Controlling the costs of big projects

Mr Cameron responded yesterday to the growing attacks on the costs of HS2 by saying the government would work away to get the costs of this very expensive project down. If you are going to build it, that is a sensible aim. The statement was made on the same day as the MOD announced yet another escalation in the costs of building the two new aircraft carriers.

Why do we have such problems in this country with runaway costs on big projects? When I buy a new piece of equipment for my home I choose one I like and agree a fixed price for its manufacture and supply. The contract is binding and I end up paying the original price. Why can’t we buy trains and boats like that?

The boats are different because the UK state wants one offs that have never been built before and will doubtless never be built again. The state as customer gets dragged into the costs of design. the state then regularly changes its mind about what it wants, giving the contractors need or excuse to hike the price. The state as customer needs to get better at deciding what it wants and sticking to it. It also needs to nail down more of the purchase cost as a fixed price.

When it comes to buying trains, there are plenty of fast trains available around the world without having to design completely different ones. Given we have in mind a big order, it should also be possible to ask the winner of the bidding competition to build significant amounts of them in the UK under licence. Building track is a one off in terms of the route, but other wise can be standardised to a considerable extent.

The difficult to knows in the case of HS2 include the compensation and land acquisition costs,and the amount of work that will have to be done to create stable and flat ground conditions for laying the track. More surveys and preliminary negotiations with landowners can start to cut the risks of overrun on the estimates. The costs of the track and signals themselves should not be open to a lot of guesswork and can be specified precisely, in advance, to a standard already in use and production. A sleeper or a signal is a ubiquitous railway product that can be costed and calculated.

I remain against HS2 overall. If it has to go ahead then at the very least it should be possible to lop £10billion off the current projected costs, by going for as many components as are in current production and by completing accurate survey work of the land costs, and conditions. There should be a deadline for the final plan which then does n to allow variations for fear of cost escalations. If the idea is to add stations, vary the routes and make other changes as we go along then the bills could get even bigger.

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102 Comments

  1. Arschloch
    Posted November 5, 2013 at 6:03 am | Permalink

    Dead simple why you cannot get the project management right, its because neither the civil service nor the politicians are up to the job. The recent announcement that foreigners will only be charged around US $300 to come here and use the NHS to the full has seriously got some of my Americans friends thinking. The average cost of an Obamacare bronze plan, for a fit healthy adult, is around $300 per month. So put two and two together and see who offers the better deal if you are still well enough to get on a plane at JFK. A “Rolls Royce” civil service indeed!

    • Arschloch
      Posted November 5, 2013 at 6:08 am | Permalink

      Just as aside with regard to the over run in costs of the aircraft carriers (that will have no aircraft) that are currently being built. John please could you ask a question for us tax payers, asking have the civil servants who signed the contract that says that any savings will be shared with HMG and the builders, but HMG will be solely responsible for any additional costs, have been sacked?

      • backofanenvelope
        Posted November 5, 2013 at 9:37 am | Permalink

        Back in 2010 Mr Cameron said that it was no good cancelling Gordon Brown’s carriers, because we were contracted to pay for them whether they were built or not. At the time it was claimed they would cost £3 billion pounds plus change. Now they are over £6 billion. So, if we had cancelled them in 2010 we would now be £3 billion pounds better off. Anyway, what are they for?

        • Bob
          Posted November 5, 2013 at 10:12 am | Permalink

          If Hs2 were cancelled today we could limit the damage to hundreds of millions before it gets into the billions.

          Mr Cameron should be forced to count up to a billion before making any further public expenditure decisions.

        • arschloch
          Posted November 5, 2013 at 10:28 am | Permalink

          Nothing but pure pork for the ex politician’s (who is still drawing his parliamentary salary) constituents. It would have been cheaper if he could have instead convinced the monks from Buckfast Abbey to come to Scotland and open a factory. At least the locals would have derived a greater benefit from it!

          • Max Dunbar
            Posted November 5, 2013 at 2:57 pm | Permalink

            It occurred to me recently that I had never tried ‘Bucky’ and so I stopped at one of the large supermarkets and scoured the well stocked shelves in the alcoholic drinks department for a bottle of this mythical liquid. As a Scot, I feel that I should at least be familiar with the stuff and be able to provide an opinion on the merits or otherwise of Buckfast wine. Alas, I could not find any and I asked a member of staff for help. They do not stock it, I was informed. It probably means a visit to the local ‘convenience store’ in order to satisfy my curiosity. Is it widely available in England or are the stocks all destined for the Central Belt of Scotland? It would be interesting to know.
            Can it be mixed with Irn Bru, that lurid bright yellow liquid which is drunk here by the gallon and whose empty bottles decorate every roadside verge in Scotland. Bucky may ameliorate the flavour of Bru or perhaps it is the other way around. Who knows.

        • lifelogic
          Posted November 5, 2013 at 12:02 pm | Permalink

          “Mr Cameron said that it was no good cancelling Gordon Brown’s carriers, because we were contracted to pay for them whether they were built or not.”

          Well that is a completely stupid statement anyway. You could still save by agreeing a deal with the supplier so they did not have to build them. They could only anyway sue for their lost profits not the full value of the build contract. They have a duty to mitigate their losses.

          • backofanenvelope
            Posted November 5, 2013 at 2:17 pm | Permalink

            In April 2011 the BBC reported Mr Cameron saying in the House of Commons:

            “They [the previous government] signed contracts so we were left in a situation where even cancelling the second carrier would actually cost more than to build it; I have this in written confirmation from BAE Systems”.

            I didn’t say it wasn’t stupid. My point is that we should have bitten the bullet in May 2010 and cancelled both of them.

          • uanime5
            Posted November 5, 2013 at 7:53 pm | Permalink

            They would only be able to sue for lost profits if they relied on tort law. Given that there was a contract they could sue for whatever the contract allows them to sue for.

          • Arschloch
            Posted November 5, 2013 at 7:58 pm | Permalink

            Max
            I have seen it for sale all over England its usually tucked away discreetly on supermarket shelves alongside Scotsmac, El Dorado and other drinks that are popular with expat Scots

      • uanime5
        Posted November 5, 2013 at 5:33 pm | Permalink

        The contract has to work this way as it will be impossible to find any builders who will be willing to absorb any increased costs. Even if you can find a builder willing to undertake such huge risk they’ll probably declare bankruptcy as soon as the contract ceases to be profitable, leaving the Government with a partial finished railway.

        • Edward2
          Posted November 5, 2013 at 9:11 pm | Permalink

          In the private sector the financial strength of a potential contractor is researched deeply Uni.
          This is because you do not want to be in a contract where one side is so lacking in capital value and underlying profitability that if there is a little problem they just bail out into liquidation leaving you in a mess.

          • uanime5
            Posted November 6, 2013 at 3:40 pm | Permalink

            In the UK construction sector subcontracts are hired based on how much they charge, so they have a tendency to cut their prices right down to the bone and declare bankruptcy if anything goes wrong. As a result the main contractor is often left with a something partially completed or which needs to be completely redone.

            Let’s not forget that even if a contractor is financially sound based on the normal problems they’re expected to encounter they may not be able to survive if there’s a major problem, such as a large fire or a tornado. Many contracts have been frustrated (made impossible to complete) due to external factors.

          • Edward2
            Posted November 6, 2013 at 6:21 pm | Permalink

            It does sometimes happen Uni, but it is rare, for the reasons I’ve already stated.
            You make going bankrupt sound easy and quick which it is not.
            Once your company has done this once it will find gaining similar work in the future very difficult.
            Also, if it can be found you have deliberately bankrupted your company to avoid legally due contact debts then the Directors can find themselves struck off from holding office for many years or liable personally for the money owing.
            And its not always the cheapest who get the contracts as timescale, quality, past performance, reputation and safety record all come into the mix.

    • Iain Gill
      Posted November 5, 2013 at 9:17 am | Permalink

      I know American couples who had babies here delivered in the NHS, they tried to pay, but the hospitals made it so hard for them to do so that they gave up.

      Compare and contrast to a British couple having a baby in the states.

      • Tad Davison
        Posted November 5, 2013 at 12:24 pm | Permalink

        Iain, I have heard similar stories here in Cambridge from people I know and trust. I think this place is so far gone, it’s beyond governance in the usual sense. I despair out of the absence of strong leadership. Why the hell isn’t someone going in there and getting it sorted?

        The waste and mismanagement (misappropriation by another name) will finally overwhelm us unless we have people in places who actually grapple with these issues.

        Anyone else share my frustration?

        Tad

        • Iain Gill
          Posted November 5, 2013 at 11:12 pm | Permalink

          Yes. The number of people I know who the NHS has let die far too early from lack of simple cheap treatment is outrageous. Friend of mine told he needed an urgent stent sent home and died 3 weeks later, meanwhile elsewhere in Europe stents are done routinely on the day the need is identified. And yet we pay massive sums to keep this sham going.

        • alan jutson
          Posted November 6, 2013 at 1:04 pm | Permalink

          Tad

          Yes I share your frustration.

          It would seem that almost everything the government does (governments of all colours) costs a fortune more than the original proposed fortune.

          John asks us why.

          Its very simple.

          Civil servants and politicians cannot organise a p… up in a brewery, they have no idea on setting out a schedule, bills of quantities, competitive tendering criteria or the writing, supervising, and completion of a contract.
          Couple that with absolutely little negotiation skill, little design knowledge, and the hard nosed commercial proffessionals run rings around them.
          Surely even the most simple minded recognise that contruction companies make most of their profit from extra’s and overs when changes of design are requested.

          How many government contracts to your knowledge have been completed on time and to budget John ?.

          In the USA its not much different, to the best of my knowledge only two projects were completed under budget over there. The Hoover Dam and the Bridge that spans the entrance to the Naval port in San Diago.

          Thus any budgets given by Governments are not much more than a simple under estimated guess to make the look good whilst in office before the next lot blame the last lot, and so it goes on.

    • Hope
      Posted November 5, 2013 at 9:21 am | Permalink

      Absolutely right. How much was wasted on a computer system in the NHS £12billion. How much has PFI cost the taxpayer? Procurement in there MOD, administration in Whitehall? How much was wasted by the BBC on a computer system, build overspend and overpayment of severances packages? Why is the taxpayer still burdened int his way when a solution is to rid the BBC from the public purse, fixed contracts for IT systems on successful delivery etc.

      • BobE
        Posted November 5, 2013 at 1:07 pm | Permalink

        I worked on this one, from the supplier side and I know exactly what went wrong but nobody wants to know. Its made impossible to present anything other than the required spin. Then it fails. Ive seen it several times.

        • alan jutson
          Posted November 8, 2013 at 9:18 am | Permalink

          Bob E

          Please do tell, some of us may be interested.

    • lifelogic
      Posted November 5, 2013 at 9:57 am | Permalink

      “neither the civil service nor the politicians are up to the job” – nor probably even trying to do the job in the interest of the public anyway.

      After all the interests of the public are clearly to cancel the project now and stop wasting money on it.

  2. Mike Stallard
    Posted November 5, 2013 at 7:13 am | Permalink

    “The state as customer needs to get better at deciding what it wants and sticking to it”
    But that is what governments do! How else can a junior minister get promotion?

    Honestly, you would think we were still rich the way the government is behaving over aircraft carriers and HS2. Allow me to remind you that the battle cry in 2010 was to reduce the debt and eliminate the deficit.

    • lifelogic
      Posted November 5, 2013 at 12:04 pm | Permalink

      They should sell shares in HS2 to the gullible, if they cannot (as surely would be the case) they should cancel it now.

      • BobE
        Posted November 5, 2013 at 1:08 pm | Permalink

        They will build it and then Privatise it.

        • margaret brandreth-j
          Posted November 5, 2013 at 8:02 pm | Permalink

          salient point… indirect misappropriation !

      • Bob
        Posted November 5, 2013 at 3:57 pm | Permalink

        I wonder how much of his own wealth David Cameron would invest in HS2?

        • alan jutson
          Posted November 8, 2013 at 9:20 am | Permalink

          Bob

          “How much……..”.

          None, whilst he can spend ours, or even worse, borrow in our name..

  3. The PrangWizard
    Posted November 5, 2013 at 7:13 am | Permalink

    What did you think of your leader’s speech – Mr Cameron I mean – yesterday was it, when he said opponents of HS2 were acting against the best interests of the country? I’m not sure which country he or others like him mean, they never mention England of course which is where the line will run. When they do mention one, it’s either Britain, or the UK, or Scotland, or Wales, but never England. I wonder why that is.

    • Timaction
      Posted November 5, 2013 at 10:00 am | Permalink

      The reason the politicians never mention England is they want to eradicate us as a Nation to become a region of their beloved EU. There is no strategic case for HS2 and to borrow and waste this type of money on this project when we have an overcrowded and crumbling road network is beyond the wit of most people. Our leading politicos and their civil servants are not fit for purpose and are in dire need of radical reform. Funny how reform is never mentioned as needed in the political world. Too many levels and numbers of politicians.

    • lifelogic
      Posted November 5, 2013 at 10:00 am | Permalink

      Indeed

      When Cameron says opponents of HS2 are acting against the best interests of the country he is just proving, yet again, his total lack of either honestly, numeracy or rationality.

      • Hope
        Posted November 5, 2013 at 2:25 pm | Permalink

        Like going to G8 to claim tax avoidance when he knows the EU prevents the UK take of tax by about£120 billion, low paid immigrant workers given tax credits to make up their wages so big business can make more profit at the expense of us the UK taxpayer. With over 300 tax rises you would have thought it might be a priority for a Tory.

        distancing himself from the Murdochs when he introducs state controlled press, then goes to his son in laws birthday bash, as did Blair. Also indirectly linked to common purpose. Funny old world isn’t it. What does Cameron stand for?

  4. lifelogic
    Posted November 5, 2013 at 7:20 am | Permalink

    The main problem is one side of the negotiation the supplier wants the price and thus their profits to be as high as possible. On the other side the bureaucrats do not really care very much as it is not their money. They are usually not skilled in negotiation, contracts or design and are usually doing this type of negotiation for the first time. They also do not care much if the train line is even of a sensible design or much utility as they will probably not be using it much anyway.

    Clearly the £40Bn budget will not compensate sufficiently and get the thing build. After the build it will still need huge subsidy. The business plan suggests they will charge nearly £600 for a business ticket London to Manchester in about 1930! This when a car can take seven for there and back door to door & more conveniently for £70 now say £100 after inflation for 1930. It reminds me the absurd price projections give for the channel tunnel when they were getting some fools to buy shares in it. Perhaps if this lunacy is really to proceed they should find some more fools to pay for it so tax payers do not have too.

    £70 Bn (it will surely end up as even more) would of course buy 70 million decent second hand cars for use now or one hundred free return coach trips of distance London to Manchester for each person in the UK. They could use them now too rather than have to wait 15 years and no blight for much of the country either. Or just a £3,500 for each worker as a tax cut.

    Let us hope Labour kill the insanity. Cameron is clearly wrong on this as nearly everything else. The best that can be said is that the project is cheaper, and not quite as mad, as the Climate Change Act or being a member of the EU.

  5. Georgina Dean
    Posted November 5, 2013 at 7:27 am | Permalink

    Unfortunately companies can run rings around civil servants when it comes to the contracts. That’s why we as taxpayers always pay way over the odds and keep on paying even after its finished. As you have said why do we always have to design from scratch there is plenty of basic goods that should be used and costed effectively. Has there been a costing for the old central route to put that back in use.

  6. Neil Craig
    Posted November 5, 2013 at 7:53 am | Permalink

    One of the dishonesties government regularly engage in is to change the budget and then claim to be “under budget” Thus recently a support given in the House for HS2 was that government had demonstrated fiscal competence by bringing in the Olympics “in time and under budget”. While we may be thankful that they managed the Olympics on the ame date as the rest of the world the £14-£20 billion it cost was not under the £2 bn it was originally promised at.

    I agree with you about fixed price contracts but they only work if government doesn’t change the specs half way through. The Edinburgh trams were promised as being on a fixed price contract of £500 mn but on the one occasion when the government went to court over overruns they essentially lost because they had made such changes and it is now half the original length and likely to be twice the price.

    • lifelogic
      Posted November 5, 2013 at 10:04 am | Permalink

      The half witted Edinburgh tram project!

      Trams, trains, bikes, “electric cars” and buses good – cars, planes, trucks bad this is the barmy new religion.

      Renewable energy (what ever that is) at 4 times the price and intermittent good cheap gas, nuclear and coal energy on demand bad – these are just the religions.

  7. Andyvan
    Posted November 5, 2013 at 7:59 am | Permalink

    We have been saddled with two epic white elephant projects that cost billions and make previous white elephants – such as the Dome and the Olympics etc- look modest in their catastrophic waste. We are spending far more than a kings ransom on aircraft carriers for which we have no aircraft and no need. We are spending even more on a railway for which there is only marginal need. For the privilege of having these ridiculous millstones our government is saddling future generations with even more billions of pounds of debt than they have already wasted. Reasons for this stupidity? Greed and vanity. Payoffs, consultancy fees, directorships and just plain showing off. Whilst we have an elite group of people with the power to tax, spend, imprison and make war at will we will never see the end of this merry go round of criminality and waste. Government is the problem, not the solution.

    • Tad Davison
      Posted November 5, 2013 at 9:48 am | Permalink

      ‘Greed and vanity. Payoffs, consultancy fees, directorships and just plain showing off. Whilst we have an elite group of people with the power to tax, spend, imprison and make war at will we will never see the end of this merry go round of criminality and waste. Government is the problem, not the solution.’

      Never a truer word Andy!

      My faith in the institutions has been eroded to such an extent, that only a revolution will restore it. They will keep getting away with it over and over again. Parliament is supposed to hold the executive to account and have oversight over everything else, but if anyone still truly believes that, I can suggest the name of a good psychiatrist.

      Tad

      Tad

    • oldtimer
      Posted November 5, 2013 at 10:58 am | Permalink

      They have the same problem with publicly sponsored and funded projects in Germany, as readers of Spiegel Online will know. The overruns are usually accompanied by over optimistic initial estimates coupled with under-specified and under-engineered solutions. Furthermore the original promoters of these schemes, namely the politicians seeking election, cannot be seen for dust when they go wrong. So it is not just a UK problem. It is a universal problem to be found whenever the state seeks to replace the market place. It seems that recent research in the UK indicates that a majority of the public seem unaware of this defect in state control and retain a touching, if misguided, faith in its effectiveness.

      • uanime5
        Posted November 5, 2013 at 8:11 pm | Permalink

        If the problem is the state then why do buildings commissioned by the private sector tend to have similar overruns. Could it be because both the public and private sectors keep awarding contacts to whoever will give them the most overoptimistic timetable.

        • oldtimer
          Posted November 6, 2013 at 9:21 am | Permalink

          Where is your evidence for this? As usual you provide none to support your assertions.

          • uanime5
            Posted November 6, 2013 at 10:47 pm | Permalink

            I notice you didn’t provide any evidence that overruns only occur in the public sector.

            Given that main contractors working on private sector often request an extension of time (asking for the date of completion to be extended) it’s clear that overruns do occur in the private sector.

        • alan jutson
          Posted November 8, 2013 at 9:24 am | Permalink

          Uni5

          The big difference is that the taxpayer does not fund Private speculation or cost overruns by private companies.

    • libertarian
      Posted November 5, 2013 at 8:32 pm | Permalink

      Andyvan

      Amen to that, government and politicians are indeed the problem.

      We need an urgent clear out and to radically overhaul and downsize our so called democracy

  8. Richard1
    Posted November 5, 2013 at 8:11 am | Permalink

    I heard recently that compensation will only be offered to people whose houses are within 100m of the line. Can this be right? If true it is a manifest injustice, and also renders all current cost estimates meaningless as they will surely be hugely greater when people challenge this in the courts. Does anyone know the truth on this?

    • lifelogic
      Posted November 5, 2013 at 10:06 am | Permalink

      Not even within 100 meters in London it seems!

  9. margaret brandreth-j
    Posted November 5, 2013 at 8:22 am | Permalink

    When you buy something for your home it is the finished product. When we buy HS2 etc , the agencies who provide the work give estimations and all those involved in managing the project will be thankful they have got some work. The ones with the biggest sway will be demanding larger cuts. The wheelings and dealings involved will mean that those who want the contracts will be busily spending time and money to put their competitors down, to make themselves shine in a ‘totally honest ‘ way. As they prepare to interview individuals to be involved in the overall product the managers will be busily capping the wages so they can get more themselves. The recruitment agencies will be taking large amounts of money , so the managers can sack those appointed as they wanted to prove that they themselves were better than the recruitment agencies who they were instructed to use. Then there will be the delays as staff are bullied and sackings continue and legal costs have to be met and so on and so forth.

    • Woodsy42
      Posted November 5, 2013 at 10:56 am | Permalink

      Not everything we buy is a ‘finished product’. Get an extension to your house, or have a new kitchen. These are admittedly small scale projects, yet essentially are no different except in scale. Any reputable builder or carpenter will give you an estimate and work within it.
      The problem is that our authorities have absolutely no sense whatsoever of reality and value for money creating a total inability to have work done at sensible cost. Hence we get minor road works that cost thousands and thousands of pounds for a bloke with a digger and a bit of tarmac – just scale it up!

      • margaret brandreth-j
        Posted November 5, 2013 at 5:47 pm | Permalink

        Yes you are quite right , but the point I was making is that there will be many agencies involved whose interest is not the finished product .

        • Woodsy42
          Posted November 6, 2013 at 12:03 am | Permalink

          Yes, I agree with that, in fact I doubt anyone involved will have providing an actual rail service anywhere in their priority lists.

          • alan jutson
            Posted November 8, 2013 at 9:31 am | Permalink

            Woodsy42

            An Estimate is a simple guess as to the costs.

            A Quotation is a price to complete the job to an agreed specification.
            Extra’s and overs should be outlined as additional costs for such extra work, and should show daywork labour rates, and a percentage on material costs.

            The difference can be many thousands of pounds on what is perceived as a simple extension.

            Any change to the original, can be an extra cost and have a knock on effect on the timescale taken to complete such.

  10. Bryan
    Posted November 5, 2013 at 8:53 am | Permalink

    The reasons are quite simple.

    For Civil Service read Incompetent.

    For Government Minister read Mouthpiece for Incompetent

    For Consultant read What does Mouthpiece for Incompetent want to hear?

    Simples.

    • lifelogic
      Posted November 5, 2013 at 12:06 pm | Permalink

      Incompetent at best – corrupt alas very often too.

  11. peter davies
    Posted November 5, 2013 at 9:01 am | Permalink

    You said it yourself.

    Huge one off projects mean that the people of the demand side (civil servants) will more than likely not have done anything like this before so will not have the right experience to specify the project correctly and stick to it.

    Another element is that big projects often have different politicians in charge who may want to tinker and change things along the way which often have large unintended consequences.

    Given the fact that such suppliers tend to be huge business entities that can afford to employ top end corporate lawyers that will easily find holes in contracts, or exploit changes made by the demander by adding on extra costs – been there done it, seen it.

    The only way I can ever see this changing is if govt as a rule accept the fact that politicians and their civil servants do not have the skill sets needed to govern large projects at the demand level and stick to defining the project, providing the money and outsourcing the contract negotiations and ongoing governance to a third party thus letting them take the hit for any failures and cost overruns.

    This approach would no doubt cost more up front but over the lifecycle of the project would be a safer way to ensure targets are met with the addition if protecting the taxpayer from extra costs.

    On HS2 if they applied a proper analysis without any political pressure or agendas then I’m sure it would no doubt fail the first part – the business case and would not be allowed to go any further.

    • uanime5
      Posted November 5, 2013 at 8:54 pm | Permalink

      Why would any third party agree to “take the hit” if anything goes wrong on a Government project that may not even benefit them? What’s to stop this third party simply declaring bankruptcy if anything goes wrong so they don’t have to pay for it? This plan won’t protect taxpayers in any way.

      • Edward2
        Posted November 6, 2013 at 4:49 pm | Permalink

        Yet again Uni, you display a huge lack of knowledge of standard business practices.
        There are numerous project management companies and “design and build” companies in the UK who give a complete “turn key” service to a client who wants a building built. From small projects through to complete housing estates or skyscraper office blocks.
        They are project management experts who claim a fee for taking the risk and thrive from being successful at what they do.
        And as already stated on here (5/11/13 at 9.17) in the private sector the financial stability of a contractor is looked into very carefully to stop the chance of such a company going bankrupt.
        Sometimes large sums have to be deposited before a contract starts or insurances taken out to cover this possibility.

        • uanime5
          Posted November 6, 2013 at 11:08 pm | Permalink

          Design and build is where the architect is also the main contractor so that the architect and the main contractor can’t blame each other for any delays. It’s not an example of when all extra costs have to be born by the main contractor. As a result if there are delays outside of the control of the main contractor then the client still has to pay for them.

          Regarding your earlier comments you’ve ignored that in the private sector the main contractor doesn’t have to bear all unforeseen costs. So any analysis of the main contractors creditworthiness is usually to ensure that they won’t go bankrupt after the project, as they’re required to remedy any defects.

          Unlike you I have actually studied constructions law, so I know exactly who has to bear the costs for a variety of different problems.

          • Edward2
            Posted November 7, 2013 at 9:06 am | Permalink

            Unlike you I have spent 30 years in industry and commerce which leads me to say that whilst you are entitled to your opinions they do not concur with my experiences of private sector contracts.

          • libertarian
            Posted November 7, 2013 at 1:06 pm | Permalink

            Uanime5

            If you’ve actually studied “construction law” whatever that is, then why don’t you get a job? etc ed

          • alan jutson
            Posted November 8, 2013 at 9:40 am | Permalink

            uni5

            Ever heard of a contract ?

            It determines (in writing) excactly who is responsible for certain situations, and outlines in detail the work that is to be completed.
            Importantly it also very often also outlines what is not included.
            Both sides read it, both sides agree in advance the terms, and then both sign it.

            It forms the basis of any lawful agreement.

            Thought you would have been aware of such.

            Ran my own design and build construction business for 30 years, and never had a bad debt !

            So I am aware of what goes on in practice.

  12. Bob
    Posted November 5, 2013 at 9:02 am | Permalink

    Is there any bookmaker offering bets on the variance to budget?
    I guess not, since massive overspend is pretty much guaranteed.

    Do you need to be a failed asylum seeker to qualify for free flying lessons or do British citizens also qualify?

  13. stred
    Posted November 5, 2013 at 9:06 am | Permalink

    Building contracts used to be well controlled and usually did not go much over budget. The rule was to obtain a clear brief, produce a design and specification, agree it, measure the job and price it on bills of quantity, obtain fixed price tenders from 5 or 6 contractors, then start and don’t CHANGE THE DESIGN. If you did to any extent, the builders would take you to the cleaners.

    Today, many contracts are started without the above in order to speed things up and allow flexibility. As a result, there are often large cost overruns. The contractors, unsurprisingly, are keen on this form of contract.

    In the case of the Chunnel, the governments upped the spec and doubled the cost, making the private shareholdings worthless. All the major public contracts have gone way over cost and even the starting point is usually above World costs. The latest nuclear stations are 3x those of Chinese.

    But HS2 may cost less, according to Mr Cameron, because they are employing the methods used to deliver the Olympics on target. Oh dear.

  14. Iain Gill
    Posted November 5, 2013 at 9:13 am | Permalink

    If you are looking for big projects where the cost is out of control try the MOD DCNS programme. (Allegations re civil servants and ATOs left out – general view that this is not being well handled by the mixture of the civil service and ATOS) The programme happily reports failure after failure and missed deadline after missed deadline to the politicians. Already billions going to waste, lots of this will never see the light of day. And the politicians response, let them carry on…

    Its not just that the public sector is so bad at buying and running big programmes, its also that they are so bad at choosing suitable people to do it for them consistently listening to the salesfolk and not being able to spot good delivery people. And mostly the incentives in the system act against the good delivery people pointing out where they are going wrong.

  15. formula57
    Posted November 5, 2013 at 9:15 am | Permalink

    Huge cost over-runs are generally thought so likely that any politician as Cameron is now doing pretending otherwise just erodes his own credibility.

    I took some limited pleasure in noting that it is not just the UK that cannot cope in this regard – Berlin’s new airport is seen in Germany as a scandal, still not open after much delay and now expected to cost “nearly €6 billion – three times the initial estimate” – per http://www.thelocal.de/20131104/new-berlin-airport-needs-another-billion.

    Whoever persuaded Margaret to agree to the Channel Tunnel proceeding but without use of public funds (iirc your good self! – and grateful thanks are due) did the right thing.

    Reply Yes, I advised Margaret strongly to resist the idea that the cross channel tunnel should have any public funds. Lord Young wanted the scheme, I wanted no public spending on it, and so a policy was hammered out.

    • peter davies
      Posted November 5, 2013 at 12:40 pm | Permalink

      If HS2 is such a good proposition – surely it should be funded along these lines as well?

    • Mark
      Posted November 6, 2013 at 8:32 pm | Permalink

      €6bn is cheap for an airport. Just another runway at LHR is costed at £10bn.

  16. Andrew
    Posted November 5, 2013 at 9:32 am | Permalink

    “The state as customer needs to get better at deciding what it wants and sticking to it.”

    I wonder whether part of our trouble is feeling like we’re so small and limited that we only get one shot at any given grand project. So it has to be THE airport, THE aircraft carrier, THE train line. If all your eggs are in one basket then you’ll be constantly worried about whether the basket is good enough, especially in a world where technology and requirement constantly shift.

    Perhaps if we just built (or ordered) something good, then we could let it be, safe in the knowledge that we’ll get to build or order something else that’s good in another couple of years. What we do doesn’t have to be perfect (it never will be), and it’s not the final word on transport, defence or whatever else.

    Perhaps this might even help projects get completed faster, reenforcing our ability to do something similar (and complementary) in the near future.

    • John Eustace
      Posted November 5, 2013 at 12:31 pm | Permalink

      Absolutely right. These grand projects go wrong precisely because they are grand projects. They are dictated by top-down thinking divorced from the reality on the ground.
      The aircraft carriers will be useless when they come into service given the developments by the Chinese and no doubt others in anti-ship missiles that will prevent them going anywhere near shorelines in combat. That is even if they have aircraft.

      The rail capacity we need is between Paddington and Reading. That is where eight of the ten most crowded services operate. Getting from Birmingham to London is not a problem in the real world, especially these days when technology makes it so easy to work on the move if your time really is so short.

      • Andrew
        Posted November 5, 2013 at 10:39 pm | Permalink

        Thanks, John E. I didn’t realise that the overcrowding was so particularly bad between Reading and Paddington. Do you know if there are any “small scale” projects planned to boost capacity on these London commuter routes? Any idea how much it might cost to make a difference on the Reading to Paddington line?

        John Redwood, perhaps you know of such things. Do trains from Wokingham go to Paddington or Waterloo, and are they overcrowded at peak times? Perhaps upgrading those into-city routes would provide maximum short term impact, even if it lacked the grandeur of a high speed project. Perhaps upgrading commuter routes into northern cities would also make a large impact to regional development.

        Reply Trains from Wokingham go to Waterloo – or Reading to change to the Great Western to go to Paddington. The Paddington-London trains are crowded at peak times.

        • Andrew
          Posted November 6, 2013 at 9:24 am | Permalink

          Thank you.

  17. David in Kent
    Posted November 5, 2013 at 9:35 am | Permalink

    So far as the HS2 is concerned, I suspect cost doesn’t come into it. As an essential element of the TEN-T network tying Britain and Ireland into the the EU it is going to be built no matter what. http://ec.europa.eu/transport/themes/infrastructure/doc/ten-t-country-fiches/uk.pdf
    Given that, our negotiating position is weak, we can expect costs to escalate and we can expect to have to grin and pay those increased costs.

  18. Bert Young
    Posted November 5, 2013 at 9:48 am | Permalink

    Projects that take many years to plan for and complete exceed the period of a particular Government ; the so called management may change several times thereby allowing the argument that “it was another supervision’s fault” . HS2 was a mistake in the first place and should never have found itself in the Treasurys’ books ; aircraft carriers are a different story , however , there must be put in place a system of rolling control to maintain the contract on budget including any shift in technicalities . The defence of this realm has a priority at the top of my list of spend , nevertheless there is no reason for extravagance or “botched” decision making .

  19. The PrangWizard
    Posted November 5, 2013 at 9:48 am | Permalink

    What is the matter with those who say there is no need for the aircraft carriers, and then sneeringly say there won’t have any aircraft anyway? I wonder what the reaction of those same people will be when, for example, China has reverted to its hard-line communist self and has half a dozen of its own, and a couple turn up in the Bristol and English Channels to protect their investment in the nuclear power station they have financed. Just showing the flag you understand to remind us all where the money came from, and at the same time proving how we are being sold down the river again into foreign hands, by our hopeless traitorous leadership. We now have Cameron saying he wants London to be the World Centre for Islamic Banks. Is that in England’s best interests? Just how much does he intend to change England?

    And with the help of the short-terms city spivs who wanted a quick profit so they could buy big houses in the country and enter The Establishment, and the small minded bean counters, we have sold out our businesses, from International Computers (ICL) to Pilkingtons to ICI – the list is a mile long, to foreign buyers along with their Intellectual Property Rights. And what do we do, we have to buy their further enhanced products. All this adds to costs.

    We had to build these carriers ourselves, but having given up on building merchant ships years ago just before the boom in cruising started we lost our shipbuilding skills, when the Italians and the Germans carried on. No wonder we are paying extra for them. Another contributor to extra costs. What about the machinery and engines. Are we building them ourselves, or is someone else? Do we know how to build big diesels and the propulsion systems? I’d like to think so, at least we have Rolls-Royce as a big company with skills, lets pray that doesn’t go the way of the rest. We need to pray because we can’t trust our rulers to protect it.

    We need a complete change of the arrogant mind-set in our leaders, – better still change our leaders – to those who can ditch the fashionable but dangerous politically correct attitudes, to stop pandering to populism and change the policies which have led us to subservience to others who do not share our view of the world, who put their people and nations first and exploit us as much as they can.

  20. Acorn
    Posted November 5, 2013 at 9:59 am | Permalink

    “Estimated costs for the European Central Bank’s new headquarters in Frankfurt have more than doubled. As has been happening with so many major projects in Germany, its construction has been plagued by poor planning, oversight and execution — and endless delays.” (Spiegel)

    You will be aware that German municipalities are on a spree to reverse some of the privatisations of the Thatcher / Reagan epoch. Mainly energy companies. I guess that Germans in Berlin are as pissed off with their politicians as we are. Eight out of ten voted to nationalise the city electrics, but less than one in four bothered to vote, and the voter initiated referendum failed the minimum vote hurdle. Apathy rules OK.

    Some ideologically driven politicians have a habit of privatising natural economic monopolies, like electricity and gas. These require artificial markets to be created to make the natural monopoly look like it is competitive and creates choice. After three different electricity market systems that have failed lifetime leveled cost tests, it is going back to the original format of paying for capacity (MWs); originally covered by a concept called loss of load probability (LOLP). The penny will drop one day, I hope.

    Talking of artificial markets that serve no public purpose, did you see that the worlds biggest market, trading currencies, turns over $5,300 billion a day. That is speculating on the difference between pairs of currencies. In four days this market turns over enough of the worlds’ currencies, circa $22,000 billion,to pay for a whole year of world trade. The other days generate pure casino banking profits from punters. Now we are told that this is yet another financial market that appears to have been rigged, like LIBOR etc. It’s a good job banksters don’t get prosecuted in the UK; well, perhaps a few sacrificial minions possibly.

  21. Mike Wilson
    Posted November 5, 2013 at 10:49 am | Permalink

    … very least it should be possible to lop £10billion off the current projected costs …

    You talk about it as if it were toy town money. So, just ‘lop’ 10 THOUSAND, MILLION POUNDS off the price eh? The mind boggles.

  22. English Pensioner
    Posted November 5, 2013 at 11:31 am | Permalink

    When I was in the Civil Service, as an engineer, it was very obvious that they did not have contracts staff who had any real experience and that the companies they were dealing with could run circles around them with no effort at all. As an engineer, I’d agree in principle about the broad cost of some project, but by the time it had been “negotiated” by our contracts branch, the price invariably seemed to have doubled. Those civil servants doing the negotiating always seemed to be extremely gullible and tended to accept without question all the arguments for a higher price.
    Another problem is the use of consultants. They have no loyalty to their employer, only to themselves, and often get paid on the basis of the project cost. Thus they have every incentive to ramp up the costs and from my experience invariably do so.
    Certainly, in my view, the Civil Service is unfit for purpose when it comes to dealing with large contracts, it neither has the knowledge or the desire to drive down prices, as, unlike a company, it can’t go broke and no-one will be fired if things go wrong.

  23. JimS
    Posted November 5, 2013 at 11:34 am | Permalink

    WARNING!

    When the MOD says ‘fixed price’ it doesn’t mean that the price is fixed, which is what I suspect you think it means. The MOD needs to negotiate a ‘firm price’, i.e. a price that will not change.

    Damned civil servants (and politicians) with their Humpty Dumpty ‘Through the Looking Glass‘ language!

  24. Roy Grainger
    Posted November 5, 2013 at 11:37 am | Permalink

    My guess is that the answer to your question is that the civil service have insufficient experience of placing contracts with private sector companies and they get taken to the cleaners as a result. Just saying they should place fixed-price contracts won’t work either, they will be unable to specify the scope of work tightly enough up front and the contractors will hit them with hundreds of change orders and scope extensions.

  25. Mark B
    Posted November 5, 2013 at 12:01 pm | Permalink

    John Redwood MP said;
    “Why do we have such problems in this country with runaway costs on big projects?”

    Because it is Government / Taxpayers’ spending and companies’ know that Government, once they embark on a large project such as this, politically, they cannot backtrack. Government is seen as the ‘Gift that just keeps giving’. If it did not have so much money, then it would not be so easily taken for a ride. Make better use with less I say !

    Private business has to live by a different set of rules. If it cannot convince ‘investors’ that it is a good idea, it dies there and then. If it does, then there is extreme pressure to control costs. If costs go too high, either the project is stopped or those working for the client have to either take a financial hit or get kicked off the project.

    You do not go into a Supermarket or shop, read the price tag, take it too the till, only to be told that it is far more expensive than when you where first told. I think under those circumstances, you would have recourse for some redress.

    Politicians’ and Civil Servants’ tend to see ‘our money’ as their own, and to spend it on what they think is needed. Once in office there is no need to consult the electorate on major capital SPENDING – I do not refer to it as investment. It is a serious weakness in our system that should be addressed.

    As always, the problem, and indeed the solution, is far closer to home, or Westminster and Whitehall than you think.

    • uanime5
      Posted November 5, 2013 at 9:16 pm | Permalink

      There isn’t always pressure on companies to control costs in the private sector because it’s often unknown how much a product will make. For example movie and video games companies often spend millions on movies and games only to suffer a huge loss because it didn’t make as much as they expected.

  26. behindthefrogs
    Posted November 5, 2013 at 12:03 pm | Permalink

    Anyone who has been involved in bidding for government contracts knows that the original price can be cut to the bone because there will be many opportunities to revise the price as changes to the specification are negotiated during the course of the project. Dates are subject to slips in a similar manner.

    The solution is tight specifications that are not changed for any reason. If this is likely to lead to an unusable product, then that should be the supplier’s problem clearly delineated in the contract.

  27. Lindsay McDougall
    Posted November 5, 2013 at 12:18 pm | Permalink

    If we add stations it will no longer be high speed, will it?

    • Bryan
      Posted November 5, 2013 at 1:34 pm | Permalink

      True – but when it leaves the station it will be very quick for a few miles – before it has to stop at the next one.

      This process used to be called a commuter train.

      Oh, I thought we already had those? I am sure Mr Redwood has blogged that he travels on them from time to time!

    • margaret brandreth-j
      Posted November 5, 2013 at 6:19 pm | Permalink

      If the travellers are instructed to run through the barriers with elbows out to the train and hop on quickly within one minute or else the train will leave the station , it could still be highish speed.

  28. Atlas
    Posted November 5, 2013 at 12:29 pm | Permalink

    Isn’t one of the many problems that procurement is determined by EU wide rules?

  29. BobE
    Posted November 5, 2013 at 1:10 pm | Permalink

    HS2 will only be for people on expense accounts and the remaining people will continue to use the other line. Now who travels on expense accounts (hmm).

  30. Kenneth
    Posted November 5, 2013 at 1:27 pm | Permalink

    I have some sympathy with shipbuilders and other large project providers who are reluctant to underwrite fixed costs.

    We have a bitter history of governments and foreign quangos moving the goalposts and piling on more costs.

    For example, Mr Milliband’s recent talk of controlling energy prices (Charles Clarke on “Any Questions?”, BBC radio 4 on 25th October suggested that the recent price rises were a consequence of the Milliband intervention, a major news story the BBC ignored, despite it breaking on its own airwaves).

    Other examples include the constant stream of new regulations from unelected Brussels technocrats.

    We need to create a climate where long term business decisions can be taken with confidence and until we do so I cannot see a solution to this problem.

  31. Kenneth r moore
    Posted November 5, 2013 at 1:30 pm | Permalink

    The country has been broken anyway by Blair and the heirs to Blair so why should the civil servants or politicians care if we have to spend another 10 or 100 billion. That can be covered anyway by printing money.
    More spending equals more GDP growth ….Osborne is prepared to see billions wasted so he can bask in the glory of a few tenths of a % of phoney GDP growth – a politician without principle.

    • Kenneth r moore
      Posted November 5, 2013 at 1:36 pm | Permalink

      I don’t buy into the incompetent ministers and civil servants arguments – nobody could be that incompetent. These reckless projects inflicted upon the British Taxpayer are acts of vandalism designed to destroy the old England to make way for a shiny new EU state.
      Cameron himself said in a recent speech that he ‘preferred the way is England is today and didn’t much care for the past.
      Overspending, unlimited migration, undermining of the family, destruction of old and familiar landscapes and buildings. All part of the plan.

  32. John B
    Posted November 5, 2013 at 1:35 pm | Permalink

    ”Why do we have such problems in this country with runaway costs on big projects? When I buy a new piece of equipment for my home I choose one I like and agree a fixed price for its manufacture and supply. The contract is binding and I end up paying the original price. Why can’t we buy trains and boats like that?”

    Very simple Mr Redwood answer.

    When you buy a new piece of equipment in your home, you are spending your money, when you buy a high speed railway or an aircraft carrier you are spending mine.

    • uanime5
      Posted November 5, 2013 at 9:20 pm | Permalink

      Well if you tried to order a custom made computer but after your initial order you kept trying to change your order you shouldn’t be surprised if the modified version ends up costing more.

  33. Leslie Singleton
    Posted November 5, 2013 at 2:50 pm | Permalink

    I am all in favour of money for aircraft carriers but why on earth do we need them so large? Just think: one mistake or incoming missile that gets through and it is goodbye to billions with the done-for carrier taking, apparently, about 10 years to replace. Surely perhaps half a dozen smaller carriers (or whatever, at same cost) would have been preferable. Government decisions, along with the Harriers, bonkers as usual.

    • uanime5
      Posted November 5, 2013 at 9:21 pm | Permalink

      One large carrier is generally more economical than two smaller carriers.

    • forthurst
      Posted November 5, 2013 at 10:49 pm | Permalink

      If you do a read up of the history of this project, you will find the answers. It is probably better to ensure someone else is in the room whilst you doing that, just in case you decide momentarily that carrying on had become too painful and just not worth while. It certainly provides answers to JR’s question.

      http://en.wikipedia.org/wiki/Queen_Elizabeth_class_aircraft_carrier

      In short it’s all about interoperability with the USN and the need to be able to deploy a strength of 36 aircraft. The matter came to a head over our inability to assist the US in Afghanistan with them having to call on the French navy instead for some mission or other, probably a large wedding party or a jurga or something. It is not clear whether these carriers are to be deployed solely against countries with no maritime or air defence like Afghanistan, in which case drones are the answer, otherwise, as you suggest, anti-ship missiles are likely to become faster (mach-5+) and more evasive to the point when they become extremely hard to intercept.

      I cannot see why the government did not offer to exchange the orders for the aircraft carriers for other work to at least the value of the existing contracts in order to acquire platforms which were not already obsolescent.

      The main problem we face is that most politicians have Arts degrees and are functionally innumerate, therefore they persistently make judgements based on qualitative criteria only; thus they can never see that although doing something or spending money on something may be a good idea in theory, on the other hand it may not produce benefits commensurate with the likely costs and may prevent more worthwhile decisions being taken or investments being made, as well as damaging the private sector.

    • Max Dunbar
      Posted November 5, 2013 at 11:37 pm | Permalink

      Don’t normally post links but is this the sort of thing that you are concerned about?http://www.youtube.com/watch?v=YdrISbwy_zI
      HMS Barham went down horribly quickly after torpedoes struck her.

  34. Alan Wheatley
    Posted November 5, 2013 at 3:12 pm | Permalink

    I was working for a defence contractor when Peter Levine introduced competitive tendering for all MoD contracts. While they can work when your a buy, say, 50,000 pairs of socks it does not work for very low volume, very high value and complicated things; aircraft carriers are a case in point.

    After helping to prepare a couple of the fixed-price bids it became obvious to me that fixed-price could not work as an on-going procurement method because the volumes were so low. If, say, three contractors bid then the two loosing contractors would have to absorb the cost of their bid: it cost a lot of money to put together a bid.

    Contractors could only stay in the defence business if their costs incurred making loosing bids were recovered from the profits of their winning bids. If this was to work the MoD would, in reality, be paying the contractor’s costs for their winning AND their loosing bids.

    It was never going to work. The dramatic reduction in the number of UK defence contractors since Levine rather proves my point, I think.

    If I, a lowly cog in the big wheel, could see this, then why couldn’t the MoD?

  35. Max Dunbar
    Posted November 5, 2013 at 3:18 pm | Permalink

    Would the aircraft carriers turn a profit if they were converted to flats and moored alongside HMS Belfast?

  36. Antisthenes
    Posted November 5, 2013 at 3:40 pm | Permalink

    “Why do we have such problems in this country with runaway costs on big projects?”

    I think the answer to that is obvious. Government is not the best type of organisation to plan and control anything despite the left’s insistence that it is. The structure and incentives are not in place for it to be efficient or to be concerned about waste. History tells us that every thing government is involved in running eventually becomes more costly and dysfunctional. The NHS is a prime example including all the other nationalized and semi nationalized businesses even the armed forces and the police although for those two there are no alternatives and is something that we have to put up with but not the others. If HS2 has to be built then a better way would be for it be given to the private sector with the government underwriting the cost and guaranteeing the profit. Under those circumstances investors would look favourably on the project and no government money need be spent in the short to medium term at least. Unfortunately government is notoriously bad when it comes to making contracts with the private sector as well but that is much easier to sort out than the inherent systemic failures of government planning and control.

  37. Vanessa
    Posted November 5, 2013 at 3:57 pm | Permalink

    I think we taxpayers should all “down tools” and stop paying our taxes then the government would HAVE to cancel contracts we, the public, do not want.

    Why don’t they research some old cancelled Dr. Beeching lines which are still ghost lines and could be brought back into service at a fraction of the cost. The Great Central Railway runs virtually where HS2 is proposed and still has the cuttings and bridges waiting to be utlilsed, that would help capacity if that REALLY is the reason !!!

    This would not need to destroy people’s homes, businesses or farms or have to pay compensation. There are so many railway lines which were moth-balled by Beeching it is a “no-brainer” to build a completely new one at huge expense. Tories up and down the country will lose seats because of it – it is SO unpopular.

  38. JoeSoap
    Posted November 5, 2013 at 7:16 pm | Permalink

    Please explain why you support employers paying a minimum income, regardless of the market conditions they face, but you are happy to cut the costs of your railway by buying parts abroad at prices which would put those manufacturers in the UK who are burdened with paying your minimum income out of business.
    Spot the inconsistency with yesterday’s post?

    Reply The Minimum income I support is a mixture of market determined wages and top up benefits which all main parties have introduced or supported over the years.

  39. Lindsay McDougall
    Posted November 6, 2013 at 3:57 am | Permalink

    Cost escalation seems to be a particular problem with British made MoD projects. Remember the problems with Nimrod? Remember the problems with getting Arnold Weinstock to agree to any fixed price defence contract? Nowadays, if it’s planes or missiles, there is always the option of cancelling and buying American.

    There remains the difficulty with British made ships. I understand that there is overcapacity in this market. Can we not take advantage of this to drive down prices?

  40. Mark
    Posted November 6, 2013 at 2:42 pm | Permalink

    Perhaps an Energy Minister would care to explain why Hinkley C will cost over three times as much as the twin EPR reactors of similar capacity and technology being built by Areva in Taishan, China, and take over twice as long to build and commission?

    If we could match the Chinese costing and timescale the station would be fully competitive with existing coal and CCGT capacity without the need for any subsidies and price guarantees, and it would help to meet the silly 2020 decarbonisation targets while saving us from investment in expensive offshore windfarms. Moroever, instead of building just one such station we could get on and build several to supply base load power, leaving CCGT for its more natural role in meeting peak demand.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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