There can be no doubt that an efficient and effective rail system is hugely important to the UK. The value lies in both economic and social benefits. But the infrastructure is not getting any younger, demand is growing, and lack of
capacity is a daily problem.
All of this says we need to invest in our railways, but if only it were that simple. The scale of the task is so large that a huge amount of cash is needed. And with Network Rail now on the Government’s balance sheet, the ability to raise funds is constrained. Rail projects need to compete with other national priorities when our politicians decide where to spend taxpayers’ money. The idea of introducing private cash would therefore seem an attractive proposition.
The difficulty, of course, is how to do this in what is a complex industry structure. Hansford is insightful into the obstacles and how they might be overcome.
Ultimately it boils down to whether or not the private sector can see an appropriate balance between risk and reward that makes rail an attractive investment proposition compared with other opportunities. This in turn will hinge on the attitude of Government and Network Rail to risk transfer/retention, and the ability to establish trust and confidence in the market that encourages funders to come forward. Can a model be created that looks attractive to investors?
The structure of the industry makes it tricky to fully evaluate and allocate risks - multiple stakeholders, regulations and the separation of train and track are all blockers. For this reason it is not a one-size-fits-all solution that is required - only certain schemes will suit private investment. Often risk will be so significant (either to individual projects or to the rail network overall) that it needs to be retained by the system operator backed by Government. Pathfinder projects to prove the hypothesis (that contestability is a good thing) are critical if we are to see progress here, rather than still be talking about it five years from now.
Hansford is clear in its view of the benefits of and barriers to contestability, and is helpful in making recommendations on how to deal with these. The challenge of making change in what can seem sometimes like a world where the pace of change is glacial is fascinating. Multiple stakeholders need to be aligned. Cross-party political support will be required. The structure of the industry will again be up for debate. An enlightened approach to procurement and innovation is necessary.
New partnerships will need to be formed to bring together funders, infrastructure companies, train operators and others. The balance of responsibilities between NR Infrastructure Projects and the Routes will have to change. New procurement and franchise models will have to be found. All of these things will reshape the industry if they happen. The tenet of Hansford seems to be evolution, not revolution, but the impact of bringing in third party funding to the railway will be profound and far-reaching.
The theoretical benefits of increasing contestability are easy to see. Whether or not they are deliverable in reality remains to be established. Will this signal the start of a new dawn or be just another report on rail that gets consigned to the history books?
With Tom’s article referring to four other reports and reviews into Network Rail being published in the past six years, one is left hoping that there will be a period of time to allow the content of the Hansford Review and the other reports to trickle down into the heart of Network Rail and take effect. The captain can set the new course, but it still takes time to turn the tanker.
That said, there are still challenges that can be dealt with in the here and now. Confidence is needed to challenge existing thinking, particularly where industry standards are involved.
With a movement from a central command to one where there can be more joint projects between Network Rail and local transport bodies, a new evaluation of the perceived risk is also required. Looking at the skills of the other parties that can be involved should be encouraged, for the benefit of the industry as a whole. Arguably questioning why something is the way it is, such as a standard, is simply a process of managing that ’thing’.
Most scientific breakthroughs have come about through challenging the relevant status quo. There is a significant amount of rail experience which sits outside of Network Rail, and all too often this is ignored. In some cases, third party contractors may have greater experience of specific matters than Network Rail, due to their international work. Ensuring the right partners for a project is part of a good procurement strategy.
Building confidence on what is to be delivered and ensuring that there are no nasty surprises on cost escalation are fairly fundamental tenets for involving third parties in construction projects. Too often we have seen escalating costs lead to a major player exiting the relevant industry, or discouraging others from getting involved.
This is, of course, not just confined to heavy rail - the increased costs of building Phase 1 of the Nottingham tram system caused Carillion to leave the light rail sector, and the well-publicised issues over the construction of Edinburgh’s tram system had a number of organisations saying ‘never again’. However, these issues were generally due to physical issues which had not been fully known at the time the contract was let, rather than cost increases occurring during the design stage and inflexible standards. More projects in the light rail sector are built to time and on budget (or even opened early), but these do not grab the headlines.
Within the light rail industry, while it is acknowledged that there needs to be relevant safety and construction standards, the industry as a whole agrees that these need to be proportionate and appropriate. The design for a city centre tram stop has to meet a set of safety criteria which form part of the specification, but then it is up to the relevant contractor to design and construct the tram stop itself, influenced by its (often considerable) construction experience. The local transport authority is not constantly checking and re-checking what is to be delivered, despite the potential footfall of hundreds of thousands of passengers using that stop, and is prepared to rely on the experience of the contractor (backed by appropriate indemnities).
While it is custodian of the infrastructure, Network Rail does need to be more flexible. Some of the learning which has come out of the Sheffield tram-train project will hopefully influence how NR looks to its standards, particularly where there may be other standards from a complementary industry that could be considered.
While standards have a role to play, consideration is needed of what they are intended to do and if an alternative method can be followed to mitigate or reduce the risk that the standard has been produced to protect against. With its link to the main line, arguably a Class 66 locomotive could try and run onto the Sheffield Supertram system. However, the tram system is not being re-engineered in case such a locomotive does make it onto their metals.
The high levels of public funding into tram systems has made the sector highly conscious of its costs. As a result, the light rail industry has been keen to explore different methods of involving third parties, whether through a PFI-type contractual involvement, infrastructure-only turn-key contracts, or with operator-led developments. Contractors, funders and investors have contributed through proposing structures which are fundable and which have sensible allocations of controllable risk. In some circumstances, these options have been the keys which unlock a project that was otherwise unfundable in its original form. But importantly, the parties have been flexible in their approach, considering the output that they wish to achieve.
As a result of the Hansford Review, it would be good to see Network Rail engaging with sectors such as the light rail industry, particularly given the sector’s activities outside of London and interaction with local transport bodies - especially at Combined Authority level. Adopting some of the techniques used, notably in managing design and construction time, could provide considerable advantages - not just in the projects themselves, but also in obtaining third party involvement, particularly where local authority or other funders are needed.
