Rail 836: Network Rail’s private obsession is the wrong track

It is sometimes difficult to understand what Network Rail is playing at. The organisation is beset with both short and long terms problems. In the short term, it is unable to deliver the efficiencies which have been demanded of it by the Office for Road and Rail. In the long term, there are serious concerns throughout the industry that there will simply be no significant enhancements for the railways in Control Period 6, the five year investment programme that will start in April 2019 because of the backlog of maintenance and renewal work from the current period.

Meanwhile, however, rather than trying to address its fundamental structural problems, Mark Carne, the chief executive, is focussed on attracting private money into the industry which is a laudable aim but has involved far too much managerial energy for what is likely to be a very small part of the railway’s investment needs. In a speech to the Railway Industry Association on September 15, Carne said the private sector could be involved in anything from ‘the construction of car parks, to smaller stations and new railway enhancement projects’, and he singled out the £500m Western Access line to Heathrow airport as a potential option. That is all well and good, but there is no private sector ‘money tree’ that is going to rescue the industry from the hard fact that most of its investment needs will have to met from public funds.

This search for the holy grail of private money is a distraction. Both the ways that Network Rail is managing its day job of keeping the railway operating, undertaking maintenance and renewal work (OMR as it is called), and running its longer term enhancements programme are seriously and structurally flawed. This is what is present management should be focussed on.

My various columns on the subject of Network Rail’s failings over the past few months have attracted a wide response from people in the industry, both senior managers and those lower down the hierarchy. The stories they tell me are consistent and paint a picture of an organisation that, despite existing for nearly 20 years, still has not understood how to go about its basic task.

Let’s look at the long term projects first. One of my contacts explained to me the process that he was involved in for Great Western electrification. I had not realised that the work to draw up the scheme was not carried out by Network Rail but, instead, had been contracted out to a private company. This involved outsourcing the first two stages in the aptly named GRIP (Governance of Rail Investment Projects) which cover ‘output definition’ and ‘feasibility’. In other words, and this should be reprinted and stuck on the walls of its boardroom, Network Rail does not have the skills or the capability to define major projects. By relying on outsiders, it will never build up that expertise and will constantly find itself at the mercy of consultants and contractors who, understandably, are there to make money. (It gets worse. Projects are then sent to okayed by the Treasury, which in turn commissions consultants – sometimes the same ones – to assess whether the scheme should go ahead. Therefore neither the Treasury, not the Department for Transport or Network Rail has the requisite expertise to give a dispassionate view of such schemes. No wonder they always cost a fortune.)

Network Rail’s key problem is that it is not, in the words of another of my informants, ‘an informed client’. And worse, because every scheme is devised and commissioned in isolation and with the use of contractors, it never will become one. That failure has already wrecked the electrification programme and is now set to decimate the enhancement programme for Control Period 6. That is why the blathering on about getting private money is such an irrelevance. This is not a political point. Of course much of the work will need to be done by contractors but Network Rail must develop its capacity to commission work effectively.

This is particularly true of signalling schemes. Effectively, there are now only two providers for much of the network, Alstom and Siemens. However, as yet another informant told me, when the contract is allocated to one of these companies, any further work has to go to them as no one in any other company or in Network Rail has the requisite expertise to deal with their proprietary systems. The signalling firms, in other words, have Network Rail over a barrel. They can charge whatever they want for subsequent work, with very little oversight.

The problems with OMR are equally serious. Network Rail was supposed to deliver a 14 per cent improvement in efficiency during the first three years of the current Control Period. Instead, its efficiency has fallen by 5 per cent in that period. That is why there is no money likely to be available for any new enhancements over the next seven years. And by the way, whatever its supporters say, the massive spending on HS2 will ensure that is the case.

Part of the problem is the rather arbitrary separation between ‘maintenance’ and ‘renewals’.  Essentially, maintenance is seen as bad because it is routine and does not lead to improvements, while renewals, which may well involve technological improvements, is seen as ‘good’. The dividing line between the two is hazy and indeed under British Rail there was no the sharp demarcation there is today. Broadly, bigger projects, involving more than a few hundred metres of track are defined as renewals rather smaller ones are counted as maintenance.

However, the processes for the two are completely different. Maintenance, which was taken in house after the Potters Bar accident, is carried out by permanent Network Rail staff based on the eight routes into which the organisation is divided. Renewals, on the other hand, are carried out by Network Rail’s IP (Infrastructure Projects) division and, oddly, it is split into divisions that do not match the boundaries of the routes. It is not controversial to say that most of the people within Network Rail I talk to, as well as nearly all those outside it, dislike IP, suggesting it runs things in a ham-fisted way and does not work well with other parts of Network Rail.

It has a relatively large ‘standing army’ of people ready to undertake work but also contracts out much of it. This is the worst of all worlds, though. The renewals work is not done through the routes and therefore they have no say over what is being done.

This has stimulated a row within Network Rail. Carne would like to see the routes take over control of this work and also allow them to bring in contractors other than IP to make projects ‘contestable’, something which has been talked about for years. IP would be broken up to fit into the route structure. However, this might lead to a situation where some of IP’s in house people, who have expertise and experience, literally becoming a ‘standing around doing nothing’ army which would clearly not be cost effective. (I remember this happening at the BBC years ago when Michael Checkland, a number cruncher by trade, decided that the brilliant in house library services would have to be charged for internally and consequently everyone stopped using it.) Opponents of this idea do not want to see IP broken up because they feel that its ability to work across the network should be retained.

There are also differences over the way that contracts are managed. They can either be operated on a fixed cost or through alliances with contractors. The problem with the former is that very often Network Rail has no idea of the state of the asset being renewed and therefore the contractor will price in risk quite heavily. It is much better to work in conjunction with the contractor, although this can mean that extra work is not put out to tender and is therefore can be considered less competitive.

Much of this, therefore, is down to ideology. There is an obsession among some executives that competition and privatisation are the way forward, while others consider co-operation and retaining in house expertise as being far more important. No prizes for guessing what side I am on.  There have been numerous enquiries into the system in recent years, looking at various aspects of why Network Rail can’t keep a lid on costs, such as those by Hendy, Shaw and Hansford. Yet, none have looked properly at why costs have soared and why Network Rail never manages to change. Unless there is a readiness to change the current ideological orthodoxy, then things will not get better.



Big projects need proper assessment


 Another of my perennial bugbears is the misuse of the Cost Benefit methodology that is the way projects are assessed. The Institute of Government has brought out a timely analysis of what is wrong with the way that it is being used for big infrastructure projects such as HS2 and other big rail projects.

The report, entitled How to Value Infrastructure, argues that the ministers tend to be far too optimistic about the regenerative and job-creation aspects of projects. While defending the methodology as the best current method (I would disagree!) of considering whether to give schemes the go-ahead, the authors argue that ministers should be far more rigorous when making claims about the dynamic effects of big infrastructure projects. The authors highlight, in particular, an analysis produced by KPMG which suggested that there would be a £15bn per year increase in GDP thanks to HS2 as a result of economic regeneration. This was later criticised by Henry Overman, a former adviser to HS2 Ltd, as ‘essentially made up’. That is, however, my view of the whole panoply of tools used to make spurious claims about megaprojects in general. The search, as the report says, for a single number which represented the benefits in relation to costs, is spurious. Costs are often underestimated and benefits are rather randomly calculated. We need a far more intelligent and thorough analysis of the impact of such schemes, using evidence from across the world of their impacts.

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