Rail 845: Does Carillion collapse mark beginning of end for outsourcing?

Sometimes I could do with a twice weekly column to cover the rail industry properly, rather than one very two weeks, and this is such a time. The East Coast bailout, the National Audit report into the Great Northern Southern Thameslink, Labour party preparations for renationalising the railways and the Carillion chaos could all fill this column and more.

I will, though, confine myself to the latter, with a passing reference to the East Coast, as it chimes in with so much that I have covered in this column in recent months. The immediate impact on the rail industry is severe. Contracts, such as renewals on the East Coast, have stopped instantly with workers simply being told to pick up their tools and go off into the sunset. Chris Grayling glibly said that the work would be taken in house but this is by no means easy. As I mentioned in the last issue, Network Rail cannot cope with its workload at the moment, which explains its overuse of outsourcing, and therefore taking on a huge amount of extra work is going to overtax the company further.

This should accelerate the process of Network Rail reassessing its way of conducting its business. On the benighted 12 mile Barking to Gospel Oak line, the electrification has necessitated an extra 11 weeks of closure after the first five month long possession proved to be insufficient because of a series of errors such as breaching of sewers and a failure to assess the scope of the scheme properly. The contract was award to J Murphy but involved the use of no fewer than 50 sub contractors which again highlights the outsourcing culture that is ultimately so inefficient.

Carillion’s collapse is part of a wider pattern. Over the past 30 years, there has been fashion in the business world for outsourcing and contractualisation. Where once British Rail ran everything from canteens to coachworks, many tasks within the transport industry have now been handed over to outside firms.  At times, this makes sense. Railway companies can no longer expect to do everything themselves. Building coaches, for example, would be daft, even if there were just one single rail company.

However, there is no doubt this process has gone too far. As I mentioned last week, the fact that Network Rail is unable even to specify and scope most of its projects suggests that it has lost far too many skills because of this trend. Remember how after Hatfield, Network Rail took back its maintenance in house and this became national news – I remember doing a live broadcast for BBC’s Ten O’Clock news about it. However, renewals, defined as jobs bigger than a certain size, remained contracted out.

The East Coast bailout –and I insist on calling it that is another aspect where outsourcing has failed. I must disagree with my esteemed editor – not for the first time – over this one. We are not au fait with details of the franchise agreement because they have not been released but my reading is that if a private company takes the risk of paying huge premiums, then it should not be bailed out by the government. The issue is whether the difficulties for the train operator have been cause by the failure to deliver improvements such as the power upgrade, other renewals on the line and the new Hitachi trains Both sides, Network Rail and Virgin/Stagecoach have released their side of the story and there is a big disparity between the two. Network Rail claims that there was no time scale for the work, while Virgin/Stagecoach are adamant there was. The key, however, is what risks were taken on by the operator and what is precisely in the contract. Oddly, the government could clearly knock the idea that this is a bailout by explaining but at a hearing of the Commons Transport Committee on January 22nd, Chris Grayling did not enlighten us on that key point and ducked the issue by saying there was no change in the nature of the contract so far.

It is a very strange affair and again highlights the problems with franchising out the railway. I won’t repeat my well-rehearsed arguments (phew – ed) except to say that I do not buy the argument that these poor companies – whether Carillion or Virgin – were forced into overbidding because the nasty government was being so rapacious. These are private companies with long established records who ought to know what they are doing. My heart does not bleed for them. Their business is to make profits on contracts, not to bid so low that they get into trouble if they win them.

In terms of outsourcing generally, the fundamental issue is over what the definition of what a company’s core task.   While I don’t think that the Carillion story marks the end of outsourcing or even of PFI projects, it does mark a turning point. Turning round the general thrust of public policy which has explicitly favoured privatisation and outsourcing cannot be done overnight. However, just like turning round a supertanker, it has to start somewhere and this episode will be seen in years to come as the time when the policy began to be seriously questioned.

It is important for reasons that go well beyond the railway. When Virgin Trains outsources its cleaning services, as it does on both East and West Coast, it is contributing to the destabilisation of work patterns which has far reaching consequences. If the cleaning staff worked for Virgin, they would feel a sense of loyalty towards the company, they might even consider trying to get promoted to being a guard or even a driver. Moreover, Virgin would have a sense of responsibility towards them. However, if they are simply contract workers, they owe no particular loyalty to Virgin or vice versa. I have no doubt that cleaning should be regarded as a core task. So should catering. They are both part of the customer-facing aspect of the business, and therefore should not be contracted out. Failings by those staff reflect on the image of the company. Nobody will think that a dirty train is down to Initial or whoever has the cleaning contract. They will blame Virgin, so it should retain that work.

There is another aspect, too. Outsourcing is generally seen as saving money for the company handing over the work. However, this is not necessarily the case. Of course it saves some HR and administrative costs, but it hands over a key aspect of the company to a private concern over which it has no control and results in other, such as legal and compliance expenses. Ultimately, academic studies of contracting out reveal that there is no clear case for doing so. In a well-timed publication by the Smith Institute of a pamphlet called ‘Out of Contract, time to move on from the ‘love in’ with outsourcing and PFI’ released on January 22nd suggests that it is time that every PFI and outsourcing contract should be examined to see whether they offer value for money. Astonishingly, the authors discovered that there is no clear evidence one way or the other whether the policy has been successful and saved money for the government. That should make Network Rail and the Department think twice before automatically calling on the private sector to carry out work.





Driverless cars


Lord Adonis got himself into hot water when he questioned the need for railfreight because it might be replaced by what could be called ‘wagon trains’ – convoys of lorries running behind each other, quite possibly with only one driver for the whole fleet. As Pip Dunn, late of this parish, highlighted in the letters column recently, this is far more difficult technically than has been assumed as different lorries have varying acceleration capabilities and it will be difficult to keep them in convoy.

This is all part of a much wider con being perpetrated on the British public. When Philip Hammond suggested in the budget that driverless cars would be in operation on Britain’s roads by 2021, he was being far too optimistic about this technology.

Predictions like Hammond’s have sent waves of panic through the rail industry that driverless cars will take over from public transport. However, in a short book I have just written, Driverless cars: on a road to nowhere I examine the hype around the concept in some depth and suggest that the whole basis of the concept is flawed. No one wants driverless cars and technically they are a generation or two away, even if they are feasible at all. Of course, we will have increasing driver aids to make cars safer but the idea that people will soon be driven to their office in a car which will then be sent off to take the kids, unaccompanied, to school, belongs in the same category of fantasy as the individual jetpacks that featured in my Eagle comics 50 years ago.


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