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If it's your money, it's your risk

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My journey to work this morning involved a train with half the seats ripped out, on a line that the Strategic Rail Authority can't find anyone good enough to award the franchise to. For good measure there was a severe points failure.

Britain's railways are not its greatest engineering advertisement, even though thousands of people are working hard to improve things - and very good luck to them.

Fall out from the failure of railway privatisation is generating more than moans from its customers. Its shortcomings have inspired a successful new play (see News). And clients around the country have looked in horror at what happened to Railtrack, thinking: 'that could be me'.

Railtrack was not alone in believing it possible to lay all risk on its framework suppliers .

But what it didn't realise soon enough is that, when disaster strikes, if anyone is going to get slapped round the face with the wet fish, it is always the client.

Railtrack collapsed because it was seen to have lost control of its core business - maintaining and running a safe railway.

Its successor Network Rail's answer has been to regain control by dispensing with external suppliers and managing maintenance in house.

News this week that water companies are also bringing some design and construction work back in house is recognition that they too need to be seen to have more control over the direction and quality of their work.

The privatised water sector relies as much as Railtrack did on the confidence of its customers, shareholders and institutional investors. Companies need to be seen to be expert clients, absolutely in charge of the safe delivery and operation of cost effective, low maintenance schemes that meet all legal and regulatory requirements. That is not a responsibility that can be left with framework suppliers, however efficient.

Water companies have been enthusiastic visitors recently to Heathrow Terminal 5 to find out how yet another privatised utility, BAA, is getting high performance work from its suppliers.

The key, they have discovered, is that BAA is taking all the risk on the project.

BAA has looked at failed projects and companies, including Railtrack and its own disaster on the Heathrow Express and concluded that when you are spending billions on construction, the risk is all yours and you might as well work that to your advantage. But you don't have to follow the Network Rail route to give yourself peace of mind.

Bearing all the T5 risk has allowed BAA to establish a legally binding agreement that requires a problem solving, positive approach from its integrated teams of suppliers which are freed to use their ingenuity for the benefit of the project rather than to cover their own backs. With £1.1bn spent and the job a third of the way through, it seems to be working.

Water companies' interest in developments at T5 is a sign that their suppliers should be prepared for a much bigger rethink in how their clients plan to spend £21bn in the next five years. Whether they follow Network Rail's approach or have the courage to shoulder risk and follow the BAA route remains to be seen. Anyone in private business has to hope it's the latter.

Jackie Whitelaw is managing editor of NCE

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