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Network Rail and the future of collaborative contracting

Network Rail is becoming increasingly sophisticated in collaborative contracting and contractors will need to get on board to keep winning its work.

Since Sir Roy McNulty’s 2011 Rail Value for Money study, Network Rail has invested huge effort to make collaborative working with its supply chain a success.

The McNulty study identified greater collaboration between organisations in the rail industry as one of the means of delivering greater value for passengers and taxpayers. 

Behavioural change

Network Rail was clear at the time that behavioural change within its organisation was needed for it to deliver its objectives.

This culminated in it successfully achieving BS11000 certification for Collaborative Business Relationship Management in 2012.

That provided the strategic framework it needed to develop the processes, policies, culture and behaviours required for effective collaborations with its supply chain.

To complement that strategic framework, Network Rail adopted a range of collaborative contracting models representing varying levels of collaboration and risk-sharing with its supply chain.

For some projects, the ‘NR Suite’ of contracts published on the comany’s website remains the norm.

The suite comprises a mixture of bespoke contracts and amendments to standard form contracts.

They do not preclude collaboration but do reflect a more traditional approach to contracting.

“Network Rail readily admits it is on a journey in terms of collaborative working, with more work to do”

Network Rail’s increasing level of sophistication in collaborative contracting is, however, illustrated in its adoption of contract models such as the collaborative frameworks used for its Control Period 5 Multifunctional Framework Contracts and its ‘pure’ alliance contracts used for flagship projects such as the Northern Hub investment programme.

These are only two of several different Network Rail models, but their features demonstrate the extent to which Network Rail has sought to place collaboration at the heart of its procurement strategies.

Case study 1: Collaborative Frameworks

In 2014 Network Rail awarded five-year bespoke framework contracts to four Multifunctional Framework contractors covering more than 500 projects across the South-east totalling £1.2bn.

They permit Network Rail to enter into contracts with individual contractors for those projects based on the NEC3 form of contract.

Key features include:

  • Collaboration as a fundamental part of the procurement process, allocating a significant proportion of the tender assessment to collaborative behaviours;
  • Early contractor involvement to ensure safety, methodology, innovation and technology are considered and optimised during the design phase for a project;
  • Using whole project target cost principles enabling all project costs (Network Rail and contractor) to be captured within a single target cost;
  • A minimum value commitment to each of the framework contractors based on a proportion of the anticipated overall five-year value to encourage investment in the framework.

Case study 2: Pure Alliance model

Northern Hub is a £600m programme of targeted upgrades to the railway in the North of England.

It will allow up to 700 more trains to run each day and provide space for 44m more passengers a year.

The programme is being delivered by Network Rail through its Northern Hub and Electrification Alliance.

The term ‘alliancing’ is often used to describe wide ranges of risk-sharing between an employer and its contractors, from basic commitments to ‘partner’ through to fully integrated ‘pure’ alliance models.

Northern Hub is at the pure alliance end of that sliding scale broadly based on similar models used in Australia.

Key features include:

  • A single multi-party contract between Network Rail and the other alliance participants comprising tier one supply chain members;
  • Joint delivery principles including integrated delivery teams (Network Rail and its supply chain) and commitments to ‘no disputes’;
  • A sophisticated commercial model with a whole project target cost, seeking to align the commercial interests of Network Rail and its supply chain with mutual incentives and shared risk or reward;
  • Joint management structures with best-for-project unanimous decision-making.

The future

Network Rail readily admits it is on a journey in terms of collaborative working, with more work to do.

However, its commitment to BS11000 and adoption of collaborative contracting models show the great strides it has taken in this regard.

Contract models will evolve, some will fall away and others will be promoted as their relative successes are evaluated.

Ultimately though, the real test for both Network Rail and its supply chain will be to take the behaviours these models aim to promote and genuinely embed them in their everyday cultures.

Chris Pickens is a partner at Eversheds

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