider question about how much pressure your specialist teams are under in the Department. I listened to everything you said about empty posts and everything else, but none the less, being run on a five-person core team, does that not put you under great pressure if anything happens that is not according to plan?
Michael Hurn: My answer to you is that having a small core team you
have to plan very carefully ahead and use your resources very ruthlessly, by focusing on the big picture and the most strategic issues affecting the project, and by delegating to others as much as you can the smooth running and delivery of the project; not just within a Department but, as I mentioned, to all my other delivery partners. However, it requires iron discipline for thinking ahead and planning ahead, and being of that mindset. Having small, highly-focused teams actually has a number of advantages, because they give you that mindset. Clearly, however, there is a resilience issue, which you rightly raise, and having the right balance there is my answer to you.
Q110 Chair: You had a "Mr EC Harris" helping you. Who is he?
Michael Hurn: EC Harris is a quantity surveying company, which has provided assurance to us-the Department for Transport-of Network Rail's costs of the infrastructure. We have used the company particularly to look at the cost estimates of Network Rail for the second phase of the project-key output 2-and especially for London Bridge. So it has taken Network Rail's estimates, which have been verified by its own quantity surveyors, and we have used it as our quantity surveyor to double-check that the estimates are robust and accurate.
Using that information, we can then sense check the extent to which Network Rail's costs are deliverable for the programme as a whole. It has been part of our assurance process for agreeing a target cost with Network Rail for the second element of the programme, which folds the first phase target cost into an overall target cost for the whole programme. In essence, EC Harris is a quantity surveying company that provides a cost assurance to us as a Department.