Tunnel contracting in the UK 20 Jul 2017

Procurement of construction for recent major tunnelling projects in the UK bears some interesting review and comparison, particularly at this time when the UK is negotiating its exit from the European Union. On all projects, EU contractors and consulting engineers are important contributors to the works and to their progress and success. The same is not the case for UK companies on major tunnelling works in other EU countries.

The review begins with awards this week of the estimated £6.6 billion construction contracts for Phase 1 of the multi-billion HS2 high speed railway project linking London with Birmingham.

The HS2 awards bring surprise on several levels. First is the grouping of the awards. In the procurement strategy set by HS2, JVs could bid up to four of the construction packages but could be awarded two as a maximum. Following this strategy through, nine bidders presented proposals for seven civil construction contract packages. Of these, four groups have been successful with three taking two construction packages each. The two south area packages at the London end have been awarded to the same JV as has the two north area packages at the Birmingham end and two of the three central area packages.

With each of the packages valued at close to £1 billion, that is about £2 billion in heavy civil tunnelling and construction work for each of three JVs. These are significant procurement responsibilities for the three JVs and will be the largest contract awards to single JVs on recent tunnelling project. The largest award to a single contractor on Crossrail was in the order of £1 billion maximum.

Grouping pairs of contracts in the alignment into single JV awards does eliminate three significant contract interfaces, reducing six separate contract interfaces to three. Reducing contract interfaces can be considered an procurement advantage objective as contract interfaces are often the source of project management difficulties, delays and cost increases.

The awards of the HS2 contracts to the four groups results in significant wins for French JV partners at the cost of the Spanish based JVs which have had significant success in previous UK tunnelling projects. Spanish based JVs failed to secure a single package on the HS2 projects (Table 1) where they were part of JVs that completed the largest of the underground civil works for the Crossrail project in London (Table 2). Spanish contractors have been successful on other major tunnelling projects in London including the Thames Tideway project (Table 3) and the Northern Line Extension (Table 4) and the Bank Station upgrade (Table 5) for the London Underground.

A review of the successful JVs also favours groups with large UK involvement. These include UK construction companies Carillion and Sir Robert McAlpine, which have be missing from recent major tunnelling projects. Re-entering the tunnelling business will require these companies to re-establish tunnelling expertise and teams. Tarmac, which became Carillion (along with Wimpey Construction, Cubitts and Mitchell Construction), and Sir Robert McAlpine last saw major tunnel construction work on the UK side of the Channel Tunnel in the late 1980s-early 1990s. They have been involved in civil building projects (hospitals, highrise buildings, stadia and concert halls) and house building in the meantime.

News just days before announcement of the HS2 contract awards, that Carillion is in financial difficultly, reporting a borrowing debt for the first half of 2017 of £695m, a dramatic fall in its FTSE share price and the resignation of its Chairman, did not deter follow through with award of the HS2 contracts. It maybe that the decision to award the contracts was decided and confirmed with HS2 before news of the Carillion financial difficulties and profit warning came to the attention of the London Stock Exchange and financial newspapers. Should the financial status of Carillion worsen during the HS2 contracts its French and UK JV partners Eiffage Genie Civil SA and Kier Infrastructure will have to step in an carry on.

In looking at the JVs, it is not know the percentage share of responsibility for each of the partners. It could be assumed that all are equal share partners in the different JVs but often the JV leader, with a majority share over other partners, is listed first, putting Carillion in the leading position. Another first named UK company in a JV is Balfour Beatty with different companies of the Vinci group of France. Balfour Beatty too has had financial difficulties and in 2014 had to sell its Parsons Brinckerhoff acquisition to raise much needed capital.

One suggested reflection on the result of the HS2 award is that Brixit may have influenced decision making, favouring those JVs with significant UK involvement over those bidders with minor UK partners. The Dragados Hochtief JV (both group companies of the Spanish giant construction conglomerate ACE) was heavily EU based. Other unsuccessful bidders on the HS2 list, together with Dragados and Hochtief, also set aside their major contributions to the Crossrail project.

A final note on the Brexit link is that while large EU companies are working on tunnelling projects in the UK, there is very little involvement of EU companies working on projects in other EU countries. For example, we reported last week on the major expansion investment of the Paris Metro in France but there is not one non-French company included in the civil tunnel construction contract awards list (Table 6). The same can be said for major tunnelling projects in Germany and Spain and Italy and Austria – only national construction companies involved.

One possible cause of the situation in the UK is what is described as the ‘saw tooth curve’ of investment in civil infrastructure to date with investment in tunnelling projects on a start and stop cycle. This is illustrated in history from the Channel Tunnel Project through to the present. After the Channel Tunnel, there was no major project until the Heathrow Piccadilly Line extension. When then ended, it was years again before start of the Heathrow Express Rail Line and the Underground Jubilee Line Extension. Another hiatus then (with the damaging knock on affects of the Heathrow Express tunnel project collapse), before start of the Channel Tunnel Rail Link project. After each project, with no immediate follow on tunnel project, the experienced teams dispersed with the recruiting process starting again from scratch for the next project.

As well as having lost much of its domestic tunnelling expertise, the UK tunnelling industry has also lost of its traditional training and recruiting ground - the long since closed down coal mining industry. The mining industry of yester year trained new underground labour recruits and provided employment for tunnelling workers when civil tunnelling was scarce. These are no longer available to the UK tunnelling industry, which is now relying on training academies to train new underground industry workers.

It has been the ability of EU educated engineers to move freely among EU member nations that has staffed consulting engineering firms and tunnel construction companies in the UK. Attending a BTS meeting at the Institution of Civil Engineers in London on a third Thursday of every month is a gauge on the number of young engineers working in the UK from EU and other foreign countries including India and countries of the Middle East.

How leaving the EU will impact on HS2 as the first major tunnelling project to straddle Brexit and the UK leaving of the EU in March 2019 is yet to be seen and will be the subject of a new Discussion Forum article.

Have your say and respond to the points raised via our Feedback facility.