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Classic campaign

John Armitt - Two years into Network Rail's five year regulatory period, chief executive John Armitt tells Antony Oliver about his strategy to boost efficiency by getting the engineering basics right.

The Rail Regulator's performance monitor for the third quarter of 2005/06, published last week, once again raised concerns about Network Rail's failure to invest in the network at the rate predicted. It pointed out that spending on operating, maintaining, renewing and enhancing the network is £500M below the £4.5bn budget for this year - taking the total underspend since the start of the regulatory period in April 2004 to £1.5bn.

Yet Armitt remains unfazed by these figures. He is confident of his organisation's ability to meet its projected spending and improvements.

'We are now at the end of year two in a five year programme, ' he underlines. 'The fact that we have spent less than predicted shouldn't really surprise anyone given that the railway was suddenly given a lot more money. The important thing is where we are going to be at the end of the regulatory period.' Armitt points to the fact that, at the end of the day, spending less is precisely what the regulator and the tax payer want. So long as Network Rail continues to deliver the long-term network performance outputs there should be no complaint.

'At the moment we have spent a bit less money than the regulator has allowed over the last two years but we have actually beaten asset condition targets and beaten performance, ' he says. 'We will do what we can to spend the money, but we are not a government body that has to get shot of it to avoid losing it next year. If we spend money then we must spend it efficiently and get value.' Armitt presents the example of a recent resignalling project in Cardiff which was delayed by nine months while the scope of work was reassessed. The programme suffered but the work reduced costs from £105M to £70M.

'That, to my mind, is time well spent, ' he concludes bluntly.

It is this new approach of really getting the engineering basics of project scope and design nailed down at the start which Armitt says is reaping reward for the railways.

As part of Armitt's recent radical overhaul of the business, a 'stage gate' process effectively prevents projects from rushing towards construction before they are properly and completely planned. 'We are resisting the overlapping of design and construction, ' he says. 'If you do you are almost certainly going to be in for a bigger bill. You might deliver a bit more quickly but it will almost certainly cost you more.' He accepts that, compared to many other clients, this approach might be seen as somewhat 'traditional' but contends that it is right for Network Rail right now.

'At the moment we don't necessarily have the culture or the length of experience to be efficient at managing alliance type contracts, ' he accepts. 'At our stage of development we are better off going for a more traditional approach of getting the design absolutely sorted out before we go for construction.' The results, he adds, speak for themselves. 'Today we are over-performing, ' says Armitt.

'We are ahead of target on track renewals. In terms of the efficiency of installing new track, we have a 31% target set for us, and we are a few percent ahead of where we should expect to be at this point.' Armitt's view is largely shared by the regulator. The latest monitor shows that train performance continues to improve, with the public performance measure up from 82.8% last year to 85.6% this year, and that asset condition is improving with failures down 3% over the year.

Armitt largely puts down the improvements to Network Rail's internal reorganisation and refocusing of priorities over the last couple of years. 'This organisation has gone through a whole series of changes, ' he says. 'We have restructured in a way that gives us the maximum opportunity to get consistency in what we are doing. I would be the first to admit that we haven't yet got that consistency but we are certainly a lot better.' The restructure saw all maintenance operations and around 15,000 staff transferred in-house from the seven infrastructure maintenance operators (see page 28).

Regional activities were also reorganised and realigned to improve efficiency, enabling Network Rail to assume the central industry leadership role it acquired after the 2004 rail review.

'We are spending several billions of pounds a year, so there are bound to be a few slips, ' says Armitt. 'When you have all these things coming together things are bound to get better.' The scale of work is set to continue. Network Rail's business plan for the next three years is due out at the end of the month and is expected to set out, in more detail than ever before, what level of activity is planned for each route 'There can't be a sudden rush of work because the industry wouldn't be able to cope. Contractors want a steady workload and so what we have to do is try to give them this, ' says Armitt. 'As long as they meet their part of the bargain and work with us to drive up efficiency, then they have got a pretty secure workload ahead.' On this basis he has little time for industry complaints that Network Rail is not spending enough. Even if he is a few percent under-spent, the total budget for maintenance and renewal is around £12bn over the five year period. This, he points out, represents a huge amount of activity for the industry.

Aside from the ongoing maintenance and renewal activity, Armitt is confident of being able to press ahead with a continuous stream of significant station upgrades and infrastructure projects.

He icks through his order book: The £300-400M King's Cross improvement scheme is up and running, the £2bn Thameslink is expected to get the go-ahead in April/May, works are agreed to reconfigure Birmingham New Street, and developers have been shortlisted for redevelopment of London's Euston and Victoria stations - with Waterloo to follow. All are several hundred million pound schemes. And Network Rail is also central to the £10bn Crossrail project.

With big changes completed and already yielding benefits, Armitt now desires a period of stability to get on with the job.

But with the regulator already looking for 'radical ideas' ahead of the 2008 regulatory review, which will set Network Rail's priorities for the 2009-14 period, Armitt's team will continue to be challenged for new ideas. Yet he insists that, provided there is a business case for doing so, the recent record proves Network Rail is not afraid to embrace radical change.

He talks about the options to boost the use of high output trains during maintenance and of course the greater use of blockades to accelerate major activities on the network. This requires 'a value for money discussion with train operators'.

He is also looking at increasing the use of prefabrication and modularisation in maintenance and renewal activities to boost efficiency and shorten the possession times.

Armitt rules nothing out ahead of what he describes as 'very interesting strategic three years' leading up to the next review.

'There is a steadily increasing demand on capacity on the rail network so there are some very challenging questions coming, ' he says. 'At the end of the day you can't really avoid the need for new infrastructure but one thing that you can be certain of is that there is going to be pressure to continue to introduce further efficiencies.'

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