Armitt outlines drive to hold down spending on network amid claims of renationalisation by stealth.
Network Rail this week announced that it intended to cut planned spending by £1.3bn in the next three years, a 20% reduction in the budget for operations, maintenance and renewals.

The infrastructure company, which outlined its intentions on Monday, said that the cost of operating, maintenance and renewal for 2002/3 was £4.93bn and that this was expected to rise to £6.45bn by 2005/6.

Network Rail said, however, that it expected to make savings of 20% on this figure, cutting the total by £1.29bn to £5.16bn.

The firm said it had already made "significant savings", although they had been offset by investments, designed to save money later.

Network Rail has released a 55-page summary of its business plan, which outlines the changes it will make to its procurement procedures.

It says: "We are replacing short-term, often adversarial, contractual relationships with longer-term framework contracts that encourage a partnership approach."

The firm said further work was required to flesh out the details of how it would make the cost savings.

The new maintenance programme is pretty bad new for contractors

Unnamed rail contractor

Last week, Network Rail continued its budget drive by taking in-house maintenance contracts in the Wessex and East Midlands areas.

Responsibility for Wessex, now operated by Balfour Beatty, will be taken back in March next year, when the Balfour contract expires. Industry experts say that the announcement came as a shock to Balfour Beatty. Its share price dropped last week after the announcement.

The Serco contract for the East Midlands will be taken in-house when it expires in March 2005.

Network Rail chief executive John Armitt said that bringing the contracts in-house would help Network Rail to understand why costs had risen and help it to obtain a clear understanding of how maintenance was delivered.

The decision to bring these contracts in-house has fuelled suspicions that Network Rail is trying to renationalise by stealth.

One industry insider said he suspected that Network Rail would take more maintenance contracts in-house.