Slammed by its regulator, under pressure from government and faced with growing contractor unrest, is Network Rail in crisis? Construction News examines what’s going wrong at one of the industry’s biggest clients.
- Relationships going backwards?
- CP5 honeymoon over
- Delays affecting project delivery
- Regulator: ‘Up your game’
- Differing standards across network
- Debt, fines and squeezed budgets
When Mark Carne became Network Rail chief executive in 2014, he inherited a network buckling under some of the worst storms seen in Britain for many years.
He told Construction News in September last year that he was “lucky to join in a crisis”, having had the chance to see first-hand how the industry could rally and fight back against the wet and wild elements battering the nation’s infrastructure.
But almost 18 months later, whatever luck Mr Carne felt he had appears to have run out, as the storm shows few signs of dissipating for an organisation coming increasingly under fire.
To some observers, Network Rail still remains in a crisis.
So far this year, it has had to endure the threat of worker strikes, major projects cancelled or going awry, recriminations over a turbulent Christmas period that saw hubs including Paddington and King’s Cross closed for large periods of time, and now a damning regulator’s report.
And with budgets coming under increasing pressure, the construction industry has been left exasperated.
Relationships going backwards?
Changes to senior management including the departure of collaboration advocate Simon Kirby; delays to projects - many of which are stuck in the design phase - and confusion over standards have all contributed to a sense of flux for suppliers, who just 18 months ago were gearing up for work to be fast-tracked through new mega frameworks.
“We’re at the end of a honeymoon period for CP5. There’s a lot of tension around”
Senior sources at large contractors expressed their fears that the rail client, which had taken such strides to facilitate collaborative rather than adversarial relationships with its supply chain, is now in danger of going backwards.
Despite Control Period 5 (2014-19) having been under way for more than a year, contractors are now seeking urgent talks with the rail client to determine which of their projects may be under threat.
CP5 honeymoon over
Businesses who had licked their lips at the prospect of £38bn planned spending in CP5, with early contractor engagement and 90 per cent of the work to be carried out already let, are now anxiously awaiting news of spending cutbacks.
One says: “We’re at the end of a honeymoon period for CP5. It started with lots of frameworks and projects but all of a sudden the designs are all late. There’s a lot of tension around.
“You almost wonder have others left Network Rail because they saw what the future looked like and didn’t want to be on the end of it”
“Contractors aren’t driving through the volumes they thought they’d have by now, so their business plans are under pressure and they can’t see how that’s going to come to an end.”
A separate source adds: “Since Mark Carne came in, it’s all gone horribly wrong.
“It’s not his leadership that has caused the problems, but you almost wonder have others left Network Rail because they saw what the future looked like and didn’t want to be on the end of it.”
Three challenges for Network Rail
Workloads: Which projects are going ahead, and when? Clarification of future workloads is a must for the industry that is waiting anxiously for schemes to materialise.
Safety: The ORR says there has been “no noticeable improvement” in worker safety during the year. With a huge health and safety overhaul now underway, Network Rail and its contractors will be under pressure to perform.
Collaboration: How will it fix what appears to be broken links and mixed messages with industry? Having taken great strides to become a
collaborative client, the industry needs reassurance it won’t see a return to adversarial relationships.
Just last week, the government confirmed the delay of a huge programme of work to electrify the TransPennine Express line between Manchester and York.
Network Rail has told ministers the scheme, originally announced in 2011, needed “more work”.
Delays affecting project delivery
It is the threat hanging over future CP5 projects that has got the construction industry concerned, as it seeks urgent talks with Network Rail management to try to stave off the threat of an axe being wielded to a programme of work that is already mostly procured.
Supply chain companies complain that design delays are affecting projects, with designer, client and contractor all keen to avoid professional indemnity issues on schemes where cost has risen to the extent that, in some cases, projects conceived two years ago no longer stack up.
“Designs are in some cases coming in up to the day before work is expected to start”
A source says: “Lateness of design effectively forces construction companies onto the critical path more and more.
“It puts innovation like prefabrication or logistics management under more pressure.
“Designs are in some cases coming in up to the day before work is expected to start.
“Then contractors are expected to make sure teams are briefed, everything is sorted out and you can construct properly under huge pressure.”
An Office of Rail Regulation report last week found that the rail operator had missed 30 out of 84 ‘milestone targets’ on major infrastructure projects between October 2014 and March 2015.
Regulator: ‘Up your game’
ORR deputy director engineering and asset management Mark Morris admits design delays and problems on larger schemes are a concern.
“Network Rail needs to up its game significantly on major projects,” he says.
“Sometimes we have to work very hard to get Network Rail over the line because they didn’t think clearly enough about what to do to get to the end”
Mark Morris, ORR
“We have a role as a safety authority in authorising new infrastructure into service towards the end of the [construction] process, and we find that sometimes they don’t understand what they need to do ahead of time and are reacting late in the day.
“Our priority is to get the railway running for passengers and freight trains, and sometimes we have to work very hard to get Network Rail over the line because they didn’t think clearly enough about what to do to get to the end.”
The client is divided into 10 routes, where individual leaders or managing directors oversee planned construction works.
Differing standards across network
Construction firms have complained that different standards are being applied across different routes and in different regions, with one source saying the operator’s new status as a public sector body since last September is also causing confusion for its senior management.
The source says: “Senior players under the executive board level are trying to figure out who their bosses are.
“They know there is a budget impact on projects but they don’t know where - they’re in a state of the unknown.
“They put out some major frameworks in areas like electrification but there’s confusion over where the budgets were created - they are not realistic.
“That, combined with the limited design capability in the marketplace, means they have a problem.”
Major frameworks allocated early in CP5 included its southern routes, where VolkerFitzpatrick (Anglia), Costain (Kent), Bam Nuttall (Sussex) and Osborne (Wessex) were appointed to deals worth up to £1.2bn.
“I don’t think there’s any case at the moment for centralisation, we don’t see that as the way forward”
Mark Morris, ORR
Other major winners included nine suppliers winning 20 framework spots worth a combined £1.6bn for deals on the London North Western and East Midlands routes.
Despite work being held up in frameworks, Network Rail points to the fact that it spent a record £3.4bn on enhancements over the last year, as it revealed in its 2014/15 results last week.
This is double what was spent five years ago, and is one reason why the organisation has improved relationships with key supply chain partners in recent years, as long-term visibility of work has continued to improve.
The operator has also improved payment terms and points to its use of “advanced collaborative contract forms”.
Debt, fines and squeezed budgets
However its new status as a public sector body added £30bn to the national debt, and with the company to face further fines for missing ORR targets, its budgets are increasingly under pressure.
This is why the Department for Transport is understood to be considering privatising parts of the rail client, while the Treasury is reported to be interested in securing private sector investment to aid electrification programmes.
A Conservative government would be unlikely to privatise the entirety, or even large swathes of the network, with the memory of its ultimately doomed privatisation of the railways through Railtrack in the mid-90s still fresh in the memory due to high-profile incidents including the Hatfield rail crash in 2000.
Sources pointed to property assets and even its consulting arm as among the options for sales, with speculation that major stations could also be taken from Network Rail to allow it to focus on track maintenance.
But Mr Morris says the ORR is not seeking greater centralisation within the operator.
“I don’t think there’s any case at the moment for centralisation, we don’t see that as the way forward,” he says.
“The routes now need to step up - the level of performance that would have been good enough a few years ago is not good enough anymore.”
Though the ORR retains a belief that the operator can be fixed through greater transparency and accountability, the length of time it takes to make improvements may be a luxury the industry cannot afford, having already factored in billions-worth of work into their future plans.