Michael Grant, chief executive of the Strategic Rail Authority, has the Herculean task of upgrading the UK's network. What chance does he have of pulling it off?
The rail industry is in crisis. And with the future of Railtrack in doubt after its share price plummeted last week, the future of key parts of Britain's rail network is in the hands of the Strategic Rail Authority. This little-known quango was set up in February to oversee the government's 10-year, £60bn rail investment programme. Its aim was to create a "bigger, better, safer" railway system. But some question whether the authority has the muscle to drag the industry out of its crisis.

Some City investors say the only thing it has accomplished so far is to award franchises to train-operating companies on lines such as the Trans-Pennine and South-Central – and it has not done a particularly good job of that. "They have been a bit shambolic in the franchise so far," one UK banker comments. So what are the authority's chances of successfully managing investment programmes such as the £2.8bn East Coast Main Line upgrade and the £300m East London Line extension?

Mike Grant, chief executive of the SRA, admits that his organisation is faced with a massive challenge: "What we are trying to deal with here is 40 to 50 years of no investment. It is going to take some time to put right."

In response to the criticism that the SRA is moving too slowly, Grant stresses the need for preparation to ensure that investment programmes are properly managed. "What it certainly will need is a lot of planning. It is absolutely crucial that all this is well co-ordinated," he says. "Contractors need guidance from us. It is not all down to them."

As Grant is aware, mistakes made in the procurement process contributed to the cost of the West Coast Main Line upgrade tripling from £2.1bn to £6.3bn. He is trying to stop such problems recurring by taking preventative action early in the investment programme. The SRA has therefore set up steering groups involving Railtrack, the train-operating companies, contractors, and the authority itself. These groups are meeting every six weeks to discuss how to improve procurement.

It is all about risk, Grant believes. By transferring it to contractors, the SRA says it will align its interests in achieving its programme with those of its suppliers in making a profit. "Some of them [contractors] will want to take financial risks as equity partners in the projects. Others will just want to take the risk on the contract by being a subcontractor or main contractor," Grant says.

A consultant working for Railtrack, who supports Grant's approach, believes that the SRA has to get back to basics in planning projects. "It has to get back to first principles to understand both the risk and exposure. Basis principles of project management need to be looked at."

Grant is aware that the SRA has to work in tandem with the beleaguered Railtrack. "We need to sort out how we want to procure these projects," he says. "It has to involve Railtrack. They need to play a positive role in all of this."

An obstacle to the programme's success is the skills crisis in the construction industry. Grant points to work that the SRA has done with the former Department for Education and Employment in trying to identify skills gaps. This will lead to government funding being put into training schemes. He also believes that a stable market is critical to adequate skills provision. "The most important thing is that the market has got to believe that there is a long-term order book there, because then the market will supply what is needed over time."

The authority will handle design and project briefs and is already working on these with a panel of 32 advisers - including firms such as Arup, WS Atkins, Babtie, MDA and Mott MacDonald. The SRA will also look at contractual briefs and the setting up of partnership vehicles. It is expected that specific teams will be assembled for particular projects, and will include a mix of funders, contractors, consultants and train-operating companies.

It will certainly need a lot of planning. Contractors need guidance from us. It is not all down to them

Mike Grant, chief executive of the SRA, on the East Coast Main Line upgrade

There is still concern, however, about how these public-private partnership vehicles will work. This has not been helped by the confusion surrounding the partial privatisation of London's Tube system, but that aside, the private sector parties are concerned about the state's track record in putting private finance deals in place, and the effect they will have on the construction industry.

In addition, a major rail contractor points out that previous private finance schemes in sectors such as health and education have taken a long time to get up and running. "It took a while for the roads and hospital schemes to get off the ground," he says. "This will be a huge challenge."

One backer is more specific. The SRA, he says, lacks the dynamism to get through the volume of work it will be presented with. "It is an institution of government officials and acts in that way."

Using separate deals for different projects in the way that the SRA envisages could lead to greater fragmentation in the industry, warns a consultant. A quantity surveyor in the rail sector points to the number of different clients he could be working for in future: "I could be employed by Railtrack, by contractors, the SRA, the National Audit Commission [which checks rail investment] or the train-operating companies. It is hugely confusing."

There are, however, signs of a positive response from the industry. Joint ventures are being formed between train-operating companies and construction giants such as Bechtel, which is bidding with Virgin for the East Coast Main Line project. Other major players, such as Amec and Fluor Daniel, are understood to be already making presentations to the SRA.

One backer believes that preparations are well advanced. "You have got the train-operating companies already there with financial institutions. There are relationships in place out there, which is different to how it as in the early PFI days," he says.

A rail source claims that the new structure will empower contractors that become part of the project teams: "They will have far more freedom. Contractors will be able to establish a fairly strong position in the infrastructure marketplace. Without Railtrack they will be in control of their own destiny."

Interest levels have also greatly improved, according to one quantity surveyor: "Last year there was not much response to SRA tenders. That has now changed. People are aware of how [much] more significant the SRA is." The consultant describes a major recruitment drive being instigated by the SRA as an encouraging sign: "There is a feeling that there is a lot more clout there than before."

What is the SRA?

The Strategic Rail Authority came into force in February to oversee the passenger, freight and infrastructures of the UK rail network following the passage of the Transport Act 2000. It took over the responsibilities formally held by the Office of Passenger Rail Franchising and the British Railways Board. Formed at the behest of then deputy prime minister John Prescott, its main job since February has been replacing passenger rail franchises that are due to expire in 2004. The new franchises will be for 20 years, which the SRA claims will give train operators greater incentive to invest. Its aim is to create a “bigger, better safer” railway system.