Unlike much of the economy which continues to struggle out of recession, construction in the rail sector is booming.
An evolution is looming
Thameslink and Crossrail are well under way with HS2 likely to follow. It is on the more workaday parts of the network, however, that a less trumpeted evolution is looming which will present challenges but also potentially huge opportunities for the construction industry.
The evolution is three pronged: firstly, in early 2011, the government published its proposals on franchise reform including a desire to transfer more investment risk to the private sector. Secondly, Network Rail recently unveiled plans to devolve power to new regional businesses and be more open to private sector innovation.
Finally, the McNulty report on value for money in rail was published on 19 May.
Different ways of working
In reality, all three initiatives are facets of the same desire to improve efficiency in the rail sector. In the words of Transport Secretary Phillip Hammond: “It is a combination of a different way of letting franchises, a different way of working between Network Rail and train operating companies and changes in the way Network Rail does its engineering work and buys its engineering services”.
The McNulty report addresses why our rail network is considered to be between 30% and 50% more expensive than its foreign counterparts and how the annual £5bn rail subsidy can be cut. Whilst any talk of cuts will understandably set alarm bells ringing for those in the construction industry reliant upon rail work, analysis of the proposed changes offers encouragement as well as cause for concern.
A lack of consistency is the problem
In the long term, McNulty believes that £1bn a year can be saved through efficiency improvements without cutting back on infrastructure investment and maintenance. He recommends introducing more collaborative procurement practices and efficient methods of working which is consistent with the less confrontational image that Network Rail is seeking to portray following recent high level management changes.
There will be a greater emphasis on cooperation and an acknowledgment that lack of consistency in demand prevents the supply chain from operating efficiently.
The government’s proposals to extend rail franchises from the current seven to 10 years to 15+ years, with a clearer transfer in station “ownership” to operators is potentially exciting. The hope is that this will also encourage train operators to take a longer term view of investment and their supply chains and therefore invest more heavily and effectively in station redevelopment and related infrastructure.
For the largest projects, where a return is likely to take longer than even an extended franchise period, a mechanism to reward the outgoing franchisee for the residual value of the redevelopment is being worked on.
Our industry clearly has a large part to play in making a success of these proposals.
The changes should induce a greater emphasis on cooperation between Network Rail, the train operators and their supply chains. For their part, the challenge to the supply chain is to innovate, operate more efficiently and increase efforts at standardisation.
- Will Gard is a partner at Burges Salmon and a chartered civil engineer.