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Network Rail faces regional shake-up

The leader of the value-for-money study into the country’s railways has said that his recommendations could include splitting Network Rail into regions and increasing private investment.

Sir Roy McNulty said he was likely to recommend to the government that rail infrastructure operator Network Rail be divided into regional sections.

Speaking at the Construction News and New Civil Engineer Rail Summit in London last week, he said: “I would be surprised if we did not take [Network Rail] in that direction.”

Sir Roy later told CN: “At this stage we are looking at a number of possible options as to how regionalisation might work. We will be assessing the feasibility and implications of each of these options but we are not yet in a position to put forward a definitive view.”

It is believed regional sections could improve efficiency by working directly with train operating companies’ local area managers. This could bring down the cost of construction work.

Sir Roy also said an increase in private investment in rail infrastructure was a possibility as it was more likely to encourage the innovation needed to drive down costs.

“We are aware of the possibility of private sector investment. The government should not be doing things that other investors can do,” he said at the summit.

He added that the combination of long-term projects, Network Rail’s five-year control periods and the varied length of train operating franchise periods made building or maintaining efficient partnerships difficult.

Sir Roy was commissioned by the previous government in December 2009 to investigate whether the rail industry provides value for money.

Network Rail appears to be a major focus of the report, with Sir Roy highlighting a “big cost efficiency gap” at the regulated client, which lies under the Department for Transport’s control.

A source at one rail contractor said the investigation was targeting the right areas as Network Rail could communicate better with contractors. The client’s capital expenditure in the 12 months to 31 March 2010 was £3.92 billion.

The source told CN: “Network Rail is a frustrating organisation to work for and I would be in favour of a shake up. There’s a lot of money to be saved there. Let’s have clarity of instructions and information, and realistic tender periods.”

The source added: “The contracting community does a pretty good job. If you had a clear direction from a client that knew what they wanted then it would not go that badly. We don’t get the same problems working with train operators.”

Network Rail’s chief executive Iain Coucher will leave the organisation later this month, and will be replaced by Olympic Delivery Authority chief executive David Higgins in February 2011.

Another source said contractors were keen to see Mr Higgins make changes to the way Network Rail deals with them.

The source said: “The people at the top say the right things but it does not filter to lower down.”

Contractors are thought to be in favour of train operators getting more control of their own infrastructure and stations.

However, the McNulty report will also scrutinise the efficiency of the operators.

Sir Roy emphasised the rail industry need not sacrifice its strong safety record to cut costs. “I cannot believe there is a contradiction between cost reduction and safety,” he said.

A former chairman of the civil aviation authority, Sir Roy cited budget airline Easyjet as an example of a firm operating with low costs and high safety standards.

One source said: “It’s a good point and I’m sure Network Rail is not looking at how the aviation industry works.”

Sir Roy said he had never found an industry in which costs could not be reduced and that cost reduction was not simply a case of “slash and burn”.

He added: “Unit costs have not improved since privatisation and there is room for improvement.”

Sir Roy said the government encouraged him to submit his initial findings earlier than first intended in order to inform the 20 October comprehensive spending review.

Interim findings have been submitted to transport secretary Philip Hammond, with a second submission due in December or January. The final report is due in March 2011.

Transport minister Theresa Villiers gave her backing to Sir Roy’s work so far. A Network Rail spokesman told CN: “We’re looking at ways of streamlining processes, particularly on the innovation front.”