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Notes for this interview were taken down in the 102nd in the collection of spiral bound notebooks which form the paper memory of people I have met and events I have covered over the last 14 years. The page headed ‘Morton/Grant 24-10-00' has an unusual crinkled texture and if you turn it back you will see that, unusually, the notes are in ink and that the pen has skidded and sometimes punctured the paper.
This is because it was raining heavily when the technical press was at last allowed limited access to the Hatfield derailment site and the brim of my borrowed hard hat formed an effective gutter when I looked down to take notes. I mentally kicked myself for not bringing a tape recorder, but those few water marked pages with their barely legible script will be my reminder of a pivotal moment in railway history.
By the time I sat down with Sir Alastair Morton and Mike Grant events had moved on fast. In particular, Railtrack Chief Executive Gerald Corbett had called the Train Operating Companies together to ‘think the unthinkable' on the structure of the railway industry bequeathed by privatisation. In Corbett's comments after the meeting, one word appeared in almost every sentence – ‘radical'.
As a result, the sheet of prompts I had submitted outlining a possible framework for the interview was pushed to one side and it was straight into the crisis. Indeed, as the tape recorder started running, Deputy Prime Minister John Prescott was on his feet in the House of commons announcing that he had asked the Shadow Strategic Rail Authority to get together with the ‘railway industry' – effectively, Railtrack, the Train Operating Companies and the infrastructure contractors, to examine what Sir Alastair calls the ‘structural tensions and blockages' within the railway.
While Sir Alastair linked this to Gerald Corbett's lead, it is clear that neither the SRA nor the Government is interested in the Railtrack Chief Executive's call for radical restructuring to simplify the industry. Instead, a number of working groups are being set up to resolve the problems, such as perverse incentives, within the existing structure.
Morton explains, ‘There are conflicts of interest, regulatory and contractual issues and contradictions which lie between Railtrack and its contractors, between Railtrack and the TOCs, between the TOCs and the franchising function of the SSRA'. ‘You can perm any two out of the three to obtain more examples' he adds.
And these tensions are exacerbated when the railway is under pressure. A suggestion that a Temporary Speed Restriction is imposed is ‘greeted with horror' by Railtrack because it will mean compensating the TOCs, but the responsibility lies with the contractor.
So the aim of the working groups will be to try and identify what Morton calls ‘these sore points' and then see if agreement in principle on how to resolve them can be reached at a high level. ‘Can we do it, he asks rhetorically? ‘Let's see' is the answer, certainly there is a more conducive climate than at any time since privatisation.
If agreement can be reached, the next challenge will be to negotiate modification to relieve the pressures without creating ‘massive unintended consequences'. Take the emerging issue of blockades versus possessions. ‘Is there a way of dealing with the penalty payments to TOCs that permits longer possessions or mini blockades' he asks? And you will note that interviews with Sir Alastair often issue challenges rather than prescribe solutions.
Even though, Mike Grant reckons that the TOCs can see possessions and blockades as commercial opportunities, they are also classic examples of Sir Alastair's ‘pressure points'. Disruption payments to TOCs are massive - £50million each in the case of Leeds station and Manchester south. But for those with seven year franchises, time runs out before they can profit in the long term from the benefits of the short term pain.
Morton hopes that the working groups will get the ‘grain' of the industry consistent ‘across the whole piece', with the players in the industry, ‘which includes the SRA', readopting ownership of the structure and trying to make it work ‘as opposed to whingeing about it'. He intends to publish the industry's consensus on how to move forward before the SRA's Strategic Plan is released. Publication of the plan was originally scheduled for November 2000 but has inevitably been put back under pressure of events and is now likely to be in January 2001.
Consensus may have to be achieved ‘under pressure from us, from the Deputy Prime Minister, the Rail Regulator or whoever', Says sir Alastair, ‘or it may be an entirely voluntary consensus – we shall see'. Either way, he says, the aim is to achieve the situation where the general feeling is ‘OK, it may not be the best (organisation for the railway) but it's the best we've got'.
How will the working Groups work? Sir Alastair turns over the discarded sheet of prompts and starts sketching.
First he draws a series of tall rectangles across the page – what he calls ‘silos'. Each one represents a relationship – ‘Railtrack to maintenance, Railtrack to TOCs, TOCs to us'. Then he scores three horizontal parallel bands across the rectangles. ‘This one's called safety, this one's called performance sand this one's called enhancement to accommodate growth'.
These bands – safety performance, growth - represent the pressures being applied to the railway system by its regulators and funders. where they cross the ‘silos', stress points have been, and are being, created.
Hence the Working Groups which will report to a steering Group which Morton will chair. The aim of the groups will be to produce ‘high level consensus', rather than formal agreements, on what the SRA's strategy should be, as the railway's paymaster, to ease the ‘sore points'. This will lead to the SRA ‘guiding people and paying for improved relationships' in the ‘silos'.
Given the shock of Hatfield, plus the public rejection of the panglossian view of privatisation by industry figures such as Corbett and Chris Green, Sir Alastair was not expecting any resistance to his proposals.
At which point, Mike Grant injects a Chief Executive's tactical concerns into his Chairman's strategic aims. ‘One thing we have to protect ourselves against is that we are not taken advantage of on a commercial basis, as a result of the crisis', he says.
‘That's true of everybody involved , Mike', replies Morton mildly. ‘Yes' says Grant, ‘but at the end of the day most of the bill comes back to the SRA'.
For example, the maintenance contractors will see Hatfield as the opportunity to widen their margins. And from his contacts within the contracting industry Morton knows well that Railtrack maintenance business is becoming commercially unattractive. Indeed, one contractor told him recently that its Group Board was debating why it should stay in the rail business, given the risk/reward ratio .
Sir Alastair believes the railway must encourage the long view. ‘The image this industry has to convey to people, whether its rolling stock suppliers or maintenance facilities management companies, is that there is a lot of business to be done consistently over an extended period of years – this is a serious market place'.
Given this long term certainly Sir Alastair's message to suppliers is ‘commit the resources, commit training and staff, commit your better people, commit the know how, which is in scarce supply in every sector of industry, to getting yourself set to make money out of what is set to be a consistent flow of business'.
‘Don't dabble in and out of it, don't be scared that it might not be here tomorrow' says Morton. Easily said and he concedes that delivering this long term market depends on Railtrack continuing to invest and the SRA continuing to have funds from the Treasury to back and extend investment.
SoundbiteThe most important thing we can do sitting here is actually commit as much as possible of this famous £60billion as early as possible because then everybody's tied in once it's into contracts . Sir Alastair Morton |
‘Yes, but', I comment, ‘Railtrack is still in old BR mode, treating contractors like rogues and screwing prices down'. Long experience speaks. ‘Contractors are rogues, Roger, but it doesn't need to work like that' says Morton.
Inevitably Gerald Corbett's resignation comes up. Mike Grant is concerned that its rejection by the Railtrack board highlighted weakness at the top of the infrastructure owner. Most plcs, faced with the loss of the Chief Executive have a replacement being groomed for the succession, or, at the least, a senior safe pair of hands to maintain continuity'.
In contrast, the Hatfield crisis showed that Corbett was irreplaceable. ‘What if he goes under the proverbial bus' asked Morton?
Meanwhile, in rejecting Corbett's resignation, the Railtrack board has taken responsibility for his continuation in the post and, more important, for his ability to manage the company through the turmoil post Hatfield. Should something else go horribly pear shaped, the board can't ask Corbett to resign without going itself..
So, while Gerald Corbett may have ‘used up all his nine lives', Morton is glad that he is at Railtrack ‘because he's all the company has got'. Indeed, on the subject of a successor Sir Alastair says that the ‘most paralysing moment' post Hatfield had been the suggestion that he might take on the job. ‘I immediat ely suggested him' says Morton pointing at Mike Grant'. ‘That was even more paralysing ‘ laughs Grant.
But despite the laughter, this interchange has, for me, highlighted the tightrope Morton and Grant are walking as the SRA gains its full powers and tries to create shape and stability within a fragmented industry. My first version of that sentence had ‘impose' rather than ‘create'. And while this magazine has had run-ins with Sir Alastair on command and control versus laissez faire (Modern Railways xx 2000) the SRA's powers to make industry do something are constrained – as are the Government's.
While the Regulator can impose enforcement orders and exact penalties and the SRA can set standards for new franchises, management changes are up to private company boards and shareholders. The days when Transport Minister Barbara Castle could sack the BR Chairman and appoint someone more acceptable are no more. As Sir Alastair is fond of saying, ‘we are where we are', and that includes the people in the railway industry.
So, with the SRA looking to take the post-Hatfield tide in the affairs of the railway at the flood and surf the wave, the interview moves on from the here and now. The crib sheet is turned over, and I ask how the two men see the SRA maintaining consistency of purpose in such turbulent times?
Sir Alastair latches onto the Iron Duke's phrase. Look for ‘consistency of purpose' to feature in a future speech. To Morton it is all about the three horizontal bands in the now hidden diagram. The SRA is not responsible for safety, but arranging for safety to ‘march in step with performance and growth' is the very essence of consistency.
This is coupled with the need for consistency of purpose in creating investment-led growth . Note the use of ‘investment-led'. Since privatisation, passenger traffic has, like topsy, ‘just growed'. As a result investment, in new trains and infrastructure is still playing catch-up. Investment led growth is not new – Chris Green's Networker project was a classic example in BR days – but Morton's use of the term is significant and he instances the recent Midland Main Line and Chiltern deals as the way forward . Equally so in the case of rail freight where major investment is often needed to start a scheme which then takes time to build up revenue.
Investment led growth is linked with performance. This is summed up in the ‘bigger, better railway' which the SRA ‘goes on about all the time' according to Morton. And, of course, a better performing railway is a safer railway. Or, as Mike Grant prefers to put it, ‘A safe business is a good business'.
‘Our business is to be strategically consistent in our purpose', Morton says, adding, ‘have we answered the question'? We'll, sort of, but how do you ensure strategy is consistent? Answer; ‘we go on testing it all the time against the criteria “investment led, safer, bigger, better”'.
Being strategic also means avoiding the micro-management beloved of politicians in the ‘Minister intervenes to save winsome tot's life' vein. Grant is clear that the SRA's purpose is to ‘put the framework in place and not do it ourselves'. Morton likens the delicacy of touch which this involves to the children's game spillikins where you have a pile of sticks and have to remove them one at a time without collapsing the pile. ‘We have to see whether we can get a few out and put a few in without pulling the whole structure down' he sas.
Hence the need for consensus if the industry is to change successfully. ‘People have to want to do it' and you can see that one recalcitrant partner could bring the whole process of change to a halt. ‘We set the frame work', reiterates Grant, ‘those who run the railway take responsibility'.
Obviously I wanted to discuss franchise replacement. Only that morning the Deputy Prime Minister had said that that he wanted to have fewer franchisees. Might this not be difficult to achieve given that the pre-qualification lists contain a number of would be new recruits in addition to all the old sweats?
Grant points put that there has been some consolidation already, notably the acquisition of Prism by National Express Group. ‘But, he adds, ‘we have to judge the award of replacement franchises on the merits put forward'.
Quite. ‘I don't think anyone would welcome us choosing a franchisee by numbers'. Grant continues. ‘If somebody from outside came in with a fantastic offer would we be right to refuse it to keep the number of franchisees down?'
Obviously not. The SRA must take the bid that offers the best value for money for the traveller and the taxpayer. Exactly', says Grant' and that's the way we're approaching franchise replacement'.
Morton cuts in. ‘It is a largely objective but not wholly objective judgement. There is an element of subjective judgement in evaluations'.
Grant agrees. ‘There is a subjective judgement on whether you believe what a bidder is promising'. Morton adds, ‘and what you think of their performance, which is only a partly statistical judgement.'
‘It's no different from any other business judgement', continues Grant. ‘At the end of the day we're investing money in these businesses, and if you were a banker or a stockbroker you would say “I want to see how good the management is, do I believe they can deliver what they are promising”'.
‘How many franchises will NEG have after the replacement process', Sir Alastair asks me?
‘No idea', I say, ‘the commercial dice will fall the way they fall'.
‘But if they keep the ones they've got, they'll have quite a lot', he probes.
‘Of course, but equally they could be outbid'.
Grant interjects, ‘There comes a point where one offer for a replacement franchise might be marginally ahead, but when you do some overlays on the subjective part of the decision then you might decide, for whatever reason, that (putting)too many eggs in one basket are not worth the additional benefit in the franchise'. Subsequently I wonder whether this exchange should raise or depress the NEG share price.
Morton commends the Laing/Swiss Railways approach to franchise replacement. The consortium has made clear that its aspirations go beyond the retained Chiltern franchise. The aim is to win the Thames and Wessex franchises and run them as a unit with Chiltern, pulling in various synergies.
‘We're not against that' says Morton, if they've put in the three best bids'. ‘And if they show the synergies, we will take that into account', adds Grant.
Earlier in the year Sir Alastair had given the impression that the SRA was looking for fewer, bigger. Franchises. In the event, the number is being reduced from 25 to 21. How consistent is that?
He still maintains that fewer franchise operators ‘seems a good idea', but getting from here to there ‘remains the puzzle'.
Grant believes it would be ‘far better' if franchise restructuring were market driven, with people realising the synergies, than if it were imposed by the SRA. As an example of the application of market forces Sir Alastair instances East Anglia . GB Railways is financially weak, Bob Breakwell, who has held Great Eastern together is not going on forever, and the West Anglia half of WAGN going to be half of a new acronym WAGE.
‘What's the right answer? Let's wait and see what the bids are', says Morton. If the same people bid for WAGE and Anglia , is there a case for still having two franchises but one owner?'
In addition to value for money issues, the growing number of bidders adds to the puzzle.
Take, for example, the ‘continentals' as Morton calls the European state railways which have entered the market. ‘We like the idea of them bringing operating and technical expertise to put behind people with a market presence'. But, he adds, ‘That stops short of saying that if they came in 100% we like the idea. No one has done that yet so we haven't answered that question'.
In this context, the fact that there will be an enforceable technical assistance agreement with SNCF supporting the GoVia bid for the Network South Central franchise was ‘important'. Netherlands Railways backing for the First Group's South West Trains bid is also ‘important'.
With the pace of franchise replacement bidding accelerating, the SRA is, in Sir Alasatair's words,chewing up a lot of engineering and consultancy resources'. If seven pre-qualifiers become a shortlist of four, that's a ‘hell of a lot' of resources duplicating work.
So, and this is a kite he has decided to fly in this interview, Morton wonders whether the SRA should seek more detail sooner, to get through pre-qualification and the first cut faster, to a shorter shortlist. The faster the SRA can get to a shortlist of two or three bidders, Morton believes, the less the cost of tendering and the fewer resources tied up.
This would require bidders to do more work in developing their hoped for contribution to the eventual franchise map. And Morton once again instances the Laing/Swiss Railways proposals for the three West of London franchises.
By identifying specific franchise ambitions , companies would be able to develop outline schemes. These would be put to the SRA and substantial resources would be hired only if the SRA confirmed its interest. ‘It's a case', says Sir Alastair, of asking bidders to be more serious ‘so that we can be more serious'. Hmm, the prototype for this approach, Prism and Wales Rail, seems to have crashed and burned.
Having got the kite airborne, Sir Alastair challenges Mike Grant to ‘shoot it down'. Grant agrees that part of the issue is tying up resources. But his solution would be to seek less information from all the prequalifiers, take, say, six forward on the basis of these preliminary proposals and then cut it down to three and then two.
‘In this way', says Grant 'we don't waste six bidding team's resources'. Morton agrees that getting that first cut as early as possible is what counts. This will be the policy on Trans Pennine Express, Grant hints.
‘This whole saga is bedevilled by shortage of skilled people', complains Morton, ‘and it's going to get worse'.
Which brings us to the point made by Railtrack that working up a project, through feasibility studies and the Transport & works Act and then integrating it with the national network costs serious money – tens of millions. So money and resources has to be focused and prioritised on the best schemes. Isn't it the SRA's job, rather than groups of consultants working for franchise bidders'?
‘Our Strategic Plan', says Morton, ‘is going to be layered. It will start with “we are where we are”, establishing the structure of the industry and the SRA's plans for developing passenger, freight, infrastructure investment plus the role of Rail Modernisation Fund.
Then, after this scene setting it will ‘talk about' priorities for developing the infrastructure and ‘methodology'. As an example of methodology, Sir Alastair instances establishing the operational difference of intermodal transfer using Cargo Sprinter -type self-powered units compared to traditional loco-hauled freight operation.
Infrastructure development will be the major topic and Sir Alastair promises that the SRA's list will go beyond Railtrack's Year 2000 Network Management Statement. The aim is to list in the plan the projects which the SRA considers important to the development of the railway.
In effect, the SRA Strategic Plan will answer the question ‘what do you want us to do first', which has always been implicit in the ever-thicker NMS. Having been given the answer to that question in the plan, Sir Alastair expects Railtrack to use the 2001 NMS (out in March) to come back and say ‘We can't do all your projects at once, but we can do a lot of them'.
If there is a ‘big mismatch' between the can-dos and the Strategic Plan list, Sir Alastair would expect the NMS to be adjusted ‘unless Railtrack's planning to pay for it out of its own resources – which they aren't'.
This brings Grant back to what is clearly a major concern at the SRA, the demand on finite planning and engineering resources. ‘Another way in which we are trying to save on advisors is the Project development Groups where the intention is to use the same advisors, on an open book basis, with Railtrack and with the lead TOC where appropriate', he explains. This avoids the wasteful situation of three sets of advisors working on one project.
Of course, in the case of Freight, in particular, many infrastructure developments are rail linked but off Railtrack's property. This exposes potential operators of freight terminals or private sidings to the rigours of the TWA and the inherent delays. There are political issues in such cases and the SRA is setting up a smal team to deal with ‘high level intervention' on regional and local planning cycles. ‘We're going to have to work like hell', adds Morton.
For example, the SRA regards the proposed Colnbrook intermodal terminal as ‘something that must be a good idea' with its proximity to rail, motorways and Heathrow Airport and has said so ‘very loudly'. ‘It's on a quarry pit right next to one of the country's major motorway intersections , so what's the (planning) fuss about' asks the SRA Chairman trenchantly?
Multi-modal schemes are less complex in railway terms because they are open access and the SRA can provide support without having to consider the effect on existing operators. Meanwhile ‘company neutral' freight support will decouple the grant from a specific operator by making the support movement related.
For example, the grant could be ‘per container' or ‘per tonne'. ‘Per something', says Morton, with the grant going to the customer who can then spend the money with whichever operator offers the best package. The detail of this approach is still being worked out.
By now we are running out of time fast. In an attempt to end this series with a bang I ask about the SRA's relationship with the Office of the Rail Regulator.
Morton: ‘Tom Winsor is dedicated to the belief that companies can be managed by reading their contracts: when in doubt read the contract and it will tell you what to do'.
That's a good start. But what about the SRA/ORR relationship? Morton puts it succinctly, ‘Tom's the referee and I'm a player'. Within this relationship the SRA is going to be ‘spending money and engaging in a commercial dialogue with consequences with franchisees'.
With the Regulator there ‘to enforce people's rights, to prevent blocks on competition and regulate the monopolies, Morton concedes ‘We may be in partnerships that run into the Regulator'.
And what about the ‘sore points' with which the interview began? Might the salve not include a tacit understanding that rights would be waived where they were counter-productive to the good of the industry as a whole?
‘At the end of the day, that would have to be cleared with Tom, without doubt', says Morton. But he emphasises that the key area is safety and the Rail Regulator is not the safety regulator.
Future safety regulation is the subject of Part 2 of Lord Cullen's Ladbroke Grove inquiry. Sir Alastair's preference would be for the Inquiry's recommendations for rail to read across from aviation. The obvious parallel, then, is to see the SRA as the rail equivalent of the Civil Aviation Authority – that is both economic and safety regulator.
But, as Sir Alastair points out, unlike the CAA, the SRA has large capital funds and subsidies to dispose of and is ‘down there in the pit with the boys' while the safety regulator has to be out of the pit. So a separate, dedicated railway safety regulator would be his preference, particularly since, and Morton is not alone in his view, the diffusion of what was Her Majesty's Railway Inspectorate through various parts of the Health & Safety Executive has not worked. ‘The accident investigator has to be able to criticise the safety regulator, which means separation'.
Which ends this year long review of the state of the railway in the words of the key players. My thanks to all those who, like Sir Alastair and Grant have been so outspoken. When the series began, some readers accused me of giving the subjects an easy ride, but the aim was not to preach or hector – but to let the movers and shakers speak for themselves and trust our readers to make their own judgements.
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