The rail sector is embarking on a journey of disruption, change and uncertainty, with Network Rail’s transformation at the centre of it all. But having dodged the worst of the spending cuts, the sector could become a highly sought-after destination – for those who can handle the risk
If there was one area of capital spending that might be said to have been left almost unscathed by the cuts pushed through by the coalition, then rail construction must be it. According to the Department for Transport, it will spend £7.7bn a year over the next five years, a cut of just 10% on the previous spending review period. Consequently Network Rail’s £35bn spending plan for the five years from 2009-14 has remained pretty much in place, protecting a swathe of major schemes. Add to this Crossrail, the London tube upgrade and the prospect of High Speed 2 coming down the line at some point this decade, and the rail sector is a good place to be right now. Dave Hooper, rail sector managing director at contractor Osborne, sums it up: “I wake up every morning eternally grateful for being in rail.”
But if you think that means life is straightforward for contractors, consultants and engineers carrying out the planned work, then you’d be wrong. Funding has been protected at a moment of huge upheaval in the sector, with immense government pressure being brought to bear on costs through reviews by Roy McNulty and Infrastructure UK into productivity at the sector’s principal client, Network Rail. The National Audit Office wants to make savings of £940m per year by 2013-14. Meanwhile David Higgins’ arrival at Network Rail, from the Olympic Delivery Authority, has brought a huge shift in the way the body interacts with the supply chain, and a shake-up of the entire organisation is around the corner. As if that wasn’t enough, the £14.5bn Crossrail programme, currently without a chief executive, is re-organising its delivery structure, and Transport for London is dealing with huge cuts to its tube upgrade programme (see boxes below).
While there are changes under way right, left and centre in rail at the moment, it’s those at Network Rail that are causing the most interest, excitement and confusion.
When Ian Coucher, former chief executive, became managing director in 2002, the body was new and still reeling from the disastrous accidents of the late nineties. By the time he became chief executive in 2007, Coucher had a mandate to rule with a rod of iron to ensure consistent quality. This was successful in achieving uniformity, but created a bureaucratic, slow moving giant as a side-effect, with little capacity for managers to take big decisions. Higgins has already made clear he wants to change this. A source close to the process says: “Higgins is the complete opposite to Coucher - he’s about giving people freedom, and saying, I’ll hold you to account if you mess it up.”
The first difference that contractors are likely to feel is an unexpectedly warm embrace from Network Rail, where previously contact may have been less friendly. Simon Kirby, the organisation’s director of investment projects, with a project pipeline of £6bn, has already announced he will be seeking to bring contractors in at a far earlier stage in the process to form partnerships or alliances, and just last week its debut project was taken forward. The plan for the Hitchen flyover in Hertfordshire was approved by Philip Hammond, the transport minister, kicking off a whole new approach to rail procurement. Eight projects, including the £600m London Bridge redevelopment, have been identified to pilot this. But it is clear there will be a quid pro quo here: partnering with contractors will mean contractors have to accept more construction risk - including
the often huge liabilities for delays. It will not be one-size fits all either: there is a recognition that while contractors may be able to share all the delay risks in a project like the £800m improvements between Edinburgh and Glasgow, the risks of overunning at London Bridge will be too great to share completely.
All this has been welcomed by the Balfour Beattys of the world, but some are concerned that this may mean smaller contractors won’t have the balance sheet strength to join the game. Hooper says that may not be a bad thing: “Construction is a risky business. If you can’t understand risk, then you’re not going to stay in business as a contractor. This is a sensible way forward, about allocating risk in a fairer way.”
That’s not to say it’s all sweetness and light. Many in the industry doubt Network Rail’s ability to about turn from confrontational client to cosy partner. A separate source close to the reforms says: “There’s a cynicism from the big guys about whether Network Rail has the capability to do this. They say the people expected to be doing the partnering are the same ones beating us up on contracts two weeks ago. Has it got the capacity?” Anooj Oodit, director of rail at consultant Turner & Townsend, says: “It’s great to see Network Rail move into a more collaborative arrangement. But there will be challenges that come with this that need to be faced.”
Mark Loader, managing director of infrastructure delivery at Mace, a relative newcomer to rail, which is construction managing the £600m Birmingham New Street Station project, thinks the changes also signal positive news for further redevelopment around stations. “A couple of years ago station redevelopment was very low on the agenda. That’s changed now; there’s an openness about looking at commercial developments,” he says. “On the other hand, closer involvement on big schemes doesn’t necessarily mean more use of frameworks - Network Rail has told the supply chain civils work is much more likely to be directly tendered, with frameworks likely to be wound down.”
So what will the new organisation look like? Sources suggest, as revealed by Building last week, that Kirby will be given leeway to run the major projects division as a separate business within Network Rail, and be expected to turn a profit. This could ultimately even allow the body to compete to win projects outside of the UK, but could also lead to having to compete to run work on the UK network. Network Rail declined to confirm what it was planning for the investment business. A spokesman said: “We are open to any new thinking that will deliver projects in a more efficient way.”
Overall, Higgins’ vision is to split the body into route-based businesses, each with their own MDs, which will match the greater powers given to train operating companies under the proposed McNulty reforms. For some, this has uncomfortable echoes of the system that failed under Railtrack, but either way the day-to-day business of track maintenance and renewals is likely to fit under this regional structure.
An interesting twist is that control and management of the smaller stations is likely to pass to the train operators, who’ll be given longer, 15-year franchises and a remit to improve station buildings - opening up the possibility these operators could quickly become big clients for the construction industry. Ultimately the change looks set to open up a huge amount of opportunity for those in a position to grasp it - as long as you have the appetite to take the risk.
Next stop … network rail’s upcoming developments
Manchester - Piccadilly and Victoria link
The £85m rail link between Manchester Piccadilly and Victoria is part of Network Rail’s £530m Northern Hub plan to revamp rail services in the north of England. The proposed rail link is a short stretch of line known as the Ordsall Curve in Salford. Network Rail’s plan is a revival of the 1974 “Picc-Vic” link that was shelved in 1977 due to excessive costs. Government funding for the latest proposal was confirmed in the Budget. The new link will see all fast trans-Pennine services going via Manchester Victoria station. Next year the government will decide whether to provide funding for the Northern Hub in its five-year rail plan to help deliver faster, more frequent journeys between Liverpool, Manchester and Leeds and stimulate economic growth in the North.
Swindon to Kemble Line
Network Rail recently secured just under £42m worth of funding in the Budget for the redoubling of the Swindon to Kemble line. Doubling the line from a single track will reduce the travel time by around 20 minutes on the London to Stroud route. The notorious bottleneck was downgraded to a single track in the late sixties as a cost-saving measure by British Rail. As a result a maximum of two trains per hour can use the 12-mile route in each direction. Following government cuts last year it was assumed the project would be shelved. However Network Rail submitted a feasibility study to the DfT demonstrating that the project could be completed for £41.7m instead of the original £52m estimate. Although no date has been set for the tendering process, meaning much of the building work will be up for grabs, much of the preparatory work is complete. AmeyColas is expected to bid for the project having worked on the nearby Cotswold line. Works on the project are scheduled to conclude by 2014.
Three Bridges Depot, Crawley
The Three Bridges depot will be built to cope with the influx of new trains coming in and out of London, and as a place for trains to be kept when they are not in use. A planning application is expected to be submitted to Crawley council in the next few months and construction of the depot and associated facilities will take two years, with about 370 jobs created on the project. Although the scheme is still at an early stage, the facility is required by 2014 for the commissioning of the first new trains. A value is not available as yet but, as a major scheme with a completion date already fixed, it’s one to watch. All facilities will be constructed on railway land south of Three Bridges station. The maintenance depot will be on the western side of the site, with a train washer, sidings and an electricity substation. On the eastern side, there will be an underframe train cleaning facility and another train washer. The scheme also includes a footbridge over the main line and a wider embankment to the south.
Additional reporting by Barry O’Sullivan
What else is changing?
You would be hard pushed to find a rail project, or indeed any infrastructure project, more high profile than Crossrail at the moment. And continuing the All Change theme, an overhaul is afoot here too. The £14.5bn programme, currently without a chief executive after the departure of Rob Holden at the start of the year, is
reorganising its delivery structure with a complete overhaul of its programme. Holden oversaw the process that resulted in lengthening the build of the project by a year, making it much more deliverable. But the equally tough task of making the scheme’s delivery structure more efficient for austere economic times is ongoing. And last week Building revealed that head of Bechtel’s Crossrail operation, project director Cliff Mumm, will also be leaving and that Bechtel’s power to make independent decisions on the project will be reduced. The reorganisation has been designed to remove layers of duplication between Crossrail and its delivery partner. The results of the reorganistion are yet to be seen but the aim is to see Crossrail, Bechtel and the programme partner Transcend brought together to form a single, integrated Crossrail team.
Last week, Crossrail awarded the remaining tunnelling contracts, worth £275m, with Hochtief and J Murphy & Sons, Vinci and Morgan Sindall all winning work.
The problems for this organisation have grown as a result of tough times and the public sector cuts. In total, it is being asked to save £2.5bn from its upgrade costs before 2014. Transport for London will cut £300m from the cost of the tube upgrade over the next four years by scaling back station improvements, deferring “non-essential” civils work and reviewing procurement. This will delay completion of the planned upgrade of the Piccadilly line, due in 2014, as TfL reviews the viability of combining it with work on other lines that share track - for example, the District line, which is due for an upgrade by 2018. Another £300m will be saved by cost-cutting measures to other transport schemes.
View from the consultant
Mark Prior, head of transport, EC Harris
Next month, Sir Roy McNulty is scheduled to issue his long-awaited report on the future of UK rail and it seems safe to assume that “efficiency” will be his watchword just as it will continue to be the sector’s mantra for the foreseeable future.
As ever, the central challenge for the sector will be how it can deliver more for less. In other words, it needs to find a way to improve the quality of service it offers without compromising on the delivery and operation of a safe, efficient and effective rail programme.It’s a tall order for the industry, but certainly not an insurmountable task.
If we consider the main findings from the UK Cost Review, one of the headline conclusions was that the price of doing business in the UK infrastructure sector was significantly higher than in other countries in Europe, with overly high costs identified in the construction and operation phases of rail assets. Patently, this is a trend that can no longer continue. However, when judging the efficiency of UK rail, the review does not offer a comparison between the cost of delivery and maintenance of the asset and the total passenger miles travelled. This could be a significant statistic given that in the UK we are sweating an existing infrastructure to deliver capacity enhancements rather than building from scratch.
The task now facing the industry is to identify those areas where cost inefficiencies can be quickly stripped out. An obvious area to start would be in the supply chain but in this instance it will be crucial not to confuse “more efficient” with “cheaper”. The danger is that it overlooks the underlying inefficiencies that exist within the myriad processes that go into delivering and maintaining the rail network. A more forensic approach is needed here to help pinpoint what genuinely delivers greater value and safety and what can be removed.
The industry also needs to ensure that a strong commercial focus is embedded into its approach to programme management for future work. Delivering these projects is no longer a barometer of success - they need to be managed in a way that reduces wasteful expenditure and provide a return on investment that is intrinsically linked to the core business and socio-economic objectives. On a micro level this will mean projects constructed and operated at the lowest cost, delivered in the shortest time possible and at the quality needed to deliver the required performance. On a more macro level this mindset will help ensure that each project fits within a wider integrated programme of work helping to drive further economies of scale.