Oral evidence: House of Commons Governance, HC 692Wednesday 26 November 2014

Oral evidence, 26 November 2014.

Witness

Sir David Higgins, Chair of HS2 and former Chief Executive of Network Rail Infrastructure Ltd and the Olympic Delivery Authority, gave evidence.

Chair

Sir David, thank you very much. Please help yourself to water. As I explained to Mr Borley, we are normally eight strong. The Committee has been meeting three or four times a week because we have an urgent task to do and my four colleagues who are away are all very apologetic about the fact that they cannot be present. You should not take it as a mark of disrespect that you have only four of us. Thanks very much for coming. Given your principal responsibilities, I know how busy you are. We are keen on hearing your evidence because of your experience running the Olympic Delivery Authority with such extraordinary success. You will be fully aware, not least from the last question, that there is a major refurbishment programme in prospect with the idea of a delivery authority. Based on your experience, could you explain what the essentials are for making that kind of system work effectively, and what are the pitfalls?

Sir David Higgins

I thought I would draw on a brief report that we carried out at the end of the project, which came up with about eight key overarching strategies that were important. The first is getting the right people with delivery capacity on board fast. People always forget that delivery capability is a core skill set. It is exactly what we are doing at the moment with HS2. We have had a team that has done the hybrid Bill but we are now recruiting people who have had tried and true tested experience on programming, costing and systems control, and getting them from the industry with a proven track record. That is crucial to get a start. It is important to set a realistic budget. Remember that the budget that was agreed and announced in Parliament in March 2007 included the cost not only of infrastructure and venues, but of the Home Office, running parts of the city, and the Paralympics and legacy. It was a broad, encompassing budget, not a single budget that focused on just the physical activities. Clearly, on a project as complex as this, there will be many other costs such as security that need to be considered as part of the overall budget. You need to tie down scope, programme and funding, and then stick to that. One of the requirements of the PAC, when I appeared before it in early 2007, was that we produced a control document, which was termed the yellow book because it had a yellow cover. It was thick and covered every single activity of the games that public money was going to be spent on, and set out scope, budget, schedule, exclusions, and other accountabilities assumed by other organisations. That document was signed by the accounting officers of all the various Government Departments and agencies that would be involved in the Olympics. That was an important control document that went through the life of the project. It set out scope and accountabilities. If one of the six different funding bodies wanted something additional to that scope then, because of the funding settlement, it became their responsibility to front up or find that money. That is what protected the funding Departments from scope creep in that area. It also set the control for what is called change control. Against that document and scope, if there were to be a change in scope, there was a formal process of change control, delegated in two different layers. One layer went right up to the Cabinet Committee, which I think you chaired, so you will be familiar with that. Big decisions on change control went right to that Committee. Other elements, in terms of the contingency, were delegated to a committee chaired by a senior civil servant with representatives from all the funders. The fourth issue was early and prompt decision making. I remember having the discussion with the Secretary of State and the Mayor saying that we had to make critical decisions. They said, “Don’t tell us two minutes before the decision has to be made, or after the event that if only we had made a decision at a certain point, we would have saved money. Give us notice and tell us when the last responsible moment is to make that decision and the consequences so that we have time to make those critical decisions in advance, but be very clear what decisions you want.” We kept that discipline, whether it was legacy use or games requirements from sporting associations or whatever. We had set out to the Olympic Board what the key milestone decisions were and the consequences of those decisions. I have to say it was a very good discipline of forcing collegiate decision making. The next one is a bit of boilerplate: procurement using the NEC contracts to ensure cost transparency and proper project delivery. The great thing about the NEC contracts—

Chair

The NEC is—

Sir David Higgins

The new civil engineering contracts. It is a contract that came out of various reviews of Latham and others through the industry. It requires the contractor to elevate a potential variation when it occurs and it has a time frame for that to be solved. What happens in traditional contracts is that at the end of the project there is a huge bunfight and the various contractors and clients put claim and counter claim together. NEC says that if you didn’t raise it within a certain very short period of the event occurring, it is no longer eligible to be considered as a variation. It is a good invention as a contract mechanism. It does require a fair bit of administrative procedure at the start, but it negates the huge amount of time and uncertainty that happens on the completion of the contract. The next one was allowing the delivery partner to deliver. The key thing about the client role is that the client has to be clear on what the client or the sponsor wants in terms of scope, but, having authorised the delivery partner to proceed, there is no point in having the client or Government agencies trying to watch over the delivery partner’s shoulder or trying to meddle. At one stage I remember saying to various Government agencies that everyone was banned from going to the main work office down in Stratford because we were having too many other people looking over the shoulders of the engineers and the schedulers whose task it was, having got the clear delegation and brief, to get on and carry out the work. The other point in choosing the delivery partner is that this was at a time, not unlike now, when there was a lot of competition in the market for suppliers and subcontractors. We wanted the capability of having a delivery partner that could also actually deliver themselves. If we had a contractor that failed, we wanted the delivery partner to be able to intervene, come on to the project and take over the suppliers or contractors to complete that work. Having the delivery partner with a capability to actually deliver, while we never used that capability, was always there as a buffer, particularly if we thought that contractors or suppliers were going to go into liquidation.

Chair

Could you explain that in specific terms? By delivery partner here are you talking about main contractors?

Sir David Higgins

No. Delivery partner is client side. The delivery partner should sit on the client side, should work through their brief, have a real incentive to get not only timely delivery, but saving on the cost plan. They are aligned to the client in terms of making cost savings. They act as the client’s agent to carry out their brief. They are not a contractor.

Chair

You were the delivery authority, not the delivery partner.

Sir David Higgins

Correct. We were the Olympic Delivery Authority, but we had a delivery partner, which was a consortium consisting of three organisations: an American company, CH2M HILL; a UK company, Mace; and Laing O’Rourke. Together, those three organisations formed a delivery partner—they were the engineers, the people who would do procurement, scheduling, cost planning and site supervision to ensure that the standards that we set were properly carried out. We also ensured that the contractors had sufficient authority and accountability to carry out their scope of work, because you do not want a delivery partner that duplicates the work of the contractors.

Chair

I was going to ask about that. Who gave the delivery partners instructions? Was it you?

Sir David Higgins

The Olympic Delivery Authority always gave the delivery partner instructions. The contract between the delivery partners and the Olympic Delivery Authority was very clear and they did not take instructions from anyone else.

Chair

I interrupted you there—you may have had one or two further points to make.

Sir David Higgins

Three, unfortunately. Active risk management from the start is crucial—you must identify the major risks. We came up with the term, “it is better to buy-down risk at the start”—to spend money to save money. We put in money for a major logistics centre and put in a health care centre on the site. That seemed simple enough—we had picked it up from Terminal 5 at Heathrow—but it meant that, rather than having to go off and take a day’s sick leave for a relatively simple treatment, staff on the work force could go to site. It was there for emergencies and treatments if there were any serious injuries, but, more importantly, it was there for the wellness of the work force. It said to the work force, “We are concerned about you much more than your just turning up and doing the work; we are concerned that you are fit and healthy in your lifestyle, and this service is set up for that.” That builds loyalty but also, shamelessly, it is there from an efficiency point of view, because someone can call in there quickly and does not have to leave the site. So risk management from the start is important. You need transparency and a proactive process for both internal and external communications. It is no use just doing a good job; with the multiple stakeholders that the project will involve, you also have to ensure that the stakeholders and the public understand that you are doing a good job. You should be constantly communicating in a very transparent way and dealing with your stakeholders, be they local community groups that may use facilities later or even neighbours in the area. You need to follow good construction code of practice in terms of access, the disruption of traffic and noise. That must be dealt with proactively, because it will not just occur—people will not just assume that you are doing a good job. Finally, you must maintain a collaborative approach with Government partners. These projects are very different from a commercial office tower built in the City, where it is very clear that one party has the money, owns the asset and is going to occupy it or put tenants in place. Here, there are inevitably multiple stakeholders—that is the complexity of public sector projects. You must therefore maintain a method where all the stakeholders feel informed and involved, but do not confuse accountability.

Valerie Vaz

Was the security issue put into the risk assessment at all?

Sir David Higgins

Right from the start.

Valerie Vaz

At the end of the day, the Government bailed everyone out—we got the troops in instead, didn’t we?

Sir David Higgins

Yes, indeed. That was the security for the operations with LOCOG—that was the G4S event. I was not directly involved, but they obviously did a fabulous job. One great feature of the Games, or, really, the two main features of the Games, were the security staff and the volunteers who made the process such a pleasant experience.

Valerie Vaz

Did it help in getting your project on time that the volunteers did it for nothing?

Sir David Higgins

The volunteers were crucial; not only the volunteers during the Games themselves—you will remember the whole process of training people to become volunteers: the Games maker programme—but the volunteers from the local community. Rather than trying to keep the project as an island, separated from the community, we worked with the local community and allowed them access to what was called the greenway. They had full public access and they carried out their own tours, in terms of the public, which we fully supported.

Chair

In the report—for which many thanks—one of the first things that you mention is the budget. I recall that in the Cabinet Committee, we were all—including me—a bit surprised about the size of the optimism bias that had been built in, which was something like 60%, from recollection. I remember having a seminar from some people in the Treasury to explain to me why you needed that level of leeway. In the event, was that a wise decision to provide a wide optimism bias?

Sir David Higgins

Remember that at the start of the project we did not have really a design, planning approval, any understanding of ground conditions or any contractor pricing. As risk gets tied down, the optimism bias or a more detailed analysis of quantitative risk can be carried out. Clearly, risk on different factors of a project can have different weightings. Ground conditions carry a higher risk than laying a road or building a structure. As a project becomes more mature—it depends which scale you use, but architectural drawings start at A and go to G—at stages A and B you want a high optimism bias, but when you get to stage D or E, which is detailed contractual drawings, clearly you can reduce the level of contingency. Then you have a more sophisticated approach where you allocate risk to the various activities on a more granular basis.

Sir Oliver Heald

What do you see as the main difference between a chief executive and a chief operating officer? When should you have one rather than the other? When and why did the ODA move to a chief operating officer model from a chief executive model?

Sir David Higgins

A chief executive, at various stages of the project, has to split their role between external and internal. You have to say at the early stages probably much more of their time is spent externally with the stakeholders, with the Treasury and with client groups. I know that in the first year, my time was mainly external and the only other thing I put a huge effort into was recruitment. I put a lot of time into making sure that the people we hired, because it was obviously a greenfield project, would have the values and the culture we wanted to display in the rest of the organisation. As the project matured, I was incredibly lucky to be able to hire a chief financial officer who was, in many ways, a chief operating officer—a guy called Dennis Hone, who then went on to take over from me. He was able to take over all the financial and commercial side of the organisation. We also had in the chief executive of the delivery partner—a gentleman called Ian Galloway—someone who was effectively the chief operating officer from a delivery point of view. The combination of those two individuals carried out that role, plus a lot of other very talented senior execs. As the project moves more into delivery or into commissioning, you can move to a chief operating officer. But a chief executive’s role has to balance that crucial thing of external as well as internal facing. Of course, it entirely depends on the role of the chair. I was also privileged to have Sir John Armitt as my chair, after an initial period with a previous chair. The role of a chair, as I see it, is simply to provide leadership, credibility and, bluntly, air cover to the executive team, and that is what John did so brilliantly: to be able to give confidence to the various stakeholders that what we were doing was under control, but also provide guidance and mentoring to the organisation in total.

Sir Oliver Heald

When John Manzoni gave evidence— as you know, he is the chief executive of the civil service—he told us that he thought a chief executive needed leadership qualities to deliver change and good-quality services. What would you say are the most important attributes of a chief operating officer? Do you agree with John Manzoni about the qualities of leadership required in a chief exec?

Sir David Higgins

If you do not have leadership qualities in a chief exec, a project is fundamentally doomed, I would say. It is essential to have that, because the organisation internally looks to leadership. Crises occur in all projects, and they look to the CEO to give them guidance as to what is going to happen. In the chief operating officer, the fundamental thing you need is attention to detail. You also need someone with a strong commercial background—it is no use just having an accountant who understands how our numbers add up; you need someone who can actually take commercial decisions. That was a great advantage that Dennis Hone brought to the project.

Sir Oliver Heald

What about knowledge of the core activity? In a civil engineering project, do you need someone as chief operating officer who understands civil engineering projects? We are obviously looking at what we might do here. Do you think it would be wise to have someone who understands Parliament? Do you have any thoughts on whether you need to know the core business?

Sir David Higgins

It depends on your delivery partner. Hopefully, the delivery partner will bring a lot of those technical skills. I would not have thought it essential to have a chief operating officer who is an engineer. The engineering will be interesting, but it will not be the crucial thing. This will all be about staging; it is going to be about the timing of decanting, defining the scope—the functional role of Parliament—and making sure that change does not unravel the scope. I would have thought that someone who really has an understanding of how Government works, and who can manage the multiple stakeholder issues and then get decisions through a complex group of stakeholders—that would be a real skill for the chief operating officer. Scope creep, staging and time delays are going to be the biggest risks on this project.

Valerie Vaz

You must have done something right, because you have a spoof BBC programme about you, whereas we just get mocked in the press all the time. I do not know if you have had a chance to look at how the House of Commons and the House of Lords are set up and the management structures that we have.

Sir David Higgins

I have not.

Valerie Vaz

We did not expect you to do any homework, but it is quite a complex thing. For us, as Members, we see it as a place of work, whereas there may be elements that see it as a house of fun. It is about trying to look at the two areas and ensure that we have access for the public, so that people can see how we work, while at the same time it is a place of work and a seat of democracy. It is an unusual system and an unusual place, and we are struggling to find models of how to make this place run in the 21st century. You have had some experience of being the chair and chief executive of a public body with a commercial outlook. What lessons do you think we could learn from that?

Sir David Higgins

Do not start until everyone agrees what the brief is. This is a unique project. It plays a role globally as an icon, an institution to which countries—even my home country, Australia—look for leadership and history. It plays a huge public role. As I came in today, there were teams of schoolchildren coming in, which is fantastic to see. This plays such an important role in the public mind, the way that the country operates and its history. It will be very difficult to write the brief and agree what the brief it, but it is absolutely essential that you get sign-off. It will require a talented individual to collect the various aspirations and document those, so that everyone knows why we are doing it. Why are we doing HS2? Are we doing it to save 20 minutes’ time to get to Birmingham for £25 billion? Of course we are not. That is not why we are building HS2. We are building HS2 to make the country more competitive and help the unbalanced economy which we see reflected in social costs across this country, and this is a catalyst for that. We went back and thought about why we are really doing this and how we can convince the public over a long period of time that this is a wise investment of money. It will cost a huge amount of money to refurbish this asset. Why are we doing it? Why is it so important? What do all the public want out of it when it is finished? Writing that down and getting everyone to sign off on that will be a crucially important role. We stopped activity on the Olympics for the first two years. When I first arrived, everyone said, “You should be digging dirt, because it is a heavily contaminated site. You should have started a year before you even arrived, because you have no idea how heavily contaminated it is.” I said, “We’re not doing anything at all until we sign off on the brief, get the design right and get all of our stakeholders agreeing what we are going to do. Then we’ll build the whole thing—all the permanent venues—in four years because we will know exactly what we want to do and we are very clear how we do that.” It is the same with HS2. We do not have to start in 2017; quite the contrary. You can build it quicker than any current programme suggests if you know exactly why you are doing it, why you are going to a certain city and not another one, and the purpose of the brief. That would be my recommendation. Constantly push back and say, “We’re not having the builders in ripping down the wallpaper because we haven’t yet agreed what the final brief is.” We know the history of previous refurbishments of parliamentary facilities here in the United Kingdom and what happened in terms of scope creep. We should learn from that.

Valerie Vaz

The refurbishment is part of what we are looking at, but what about the core business of what we do in the Chamber? How difficult is it to map that from where you sit? On a non-departmental public body, say, how does the chief executive deal with that part of it as well? We are not totally a commercial organisation.

Sir David Higgins

The key thing is that the chief executive must be a very good listener. They have to sit, listen and absorb. I remember years ago, back in the 1990s, that when we started to brief for Bluewater, the shopping centre, our engineers would sit in the back of shoppers’ cars with a notebook and listen as they went into a normal shopping centre. They asked, “What didn’t you like about the shopping centre?” The biggest thing that came out of that was that the shoppers didn’t care about the colour of the floor or the architectural lighting; they cared about the car parks. They found them threatening and dark. They had narrow spaces and access was a problem. The shoppers felt that their security was threatened. The big thing that came from that brief was that by listening to the shoppers we learned that you have to get the car parks right. That is probably one of the most important things for the public. What are the real issues that Members of the House and visitors to the House have? This refurbishment will have to last 30 or 50 years.

Valerie Vaz

Longer.

Sir David Higgins

A long, long time. What is going to happen in that time? How will people want to access what is going on here? How will technology change how what is happening here is relayed to the public? Who knows what level of feedback this House may want to access in the future?

Valerie Vaz

On some of the boards that you sat on, you had people from outside. You mentioned members of the public, but how valuable are they? Could we have non-executive members from outside, and at what level should they sit?

Sir David Higgins

We had a fabulous board. Some members changed over the seven or eight years that the Olympic Delivery Authority was running. Having a diverse group of non-exec directors on a NDPB board is essential because they provide a line of defence and a chance to sit and think things through, rather than having a hard line straight through the department. We had people such as Tony Ball, who came from a media and advertising background. He ran BSkyB for years and is a very successful entrepreneur. You may think, what did he add to it? He was fascinated by the landscaping. He really wanted to understand how the public would engage with the landscaping and the legacy elements of it. We had Stephen Duckworth, who is a very successful entrepreneur and is disabled. His approach was to champion inclusivity on the project, and he was also a very successful businessman. We had a senior executive, Barry Camfield, from the union movement. People asked, “How does having a union representative on your board work, when you are going to be getting into disputes with unions?” I said, “Not if we think about the key issues.” His key issue was skills. He was very much focused on local employment issues, skills and getting skilled people into the work force. He was not trying to second-guess what our negotiating strategy with the work force would be. It is huge advantage to get a diverse group of independent directors on an NDPB board. It is a great governance advance that we are developing at HS2.

Ian Paisley

Sir David, I think you have answered a lot of my questions in what you said about clarity and how you take the project forward. Is there a silver bullet or one key factor for delivering a project such as R&R, which we are contemplating?

Sir David Higgins

The key thing about good design is that it solves many other problems. In 2008, we thought we had a number of the risks under control for the Olympics—the decontamination work was going well, all the flood modelling was sorted out and the foundations and bridges were going in—so we thought it was time to shake up the project and take a risk. We looked at the landscaping plan and decided that it was boring. It was functional and nobody was ever going to complain about it, but it was not an English garden. We wanted to shake up the whole scheme, so we brought in a completely independent designer and said, “Just out of your head, do something that is going to be extraordinary that people will recognise.” He came up with a scheme of wildflowers and marshes—it was totally different. When he looked at it, it started to solve so many other problems. It started to solve access, a lot of the stonewall drainage and things we had not been able to sort out. I would say to you that good design is incredibly valuable, and the best designers design form and function mix and they solve many other problems because of the elegance their design. We have fabulous architects and designers in this country. I have been privileged to work with a few them. When you watch their thinking process, they are always thinking—be it Renzo Piano or Richard Rogers—and their solutions solve many other problems that you have been grappling with, because of their clarity of thinking.

Mr Watts

Sir David, what was the major task of the chief executive in delivering the programme on time and on budget? How did you organise the levers to ensure that things were going to plan?

Sir David Higgins

The most important thing was to look at complex issues and bring them down to a few simple decisions. We would have incredibly complicated Gantt charts and schedules, and then would say, “There must be in this 12-month period a few critical decisions that we have to make. If we do not make those decisions now then the whole project will deteriorate and have consequences.” The thing is to identify those, go to the key decision makers, coherently explain what the options are and let them make the decision and the consequences. The key is identifying what those crucial decisions are. I have got a review underway at the moment at High Speed 2 by the Major Projects Association. I had a meeting with them yesterday and the initial report said, “There are 75 different complex questions that we have been asked to address.” I said, “There are probably only 10 things today on this project that you need to understand and take judgment on, to see whether we are on track or not.” The key is to identify what those 10 things are, setting the options out and taking them to the key politicians and decision makers and saying, “These are the options.”

Chair

With the last set of questions, may I seek your advice? I think you know the provenance of the establishment of this Committee was a pretty public dispute about whether it was possible to have somebody combining the roles of Clerk and chief executive who was not fully qualified in the detailed clerkly tasks. There was a lot else besides behind that. One issue we are actively pursuing is whether it is possible to combine the role of Clerk and chief executive or whether they would be better split. If you do split them, what should the relationship be between the two? Is one superior to the other or are they somehow of equal status? If they are, how do you resolve disputes and differences of view between them? That is our exam question. I wonder if you might wish to give us a view.

Sir David Higgins

You could argue either way. It seems logical to split them—it is a massive job to do both—but it comes down to people. People are tribal and mark territory and they have behaviours that do that. When I was at the Olympic Delivery Authority, my key relationship was with Lord Deighton—Paul Deighton at the time—and just the two of us would meet every week for half an hour to talk about any agenda. I remember that at the start we both talked about possibly getting into a position where we rowed and fought. Let’s face it, every other Olympic project had numerous turnover and resignations from both the two roles. Sydney had one person sacked before they had even taken up the role, while they were at a press conference, as I remember. There is a history of it, whether it be Athens or Atlanta, you name it, every single one had a huge turnover of both those two roles: the chief exec of the organising committee and the chief exec of the delivery partner. We said, “We have to make the relationship work; we have to trust each other and we can’t let anyone divide the relationship. We will have an entirely open and honest relationship. It is not a case of who is on top of each other or who reports to whom.” The reality was that neither of us reported to each other, but it was pretty clear that in the end we both had to work together and solve our own disputes. I would take a huge amount of time deciding who is to be the chief executive in order to get this right. I would find the best person, and their emotional intelligence will be crucial part, not just their technical skills. There are plenty of engineers who can build things, but you need to find someone who has the emotional talent and the subtlety to deal with complex stakeholders.

Mr Watts

You talked about taking time to ensure you got the right appointments. Do you not also need to have a clear view of the role of the chief executive? There has got to be a job description where he or she knows exactly what they are intended to do and how they would be held accountable. Is that something that you recognise?

Sir David Higgins

It is absolutely essential. It is essential in every job you have in life. That is always my advice to people who ask for advice on their career. I ask, “Do you know what your job is? Has anyone written it down for you and made clear what you are accountable for?” You are absolutely right that clarity of accountability is essential in any sensible organisation. We would make a strict process on parts of the project. So when the Aquatics Centre moved from concept design to delivery, we would have a formal handover between the senior executive who covered design and planning to the executive who covered delivery. We would actually write a letter saying, “You are now taking accountability. Here is the brief. One role finishes and the other takes on accountability.” Clarity and transfer of accountability are essential to keep control of costs

Chair

Thank you, Sir David. We are really grateful to you. Oral evidence: House of Commons Governance, HC 692 2