Rail industry insiders this week urged incoming Network Rail chief executive David Higgins to push through major reforms to the company.
Higgins, currently Olympic Delivery Authority (ODA) chief executive, will take over in February 2011 with the clear remit to reorganise the rail operator and drive efficiencies.
Transport minister Theresa Villiers told this week’s NCE Rail Summit that cutting the cost of rail in the UK must be his top priority.
“The priority for the new chief executive is bringing the costs down,” she said.
Higgins will take over a month ahead of the publication of Sir Roy McNulty’s review of the cost of UK rail, and Higgins’ first task will be to implement its findings.It is expected that McNulty will recommend regionalising the rail operator.
“[Higgins needs to] look very carefully at what I say and do exactly what I want,” McNulty wryly told the conference to laughter.
“[Higgins needs to] look very carefully at what I say and do exactly what I want”
Sir Roy McNulty
Construction bosses agreed Higgins will need to have a real agenda for change.“Network Rail faces some big challenges on efficiencies. It needs to simplify the organisation, set out its strategy clearly and engage with the supply chain,” said Osborne chairman and former Network Rail major projects and investment director Simon Murray.
“The appointment of David Higgins seems a step in the right direction.”
Network Rail planning and development director Paul Plummer agreed that the company needs to change.“We need a culture change - we’ve got to work deeper with our supply chain and there’s a lot more we can do to achieve that,” he told Rail Summit delegates.
Network Rail chairman Rick Haythornthwaite said Higgins’ need to tackle the McNulty recommendations represented “significant challenges and opportunities ahead”.
“Public, passengers, politicians and the industry are demanding a better, safer railway delivered at a lower cost where success will depend on pervasive collaboration,” he said when announcing the appointment.
“Higgins is well-placed to lead both Network Rail and the industry forward to meet these challenges,” he said. Haythornthwaite added that Higgins had emerged as the leading candidate after an “extensive” search.
However, one leading headhunter said the constant public and political scrutiny of the role, not least following the media outcry after revelations of current chief executive Iain Coucher’s £1.25M pay package earlier this year, may have limited the number of candidates.
It is also seen as a particularly challenging role given the impending public spending cuts and the need to reduce the costs of a railway that currently absorbs £5bn of public cash each year. As Coucher pointed out earlier in the year, most of these savings are likely to have to come from savings in the industry’s labour costs following major overhaul of working practices and rewards. This could bring Higgins into conflict with rail unions adding to the complexity of the job.
Higgins has been a non-executive director of Network Rail since February 2010.
While he has little direct experience of the operating in the rail industry or of running a service business he is very experienced in big project environments.Before joining the ODA, he spent seven years as chief executive of property firm Lend Lease and three years as English Partnerships chief executive.
“Frankly they’ve been lucky to get someone of his calibre”
“There would have been better people in terms of understanding what the business is all about, but under the circumstances Higgins is a good choice,” said headhunter Clive & Stokes director Simon Pratt. “Frankly they’ve been lucky to get someone of his calibre. They’ve ended up with a very satisfactory compromise.”
Higgins said the job was “a challenge I could not turn down”.He added: “My priority is to bring Network Rail and the industry closer so that together we can continue to improve service, efficiency and safety and add much needed capacity to a railway network that is nearly full.
”Current Network Rail chief executive Iain Coucher steps down at the end of this month, but Higgins will not take up his new position until 1 February 2011.
Network Rail asset management director Peter Henderson will act as chief executive in the interim.
Higgins will be replaced at the ODA by finance director Dennis Hone, who takes up the role of chief executive-elect with immediate effect.
What’s next for Network Rail?
Network Rail should be broken up into regions or split via its different functions, senior rail professionals said this week.
The rail infrastructure operator and owner needs to make better progress on becoming an organisation that is capable of delivering maintenance and major projects more cost effectively, they said.
Rail minister Theresa Villiers and Sir Roy McNulty, currently investigating rail value for money for the government, both told NCE’s Rail Summit that breaking the firm up into regions is an increasingly likely move.
“Partnership working rather than confrontation contracting is more effective,” said McNulty. “It’s [an approach that’s] proven elsewhere but not yet being used well enough in the rail industry. And when you start thinking about real partnership working in this industry you quickly look at it on a regional level.”
Villiers said that the government was open to the possibility of a regionalised Network Rail. “We are working on various options and nothing is final,” she said. “But the McNulty review will assist us in working out the best way of ensuring the accountability of Network Rail.”
She added that costs were a real priority for the firm and despite its own attempts to make savings of £5.4bn in this control period (NCE 23 September) she argued that the government had not seen enough progress on reducing the cost of upgrading and maintaining Britain’s railways.
Crossrail chief executive Rob Holden called for the operation to separate its maintenance and major project functions.
Holden said Network Rail’s two roles as the maintainer of the national railway infrastructure and the deliverer of major enhancement projects were “two very different businesses which require two very different sets of skills”.
“I would break up Network Rail into two,” he added.
“When you’ve got a business where you have big projects, as well as a maintenance day job, there are issues – if you need to prioritise things, it’s always the capital job that suffers. If you want to have the correct focus, particularly from senior management, then I think you have to break Network Rail up.”
However, Network Rail director of stations and customer service Mike Goggin argued that splitting the company up would simply create another interface that needs managing.
“I’m not sure that’s necessarily the best thing,” he said.