Extracting maximum value frrom new market approaches

JASON CHAMBERLAIN, Partner, Asset Finance at global law firm Bryan Cave Leighton Paisner LLP, considers the Department for Transport’s plans for market-led proposals in rail

THE Department for Transport has recently turned to the private sector for ideas, because as Secretary of State for Transport Chris Grayling declared: “Governments do not have a monopoly on good ideas for the railways.”

Against a backdrop of largely stripping Network Rail of responsibility for upgrading the railway, the DfT launched its Rail market-led proposals - Call for Ideas.

At the same time, but ring-fenced from the call for third-party ideas, the DfT has called for specific third-party ideas on much-needed rail access from the south to Heathrow Airport - what it calls the Southern Rail Link to Heathrow (SRLtH).

Separately (yet not), it has pushed out another rail enhancements initiative - Rail Network Enhancements Pipeline: A New Approach for Rail Enhancements - to create a pipeline (the RNEP) down which it will put the rail enhancements government funds. Sounds as if they need some ideas in the acronym department!

The DfT wants to use the market-led proposals it receives in response to its Call for Ideas to help create some “contestability”.

Contestability is something you do with or against or around Network Rail in the delivery of railway infrastructure. In a circle as round as it is unbreakable, the DfT has endorsed Network Rail’s response endorsing the independent review Network Rail commissioned into how third parties compete with NR in delivering railway infrastructure, which Network Rail commissioned under pressure from the DfT to make NR subject to competitive pressure when delivering railway infrastructure.

And then, apart from all that, governmentowned Network Rail declared itself open for business to third-party investment to develop the upgrades it has identified. Perhaps NR understands contestability as being contestability with the government for ideas and investment.

So, Grayling was right: the Government does not have a monopoly on good ideas, but it certainly seems to have a monopoly on not necessarily joined-up ideas that it thinks is a good idea to publish all at once.

But if the public sector is constrained in how much it spends improving the railway, the private sector is the only place left to look to fill the gap. And there is obvious value in establishing an enhancements programme, so that the industry and its supply chain can plan.

The right idea then, but what will be critical to whether anything tangible comes of it will be if the DfT can generate enough market confidence that there is the opportunity to realise enhancements ideas, including to monetise them. That confidence is generated by expectation management of pipeline content, certainty of process, and likelihood of reward.

So, who is in the market to make market-led proposals?

A market-led proposal (MLP) is an “unsolicited bid” to enhance the railway (unsolicited, that is, if you ignore all the soliciting by the DfT for market-led proposals), which the DfT has not already sent down the RNEP. Anyone not publicly funded can make a market-led proposal.

Proposals have been split into two types: ‘Category 1 MLPs’ and ‘Category 2 MLPs’.

Category 1 MLPs are those which do not require public money, government guarantee or exclusivity. You might call them ‘Magic Bean Ideas’, because the idea that there are dormant rail enhancements projects out there that do not require some form of money, underpinning or exploitation rights (or a combination of those) belongs in a fairy tale.

On the assumption that we won’t be seeing the rail equivalent of a giant beanstalk any time soon, let’s focus on Category 2 MLPs, which means the following:

We are really talking about market-led proposals where promoters are looking for some sort of government support.

Promoters must develop their Category 2 MLPs at their own risk and cost.

At some point a promoter will have to run the gauntlet of the DfT’s governance process.

That process - the so-called ‘ RNEP Framework’ - contains the five stages or gateways that a promoter of a railway enhancement must go through before it will be made (below).

These are what you might call instead the five Ds of Dodgeball - Dodge, Duck, Dive, Dip and Dodge - because the owner of an idea to enhance the railway must do each of these things in order to see that enhancement realised. It looks a bit like an obstacle course. To those familiar with government-led procurement, it probably conjures up images of a ‘tough mudder’ with caged crawls, electric shocks and butter-smeared monkey bars.

Despite A New Approach suggesting that an idea can enter the RNEP at any stage, it still needs a government-endorsed business case and to have passed the decision point for that stage. So, in truth, you probably cannot skip a D - unless you’ve Dodged, Ducked and Dived, you won’t be Dipping.

What’s certain is procurement. The Call for Ideas says “procurement is used to ensure value for money”. So, if you have a market-led proposal, it will be contested to some degree. It’s just that at this point you have no idea to what degree, because the messaging on procurement is completely open-ended.

It will be interesting to see what kind of market the DfT has managed to create by imposing a deadline for the submission of market-led proposals (July 31).

We know that HS4Air has been put forward - a proposal to join up Heathrow and Gatwick to both High Speed 1 and 2 by by-passing London (a sort of high-speed M25 railway), an