Network Rail’s faults.
Network Rail has bigger things to worry about than attracting comparatively small amounts of private finance, argues CHRISTIAN WOLMAR
IT is sometimes difficult to understand what Network Rail is playing at. The organisation is beset with both short- and long-term problems. In the short term, it is unable to deliver the efficiencies demanded of it by the Office of Rail and Road. In the long term, there are serious concerns throughout the industry that there will simply be no significant enhancements for the railways in Control Period 6, the five-year investment programme that will start in April 2019, because of the backlog of maintenance and renewal work from the current period.
Meanwhile, rather than trying to address its fundamental structural problems, Chief Executive Mark Carne is focused on attracting private money into the industry - a laudable aim, but it has involved far too much managerial energy for what is likely to be a very small part of the railway’s investment needs.
In a speech to the Railway Industry Association on September 15, Carne said the private sector could be involved in anything from “the construction of car parks, to smaller stations and new railway enhancement projects”, and he singled out the £500 million Western Access line to Heathrow Airport as a potential option. That’s all well and good, but there is no private sector ‘money tree’ to rescue the industry from the hard fact that most of its investment needs will have to be met from public funds.
This search for the Holy Grail of private money is a distraction. The ways that Network Rail is managing both its day job of keeping the railway operating (undertaking maintenance and renewal work - OMR, as it is called) and running its longer-term enhancements programme are seriously and structurally flawed. This is what present management should be focused on.
My various columns on the subject of Network Rail’s failings over the past few months have attracted a wide response from people in the industry, both senior managers and those lower down the hierarchy. The stories they tell me are consistent and paint a picture of an organisation that, despite existing for nearly 20 years, still has not understood how to go about its basic task.
Let’s look at the long-term projects first. One of my contacts explained to me the process that he was involved in for Great Western electrification. I had not realised that the work to draw up the scheme was not carried out by Network Rail, but instead had been contracted out to a private company. This involved outsourcing the first two stages in the aptly named GRIP (Governance of Rail Investment Projects), which cover ‘output definition’ and ‘feasibility’.
In other words, and this should be reprinted and stuck on the walls of its boardroom, Network Rail has neither the skills nor the capability to define major projects.
By relying on outsiders, it will never build up that expertise and will constantly find itself at the mercy of consultants and contractors who, understandably, are there to make money. (It gets worse. Projects are then sent to the Treasury, which in turn commissions consultants - sometimes the same ones - to assess whether the scheme should go ahead. Therefore neither the Treasury, the Department for Transport nor Network Rail has the requisite expertise to give a dispassionate view of such schemes. No wonder they always cost a fortune.)
Network Rail’s key problem is that it is not, in the words of another of my informants, “an informed client”. And worse, because every scheme is devised and commissioned in isolation and with the use of contractors, it will never become one. That failure has already wrecked the electrification programme and is now set to decimate the enhancements programme for Control Period 6. That is why the blathering on about getting private money is such an irrelevance. This is not a political point. Of course, much of the work will need to be done by contractors, but Network Rail must develop its capacity to commission work effectively.
This is particularly true of signalling schemes. Effectively, there are now only two providers for much of the network - Alstom and Siemens. However, as yet another informant told me, when the contract is allocated to one of these companies, any further work also has to go to them because no one in any other company or in Network Rail has the requisite expertise to deal with their proprietary systems. The signalling firms, in other words, have Network Rail over a barrel. They can charge whatever they want for subsequent work, with very little oversight.
The problems with OMR are equally serious. Network Rail was supposed to deliver a 14% improvement in efficiency during the first three years of the current Control Period. Instead, its efficiency has fallen by 5% in that period. That is why there is no money likely to be available for any new enhancements over the next seven years.
Part of the problem is the rather arbitrary separation between ‘maintenance’ and ‘renewals’. Essentially, maintenance is seen as bad because it is routine and does not lead to improvements, while renewals, which may well involve technological improvements, is seen as ‘good’. The dividing line between the two is hazy, and indeed under British Rail there was not the sharp demarcation there is today. Broadly, bigger projects, involving more
“Of course, much of the work will need to be done by contractors, but Network Rail must develop its capacity to commission work effectively.”
than a few hundred metres of track, are defined as renewals. Smaller ones are counted as maintenance.
However, the processes for the two are completely different. Maintenance, which was taken in-house after the 2002 Potters Bar accident, is carried out by permanent Network Rail staff based on the eight routes into which the organisation is divided. Renewals, on the other hand, is carried out by Network Rail’s IP (Infrastructure Projects) division and split into divisions that do not match the boundaries of the routes.
It is not controversial to say that most of the people within NR I talk to (as well as nearly all those outside it) dislike IP, suggesting it runs things in a ham-fisted way and does not work well with other parts of NR. It has a relatively large ‘standing army’ of people ready to do work, but also contracts out much of it, which is the worst of all worlds. The renewals work is not done through the routes, and therefore they have no say over what is being done.
Carne would like to see the routes take over control of this work, and also for them to be allowed to bring in contractors other than IP to make projects ‘contestable’, something which has been talked about for years. IP would be broken up to fit into the route structure. However, this might lead to a situation where some of IP’s in-house people, who have expertise and experience, literally become a ‘standing around doing nothing’ army which would clearly not be cost-effective. Opponents of this idea do not want to see IP broken up because they feel that its ability to work across the network should be retained.
There are also differences over the way that contracts are managed. They can either be operated on a fixed cost or through alliances with contractors. The problem with the former is that very often Network Rail has no idea of the state of the asset being renewed, and therefore the contractor will price in risk quite heavily. It is much better to work in conjunction with the contractor, although this can mean that extra work is not put out to tender and therefore can be considered less competitive.
Much of this, therefore, is down to ideology. There is an obsession among some executives that competition and privatisation are the way forward, while others consider co-operation and retaining in-house expertise as being far more important. No prizes for guessing what side I am on.
There have been numerous enquiries into the system in recent years, looking at various aspects of why Network Rail can’t keep a lid on costs. Yet, none has looked properly at why costs have soared and why Network Rail never manages to change. Unless there is a readiness to change the current ideological orthodoxy, things will not get better.