Network Rail caught between a rock and a hard place
PHILIP HAIGH considers the ponderous nature of the infrastructure company’s renewals activity, and examines how difficult it will be to improve matters
SISYPHUS was condemned forever to push a rock up a hill, only to see it roll back down. Today, he’d be dressed in orange and asked to catch up Network Rail’s renewals backlog.
Laborious it might be - futile it is not. Renewals remain vital if NR is to keep its network fit for increased demand from passengers and freight shippers. However, the Office of Rail and Road (ORR) is unhappy with the way NR has dealt with renewals in the current Control Period (2014-19).
Meanwhile, over at supplier group RIA, there are reports of a sharp drop in activity. It has experienced a fall in demand of between 20% and 45%, which has resulted in suppliers laying off staff and deciding not to take on graduates and apprentices.
The regulator said last July that NR was becoming less efficient at renewing track, signalling and structures. It suggested several reasons: NR was poorly prepared for the Control Period; its efficiency improvement plans were not well founded; it reacted slowly to problems surrounding efficiency; and there was increased pressure to run trains, which cut NR’s access to renew things.
In addition, ORR found cost pressures bearing down onto NR, as a result of its reclassification into the public sector and consequent spending limits. This led NR to replan work, to reduce volumes in order to keep within limits. But deferred work knocked onto costs. On top of this came devolution to NR’s routes from the centre. Using their new-found freedom, route managers added extras onto renewals which increased their cost.
This neatly illustrates a problem. Those local managers might consider it worthwhile adding remote condition monitoring equipment to points when they are renewed, for example. In the longer term this should lead to lower maintenance costs, because NR would have a better idea of the state of repair of those points. However, NR and ORR had not budgeted for adding that remote kit, so the renewal of those points appears to be more expensive than budget and therefore inefficient.
Elsewhere, NR might respond to pressure to be efficient by renewing a crossover installed 30 years earlier in the same form, rather than in a form that suits today’s traffic. Strictly speaking, renewing something in a better form is an enhancement, and separately budgeted.
The problems with renewals expose the porous boundary between maintenance, renewals and enhancements. There are also difficulties with discrete Control Periods for continuous work that is better done without activity falling into troughs and then rising to peaks.
The next Control Period (CP6) starts in April 2019. NR must give operators 18 months’ notice for possessions, so it must tell them this month (October 2017) of the renewals it plans for April 2019.
However, it will not know what funding it has for at least another year (although the Treasury has published outline figures to 2021). NR could counter this by negotiating new framework contracts with suppliers, because these deals come only with an expectation of work rather than a guarantee.
When the current Control Period (CP5) started in April 2014, it took NR around a year to sort out renewals contracts with its suppliers. As both a supplier of ballast trains and a user of the network, Freightliner reports considerably reduced volumes of renewals work over the past two years, while at the same time noting that NR is warning suppliers to expect a sharp rise in work from April 2018 (see graph). Yet if CP6 repeats CP5, NR will take a year to turn the renewals tap on and will then wrench it shut after two years - put another way, a five-year control period with hard boundaries contains only two years of renewals.
Better surely that continuous activity such as renewals is planned and funded on a rolling five-year basis, to remove the stop-start seen over recent years?
RIA warns of looming problems when it reports that GRIP 1-3 work is not being done for CP6 projects. GRIP 1-3 is the first three stages of a project when its scope is settled. Without it, work on the ground cannot start, and scopes can’t be developed overnight. This standstill accentuates the stop-start nature of NR spending that is universally criticised, and admitted by NR itself as being a problem.
RIA suggests that small suppliers will go out of business, and larger ones will look abroad where work is more certain. It warns that volatile workloads could push costs up by 30%.
In evaluating what NR needs for CP6, ORR will need to better assess how costs might change. NR argues that this area was not properly assessed last time round.
Funding plans for CP5 were developed in 2012-13, when Britain was hauling itself out of 2008’s economic strife.
This recession led to lower prices as contractors competed for scarce work, and according to NR these prices were plugged into CP5’s funding. In reality, NR has been receiving tenders with prices that have risen 20% more than the retail price index measure of inflation since 2012-13.
There’s a pattern in ORR’s work to determine NR’s funding. Each time it demands of NR higher efficiency savings than NR thinks possible and that NR then manages to deliver.
Overall, NR’s work today is considerably more efficient than when it took over from Railtrack, and it has achieved this against a backdrop of more trains and more passengers. NR will always be cautious in predicting what it can achieve, but ORR must consider the consequences of setting targets that can only be achieved by cutting work and creating backlogs.
The Rail Delivery Group contends that efficiency targets must be achievable, otherwise NR will have to defer work to meet spending limits, which brings performance risks and changes to workbanks and possessions. “These create inefficiency and so represent a downward spiral, leading to poorer outcomes for rail users and the taxpayer,” it says.
Consequences also come from taking longer than planned to deliver work. NR has become more risk-averse since the high-profile overruns to engineering work at Paddington and King’s Cross in 2014. It claims to have halved overrunning works in the past
three years, but even NR admits that it has cancelled work rather than risk it overrunning.
NR has spent the last few years delivering several major upgrade projects, including Thameslink and Crossrail in London and Great Western’s Reading remodelling and route electrification. This has taken resources in people and kit that might have been used on renewals. Shortages led NR to prioritise Crossrail rather than resignal Bristol. Given Crossrail’s profile and widely known deadline, NR can defend its decision, but it says it cost the company £38 million.
Signalling remains a tricky area. New technology looms large, such as ETCS cab-signalling. Yet no one seems to know when it will arrive, and in the meantime NR must renew life-expired kit. This is a problem on the southern end of the East Coast Main Line, which has long been a candidate for ETCS but which was viewed by local managers as a risk too far when they also faced the prospect of renewing the throat pointwork at King’s Cross station at the same time.
Opinions remain mixed on the effect of NR’s reclassification. ORR suggests that the fixed borrowing limits this brought magnified the effect of NR entering CP5 less efficient than ORR had planned. NR itself suggests that the situation is not as bad as portrayed, saying that the Treasury’s classification of its spending as “annually managed expenditure” gives it some flexibility in moving sums between years.
Meanwhile, Transport Scotland is bewildered that spending limits should cause such problems.
“It seems a perverse notion that requiring Network Rail to live within its means to deliver its regulated outputs, including a reasonable amount of financial flexibility in the borrowing headroom, has contributed to renewals inefficiency. The opposite should be the case, driving Network Rail to work with its supply chain to deliver maximum value for public funding,” it tells ORR.
To get back on track, NR has appointed a director of transformation and efficiency, and expects to increase productivity (by improving its access to tracks), reduce inefficiency (by commercial changes and renewals improvements), and increase efficiency (by using intelligent infrastructure, Digital Railway and employment cost optimisation)
Everyone wants a better railway. With plans rooted in reality and funding that promotes canny delivery, Britain’s railway can improve still further.
ORR has a major part to play in creating an atmosphere in which delivery is possible. But if it sets targets too far from Network Rail’s grasp, it will hobble CP6 from the start.