Chris­tian Wol­mar

CHRIS­TIAN WOL­MAR be­lieves that as money be­comes in­creas­ingly tight, the cost of run­ning, main­tain­ing and im­prov­ing the rail­way will lead to more and more prob­lems for the in­dus­try

Rail (UK) - - Con­tents - Chris­tian Wol­mar

Ex­pert more cost over­runs.

AS the rail­way lurches to­wards a fi­nan­cial cri­sis and an in­vest­ment plan with no money, it is worth re­flect­ing on a few ba­sics. Over the two decades that I have been writ­ing this col­umn, there have been some hardy peren­ni­als that keep on popping up and which seem no nearer so­lu­tions.

I’m not talk­ing about the pe­ri­odic crises which seem to hap­pen ev­ery 18 months or so when there is a fran­chise de­ba­cle, a tech­ni­cal cri­sis, an ac­ci­dent or in­dus­trial ac­tion, but rather the is­sues that never seem to go away, dat­ing back to the pri­vati­sa­tion of the rail­way or even ear­lier.

The most ob­vi­ous one is the cost of run­ning, main­tain­ing and im­prov­ing the rail­way. The cri­sis loom­ing over the rail­way, but yet to per­co­late through to the pub­lic (or, in­deed, many politi­cians), is that these ex­ces­sive costs will be a bar­rier to many im­prove­ments. They are al­ready hav­ing an im­pact on per­for­mance be­cause of tem­po­rary speed re­stric­tions.

The sit­u­a­tion is only go­ing to get worse as money be­comes in­creas­ingly tight. More­over, the ex­tra spend­ing on projects dur­ing the cur­rent Con­trol Pe­riod (CP5, the in­vest­ment plan for 2014-19) means that the next one (CP6, tak­ing us up to 2024) is widely ex­pected to be very thin gruel in­deed.

Rail­way man­agers I meet in the in­dus­try are in no doubt about the ex­tent and dire ef­fects of the im­pend­ing cri­sis. There is a feel­ing through­out the rail­way that they are liv­ing on bor­rowed time, and soon the pos­i­tive feel­ing in the in­dus­try - en­gen­dered by years of growth and high in­vest­ment - will turn to anger, de­spair and frus­tra­tion.

I had a par­tic­u­larly in­ter­est­ing meet­ing with a long-time rail­way man­ager who did not hold back on dis­cussing these is­sues, but who has to re­main anonymous in or­der to ex­press his views. He used to work for a train op­er­a­tor dur­ing what he sees as the golden pe­riod of pri­vati­sa­tion, when the Bri­tish Rail man­agers were sud­denly lib­er­ated by far greater com­mer­cial free­dom and the avail­abil­ity of money for in­vest­ment to ex­pand ser­vices.

Now, still in a senior po­si­tion and a rail­way­man through and through, he is deeply con­cerned about the state of the rail­way, de­spite the growth and the spend­ing on in­vest­ment. He is wor­ried that de­spite the vast amount of good­will from man­agers and staff, there is real con­cern about the fu­ture.

As he puts it: “I’ve never met some­one in Net­work Rail who doesn’t want to run a good rail­way, but there are many ob­sta­cles in their way to bring that about.”

He cites an ex­am­ple of a few years ago, when he moved from one op­er­a­tor to another and was told: “They’re a bad lot on that route in Net­work Rail. They will give you hell.” They didn’t - and the rea­son why was be­cause he treated them as equals and part­ners, rather than as the ‘other lot’.

Rather than go­ing in there all guns blaz­ing, he talked to all the ‘stake­hold­ers’, got peo­ple to an­a­lyse the pre­cise rea­sons for de­lays, and did not play silly games over the pre­cise le­gal mean­ing of con­tracts. He tried to limit the com­pen­sa­tion claims on ei­ther side, pre­fer­ring in­stead to try to sort things out more in­for­mally - rather the way that they were done un­der BR (not that he thinks BR was per­fect!)

In­ter­est­ingly, he re­minded me that one of the rea­sons why the Lon­don Over­ground net­work has been so suc­cess­ful is that there is a dif­fer­ent com­pen­sa­tion regime. I have writ­ten be­fore about this (for ex­am­ple, RAIL 725), and it is one of the most dys­func­tional parts of the fran­chis­ing sys­tem.

Trans­port for Lon­don, how­ever, has a dif­fer­ent sys­tem for let­ting out con­tracts than the Depart­ment for Trans­port. And here is a pos­si­ble pointer as to why costs are so high and per­for­mance so poor on the fran­chised net­work. On the Lon­don Over­ground routes - and in­deed for TfL Rail (cur­rently the tem­po­rary of­fi­cial name for Cross­rail) - the pri­vate com­pany man­ag­ing the con­tract does not ben­e­fit if NR causes de­lays to its trains. In­stead all the money for com­pen­sa­tion goes through to TfL.

More­over, the com­pany man­ag­ing the con­tract pays a fine of 10% for any de­lays, even if caused by Net­work Rail. There is there­fore a real in­cen­tive to avoid de­lays, what­ever their cause. No won­der that TfL Rail has been the most im­proved op­er­a­tor in the past year since it took over the Liver­pool Street-Shen­field ser­vices from Greater Anglia.

This is in sharp con­trast to the way the per­for­mance regime works on the rest of the rail­way. The ter­ri­ble truth is that poor per­for­mance is a money earner for the train op­er­a­tors, pro­vided the prob­lem has been caused by Net­work Rail. The dif­fer­ence be­tween mak­ing a profit or loss is, for many op­er­a­tors, how much money they get through Sec­tion 8, the com­pen­sa­tion sys­tem for

un­sched­uled de­lays. To give one ex­am­ple, Greater Anglia made just £3.6 mil­lion profit in 2015, but it re­ceived around £16m from Net­work Rail in com­pen­sa­tion.

The sys­tem leads to all sorts of game play­ing. If a fault is down to Net­work Rail, there is no in­cen­tive for the train op­er­a­tor to en­sure that re­cov­ery is car­ried out as quickly as pos­si­ble. If the fault is down to the op­er­a­tor, then it is likely to pay far more at­ten­tion to it. This is the realm of per­verse in­cen­tives that was men­tioned by the McNulty re­port pub­lished in 2011, but which has never been ad­dressed by the DfT.

For train op­er­a­tors, the per­fect sce­nario is for ev­ery train to be nine min­utes late. In that way, the de­lay does not ap­pear in the Pub­lic Per­for­mance Mea­sure but they will get com­pen­sa­tion from Net­work Rail. In­deed, one of the rea­sons that Na­tional Ex­press walked away from the East Coast fran­chise two years into an eight-year fran­chise in 2009 was that it was not re­ceiv­ing enough money in com­pen­sa­tion pay­ments. In other words, the pas­sen­gers were get­ting a ser­vice that was too good for them!

The other fun­da­men­tal per­verse in­cen­tive is that train op­er­a­tors are also com­pen­sated for planned work car­ried out to im­prove the rail­way for their ben­e­fit. The com­pen­sa­tion sys­tem needs a com­plete over­haul - or (frankly) abo­li­tion.

In­ter­est­ingly, my friend does not be­lieve that the so­lu­tion to the per­for­mance prob­lems of Net­work Rail lies in great big structural changes. In­stead, he sees it as be­ing down to man­age­ment, a point I have of­ten made in this col­umn. With­out good man­age­ment, any sys­tem will not work prop­erly, and that’s the prob­lem with Net­work Rail. It has suf­fered for years from a fail­ure to en­sure that there are ex­pe­ri­enced man­agers in place and (most im­por­tant) that it re­tains them. Far too of­ten when good peo­ple have been em­ployed for a par­tic­u­lar project, they are ‘let go’ and al­lowed to join other rail or­gan­i­sa­tions, which means their skills and ex­pe­ri­ence are lost.

One of the things lost when Bri­tish Rail was bro­ken up was the ca­reer rail­way man­ager who went from job to job within the or­gan­i­sa­tion, learn­ing ev­ery as­pect of how the rail­way func­tioned. It seems now that the rail­way no longer val­ues that ex­pe­ri­ence.

I am not hark­ing back to BR days or say­ing it should be re-cre­ated, but merely stat­ing that those in charge of the rail­way should be ex­am­in­ing ways to en­sure that these skills are re­gained and, most im­por­tantly, re­tained. Too many senior man­agers in Net­work Rail leave for the pri­vate sec­tor and never re­turn.

Let me re­it­er­ate a point I have made pre­vi­ously. NR will only start to get its costs un­der con­trol when it builds up suf­fi­cient man­age­ment ex­per­tise to con­trol projects it­self. Once it sub-con­tracts project man­age­ment, then the in­cen­tive to keep costs down is lost.

Net­work Rail needs to be­come an in­formed buyer. Un­til then, ex­pect more crises, cost over­runs and project de­ba­cles.


On April 19, Great Western Rail­way 166220 passes through Son­ning Cut­ting with the 1512 Lon­don Padding­ton-Read­ing, with a Thames Val­ley Turbo and High Speed Train in the back­ground. The costs of the Great Western Elec­tri­fi­ca­tion Pro­gramme is con­tin­u­ing to rise.

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