These are nervous times for the rail sector’s contractors and consultants, with Network Rail being ordered to slash costs as major project budgets spiral.
the British rail network has reached a crossroads in its journey, if you’ll forgive the slight confusion of transport types. Behind it lies a decade of unrelenting struggle. Just about every aspect of its organisation and operation has been attacked, often with a passion that hasn’t been entirely rational. And as a result of those attacks, the part of the system that deals with the fixed assets of track and signals has been continually mucked about with. Now the focus has narrowed to a single issue, and another big change to the institutional structure is being contemplated.
The issue is cost cutting, and the changes could mean quiet times ahead for major rail contractors.
Cost has become such a big issue for the rail sector for a number of reasons. The most proximate cause is that the stewardship of public services has become an electoral issue for the Labour and Conservative parties, both of which are linking the issue with taxation and their managerial competence. At the same time it is proving next to impossible to cost large rail projects. The apotheosis of this is the West Coast Main Line upgrade. The projected cost of this project has risen from £2bn in the mid-1990s to an expected out-turn cost of £7.6bn. It would have been £10bn had parts of the scheme not been downgraded.
“It’s a very sensitive topic in the government,” says one senior rail consultant. “They perceive that cost is not under control, which means they cannot commit fully to transport schemes such as Crossrail. Nobody feels confident enough, so it breeds uncertainty.”
The Office of Rail Regulation, the agency that sets performance standards and awards public subsidy, has now acted to cut costs and to make the costing process more transparent. It has ordered Network Rail, the body in charge of the track, to cut its overall spending 30%, from £6bn to £4bn a year over the next five years. This has caused concern among rail contractors, who are wondering whether the target will prompt Network Rail to do with renewals what it did with maintenance and bring it in-house. “There is obviously nervousness with the plc contractors about this,” says a source at one such firm, adding that Network Rail would have the capacity to pursue this option.
Meanwhile, consultants on framework agreements are wondering what will happen to them. Some have already had their fee rates and travel allowances cut and Network Rail is using less experienced, and so less expensive, managers to run projects. It is also trying to poach staff from its consultants by the reliable method of offering them bigger pay packets.
A Network Rail spokesperson confirms that the client has initiated a major drive on fees and bringing more experience in-house. On the former, the client is cutting 20% of the cost base across the range of QSs, project managers and the like who work for Network Rail. This followed a benchmarking exercise that compared cost for rail consultants with similar services in other industries. On the skills side, the client says it needs more experienced permanent staff, especially to work on front-end design work before it is put out to the market. “We need core people in core roles and need to be less reliant on long-term agency staff,” the spokesperson says.
Consultants are expecting their framework deals to produce less work. “It will have a significant affect on us in the short term,” says the head of a major consultant. “It’s a strange situation. We’ve had less work on the framework deal but more on one-off jobs like the West Coast Main Line. History has taught us that you may lose work but then gain it somewhere else. Simon Murray [Railtrack’s head of major projects until June 2001] tried to bring work in-house in the late 1990s – things come around again in this sector.”
The government perceives that cost is not under control. Nobody feels confident enough – it breeds uncertainty
Senior rail consultant
In November, Network Rail held a seminar with senior rail QSs to ask them for their ideas on how to proceed. The meeting was chaired by Nick Crossfield and Simon Kirby, Network Rail’s contracts and procurement director and major projects and investment director respectively. According to one of those present, the message was that there would be plenty of work for the right people, but there would be “fewer people in the room this time next year”.
Network Rail offered an olive branch at the meeting by giving the QSs the opportunity to submit their own ideas of how to cut costs, which firms duly did by the 22 December deadline. Although some may see this as a cynical attempt to get free consultancy work, others are more generous. “It’s to be applauded,” says one senior rail consultant. “They are listening to us.” Another senior consultant said it was the duty of the profession to offer realistic solutions: “The problem surely is for the QSs. If the sector is seen as out of control, our whole raison d’être comes into question.”
So what are the big ideas for revolutionising costs? Senior rail QSs who spoke to Building were understandably reluctant to part with their brain children before Network Rail had responded to their submissions, later this month. However one solution that could begin to create confidence in cost has emerged from a rather unlikely source – the RICS industry strategy group. This has offered to become the independent collator of costs for rail, giving it a similar role to Building Cost Information Service, an arm of the RICS that produces independent research on the costs of buildings.
Michael Byng, the head of the RICS group, argues that although contractors, client and consultants have conducted research on assessing costs, the industry needs an independent body to assess all the available data. “All this work has been in separate pots – it’s not coming together,” says Byng. “Wouldn’t it be a good idea for the RICS to become the judge and jury on matter of costs?”
Byng is due to submit a paper proposing such an idea to the Department of Transport this month. He stresses that the aim is not to undermine the role of Network Rail but to help it. “This is in the public interest, which is part of the role of the RICS. We are not coming out against Network Rail, which has had a horrendous job to do. It’s about removing fear. It’s been very difficult for the government to make judgments on which schemes come and which go; without solid cost information it can’t do that.”
Byng claims the idea would go some way to easing government worries about rail investment. It would improve business cases for new work, possibly reduce bidding costs among the private sector and could ease criticism of Network Rail, he argues. “It’s in everyone’s interests to have some independence on this. If someone takes a pop at Network Rail over cost, these bodies could go to an independent body for proof they are hitting cost parameters. It could stop all these verbal wars over spending.”
While not responding directly to the independent cost body idea, Network Rail is bullish that it is getting to grips with the whole issue. Reading between the lines it does not appear to feel the body is necessary. “Nobody is further forward than us in getting to the bottom of costs,” says the spokesperson. “We will be taking forward our work on costs as a priority.” Even if the RICS idea comes to nothing, the concerted effort from all concerned gives cause for optimism. Given the disarray that has marred the sector, the drive for efficiency and consistency may pull the client and its contractors and consultants together, rather than apart.