Out-Law News 3 min. read

Chinese firms invited to bid for UK high speed rail construction contracts


Chinese firms have been encouraged to bid for major UK infrastructure contracts, including £11.8 billion worth of opportunities as part of the first phase of the new national high speed railway, HS2.

At least seven contracts will be made available to suppliers as part of the first phase of HS2, with a maximum award of up to two contracts per tenderer, chancellor of the exchequer George Osborne announced during his week-long trade visit to China. The contracts cover the surface route and tunnels for the first phase of the planned line, which is due to run between London and Birmingham.

Speaking at an event in Chengdu, south-west China, Osborne said that the UK and China were "truly entering a golden era of cooperation". The government is organising an 'HS2 partnering day' to give Chinese companies an opportunity to meet potential UK partners, and is keen to encourage Chinese participation in the new HS2 skills college, which is due to open in 2017, he said.

Infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that Chinese companies would need "complete transparency and certainty" from the UK government over its future approach to infrastructure policy if they were to feel confident bidding for long-term contracts. This included planning policy and labour market regulations, he said.

"If these issues are addressed, the next 10 years will be full of opportunities for both UK and Chinese companies," he said.

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

"If the UK government's thinking is about encouraging finance from Chinese investors then it may be helpful to see more clarity and detail as to the timing and form such an opportunity might take. However, if this is a reference to participation in the construction works, then clearly for Chinese contractors there will be a need to prepare and be ready to address the particular legal requirements of the tendering process," he said.

In particular, Chinese contractors would need to pay particular attention to the procurement regulation requirements under EU law, Hart said.

At this early stage of the procurement process, suppliers have been invited to complete a pre-qualification questionnaire (PQQ) setting out their interest in all seven packages that form the 'Main Civils Works' for the first phase of the line. These contracts are split over three geographical areas along the route between London and Birmingham: North, Central and South. Additional contracts covering the route north of Birmingham may also be made available, depending on the outcome of ministerial decisions later this year.

Following the PQQ, successful applicants will be invited to tender for a maximum of four packages, and may be awarded up to two contracts. Final contracts will not be signed until the 'hybrid bill' for the first phase, which is currently before parliament, receives royal assent. Construction work is expected to begin in 2017, and contracts for stations and railway systems will be made available at a later date.

During his Chengdu visit, at which he met with senior Chinese investors, Osborne also encouraged Chinese firms to bid for £24bn worth of investment opportunities in the north of England. Infrastructure and regeneration projects seeking investment include the 'Atlantic Gateway' project connecting the port of Liverpool to Manchester, and the 'Science Central' development in Newcastle.

China's contribution to world GDP reached almost 15% in 2014, up from less than 2% in 1990. At the same time, Chinese outbound direct investment has tripled since 2005. According to analysis by Pinsent Masons and the Centre for Economics and Business Research (CEBR), published last year, Chinese investment into the UK could reach £105bn by 2025. Much of this investment will be driven by an increase in joint ventures and partnerships between UK firms and their Chinese counterparts, according to their report.

"The chancellor's courting of the Chinese for HS2 is evidence of this in action and is part of a wider picture that has already seen considerable investment and involvement in several major redevelopment projects across the UK including in London, Manchester and most recently in Salford, Leeds and Sheffield," said Hong Kong based infrastructure law expert Ian Laing of Pinsent Masons.

"Four out of five of the world's largest construction and engineering companies are now Chinese, with a growing appetite for investment in advanced economies such as the UK due to its transparent business environment, under-capitalised infrastructure sector and close political ties with China. We are already seeing a growing number of Chinese investors partnering with UK firms, such as real estate developer ABP which has invested £1bn in the Royal Albert Docks development in east London," he said.

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