Summary of responses from Working Groups

Network Rail’s Strategic Business Plan Review by the Railway Industry Association 14 January 2008 Summary of responses from Working Groups Railway Industry Association 22 Headfort Place London SW1X 7RY United Kingdom Telephone +44 (0) 20 7201 0777 Facsimile +44 (0) 20 7235 5777 e-mail ria@riagb.org.uk www.riagb.org.uk Ref: 600.13/DJ0056 Network Rail’s Strategic Business Plan review by Railway Industry Association Summary of responses from Working Groups November/December 2007 Contents Overview 1) Approach 2) General Findings 3) Volume 4) Efficiency 5) Contracting Strategy 6) Input Pricing 7) 7 Day Railway 8) Asset Strategy 9) Trains Performance Page 2 of 26 Report Overview 1. This report summarises the outcome of an intensive series of discussions across the supply industry in late 2007 concerning Networks Rail’s Strategic Business Plan (SBP), organised and co-ordinated by RIA. The process used and the general findings are reported in chapters 1 and 2, while the remaining chapters address a number of the central elements of the SBP where suppliers are well placed to comment. 2. Between them those elements constitute the bulk of the Plan. The materials to be used in the delivery of the SBP, and a great deal of the technology and expertise, will be sourced from the supply industry that RIA represents. ORR’s review of the SBP is therefore in many respects a review of the capability of the supply industry to deliver the measures that the Plan proposes, and the extent of the supply industry comment should be seen in that light. 3. We emphasise that we welcome both the Plan and the review. The volume of activity envisaged by the Plan will do much to restore and improve the railway and is obviously welcome to those intending to supply the Plan’s requirements. Moreover, the HLOS process and the long-term strategy for the railway that underpins it provide a degree of transparency and certainty of funding for the principal infrastructure client that is essential if together we are to improve the efficiency of the industry. 4. We do though have a strategic concern that the key role for electrification in CP4 and thereafter is not adequately recognised. A programme of electrification is urgent in its own right; it has key implications for other major projects, such as the prospective replacement of the diesel fleet and the deployment of ERTMS; and if its launch is delayed until CP5 we may well see a heavily-peaked programme that is likely to be much more costly to implement. What is needed is a clear long-term picture coupled with a sustainable, consistent and cost-effective programme of work to achieve it. That should include infill work in CP4 to encourage suppliers to grow the resource base in preparation for a more substantial roll-out in CP5, and funding should be made available accordingly. 5. We note, moreover, that much of the infrastructure investment proposed in the Plan in order to increase capacity will itself depend for its viable use on the provision of sufficient additional rolling stock. We note with concern the disparity between the estimate of rolling stock required as stated by the Plan and the estimate published in the Railways White Paper by the Department for Transport. It is not clear to us by what mechanism these estimates are to be reconciled so that best use is made of the infrastructure provided. 6. As to the ORR review more generally, RIA’s interest is in seeing a realistic outcome. We have no desire for a settlement that tolerates cost unnecessarily during the CP4 timescale, since that would reduce the funding available within the SOFA for enhancements and other aspects of the railway in which RIA members also have a keen interest. Conversely, however, a determination that demanded unrealistically large cost reductions in the time available would be counter-productive, encouraging aggressive behaviours to cut short-term costs at the expense of innovation and sustainable long-term improvements in cost-effectiveness. 7. We are aware of no evidence of excessive profitability among suppliers; on the contrary we see vigorous competition among suppliers and returns that in some areas may be of doubtful long-term sustainability. The supply industry has found much of the CP3 savings, and it is not realistic to suppose that by itself it can produce much more towards the CP4 targets. In our view efficiency gains now will Page 3 of 26 come only from changes in process, technology and culture – from doing things differently. For those changes to be effective it is essential that suppliers have longterm confidence in their workloads and returns, not the reverse. Indeed, the supply industry is keen to work further with Network Rail to look jointly at the fundamental improvements in how things are done that are needed. 8. Many RIA members are in overseas ownership or have international partners; most operate internationally to some degree. This leads us to two particular comments. 9. First, members have considerable knowledge of comparative practices in different countries and of their impact on costs, but they are also aware of the substantial difficulties in making international comparisons that validly reflect the complex differences involved. A number of members have recently indicated willingness to participate in further work in this area with Network Rail. To be carried put properly however this would be no small exercise: it would inform CP5 rather than CP4; it would involve a substantial workload for key individuals in member companies, so reimbursement would be needed; and the agreement of other railways to the release of commercial data would be vital. We believe, however, that this could prove an important piece of analysis to which the supply industry is well placed to contribute. 10. Secondly, we are very conscious that both Network Rail and its supply base are operating in an international as well as a domestic environment where demand is becoming stronger than it has been for some time. The other sources of demand in the UK are well known, but internationally demand is also growing for resources that are important to UK-based suppliers. Such resources include the management time and attention of overseas owners, and staff such as those in overseas design offices working on UK projects. Inevitably the other demands for those resources may place pressure on their availability for the UK market. 11. Given members’ understanding of the markets in which they operate, the headline conclusions from their analysis reflected in the General Findings chapter are that (a) the SBP volumes should be deliverable over the period of CP4, provided that real and important changes to process and culture are adopted (b) the CP4 efficiency gains forecast in the SBP are likely to be at the top end of the range achievable, other than in relation to input prices (c) the forecast for input prices of labour is likely to be too low even if the changes to process and culture envisaged by (a) are adopted. If those changes were not made, the input price assumption would in members’ view be seriously unrealistic. While these views are subjective, they are widely held among those with detailed knowledge of the market. We therefore recommend that further work is carried out in this area as a matter of urgency, and as a first step intend ourselves to carry out a survey among RIA members at senior level. In the meantime we recommend that a figure of say 2% to 3%should be adopted as a holding assumption. 12. Taking compliance with specification as granted, there are essentially three outputs that Network Rail needs from its supply base: volume, efficiency, and compliance with its contractual framework. There are complex relationships between these three over the five years of a Control Period. Seeking to maximise either volume or efficiency may have adverse consequences for the other – although greater volumes may also improve efficiency - while a contractual framework that is seen as aggressive relative to other clients may be inimical to achievement of the other two. We very much welcomed Network Rail’s decision to seek RIA’s views on their New Page 4 of 26 Suite of Contracts while still in draft, which led to many changes being made; however the NSC as implemented is seen by RIA members as a continuing source of difficulty in relation to contractual liabilities and IPR in particular. 13. Both aspects undermine suppliers’ confidence in the return that they will be able to earn when working for Network Rail. Yet encouraging supplier confidence is one of the central changes needed to allow successful delivery of the SBP. Thus it should be no surprise that issues of confidence arise at a number of points in the rest of this document. They are key to both volume and efficiency: for example with insufficient confidence that additional demand will materialise even for scarce skills, the commercial incentive is often to poach labour – thereby raising costs – rather than to recruit and train – which would increase volume capability. Indeed, there may be a special role for Network Rail in encouraging training provision for special-shortage skills, given that by definition it should have better market knowledge than any individual supplier, and we intend to discuss this with them. 14. Confidence after a history of unexpected changes can often be fragile, so how to build and maintain it is vitally important. Strategically, confidence is generated by stable and mature relationships between clients and suppliers. Network Rail have recognised this in the very welcome principles of the Supply Chain Charter that they published in November, in turn similar to and calling up RIA’s Value Improvement Programme Code of Practice, and requiring behavioural change by suppliers as well as by Network Rail. 15. Improving relationships however, while essential, is not sufficient in itself; confidence depends also upon clarity, consistency and delivery of demand forecasts; procurement that reflects those forecasts and that is organised cost-effectively; smoothing of peaks and troughs coupled with a retained base load sufficient to allow suppliers to cope with remaining variations efficiently; and a series of other factors documented in this report. 16. We recognise that the senior management of Network Rail itself wishes to see many if not all of these changes take place, and in many areas is making progress towards them. The relationship we have with them is already constructive; we wish to develop that further, to make these changes a reality, and to do so rapidly. Page 5 of 26 Network Rail’s Strategic Business Plan review by the Railway Industry Association Summary of responses from Working Groups November 07/ December 07 1. Approach In September 2007 the ORR and Network Rail both invited RIA to comment on the forthcoming Network Rail Strategic Business Plan for CP4 (the SBP). At its meeting on 3 October RIA Council was briefed by ORR and then discussed and agreed the process for the Review, and in particular the approach to be taken in engaging RIA’s members in assessing the implications and deliverability of the Plan. It was concluded that a series of members’ Working Groups would be established representing the Asset Groups of Track, Signalling & Telecoms and Electrification & Plant, along with groups for Enhancements and Train Performance. Dates for all group meetings were promulgated to RIA members in advance of the SBP’s publication to assist companies to arrange their representation appropriately, as the exercise had to be accomplished to short timescales given the volume of material expected to become available, albeit that discussions had already taken place between Network Rail and member companies. Coordination would be by Council members, RIA staff and external resources brought in for the purpose. All meetings would be organised and fully recorded by RIA. Network Rail launched the SBP on 2nd November 2007 at an industry event attended by members of RIA Council. The SBP and further supporting documents were then circulated to RIA members. Network Rail held an Infrastructure Investment Supplier Briefing with RIA participation on 14th November 2007 in Nottingham which helpfully explained the Plan in greater detail to a wider audience. Each of the RIA members’ Working Groups then met on two occasions, apart from the Train Performance Working Group which met only once. The first session included introductory discussion with Network Rail Senior Representatives for each Asset Group to allow a greater, more focused understanding of the Plan, followed by private discussion among members only. In most cases the discussion was focused on the generic headings of Volume, Efficiency, Input Pricing, Contracting Strategy, 7 Day Railway and Asset Strategy; the agenda for the Trains Performance Group meetings differed, and the Group was briefed by ATOC as well as Network Rail . After a period of c.2 week’s consideration, the Groups reconvened for the second session, also in part with Network Rail Senior Representatives. This enabled Network Rail to clarify points and the Working Groups subsequently refined their response to the Plan. Thirty RIA member companies participated in this process, whether through representation on RIA Council or in the Working Groups or in many cases both. A number of members were represented by several individuals across a range of Working Groups. Taken with RIA’s own staff and consultancy resources, the supply industry has therefore devoted substantial resources to this exercise. Page 6 of 26 The outputs from the Sessions were subsequently analysed and a draft report presented to RIA Council on 10th January 2008. A final iteration enabled the Presentation and Report to be given to ORR at a further meeting of Council held on 16th January 2008. Page 7 of 26 2. General findings 2.1. The Workshops focused primarily on the ability of the Suppliers to deliver the Volume and Efficiency projections and Network Rail’s approach to contracting strategy. Feedback on Input Pricing was discussed but little objective data was available to support or contradict the analysis included by Network Rail. 7 Day railway proposals and Asset Strategy were also discussed but in less detail. 2.2. The report identifies risks and opportunities as well as suggestions to enable greater confidence in the Supplier’s ability to deliver the volumes and efficiency savings. 2.3. The Strategic Business Plan is a comprehensive document which identifies the 3 principal challenges of; 2.3.1. Increasing capacity to meet HLOS requirements 2.3.2. Improving reliability 2.3.3. Greater efficiency in operations and investment 2.4. The Suppliers support the SBP and believe that: 2.4.1. The growth associated with the volume of renewals and enhancements presents a significant opportunity and can be delivered by the Suppliers working more closely with Network Rail. The Suppliers warmly welcome Network Rails Supplier Charter and the report identifies a number of areas where proactive steps will improve the ability for timely, cost effective delivery. 2.4.2. The efficiency targets for CP4 are predicated on the achievement of CP3. The challenge for the balance of CP3 is understood and remains a challenge, albeit there is general confidence that the targets as set out in the SBP will be met. CP4 efficiency targets (which will require the introduction of new technology for signalling in particular), are viewed in the context of the significant stretch incurred in meeting CP3 and the risks associated with Input Pricing; as a result the Suppliers believe that CP4 efficiency targets proposed in the SBP are at the top end of the achievability range. The Suppliers strongly believe that further stretch for CP4 will be counter-productive. 2.4.3. The assumptions relating to Input Pricing are believed to be a significant risk, albeit this view is a subjective, experienced-based assumption. The extensive infrastructure work being undertaken in the UK and overseas during CP4 will place great demands on skilled resources. The Suppliers would like to engage in discussion with Network Rail to determine the most cost effective method of encouraging the recruitment and development of staff to ensure the skill pool is sufficient to meet the projected demand and control inflationary wage pressures. It should be noted that the introduction of new technology will necessitate a different skill set for potentially fewer people which will need to be part of the planning process. Page 8 of 26 2.5. It is noted that both Network Rail and the Supply Chain gained benefit in developing understanding through the Working Group discussions. It was proposed that such Asset Group based forums at a senior level could be extended into the delivery phase of CP4. 2.6. Subsequent to the publication of the SBP, the Suppliers have been very pleased with the communication and commitment from Network Rail Senior Management to engage with the Suppliers in developing their understanding of the Plan. At the Nottingham Infrastructure Investment Conference and through the RIA workshops the emphasis has been on engagement and two way discussion. Page 9 of 26 3. Volume 3.1.1. General comments The volumes indicated in the plan have been generated using the same principles for each of the Asset Groups. The Renewals volumes have been derived from the Engineering Client for each Asset Group using Engineering policies which define replacement cycles, and the Enhancements Programme has been analysed by each Asset Group and overlaid. It is understood that the Costs applied to the Renewals Activity Volumes reflect the latest experience from extensive data bases against which the remaining CP3 efficiency tightening and the projected CP4 targets have been applied. It is anticipated that the Enhancement activity will benefit from the improvements generated through the Asset Groups without further efficiency targets being superimposed. The Volume growth shown from 07/08 through the remainder of CP3 leading into CP4 is significant with a general requirement that the Suppliers prepare for a £2bn pa capability to satisfy the Enhancement programmes. The Suppliers believe that the growth indicated in the plan can be delivered provided that a number of criteria are fulfilled and subject to the comments below: 3.2. Planning 3.2.1. The Plan indicates substantial growth in all asset groups based upon a clear Engineering definition of requirements for Renewals and a series of enhancement programmes driven by HLOS requirements funded by Network Rail and other 3rd Parties. It is recognised that there will be movement in the enhancement projects, particularly 3rd Party funded projects outside the control of Network Rail, as timings change, some projects may be cancelled and other, as yet unspecified, activity is introduced. The Supply Chain needs good and early visibility of the best information available to enable it to prepare for and respond to fluctuations. 3.2.2. A continuing overview of the programme is required to flag to the Suppliers any significant fluctuations and to assist in this process it is recommended that the planning of renewals and enhancements is integrated by Asset Group. There is an additional benefit of ensuring consistent behaviour in the delivery of the Supply Charter objectives. The benefits of integrated planning are best illustrated by the E&P Asset Group whose resources share the delivery responsibility for its own Renewals programme and Electrification projects, along with Enhancements, S&T Projects, S&C Renewals all of which require direct involvement and support to varying degrees. 3.2.3. The Supply Chain would appreciate a stronger steer from Network Rail in assisting the convergence of Supply with Demand. In so doing, Network Rail needs to improve its ability to bring work to market in line with their programme. Delays in issuing tenders and awarding work create gaps in the Suppliers’ work banks. Such gaps are the more difficult to manage when the industry is Page 10 of 26 investing in expansion and would badly damage confidence. Given the evident commitment that the Supply Chain must make, Network Rail cannot rely on a “laissez faire” approach and needs to provide more proactive management. Discussions in the Working Groups indicate that Suppliers would be willing to open further discussions with Network Rail to explore ways in which resource availability may be matched to meet the increased demand identified in the Plan. 3.2.4. A proactive approach to planning is required to smooth the activity profile and remove the worst of the peaks and troughs. 3.2.5. It is understood that Network Rail intend to “bundle” the many smaller projects, this is welcomed by the Suppliers, creating in effect a series of Framework contracts, providing a focus for a number of Suppliers from which efficiencies will be generated. 3.2.6. To assist in the generation and deployment of specialist skills the early visibility of the Technology Plan defining which type of equipment is to be used by area would be beneficial. This is particularly appropriate for Signalling manufacturers and contractors. 3.2.7. In Signalling, the Commissioning Diary process managed by Network Rail has proved beneficial but needs to be further improved to maximise the utilisation of the scarcest of resources. The current Quarterly meetings need to be supplemented with a change control process with the outputs regularly published. 3.3. Delivery 3.3.1. Enhancements are expected to grow from £900m to £1,200m by 2009/10 with a required capacity of £2bn thereafter; allowing for the efficiency savings forecast, the Volume implied is greater still. 3.3.2. The Hub & Spoke approach to Project management has been seen to work well but a critical factor for success is the ability of the people leading the project. Weaker teams have not produced the same success. There is a risk that the larger programmes such as Thameslink & Crossrail will recruit the best people and reduce the ability to man the remaining activity with sufficiently high calibre individuals. When considering which contracting model to use Network Rail should take into account the competence of its own teams. 3.3.3. Where appropriate the use of major Contractors to manage projects should also be considered. This will enable the planning and project management skills of the Contractors to be utilised. First Tier Suppliers will take on the role of integrator, be accountable for delivery and take on the lead project management role. The Principal Contractor will then manage lower tiers for extended periods enabling stability and efficiency to be realised. 3.3.4. The bundling of smaller projects and the establishment of longer term work banks will lock in Suppliers or Technology and so enable them to invest in R&D & deliver efficiencies. Page 11 of 26 3.3.5. Early Contractor engagement -Engagement of Suppliers early in the development process will bring benefits to safe, timely and efficient delivery. The Supply Chain welcomes Network Rail’s enthusiasm, as expressed to the Working Groups, for early involvement through GRIP Stages 3&4. 3.3.6. An essential component to the effective delivery of any project is the adherence to the GRIP process with the ability to freeze the Scope at GRIP Stage 4. It is noted that a strong engineering capability in the Network Rail Asset Group substantially benefits the front-end project development and so provides downstream delivery and whole life benefits. Continued strengthening of Engineering capability in Network Rail is supported by the Suppliers. 3.3.7. In general the Suppliers support the secondment of the resources from the Renewals activity into Enhancement Project Teams. This provides consistency in approach and the deployment of current best practice. There is a risk is that the Renewals activity becomes denuded of its best people and the already challenging efficiency targets are then threatened. 3.3.8. Careful integration of the Enhancements requirements with the Renewals workbanks is required. e.g. in Track renewals work banks are planned 3 years out and the superimposed impact of enhancements could be hugely disruptive within these timescales. Care must be taken not to optimise unit rates in Enhancements and subsequently jeopardise Renewals delivery and damage efficiency. 3.3.9. It is noted that the Signalling Renewals programme presents a large ramp up and is linked to the deployment of ERTMS. This change in technology has an implication for a swing in skill sets away from traditional trackside activity (although much will still be required) to in-cab installations which will need careful and inclusive resource planning and further strengthening of the existing dialogue with the ERTMS supply companies. 3.3.10. The Supply Chain notes that there is no further in-sourcing of activity planned, albeit there will be a move by Network Rail to increase its early design resources and review the possibility of engaging its Maintenance people for Signalling Testing. In such cases the Suppliers request early dialogue with Network Rail to ensure smooth transition. 3.3.11. The Suppliers believe there is a significant opportunity to improve efficiency and reduce the capacity constraints on Signalling, Testing and Commissioning. This would require the simplification of testing procedures, pre-testing off site and soak testing on site. There are major opportunities in which the Suppliers are willing to engage more meaningfully with Network Rail. 3.4. Resources 3.4.1. It is noted that the labour market is currently very active leading to very significant increases in labour costs, 30% increases are not uncommon and in some cases well beyond this figure. This is particularly true in specialist sectors where the skill pools are too small for the demand. There is recruitment Page 12 of 26 competition between contractors and Network Rail as well as between contractors themselves. In addition to the specific skill shortages there are railway geographical “hot spots”, notably around London and the South East and increasingly in the Glasgow / Edinburgh belt. 3.4.2. In addition to the Railway growth stimulating demand for skilled people there are many other attractive projects outside of the railway within CP4 which will compete for the same resources. Notably the Olympics, LUL investment programme, Commonwealth Games, BT major upgrades to telecoms, National Grid refurbishment of the electricity distribution network. It should also be noted that there is an attractive array of railway projects in Europe, Saudi, UAE, Far East, India and Australia. 3.4.3. Substantial growth within Network Rail is planned in Signalling where the current headcount will grow from 750 to 1000 with key gaps for Design, Project & Testing Engineers. 3.4.4. A large proportion of Network Rail staff have been recruited from within the industry, but it is recognised that Network Rail are recruiting from outside the industry. The attractiveness of the industry needs further promotion particularly for the engineering and commercial sectors. 3.4.5. International recruitment remains an opportunity but due to competing domestic demand in countries which have previously been useful providers of skilled resource, availability is likely to become more constrained. 3.4.6. Conversion courses for people entering from outside the industry are seen as a relatively fast track means to grow the skill base, particularly in disciplines where there may be insufficient time to train completely new entrants. Network Rail has established Conversion courses in Derby which are available to the Suppliers. 3.4.7. The Suppliers believe that some of the resource pressures within Network Rail could be eased through Early Contractor Engagement, from GRIP 3 onwards. There are additional downstream delivery and efficiency benefits discussed elsewhere. 3.4.8. It was noted that apart from the specific railway skills requirements there are other generic skills gaps for roles such as Project Managers and Commercial Managers. 3.4.9. Skills & Training - The establishment of the apprentice training facility at Portsmouth and the Management Development centre supported by Warwick University coupled with a significant effort to recruit graduates demonstrates Network Rail’s commitment to grow the skill base of the industry. It is welcome that Network Rail have made a limited number of training places available to Suppliers for some apprentice and conversion courses and any extension to this approach would be appreciated. In order for the Suppliers to invest in people development there is a need for increased Supplier confidence which Page 13 of 26 will be generated by, amongst other things, clear visibility and certainty of work coming to market. 3.4.10. The training methods to fill the skill gaps are common across the industry and in the past each business has attempted to fulfil its own training requirements independently. The Suppliers would like to consider with Network Rail the possible mechanisms to encourage the development and availability of more cost effective training resources. Early communication of Network Rail’s expenditure plans is essential to this, but there is a wide range of further options that could be considered from greater use of standard qualifications e.g. NVQs to some form of financial support or collaborative training. 3.4.11. There is evidently a significant pressure on resources throughout the Plan period and effectively resourcing the projects and renewals activity is critical to the success of the Strategic Business Plan. It is certain that clear Industry leadership is required; the Rail Industry Skill Forum, chaired by Network Rail with RIA as a founder member, is well placed to provide such leadership. The skill requirements of the Track disciplines are delivered by the Suppliers and the assurance that sufficient resources are available is monitored through the Track Renewals Steering Committee, chaired by Network Rail. This is a good model for other Asset Groups to consider. 3.4.12. The inputs and observations from Project Brunel which is overseeing the skill requirements for the UK will also be of significant value in managing the availability of skilled resource during CP4. Page 14 of 26 4. Efficiency 4.1. All Asset Working Groups recognise that the delivery of CP3 efficiency targets represents a significant challenge. The further challenge of then delivering the proposed 17.6% efficiency tightening in CP4 is believed to be a significant stretch, particularly in the light of potential cost increases in excess of those identified in the Input Pricing assumptions within the Plan. 4.2. Innovation & International Technology 4.2.1. It is vitally important to achieve the objectives in CP4 and the Technical Strategy as discussed at the December 07 Innovation Summit and being further discussed between RIA and Network Rail. The successful introduction of appropriate innovation and technology is a key enabler for the delivery of CP3 objectives and will be even more essential in delivering CP4 efficiency objectives. 4.2.2. IPR concerns persist and present a continued barrier to innovation and constrain the Network Rail desire to move towards collaboration. This is a recurring theme from the consultation process for the New Suite of Contracts. 4.2.3. International Technology has been adopted in the UK successfully; there remains frustration that the barriers to innovation due to the UK rules, industry inertia and risk aversion inhibit the introduction of new technology on a timely basis. 4.3. International Comparisons 4.3.1. Comparisons have proved to be difficult, and need to be treated with caution, but some key techniques have been adopted in the Plan including Modular Switch for S&C renewal. The international companies supplying Network Rail also have a range of technologies and processes available which have delivered improvements overseas and may have a place in the UK. 4.4. Approvals Process and Standards 4.4.1. In the past there has been great frustration caused by the approvals process, which has been too lengthy and too expensive; this has the effect of deterring innovation. Early indication by Network Rail regarding the likelihood of their meaningfully adoption of any particular innovation will prevent frustration and wasted resources. 4.4.2. Signalling Works Testing Handbook – This document is in the process of being updated; however there is concern that it will not be sufficiently radical to enable the significant efficiencies from off-site assembly and pre-testing to be realised. It should also be noted that any changes in the Testing process will knock on to design processes; therefore there is a need to review the whole end to end process. The Suppliers wish to be actively involved with the development of this document. With the introduction of the new Handbook it Page 15 of 26 should be noted that there is a need to address the necessary cultural shift for testers. 4.4.3. The Modular approach is welcomed and significant savings can be envisaged in some areas, e.g. Platforms, station bridges. 4.5. Contractor Investment 4.5.1. Confidence is the key enabler for investment decisions; at a high level the growth in volumes is very encouraging but uncertainty about the timing of the workload coming to market remains. The SBP indicates that Network Rail will be buying new Tampers which is a cause for concern with the Plant providers. Early confirmation of Network Rail’s strategy for On Track Plant procurement will be necessary to enable continued Supplier investment. In S&T the peaks and troughs have been particularly harsh and confidence remains a significant issue for companies to justify investment in Designers, Systems and People. 4.6. Efficiency Programmes 4.6.1. It is noted that there are many efficiency programmes within the various Asset Groups, all of which are supported by Suppliers. Within Signalling and Telecoms RIA’s Value Improvement Programme has demonstrated significant success. Track Efficiency tools are well developed with good senior management working relationships led by the Track Renewals Steering Committee, chaired by Network Rail. E&P focuses on sector based improvements e.g. points heaters with plans to more broadly engage the supply chain. S&T have developed a series of strategic initiatives such as LIMBO and STAMP. 4.6.2. There is less scope for efficiency improvement on small projects, but bundling and the establishment of larger Framework contracts enables greater investment and innovation to be implemented. 4.7. Planning 4.7.1. Opportunities to design and deliver more efficiently are lost due to the apparently excessive optioneering activity which takes place; this has the effect of squeezing subsequent activity prior to blockade dates. While recognising the need to manage stakeholder’s expectations in the project definition stages, an early scope freeze with clarity at GRIP 4 will enable greater efficiencies to be delivered. 4.7.2. Greater efficiencies will result from more closely integrated plans, ensuring that access is fully utilised and the activity coordinated. 4.7.3. The early engagement of Contractors to be part of the planning and design activity will be beneficial to downstream delivery e.g. Contractors may identify equipment or methodologies which could save significant possession costs. It is proposed that Network Rail make greater use of the preferred bidder/contractor status to capitalise on such opportunities. Page 16 of 26 4.7.4. The Enhancement Team have established a Fast Track Development Process for the early Grip 0-4 stages. This is strongly supported by the Suppliers. 4.8. Logistics 4.8.1. Reliable cost effective delivery of materials to site is an essential requirement to achieve timely and cost effective delivery. Investigation work is underway to analyse the delivery of materials to work sites for Track Renewals where there is potential for improvement. 4.8.2. There is uncertainty with regard to Network Rail’s intentions for On-Track Plant. The SBP implies that Network Rail will be purchasing Tampers rather than Contractors. The effective utilisation of plant is a key driver for efficient delivery of Projects and Renewals. 4.9. Empowerment 4.9.1. Quicker local decision making will assist in the timely and cost effective delivery of renewals and projects. This is a particular concern with regard with regard to local instructions from Network Rail staff which is not subsequently supported by Commercial Instructions and Variations being approved on a timely basis. Page 17 of 26 5. Contracting Strategy 5.1. Collaboration – Client of Choice 5.1.1. Network Rail has published its Supplier Charter and the Market Engagement Maturity Model with the declared intent to move the relationship with the supply chain towards Collaboration. The declaration is fully supported and there is an acknowledgement that more needs to be done from both sides to move towards a more mature customer/supplier relationship. This is especially valuable when a project encounters difficulties. 5.1.2. The Enhancements Team recognise the competitive pressures for resources into the future and is keen to ensure that Network Rail becomes a “Client of choice”. The Supplier Charter is in line with this aspiration. 5.1.3. The Supplier Account Management process which had begun by focusing on the top 16 Suppliers has already expanded to 40, with more to come. The Supplier Account Management process is much appreciated by those engaged in the process. 5.2. Tender planning 5.2.1. It was felt that Network Rail does not appreciate the extensive involvement of project management and other specialists in tendering activity which leads to excessive costs and front line staff being distracted from delivery. On occasion excessive numbers of Suppliers are invited to tender (up to 10 bidders) or ITTs include many options to be priced in very short tendering periods. In addition tendering for Rail work is generally more expensive and time consuming than other industries, with excessive duplication. 5.2.2. Network Rail expressed disappointment at the poor quality of some of the tenders they receive, which routinely fail to answer the questions in the ITT. The Suppliers need to improve their responses which will be much assisted by smoother tender planning. 5.2.3. During the tender process there are often changes to the specification against which all bidders are invited to re-tender. This can be a protracted and wasteful process. The Suppliers strongly recommend that Network Rail appoint a preferred bidder and tackles such changes through the post-tender amendment process. 5.2.4. There was a general feeling amongst Suppliers that the cost of the tendering process should be reduced. In addition to the proposals above it is proposed that competitive tendering for every project is wasteful and inappropriate. The greater use of Framework contracts is recommended to reduce this cost and enable the resources to be focused on delivery and efficiency improvements. Page 18 of 26 5.3. Standard Suite of Contracts 5.3.1.1. The Suppliers generally welcome the thrust of standardising the Contractual Terms and Conditions; however, after the extensive consultation process concerning the Standard Suite of Contracts, there are lingering serious concerns requiring further engagement with Network Rail. The SSC is seen as one sided suite of contracts and in conflict with “Client of choice” & Collaboration objectives. Network Rail assumes that the supply base will be available, but contractors will be less inclined to invest in people and equipment and decline to bid against unacceptable terms and conditions (this is already happening). 5.3.1.2. Network Rail is spending time trying to impose the new terms on Suppliers and, in some cases, eventually reverting to old contract forms. This is a distraction to all parties and a more acceptable set of generic Terms and Conditions responding to the sensitive areas identified would be beneficial. 5.3.1.3. Network Rail’s S&T contracting strategy is based on the continued use of the RT Contract suite for the life of the current five-year frameworks (extendable for a further five years). This position had been agreed within Network Rail, and the concession was based on the effort that the S&T Suppliers had recently expended in agreeing the framework terms. Network Rail are reviewing the implications of moving to the Standard Suite of Contracts at the end of the RT Frameworks but would look to keep the current agreed terms, e.g. on IPR. 5.3.1.4. IPR – The approach to the transfer of background IPR continues to be unacceptable to many businesses and represents a significant barrier to Innovation. There is less tension in S&T as this Asset Group has agreed a mutually acceptable approach to IPR and remained on RT contracts. 5.3.1.5. Liabilities – The unbalanced liability clauses in the Standard Suite of Contracts means that contractors are frequently seeking to renegotiate terms and so negating the efficiencies that should flow from standard contracts. The unrealistically high liabilities from low value contracts are driving up unit costs as excessive risk is costed in; and/or companies will decline to tender thereby reducing the competitive pool. In particular unlimited liabilities are totally unacceptable to many companies. 5.4. Continuity and Contract duration 5.4.1. Frameworks - Short term contracts with break clauses and zero work content do not encourage investment / secure commitment from the Suppliers. Successful Framework contracts provide a visible stream of work for those Suppliers who deliver satisfactorily. The steady allocation of work and progressive confidence that springs from fulfilled Frameworks has great potential to improve quality and increase efficiency. Page 19 of 26 5.4.2. Short duration & small packages inhibit investment, whereas bundling the smaller projects to create more meaningful workbanks enables contractors’ visibility and will produce much greater productivity. 5.4.3. The bundling of projects into Framework Contracts potentially enables the formation of a number of specialist Suppliers for smaller enhancements focused on specific deliverables e.g. platform extensions. There is potentially a significant productivity opportunity to this approach. 5.5. Confidence is a key factor for Suppliers to invest in people, equipment and processes. There is a great deal of enthusiasm for the SBP and this needs to be reinforced with confidence which is born from a number of factors: 5.5.1. Visibility of the anticipated workbank supported by ITTs being issued in line with expectations. 5.5.2. Regular communication from Network Rail – advising the Suppliers of changes and anticipated changes as soon as possible. 100% certainty is not essential; the best available information is extremely useful to support Supplier’s decision making. Where there is uncertainty in projected changes, the reasons for the uncertainty should be communicated to enable Suppliers to form their own judgements. Regular conferences, Asset Group forums, Web site publications, and the Supplier Account Management process are all much appreciated means of communication. 5.5.3. Descoping, time-lags in funding & delayed starts to projects all have a destabilising impact on confidence 5.5.4. Confidence is offset by a “seen it all before” mindset. Confidence takes years to build up and is destroyed easily and quickly. 5.5.5. Stability in Network Rail’s make versus-buy-strategy is also important to ensure Suppliers’ continued confidence. 5.6. Procurement of materials 5.6.1. Network Rail continue to source materials & equipment directly and “free issue” material to Contractors who often take the risk on delivery. No margin is received for the value of the material so pricing needs to account for material planning administration and risk. Both parties should be open to ensure the most cost effective procurement and delivery method to site is adopted. 5.7. Third Party Clients 5.7.1. For 3rd Party funded Enhancements there is a view that Clients’ approach to contracting remains focused on Best Price rather than Best Value. This can lead to unnecessarily adversarial contractual relationships running counter to the direction set out in Network Rail’s Supplier Charter. The Suppliers would be pleased to work with Network Rail to encourage 3rd Party Clients to concentrate on securing Best Value rather than Best initial price. Page 20 of 26 6. Input Pricing 6.1. Labour Costs The Working Groups discussed input pricing at length but were unable to respond with the depth of analysis as presented in the SBP. The discussion was able to identify some of the key drivers for input pricing movements and highlight risks and opportunities. 6.1.1. Volumes 6.1.1.1. The SBP identifies growth to varying degrees for each Asset Group within the Network Rail activity. The dynamic nature of the Plan is understood, but already there are 2 significant projects - Crossrail and Edinburgh / Glasgow electrification - outside the Plan. Both these projects will have significant impact on resource availability and add to inflationary pressures. 6.1.1.2. Away from Mainline activities there are competing substantial volumes of work for the skills supporting each Asset Group activity e.g. LUL and Light Rail affecting signalling and electrification resources in particular. 6.1.1.3. The LEK Report refers to the impact of non-Rail work such as the Olympics, and National Grid works, but may not include other major activity drawing on similar resources such as: M25 widening, South East development, Major BT Telecoms Upgrade Programme in the UK. In addition consideration should be given to a substantial number of railway and other infrastructure projects planned throughout Europe and elsewhere overseas. These Projects will have a double impact of drawing people from the UK and making it more difficult to attract people to the UK projects. 6.1.1.4. The PSLG has identified the need to reduce total track worker hours including Travelling time. The anticipated outcome is that Lodging / Hotel accommodation will increase. It is anticipated that there will be an adverse impact on labour costs not included in the LEK report. 6.1.1.5. Geographic Hot Spots for London, East and South East England are flagged in the LEK report, however the extent of planned railway work in Scotland is another significant factor; the LEK report is believed to understate the inflationary impact in this Region. 6.1.2. The fundamental issue driving inflation is the scarcity of appropriately skilled resources - the skill pool needs to be sufficient to match the demand. There are long lead times in the recruitment and development of people with railway skill. Experience has shown that large increases in pay result when demand significantly outstrips supply; this is particularly true in specialist skill areas such as signalling and electrification where development lead times are the longest, so creating an Asset Group Hot Spot. The Suppliers would like to engage in discussion with Network Rail to determine the most cost effective method of encouraging the recruitment and development of staff to ensure the skill pool is Page 21 of 26 sufficient to meet the projected demand and control inflationary wage pressures. 6.1.3. All of the Asset Working Groups concluded that there is a significant risk that the LEK assumptions are low generally and very low in some specific skill areas. A Straw Poll within the Working Groups gave a subjective view that annual inflation for the renewals and enhancement programme would be substantially above the views expressed by LEK Report. While subjective, it has to be recognised that this reflects the actual experience in the market of some two dozen companies across all the Asset Working Groups. Companies consider that the difference would be particularly large if it is assumed that a “continue as we are” approach to the skill shortage prevails; however, if confidence levels are higher and the Suppliers are inclined to invest in people development and equipment the inflationary impact will be lower. It is not possible to define the level which can be achieved, but external (to the Railway and Overseas Railway projects) drivers still lead to the conclusion that the LEK view is too low. While we have not attempted to reproduce the rigour of the LEK analysis, the scale of the disparity is such that we recommend that further work is carried out in this area as a matter of urgency. We intend ourselves to carry out a survey of the expectations of senior representatives of member companies shortly. In the meantime, we consider that an annual rate of some 2% to 3% in real terms might be a more realistic holding assumption. 6.2. Material Costs 6.2.1. There is a significant reliance on the Copper market falling back to around its earlier levels. The Supply Chain does not profess to any insight to Metal Markets but believe this to be a large risk to LEK assumptions. 6.2.2. There is an assumption that IT costs will fall. This is agreed for new generation IT, but in some instances Network Rail relies on older generation IT and there is no expectation that there will be a reduction in the cost for the supply of obsolete IT. It is more likely that the cost of such products will increase. If replacement equipment is specified with a current product, savings will be in line with expectations. Page 22 of 26 7. 7 Day Railway The following limited views were expressed given the formative state of this vision, but it was strongly supported that the prospect of the 7 day railway is a powerful driver for innovation in equipment and processes from Planning through to Delivery. The comments below identify thoughts on risk, opportunity and the changes & enablers which will be necessary to achieve a 7 day railway: 7.1. The design of the railway needs to be considered to provide safe access. This will include amongst other things: 7.1.1.1. Additional diversionary routes with additional S&C. This will introduce more reliability risk and infrastructure investment and maintenance. 7.1.1.2. Alterations to the Electrification isolation sections 7.1.1.3. Remote Condition Monitoring & risk based maintenance regimes to reduce the need for interventions. 7.1.1.4. A full review of the Rule Book to accommodate the new ways of working - single line and rapid taking and handback of possessions and isolations. 7.1.1.5. Innovation in plant and equipment 7.2. Some of the implications include: 7.2.1. Potential Unit costs increase for renewals and maintenance with less added value time available per shift. 7.2.2. Reduced unit track access costs 7.2.3. Increased availability for passenger and freight generating more revenue. 7.2.4. Manpower implications for shift patterns and Ts & Cs 7.3. The Suppliers are enthusiastic about this opportunity and strongly support the proposal. It is suggested that a Pilot is established as soon as possible to explore the practicalities. Page 23 of 26 8. Asset Strategy In the time available it was not possible to explore this matter to any great extent, however there were a few emerging themes through the Workshops which the Suppliers believe are worthy of further consideration: 8.1. The focus on efficiency through CP4 revolves around installed costs and operating costs for the control period. There is a concern that this approach does not allow for “whole life costs” to be properly accounted in the investment and technology decisions for new projects and renewals. This is a matter which the Suppliers would refer to the ORR for consideration to ensure that the best long term decisions are made for the railway. 8.2. It has been observed that there is the potential for much greater use of automated inspection, Remote Condition Monitoring and wireless data transfer. 8.3. It was noted that the ERTMS programme is strongly linked to the conventional signalling renewals timing. This is an approach strongly supported by the Suppliers. Page 24 of 26 9. Trains Performance 9.1 Discussion focused on the realism and validity of the measures proposed to improve train reliability. Members concerned with rolling stock issues participated as well as those dealing with infrastructure. There were issues in two related main areas:• the need to ensure that any money made available for train performance improvements is used to generate the greatest improvement on a cross-industry basis the need to develop further the Intelligent Infrastructure Initiative to help deliver train performance improvements from the infrastructure, rather than purely the train, perspective 9.2 • Best Use of Available Funding 9.3 Although the Group felt that in terms of its approach to train performance the SBP was generally well-argued, more analysis was needed to demonstrate that the work envisaged would yield the maximum amount of performance benefit to the industry as a whole – whether that be via infrastructure or via train improvements. It was not clear that all the measures proposed would necessarily prove robust The general conclusion therefore was that there needed to be a more focussed and a more integrated, systemic approach to the issue of train performance, with more robust and specific allocation of funding, showing expected benefits. It would need to be managed along the lines of a specific project. Quite how such an integrated project approach can be achieved should perhaps be a key issue to be debated at the putative Industry Performance Seminar in the first half of 2008. 9.4 The Increased Use of the Intelligent Infrastructure Initiative 9.5 As part of this need for a more integrated and systemic approach to train performance, the Group felt that the continued development of the Intelligent Infrastructure Initiative would be a key requirement for success (although there were still clearly some potential gains to be had in improving train performance – eg the mid-life DMU fleets which are responsible for a significant proportion of fleet delay). 9.6 The material in the SBP dealing with this initiative was felt to be generally wellargued and was viewed as a welcome step forward in terms of both policy and detail. But there were some areas where greater consistency or clarity would be welcomed. Page 25 of 26 9.7 For example, Chapter 4 of the SBP contained some notable differences of emphasis in treatment within the various disciplines in respect of Intelligent Infrastructure and Remote Monitoring. Most disciplines referred to extending inspection regimes, but the detail on the asset failure causes impacting upon train performance and the role of Remote Monitoring tended to vary. For example, the emphasis in Signalling was the move towards Reliability Centred Maintenance whereas the Civils section listed, without attempting to prioritise them, various sources of degradation in respect of train performance impact, but was silent on Remote Monitoring. And both Telecoms and E&P mentioned Remote Monitoring as just one of a number of other regimes. So some prioritisation of these initiatives and consistency in their approach would therefore be welcomed. 9.8 The figure of £30m shown in figure 5.16 on p 135 for expenditure on Intelligent Infrastructure, and its front-end loading to achieve early benefits, were both welcomed. Equally, however, Network Rail would need to be adequately resourced and organised to achieve this spend. 9.9 It was felt also that the Intelligent Infrastructure Initiative could provide some form of remote detection of problems resulting from bad weather, trespass or vandalism which are all significant contributors to delay minutes and a downward pressure on the PPM measure. Railway Industry Association January 2008 Page 26 of 26