Hendy takes a breath, and addresses the elephant in NR’s room.
“The real other issue is that until September 2014, as long as it was an economic cost or price, it didn’t really matter how much it cost because you had access to unlimited funding. Don’t miss that. If you’re exchanging a long-term ability to get as much money as you need providing someone independently judges it as worthwhile expenditure with a fixed treasury limit, it’s a huge difference.
“I’m not used to that. What I’m used to is saying: ‘that’s all the money that you’ve got, how’s best to spend it’?”
So you agree that ‘moving projects to the right’ and sticking the costs on the Regulatory Assest Base has led to overpricing and inefficiency?
Hendy answers carefully - but it’s still a ‘yes’, in my view.
“Well, my observation is that the entire railway industry - and not excluding the Government - had all come to live in circumstances where, provided you could justify its economic basis, you could access as much capital as you like.”
So no one’s blameless in all this, then?
“My observation is that the alcohol store in the brewery has been locked up now, so we’d better sober up. But it’s not like there isn’t any money, because a fixed borrowing limit of £30.9bn is not an inconsiderable amount!
“And on an historic basis, it’s probably more than any Government has previously put into the railways over a similar period. But no, it isn’t unlimited. And so yes, I think that everybody has to learn some lessons. There are lessons about project initiation - be very clear about what you want and be equally clear why you want it. Then be clear about scope - don’t inflate that scope, and most of all, don’t let engineers run away with inflating a job by putting all manner of bells and whistles on it. Then deliver it properly. And these are all especially important when you do have a great deal of money to spend.”
He pauses, and I surmise that he’s choosing his words carefully: “What I’m used to in projects is people coming and telling me ‘it’s going to cost more’, and I tell them ‘we haven’t got any more - go away and fix it from the money that you’ve got’.
“Be assured that culture has come here now - because you can’t go back to the Office of Rail and Road and say ‘my cost increase is £2bn… OK?’
“Really? It’s not OK! There’s no more money to be had.”
There are certainly some very clear lessons there for NR’s project managers and engineers, but what about a long-term plan?
Electrification was off the agenda until Chiltern Chairman Adrian Shooter and NR CEO-but-one Iain Coucher famously got the DfT back under the catenary in 2008. MML wiring seemed to go on the agenda (almost on a whim) in 2012, came off it again in mid-2015, only to be reinstated again in late 2015. That sort of Corporal Jones “don’t panic” thinking surely has to be consigned to the past. If government doesn’t think long-term, how can NR deliver what Hendy says he wants?
There’s no danger of him going off-piste today: “So here’s a different observation,” he replies. “Actually the history of the Control Period system has been really very good. Having a five-year clear investment funding plan and a set of defined outputs is quite a good thing to do.”
Yes it is - I have no problem with that. But surely, within a long-term high-cost infrastructure business such as the railway, those five-year plans have to be framed within a 30-year strategy? And that is precisely what we do not have now. Indeed, there’s a rising clamour for precisely just such a 30-year strategy.
“So that’s the point - everybody is now starting to scratch their chins and ask ‘what should we do for the IEP for CP6 and 2019-2024?’” (Which sounds like he’s in agreement).
He goes on: “I’m used to a hierarchy in London where we have the London plan, which is a 30-year economic and special strategy for the city. You then have a strategy which has the transport elements that will deliver the London plan over 25 or 30 years.
“You’ve got a ten-year business plan, then you’ve got a period which is funded - which is five years, similar to the railway - and then you’ve got a one-year business plan. But even within that one-year business plan, you can see where you’re going to go for a much longer period of time.
“My observation here - and I think that Mark is happy with it and we talked about it at the board, and I think that certainly Nicola and I have talked about it - is that actually you need a longer vision than just these five years, that these projects don’t get done in just these five-year periods. And if you look at visions like the ‘Digital Railway’, which I support completely, it’s absolutely essential.
“There’s no way you’re going to make every railway of Britain digital in five years, and you want to know what the quickest period of time is, what the benefits are, and how much you can fit into the funding period.”
Well, that sounds like agreement to me. So does he see any progress on eliminating that lack of a long-term plan?
“I do. I think one of the most important things to come out of contemplation of the recent past is the realisation that the railway needs a stronger national plan over a longer period of time.”
Does the Government now see that?
“I think so.”
Because they’re the only ones that can make that happen - either by themselves or by empowering someone else to do it on their behalf.
“Interestingly, I believe the bare bones of it are already in place,” he replies. “The route studies - the old Route Utilisation Strategies which are now called route studies - actually do go out on a longer period of time. But they’ve never been aggregated up for some sort of national plan on the railway. But if you now have to cope with 5% growth a year for the foreseeable future, you’d better have a long-term plan because you really do need to work out what the best things to do actually are. Who’s going to say no to that?” he asks with a smile.
Hmmm! I shall be interested to watch this develop. Hendy seems to be pitching to be the architect of such a plan. And like Coucher and Shooter before him on electrification, he is framing the argument in terms against which it is impossible to argue. Maybe it all sounds so reasonable because… well, it really is.
He warms to his theme: “I think it would be quite reasonable to work towards a longer-term plan for the railways, so you can see how it pans out and you can see where the money should go. My experience of doing it in London is that you select the projects that are ready - when you know that they’re ready, when you know how much they’re going to cost, and you know how you’re going to do them.
“You then slot them in, remembering that you can’t do any more than you have in the financial period for which you’re being funded. But you’re much more likely to get it right if you know what you are doing. Although Crossrail took - depending on your view - either 40 or 60 or 80 years to get to fruition, the one good thing about Crossrail was the day it was authorised we knew exactly what it was. We knew exactly how long it would take and we knew exactly when it was going to be delivered. And the outcome of that is that Crossrail will be delivered on time and on budget.”
So do you see a realistic chance of all this actually happening?
“Yeah, I do. My experience is that if you try hard, then you get something done. But longer-term thinking must be inevitable. Because if you look at what needs to happen to the railway beyond CP5, some of the scope of the projects from the experiences we’ve had will undoubtedly be outside the Control Period structure. They must be. And there’s got to be several of them at once, probably, so we’d better start planning them thoughtfully in advance so we don’t make the same mistakes that we have made in the past. And the biggest mistakes have been when the railway has tried to do something which is not properly scoped, planned or costed at the outset.”
Hendy then takes me rather by surprise: “What about who the customer is? That’s a good question,” he asks.
Well, yes it is, and setting aside for the moment that it’s supposed to be me asking him the questions, I give him an answer.
“Well, Peter, a previous NR CEO was very clear to me that he believed the ORR was NR’s customer…”
He doesn’t like this at all. A frown creases his brow.
“For the avoidance of doubt , I think the customers are those who pay to use the railway.” He jerks his thumb in the direction of the neighbouring station. So, down in Euston right now there are quite a lot of customers. They’ve paid money and they’re rightly demanding a service. You can also represent a customer as the train operating companies, as they’re paying money to use the system. I do NOT think the regulator is the customer of NR.”
