ORR chief admits failings in Network Rail efficiency monitoring

Office of Rail and Road Chief Executive Joanna Whittington says the railway regulator has not monitored the efficiency of Network Rail as effectively as it could have done in the current Control Period.

Whittington was speaking at the Transport Select Committee’s inquiry into rail infrastructure investment on March 26. Asked to assess ORR’s performance in Control Period 5, she said: “One of the areas that, with the benefit of hindsight, was not such an effective decision was around efficiency.

“We reached a view that Network Rail would be able to achieve efficiency numbers of about 20%. In practice, that has not taken place, for a number of reasons.”

She added: “The failure was to recognise that we were being very backward-looking in our monitoring, and were not providing the right ongoing incentive to deliver efficiency.”

Asked whether the current Control Period system has caused stop-start investment in the railway, Whittington said: “What I absolutely accept is that in the last couple of Control Periods we have seen a cyclical effect, with renewals volumes in particular dipping off at the back end and then peaking in the middle of the following Control Period. What I do not accept is that that means the Control Period concept per se is flawed.

“Yes, we have seen a problem emerge in the last couple of Control Periods, but the answer is not to get rid of the Control Period process - it is to make sure that there is good-quality planning underpinning it and there is then transparency of the plans. Those plans should run for longer than the five years. We need to give that transparency and, over time, increasingly give confidence, through the contracting strategy that Network Rail adopts, to the supply chain.”

Also attending the inquiry were Network Rail Chief Executive Mark Carne and System Operator Managing Director Jo Kaye.

Asked about separating enhancements schemes from the Periodic Review process, Kaye said it would be a positive step.

“It more accurately reflects the fact that enhancements projects do not neatly fit into a five-year cycle,” she said.

“As you will have seen in recent publications, there is a much clearer decision between each part of a project that you are going to proceed. Part of that decision to proceed will include a much clearer and much more robust assessment of all the elements of the system that need to come together to make the project a success. That is a much more formal process than was ever the case previously with enhancements.”

Carne explained the role of the System Operator function in more detail to the committee, outlining its approach to government.

“It will produce not just the shopping list, but will basically put it to Government and say: ‘If you have £5 billion to spend, this is what we would recommend you do. If you have £10bn to spend, then we think you should do this. If you have £15bn, we think you should do this. We think that the industry ought to provide you with that insight.’ That has not been the case in the past with the degree of clarity that you have a right to expect.”

On the possibility of the railway attracting more third-party funding and financing, Carne said: “Funding is somebody giving us some money to build a station, for example, which will then service a new housing development that they are building. They will make a return on their investment through the wider benefits that the railway will bring.

“There is a lot of opportunity for that kind of funding of railway projects. A large part of East West Rail between Oxford and Cambridge is intended to be paid for by the housing developments that will benefit from that new railway. I am very optimistic about that.

“Today, the route businesses all have business development leads who are going out to communities and talking to councils, developers and freight companies, saying ‘what do you want from the railway and, by the way, how much are you prepared to help pay for it?’

“It is amazing how much opportunity is out there. I am very optimistic that we can shift the model more to a funded model, paid for by the people who will directly benefit through better transport links.”