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Network Rail set to miss five year efficiency target - ORR

Network Rail is underperforming on its efficiency objectives and is unlikely to deliver promised efficiency savings by the end of the current five year spending cycle, the Office of Rail Regulation (ORR) has found.

The ORR’s analysis highlights that efficiency improvements slowed in 2012/13 and that it is ORR’s assessment that Network Rail is unlikely to deliver the potential 23.5% efficiencies identified for operations, renewals, maintenance and asset management by the end of the current five year control period CP4.

The regulator’s annual efficiency and finance assessment of Network Rail (2012/13) examines the amount of money the company has spent and what it provided in return for the funds received from train operators and governments. The report scrutinises expenditure on renewals, maintenance and asset management, and what was delivered. It also explains financial adjustments for Network Rail’s delivery against its performance targets.This assessment covers the fourth year of Network Rail’s current five-year funding period (CP4), which will end on 31 March 2014.

The analysis shows that Network Rail implemented a number of initiatives – such as rationalising its signalling and control centres and reduced use of sub-contractors – to improve its operating maintenance and renewals expenditure. It also highlights that Network Rail is on track to deliver its rail enhancement programme.

“The company is falling short of expectations at the moment,” said ORR chief executive Richard Price. “It is facing many problems of its own making, having failed to deliver plans to renew Britain’s rail network, with delayed works now affecting performance. The company must urgently catch-up and address the problems which are causing disruption to passengers and target its work as efficiently as possible. This is vital as it heads towards its new five-year delivery plan with more stretching targets.”

ORR’s analysis identifies some key issues which have led to the company not meeting its efficiency targets:

Lack of knowledge of assets and lack of delivery of its civil renewals programme. The reliability of information Network Rail holds on the condition of its tracks, bridges and other assets is not as good as it should be. ORR has seen some improvement, but there remains a good deal of work ahead for the company to be as efficient as it can be. ORR’s assessment also highlights issues associated with Network Rail’s deferral of its work to renew Britain’s rail network, with lower-than-planned renewals affecting performance levels.

Poor maintenance planning leading to poor asset performance and delays. Too much of the maintenance work being carried out by Network Rail is reactive rather than preventative. There is also an increasing backlog of maintenance work. Network Rail acknowledges that some maintenance depots are under-resourced and it will increase the amount of planned maintenance work this year.

Inadequate attention to drainage in particular hampering preparation for adverse weather. Last year’s wet autumn and winter weather exposed the impact of under-investment in earthworks, such as drainage and embankments. There were 125 earthwork failures in 2012-13, compared to 12 in 2011-12. Network Rail is re-assessing its monitoring regimes so that it can target its work more effectively.

The ORR has also published the latest analysis on rail performance. The Network Rail Monitor, which assesses rail performance between 1 April and 20 July, shows that the company remains short of key targets. For example, punctuality on London & the South East services is 91.1%, around 1.9 percentage points below the funded target; and punctuality for long distance passenger services is 87.1%, 4.9 percentage points below target.

Under an order made by ORR, if Network Rail fails to deliver its 2013/14 punctuality target for long distances services (92% PPM) it faces a substantial financial penalty. The size of any financial penalty will reflect the extent of Network Rail’s failure to meet the commitment, increasing by £1.5M per 0.1 percentage point it drops below the target. The ORR said that Network Rail is failing to deliver on its own performance recovery plan for the long distance services, and needs to do much more if it is to deliver its commitments.

It adds that Network Rail is unlikely to meet a number of targets in its current funding period, and it will have significant ground to cover in the next five year funding period starting in April 2014. The regulator said it will be “more demanding” of Network Rail’s performance to ensure improvements are delivered for its customers.

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