Network Rail has been told to make quicker progress on delivering almost £7bn of enhancement projects, but was warned this week to focus on supply chain engagement to avoid spending peaks and risking the best rail staff leaving the UK.
The Office of Rail Regulation has identified cuts of £2bn to Network Rail’s proposed spending plans over the next control period from 2014 to 2019 (Control Period 5).
However, Network Rail has been told by the ORR it can start allocating resources now to progress almost £7bn investment in enhancement projects that are at very early stages of planning as quickly as possible.
The move is likely to lead to an increase in work in the short term for professional services but also contractors and engineers through early engagement, an area where the ORR is keen for Network Rail to continue improving its performance.
EC Harris head of rail Mark Cowlard welcomed the planned investment in rail and said that finding £2bn of cuts reflected the ORR’s confidence that Network Rail and its supply chain is working in an increasingly efficient manner.
But he warned that the move to accelerate planning on almost £7bn of the proposed £12bn enhancement projects could see peaks in work coming to the market, something Network Rail would have to manage accordingly.
He said: “With £7bn of projects in the early stages, that will create some pretty big peaks. There will need to be a peak in the early period to allow a lot of the work to be progressed.
“Network Rail will have to manage the programme so they don’t see hyper-inflation of the market.”
Mr Cowlard said he would be looking to find out how the work would be procured and through which contract structures.
He warned that the programme would need to be well-managed to ensure the best people and companies working in rail in the UK were retained.
“You are going to see some shortage of resources in areas like design and construction management, because of all the other investment going on in rail around the world,” Mr Cowlard said.
“If you look at the top 10 per cent of people who work in rail, particularly in the UK, the very best leaders of projects are in huge demand both in the UK and overseas. We need to find ways of retaining those people and the organisations that they are working with.”
The ORR’s programme director, periodic review 2013, John Larkinson told Construction News that contractors will see an increasing focus on civils work in CP5.
He said: “What you are seeing is a shift in the mix of work. There will be a big step up in terms of signalling and renewals.
“Overall it will continue to be a growing industry and there will be a lot of construction opportunities, but further efficiencies are expected.”
The regulator has largely protected Network Rail’s maintenance spending and provided additional funding to improve the condition of civil structures, such as bridges and tunnels, as well as to upgrade and close level crossings.
A greater focus on involving train operating companies will also potentially see a shift in relationships with contractors and the entire supply chain.
TOCs have told Network Rail and the ORR they want to be involved earlier in procurement decisions, as in the past they would have preferred to help identify areas of work they wanted to see progressed ahead of other schemes chosen by Network Rail.
Financial incentives will be offered to Network Rail to work with TOCs and supply chains to ensure savings and potentially keep a percentage of the money saved on enhancement projects, which could be reinvested into new construction schemes.
Mr Cowlard said engaging TOCs earlier would be a good thing for industry, and that as rail franchises become larger there could be opportunities for the supply chain to engage directly with TOCs as clients to help them with looking after their assets.
However, he doubted there would be a scenario where TOCs would sit with Network Rail and contractors under shared pain/gain contractual arrangements, though their imput under early supplier engagement would be welcome.
A spokesman for Network Rail, which will formally respond to ORR’s draft determination of Network Rail’s outputs and funding for 2014-19 report in September, said: “There is no question that our railway needs to sustain the high levels of investment seen in recent years if we are to continue expanding the railway to provide for the ever-growing numbers of passengers and trains.
“Getting the balance right in making the choices between performance, growth and value for money is critical if we are to build on efficiency savings of around 40 per cent achieved over the last two control periods.”
CECA director of external affairs Alasdair Reisner said it was pleased that the ORR appears to “support investment to maintain and upgrade our railways, while still challenging both Network Rail and industry to reduce the cost of delivery”.
He added: “We believe the demands on efficiency will be deliverable, but will require co-ordinated effort and a continuation of Network Rail’s moves to improve its engagement with its supply chain to produce optimum results.”
ORR: ‘engage with TOCs and suppliers on £7bn enhancement deals’
Many of the projects (approximately £7bn) are at an early stage of development.
This meant that a determination of efficient cost was difficult due to the high allowances for risk and uncertainty inherent to projects at this stage. It also meant that Network Rail has not yet been able to involve train operators fully in some of the projects to make sure that scope is best value.
Because of this we have decided to take a different approach to securing efficiency and value for money for these projects. We have included a provisional level of funding in the settlement, based on our current judgement.
As costs become more certain and risk profiles more accurate Network Rail will resubmit these and we will review them again. As part of this process we expect Network Rail to demonstrate how it has worked closely with train operators and suppliers in defining project scope. We are allowing Network Rail to reach agreement with operators about sharing cost savings from their engagement in project development and delivery.