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INFORMED SOURCES April 2001

ECML – Morton spins out of control

Trying to blame Railtrack for delaying the award of the InterCity East coast franchise was a scapegoat too far.

And as I walked though the door, the phone rang. ‘There's an announcement on the East coast franchise at six', said an Informed Source.

‘Who's going to be happy', I asked, ‘red or blue'?

‘Neither', said the source and rang off.

And at 18.00 the fax machine chattered out the announcement that the Strategic Rail Authority had halted the replacement process for the InterCity East Coast franchise following notification from Railtrack that the cost of the associated East Coast Main Line upgrade had increased.

Cynicism borne of experience suggested that the SRA was using Railtrack to get the Government (and the SRA) off the East coast franchise hook by deferring the decision until after the expected 3 May election After all, the Department of the Environment, Transport and the Regions and the Treasury had been sitting on the SRA's recommendation since 4 December, so what's another month or two?

Why the hesitation? Don't forget, that in Sir Richard Branson of Virgin and James Sherwood of Sea Containers we have two of the biggest egos in business who are not exactly media averse. With Virgin having the best numbers but Sea Containers, through GNER, being preferred by SRA on soft issues, a decision either way will guarantee ructions. And Tony wants a smooth run up to the election.

Surprise, surprise?

But that is just me being cynical. Strategic Rail Authority, Chief Executive Mike Grant saw it differently, ‘We are examining with Railtrack the details of these cost increases which could range between 20% and, if specific provisions for contingencies are included, nearly 100%' he said.

He added that the SRA had been asked by the Deputy Prime Minister to advise him urgently of the reasons behind this rapid increase in costs. Predictably the DPM was said to be furious. The ‘new information' made a pause in the refranchising process ‘obvious' while the SRA reviewed the ‘contents and causes of this increase from Railtrack'.  

Not our fault

But Railtrack refused to be scapegoated, and was supported strongly by the two franchise replacement bidders. The company pointed out that only Phase 1 of the ECMI Upgrade (essentially the Leeds First project) was firmly committed. Pre-feasibility work for the next three phases has been underway for 18months in partnership with programme managers Fluor Daniel and Mott McDonald. The team doing this work is costing around £1.5million a month.

There was also the minor detail that until the SRA decides what it wants, it is very hard to cost the associated infrastructure work. Or as Railtrack put it, ‘There cannot be a definitive plan for the ECML route modernisation until the SRA has produced its strategic plan for the route'.

And since the SRA doesn't know what it wants until it sees something it likes, costing the ECML upgrade must be like nailing jelly to as tree.

True, Railtrack has costed a range of options for the SRA but ‘the eventual cost and specification will depend on the requirements of the new franchisee, the SRA and the reasonable requirements of the other passenger and freight operators on the route', the company's spokesman added.

Puzzled

Well, that was the official SRA line. Privately, Railtrack and the train operators didn't know what the SRA was talking about. Grant and his Chairman Sir Alastair Morton were behaving as though the revised estimates had landed on their desks out of the blue.

In fact they should have seen it coming. Railtrack had become increasingly concerned over the escalating scope and cost of the East Coast Route Upgrade towards the end of the last year. And the delay in awarding the replacement franchise had only compounded the uncertainty.

Attempts to get the SRA to ‘engage' with these concerns at Chief Executive level before Christmas had failed. In the end, a formal letter was sent instead, giving the latest costing for ECML upgrade Phases 2-4. It arrived at the SRA on February 12.

Remember that Railtrack has a five stage project appraisal process which doesn't get to full quantified risk analysis (QRA) until Stage 3. Last year's nominal cost of £1.9billion for the ECML upgrade was a Stage 1 ‘pre feasibility' figure. By February this year, ongoing consultation with the train operating companies and the SRA had added a number of expensive features to the scope of the upgrade and the cost of risk was becoming clearer.

To take a simple example, with capacity at a premium, both Virgin and Sea Containers want to run longer trains. Also, the ECML is a European TENS route which requires 400m long platforms under European Law. The UK has a derogation to 300m for upgraded routes which matches the operators' aspirations. Implementation will add £80million over 10 years.

Then there is the simple matter of one extra path an hour, another ‘nice to have' for a capacity hungry railway. But this would mean installing dynamic loops so that fast train can over take slower services. A snip at £150million.

And what will Automatic Train Protection cost when Cullen reports – say £100million? And how about more capacity between Kings Cross and Alexandra Palace ? And so on.

Costly risk

Then there are the associated costs and risks – what Railtrack calls programme level risk. The interest to be paid on borrowings, for example, the compensation to be paid to train operators for disruption, the impact of the SRA's Incremental Output Schemes. None of this had been fully developed in the original estimates and added around £1billion to the total cost of the upgrade. And all this before you made provision for Sea Containers' 140mile/h tilting trains which could add another £1bn, including the installation of ETCS Level 2

Independent Informed Sources support Railtrack's claim that the SRA knew that the previous figures did not include contingencies. After all, the SRA is represented on the ECML upgrade project Board.

Morton explodes

But perhaps, no one at the SRA had thought to tell Sir Alastair. In an interview with The Times the day after the announcement he went totally OTT, claiming that all future rail infrastructure upgrades, including the East Coast Main Line, would be opened to full competition. Construction companies and train operators would be allowed to compete with Railtrack for the work and the SRA would select the best value bid.

Railtrack, he said, was ‘struggling' with its major construction projects. An obviously irate Morton continued ‘If Railtrack is going to apply an air pump to the estimates on every project then how the hell do we plan a capital investment programme?'

Railtrack's contention that it needed a preferred bidder and a strategic plan for the route before it could prepare accurately costed proposals was given short shrift. Getting into his stride Sir Alastair riposted, ‘they have the nerve to say this is at the pre-feasibility stage? What the hell are they talking about? They have been working on it for nearly three years.'

According to Sir Alastair, the cost of the options should vary by only 10%. ‘It's just concrete and construction time and its almost all common to all the possible options. To say that they need a strategic plan before they can do a detailed design of 90% of the East Coast project is self confessed bullshit'.

Of course, this missed the point completely, since the extra costs were only partly in extra concrete and construction time and mostly about risks and associated costs. And the radical differences, even in the like-for-like competing bids refute Morton's claim to 90% commonality, the cost of 140mile/h tilt being particularly significant.

Embarrassment

Morton's choler seemed to stem from the embarrassment the cost increase caused to the Department of the Environment, Transport and the Regions in its relations with the Treasury over rail funding. As one informed source put it, the SRA should have allowed for uncertainty and put some padding into the ECML costs before passing them onto the DETR, thus giving their political masters some discretion.

After all, the West Coast Route Modernisation was an awful warning of risk ignored. The £1.35bn Core Investment Programme, negotiated by a new born Railtrack and the Office of Passenger Rail franchising, was an old fashioned ‘concrete and time' estimate which was fine under BR but not up to dealing with technical and commercial risk in the new railway.

As you were

Then, on 2 March came the climb down. The SRA told the DETR and the two franchise bidders that there was, after all, no need to continue the pause in the selection of the new franchisee for InterCity East Coast. Franchisng had been put on hold only so that the SRA and its advisors could ensure themselves that the core upgrade represented value for money.

And guess what? Sir Alastair had written to John Prescott saying that the ‘escalation in the comparable core costs of the upgrade was less than 20%' - which was what Railtrack had been saying all along. As for the other costs, these reflected a range of options ‘unlikely to be accepted by the SRA' which meant they could be excluded from the core price consideration.

Exuding sweet reasonableness Sir Alastair said that adding in these now rejected options ‘plus fees and contingencies upon contingencies' would appear to double the £1,9billion estimate. As an example he cited the option to spend ‘hundreds of millions north of Newcastle ' for ‘a marginal increase in capacity to Edinburgh together with a marginal reduction in journey time'.

So despite record levels of subsidy over the next 10 years it looks as though the SRA can't afford anything better than more of the same.

Can't stop spinnin'

Meanwhile, it was game on again for Sea Containers and Virgin, and the hospital pass was still with Government. And Sir Alastair started spinning again.

This time the target was Transport Minister Lord Macdonald who was blamed for the delaying franchising renewal. Talk about rich tea biscuit. We also had, for the first time in railway, the ‘friends of gambit' or FOG.

A recent example of FOG was the Peter Mandelson affair. Under FOG, views and even direct quotations by a public figure, are attributed to ‘friends of'. And in the case of the Sunday Telegraph interview we had ‘friends of Morton' saying that he held Macdonald entirely to blame for the delay the ICEC franchise award. And Morton was reported as putting ‘extreme pressure' on Macdonald to make an announcement.

Both Telegraphs referred to criticisms in Whitehall and the railway industry of the SRA's dithering on franchise renewal and the two pieces were clearly an attempt to divert attention from internal problems. As one ‘SRA insider', which is not the same as FOG, told the Daily Telegraph ‘Alastair is likely to get increasingly tetchy if something does not happen soon. He is fed up with carrying the can for the delays'.

Well, yes, but if you hand someone a stick of dynamite with a movement sensitive fuse, it does tend to inhibit action.

Sad

In truth, all this is very sad, because many in the industry, this column included, expected great things from Sir Alastair. But the explosion over the ECML upgrade costs revealed a lack of grasp while spinning against Macdonald was plain daft.

It called down instant and massive retaliation from ‘government officials. The headline in the civil servants own paper The Times showed why you shouldn't mess with Government. It read ‘Morton to be replaced in shake-up at rail authority'.

But I preferred the more subtle reference in the Observer diary column of the Financial Times at the end of an item musing on the future of Prescott 's DETR after the election. It concluded ‘And while Prescott may still rate Morton, Observer's mole adds that the quietly powerful transport minister Gus Macdonald can't abide him. Which doesn't bode well for Morton's future'. When it comes to spin, the well placed stiletto is deadlier than the battle axe.

Meanwhile, the railway drifts on.

Continues.........