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Network Rail 'holds feet to the fire' with contractor deal guarantees

Network Rail has agreed to “hold its feet to the fire” by committing to compensate contractors if it fails to provide them with enough work on four new route-based deals worth £1.2bn.

In a first for the rail client, it has guaranteed a minimum spend of 60 per cent on the £1.2bn deals won by Bam Nuttall, Costain, Osborne and VolkerFitzpatrick for four routes in the South of England.

If it fails to deliver 60 per cent of the work through those deals, Network Rail will be forced to compensate the contractors.

Network Rail Infrastructure Projects Southern regional director Nick Elliott said: “We are putting ourselves in a position where we will take the pain if we don’t deliver that to the contractors.

“It is something we have done ourselves to make sure we have the right behaviours within our organisation.

“We have not done it before. It’s something different in terms of the level of commitment we are putting in, and in return we want to see the same level of commitment from those suppliers.

“This has created more excitement among the supplier community than I have seen for a long time.”

Network Rail approach to procurement

While Network Rail will have a number of different procurement approaches to future frameworks, it has decided not to use a zero-value framework in this case to ensure it speeds up work for its supply chain, and also to get greater commitment from its supply chain in terms of training, resources and collaboration.

By April, the rail operator plans to have let 65 per cent of work for control period 5, which runs from 2014 to 2019. It wants to form closer, longer-term relationships with a smaller group of main suppliers through frameworks and alliances.

Around 60 per cent of its work over the next five years is expected to go through frameworks; 27 per cent via alliances and 13 per cent through competitive tenders.

Network Rail is continuing to move away from cost-based, competitive tendering as it seeks to have closer, longer-term relationships with its contractors.

Mr Elliott stressed that the ambition is for 100 per cent of the total value of the IP Southern contracts to be awarded through the four frameworks.

“[Contractors] have a five-year programme of commitment and have a forward order book with a minimum value, and they know that if they get it right that minimum value will be [exceeded], because the aspiration is to put 100 per cent through those frameworks if we get them up and running and working correctly.”

Network Rail chose the four contractors to carry out enhancements, buildings and civils work in the South of England in deals worth up to £1.2bn – around half the spending earmarked for the region over the next five years.

The contractors have been appointed to work on four different routes: Anglia (VolkerFitzpatrick); Kent (Costain); Sussex (Bam Nuttall); and Wessex (Osborne).

Ten contractors were invited to tender for the contracts, which consist of around 700 “relatively low-value projects” – approximately 90 per cent of which are worth less than £10m in value.

Mr Elliott said managing directors for each of the routes were asked to sit in on the procurement process, as Network Rail wanted to “make the routes and the route managing directors the ultimate clients and to make them an integral part of the relationship [between Network Rail and contractors]”.

He said the four winners were chosen because they had demonstrated they were able to work in a collaborative and effective way.

“Not all of the contractors were up for it; they were not all able to absolutely show they had thought through it and moved to a new place [in terms of collaboration],” he said.

“The ones we selected have made the biggest journey and are going to be able to work with us – that’s why we selected them.”

The contractors will be co-located with both the IP Southern and route teams and Mr Elliott said the procurement process was “more like a dating process to find a new wife than a traditional commercial evaluation”.

“The process we have gone through in terms of evaluation has been fundamentally different to anything we have done before in these types of frameworks,” he said.

That included a 15 per cent evaluation on safety as well as cost and programme management capability. Network Rail attached 25 per cent of the evaluation to collaborative behaviour and resources. It also measured sustainability, quality assurance and equality and inclusion.

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