Nicola Shaw’s keenly anticipated report on the future financing and structure of Network Rail was aimed at creating a blueprint for the future of the country’s rail operator.
Although the full-scale break-up or privatisation of the government-owned organisation was ruled out, the devolution agenda is still firmly in the spotlight.
Most fundamentally, Ms Shaw called for a major overhaul of the Infrastructure Projects division: the centralised body that oversees the procurement and delivery of Network Rail’s major renewals and enhancement work, which has come in for particular criticism for its handling of Control Period 5 work.
The report said the body was out of touch with local needs when it came to choosing projects and that the decision-making process lacked transparency.
As a solution, Ms Shaw suggested moving the division into the Route Services Directorate, thereby relinquishing a large chunk of its control over the planning and delivery of enhancements to the routes and their directors.
While nothing will be set in stone until the government responds to the report later this year, it is clear that Infrastructure Projects faces an uncertain future.
The state of IP
The Infrastructure Projects division is the body in charge of overseeing £25bn of Network Rail’s £38.5bn CP5 enhancement programme.
Employing more than 4,300 employees, it accounts for just 12 per cent of the organisation’s workforce but is responsible for more than two-thirds of its spend.
The division decides which projects to take forward, with its staff managing the procurement and project delivery of work.
Ms Shaw’s proposal to devolve Infrastructure Projects has had a mixed response from the sector.
Nicola Shaw CEO HS1
“The current central service has some attractions,” one industry source told Construction News. However, the source acknowledged that extra bureaucracy has led to inefficiencies in project delivery.
“If the routes had a direct relationship with contractors at an earlier stage rather than dealing with the intermediary of the Infrastructure Projects, that would definitely create efficiencies,” he continued.
Some argue that Infrastructure Projects has been hindered by the whirlwind of changes to the structure and management of Network Rail, including within its own personnel.
“I’m not sure removing capability and competence of Infrastructure Projects is the way forward”
The last 12 months have seen a number of high-profile moves, with Sir Peter Hendy taking over as chairman, Jo Kaye becoming strategy director and, most recently, David Waboso coming in as the organisation’s director of digital railway.
Francis Paonessa, the current managing director of Infrastructure Projects, only joined Network Rail two years ago after Simon Kirby left to become HS2’s chief executive.
The source believes that the revolving door at senior level within Network Rail has had a negative impact on the delivery of CP5. “Some areas that needed to be addressed were being addressed, and if Infrastructure Projects had a period of stability it might have got its act together,” he said.
The performance of Network Rail’s Infrastructure Projects division has been scrutinised over the past 12 months as projects have been beset by budget overruns and delays.
In October, the Office of Rail and Road found that a “series of issues relating to the delivery of major projects” had seen Network Rail breach its licence in delivering CP5.
The reputation of Infrastructure Projects came in for further scrutiny when Network Rail chief executive Mark Carne told the public accounts committee that the electrification of the Great Western Main Line had run nearly £2bn over budget.
“Devolution in principle is good. But if this means Network Rail loses the ability to procure effectively, it would have 10 times bigger problems”
Despite these well-publicised problems, some believe that the division in charge should be strengthened rather than weakened. “I’m not sure removing capability and competence of IP is the way forward,” a second source told Construction News.
The source, who asked not to be named, admitted that there had been ‘cost issues’ with Infrastructure Projects, but believed the division was more capable of procuring and delivering major schemes of work, at least in the short term, than the routes would be.
“Devolution in principle is good,” he said. “But if this means that Network Rail loses the ability to procure effectively, the organisation would have 10 times bigger problems than they [have] now.”
Deeper and faster devolution
A feature of Ms Shaw’s report was the call for “deeper and faster devolution”, with more control being given to the routes and their managing directors.
Ms Shaw said it was crucial the Department for Transport avoided “drawing too many enhancements into the central control if local voices are to be strengthened effectively”.
The supply chain’s view on devolution is mixed. Some of the biggest names in UK construction are supportive of boosting local autonomy, but warned of the need to retain some centralised governing power.
Francis Paonessa new managing director of infrastructure projects Network Rail
In its submission to the Shaw report team last November, Balfour Beatty said it would like to see “managing directors responsible for all aspects of their routes, from maintenance to enhancements”.
However, it argued there should still be a central body taking a holistic view of nationally important infrastructure schemes above £50m.
Aecom’s European rail sector head Adrian Shaw agreed that pushing control of Infrastructure Projects to route managers would provide a greater level of localised knowledge on work needing to be carried out. But too much devolution, he warned, could cause confusion throughout the supply chain.
“The difficulty is if you regionalise too much, each route could come out with completely different methods of contract award and more levels of approvals”
Adrian Shaw, Aecom
Mr Shaw said: “One of the areas we need to be mindful of is that at least under Network Rail you have centralised procurement control standards and everyone knows how the body operates and how they award and control upgrade works.
“The difficulty is if you regionalise too much, each route could come out with completely different methods of contract award and more levels of approvals and this would make it extremely difficult for firms.”
One model that Ms Shaw’s new plan for Network Rail could emulate is that used by the water sector, made up of more than a dozen private companies split along regional lines, with each company’s performance regulated against one another by Ofwat.
While stopping short of privatising Network Rail’s routes, Ms Shaw’s proposed system would see them regulated as autonomous bodies by the Office of Road and Rail.
Thames Water sewage treatment works Mogden
This could allow the ORR to benchmark routes against each other to identify best practice across the network and hold routes to account for their performance.
It is hoped this would create an environment of competition among the routes and drive efficiencies.
Ms Shaw’s report cited Scottish Water as an example of how the structure might work in the public sector. The publicly owned utility company has cut operating costs by more than 40 per cent since it began benchmarking itself against private competitors.
“If you look at where the water companies once were to where they are now, you can see how the competition has created great benefits in terms of capital efficiencies and operational,” said one rail contractor.
“Those of us with grey hair have seen it far too many times. Every time a major change comes in at Network Rail everything else stops”
The contractor said the creation of routes as de facto companies under the Network Rail umbrella and regulated on a route level by the ORR could “fundamentally change the way in which projects were delivered”.
He added: “If you create a route structure where routes are effectively their own companies with their own customer requirements and regulatory requirements that will look at capital efficiency and operational efficiency, this new level of competition will start changing the fundamental [way] in which projects are delivered.”
Period of uncertainty
The DfT will respond to the Shaw report later this year. Whatever its response may be, contractors will be hoping that the changes don’t further dent confidence in a client body that has taken a hammering over the past 12 months.
Following the lull created by 2015’s general election and multi-billion-pound electrification schemes being paused, uncertainty and frustration has been a regular complaint for the rail supply chain.
Contractors will be concerned as to whether any changes to the way Network Rail delivers and procures work will delay future schemes coming to market.
“Those of us with grey hair have seen it far too many times,” one rail contractor said. “Every time a major change comes in at Network Rail everything else stops.
“It is crucial for the sector that it does not happen here.”