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Cost conundrum

Rail Energy Achieving its efficiency targets with a disgruntled supply chain is going to be a real challenge for Network Rail.

LAST WEEK NCE reported that Network Rail's suppliers were experiencing a gulf between what their client says and what it does.

The railway operator professes to want innovation and value for money, consultants told us. But it consistently goes for lowest cost, while staff without a detailed working knowledge of the railway play it safe by selecting tried and tested solutions in preference to new ideas.

Network Rail is under orders from the Office of Rail Regulation (ORR) to deliver savings of 31% over the current five year regulatory period, which started in 2004 and ends in 2009.

It has made major changes to procurement, cost control and project management, famously taking its track maintenance operations in house. And it 'is well on course to meet its target', says ORR director of access planning and performance Michael Lee.

But consultants are worried that most of the gains made so far have been relatively easily won. They say that some of the Network Rail staff managing their contracts are resorting to penny pinching to keep costs down. They point to the selection of lowest cost bids over best value proposals, and to refused payments for legitimate design variations as examples of the tightening grasp on the purse strings.

If Network Rail is, indeed, leaning on its suppliers to meet the ORR's target, prospects look grim for the following 2009-2014 period, they worry.

The ORR thinks Network Rail should be able to bring costs down by a further 3.4% to 8% per annum - Network Rail is studying what is feasible, and will report back to the ORR in the autumn.

But Network Rail director of major projects and investment Simon Kirby says he does not recognise the image of Network Rail as a client which is reluctant to innovate while keen to drive down costs.

He agrees that his organisation is out to minimise cost of upgrading the railway to taxpayers (see letters p16). 'We believe our drive to reduce costs promotes innovative engineering practices, such as the deployment of modular switches and crossings and new ideas that will reduce the time of our track possessions, ' he writes.

'We're not a Railtrack style cash machine. Railtrack had a very poor grasp on cost or programme. We absolutely have a grip, ' adds a Network Rail spokesman 'But the fact we are driving through efciencies does not con ct with being a forward thinking client.' ut a Network Rail spokesman concedes: 'We are very conscious that we have to really entrench new ways of thinking and behaving within Network Rail The great thing about the railway is there's great loyalty, but the ip side of that is there's sometimes reluctance to try new things.' He nevertheless points out that Network Rail is investing intensively in training its managers, and Kirby promises improved client-supplier relationships through 'our new supplier account management programme. This gives contractors a dedicated contact at Network Rail to ensure that business needs are met'.

Network Rail also aims to cut track possession times by two thirds, enabling it to deliver 'a seven day railway', albeit not a 24/7 one, the spokesman says.

Reducing the amount of insitu work needed through increasing the use of prefabrication will be a major factor in reducing the length of possessions.

Network Rail also wants its renewals contractors to examine the way they mobilise for track work. It takes French infrastructure operators far less time to get work started and done, the spokesman notes.

At NCE's 'Future of UK Rail, ' conference earlier this month, May Gurney rail director David Sterry commented, from the audience, that contractors tended to take full advantage of possession times allowed. Work could often be done faster, he suggested, but needed to be better incentivised.

But Lee predicts Network Rail has a difficult taskahead as it tries to reconcile its conservatism with the need for efficiency and lower costs : 'They have to walk and chew gum, ' he says.

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