Return to Archive -by date - by topic.

INFORMED SOURCES September 2003

Winsor seeks to cool West Coast boiling frogs

While the SRA thinks the West Coast Route Modernisation is value for money at £9.9billion, the Rail Regulator is arguing that there are savings to be had north of Crewe

On 24 July, Rail Regulator Tom Winsor released the third in his series of consultation papers on his Interim Review of track access charges. Four volumes of tightly packed text, tables and charts. All of which was largely ignored by the mass media which found a fifth volume sexier. This was a separate consultation document dedicated to the impact of the West Coast Route Modernisation on the Interim Review.

WCRM merited separate treatment because of the scale of the project. With £3.04billion spent and £6-7billion to come spending on the WCRM is clearly crucial to the overall Interim Review and, as Tom Winsor points out, it is also an indicator of Network Rail's competence and ability to deliver improvements ‘efficiently, within budget and to timetable' – or not.

Consultants Booz Allen Hamilton (BAH) were commissioned by ORR to report on the WCRM. Readers of this column will not be surprised to learn that BAH are highly critical of the project management and cost control to date. But they also conclude that costs are significantly higher than similar work elsewhere in the network.

For example, Network Rail is assuming an average track unit cost of £379 per composite yard on the WCRM over the next three years. In a related report for ORR, consultants Mouchel put the actual current cost at £435.

Now cost per composite yard has not featured here as a yardstick before, but Network Rail's business plan assumes a figure for the network as a whole of £233m. And even that figure is forecast to reduce by 12% by 2006/07. So WCRM poikilothermia or what?

According to ORR Network Rail acknowledges these differentials. It admits that WCRM track costs are 43% above the national figure and signalling costs are double. The signalling cost differential won't surprise regular readers either.

Let's speak WCRM

As the WCRM has gone from bad to worse it has developed its own lexicon. It started in early 1999 when Railtrack went back to basics with a cost and output review. This process had three stages, identified as Baselines 0, 1 and 2. Baseline 2 included the junking of moving block signalling and will be better known to readers as the December 1999 ‘Black diamond' review which costed the 140mile/h upgrade at £5.85billion (cash prices).

Then, during 2002, Railtrak's Administrators commissioned Bechtel to review the project. This produced Baseline 3 and the infamous £13.5billion for the 140mile/h railway.

This was clearly untenable and the SRA ran its own review which formed the basis of this year's strategy document published on 16 June. SRA costed the now 125mile/h railway at £9.9billion.

Actually, there appeared to be some confusion within SRA on the cost. At a subsequent briefing for the railway techies on 27 June, Stuart Baker, SRA's sponsor for the WCRM put the cost at £9.1billion.

Err, don't you mean 9.9? Certainly not, it's 9.1. So why does this SRA press release, not to mention the consultation document say 9.9? Consternation. But Stuart and James Martin Network Rail's Project Director: Bed of Nails, sorry, WCRM, stood by the figure. So there's some good news.

Anyway, the SRA's review generated a new Functional Specification (FS) for the project. Functional Specification 5 (don't ask about Numbers 1,2,3 and 4) generated the 125mile/h line speed, the start of tilting services to Manchester and Birmingham for the Winter 2004 timetable, the cancellation of the Train Control System for the line and the availability of blockades to deliver the September 2004 service commitment.

Unfortunately Functional Specification 5 was not available to Network Rail when the company produced its Business plan in January this year. As a result the Plan used Baseline 3.

When FS 5 was costed it created Baseline 5 (logical –Ed) which covers the renewals and enhancements in the SRA's Strategy - up to March 2006 - plus those enhancements started before that date and needed to deliver FS5. As Table 1 shows this expenditure was substantially more than that allowed for in the business plan.

Table 1 WCRM Project Expenditure (£billion, 2002/3 price base)

1 Source: Network Rail

2 Source: BAH

Undaunted Network Rail began a further review in May 2003. Its aim was to keep expenditure for 2004/05 and 3005/06 within the Business Plan projections. The result was ‘Baseline 5 minus'.

If you include £3.04billion spent to date, meeting FS5 would have increased expenditure on the WCRM to March 2006 to £8.43billion. Baseline 5 minus brought the total down to £7.29billion.

Winsor's optioneering

You will note that Table 1 goes beyond Baseline 5 minus. And, in the ORR's Interim Review report three options are identified for taking the WCRM forward for less money. These are:

* ‘base',

* ‘Minimum initial cost'

* ‘Radical restructuring'.

‘Base' is the same as Baseline 5 minus which, according to Network Rail, includes some restructuring of contractual and project management arrangements and assumes a ‘significant reduction' in unit costs. Tom Winsor doesn't like Baseline 5 minus. While it would deliver the SRA's new strategy to time, it could also result in ‘significant expenditure being incurred inefficiently'.

Hence, ‘Minimum initial cost' which would re-specify the WCRM work programme after 2004. Effectively only the renewals needed to ensure reliable operation in the near term would be carried out. There would be no enhancemens.

BAH estimate that this would save £1.5billion over the two years 2004/05-2005/06. Once Network Rail had got its costs under control SRA would be able to specify its future requirements, and, knowing that these would be priced realistically, decide whether they represented value for money.

But the cost and efficiency savings have to be offset against the delay to the enhancements in the SRA's West Coast Strategy, the associated contractual penalties and the effect on contractor confidence. Operational performance could also suffer as assets aged, meanwhile creating a new bow wave of asset renewal.

Someone in the ORR must be charged with winding up the Government and the SRA because the third option, ‘radical restructuring', is, in fact, Winsor's compromise, aimed at avoiding inefficiencies without cutting expenditure and outputs to the bare minimum. Quite simply, Network Rail would revisit the prioritisation of renewals under the WCRM, applying the policies for the rest of the Network emerging from the Interim Review to. ORR says that this could lead to ‘some rephasing' of renewals due to be carried out post 2004.

Management of the WCRM would be also be restructured, including the project team and the contracting and possessions strategies, with the aim of achieving additional ‘significant' cost reductions. One proposal is for the existing project team to concentrate on meeting the service requirement in the 2004 Winter Timetable, while a new team plans the next stage.

Network Rail's policy of bringing WCML maintenance and renewal under the WCRM project team is questioned. If management responsibility returned to the regions, ‘any remaining' project team would focus on the Trent Valley quadrupling and ‘perhaps' the Liverpool and Glasgow line speed enhancements.

Preferred option

Table 2 BAH assessment of WCRM expenditure required (£billion, 2002/03 prices)

Table 2 shows the long term implications of the three options. BAH believes that a review of renewal priorities and policies combined with ‘radical restructuring' could lead to savings on top of those from the ‘base' option worth £1billion over the life of the project. Cash flow savings are estimated at up to £1.2billion between now and 2006.

What we are looking at is a 125mile/h tilting train railway south of Crewe for the September 2004 timetable plus renewals scheduled for 2004/05 and 2005/06 needed to sustain this operation. But extension of 125mile/h tilting operation to Liverpool and Glasgow , currently promised for 2005 – probably at the winter timetable change, would be slid back by at least a year and the post 2004 enhancements, plus the backlog of renewals, would be rephased over the five years from 2006/07.

Winsor's preference is to fund ‘radical restructuring' within the Interim Review, assuming ‘robust arrangements' for its delivery can be put in place. If not, the Regulator would be ‘minded' to provide Network Rail with funding on the basis of the ‘minimum initial cost' option for the period 2004-06. Funding of the enhancements in the ‘base' level, would then be dependent on SRA being willing to meet the additional costs of the incremental outputs. In other words, the SRA would either have to divert money to the WCRM from other parts of its budget or get a sub from the Treasury under the forthcoming Comprehensive Spending Review.

Which is the cue for a brief note on the fuss the WCRM document stirred up.

As you can imagine Virgin was pretty cheesed off. Virgin Rail Chief Executive Chris Green was ‘deeply concerned' over yet another delay. He argued that applying stop-go tactics ‘at this eleventh hour' could only damage the rail industry.

Well, how much it would damage the railway financially North of Crewe is debatable. And, as ever, Chris was already working on Plan B and will be seeking 125mile/h Pendolino operation without tilt north of Crewe in 2005 to retain some Anglo-Scots journey time reductions. Given Pendolino's low axle loads I couldn't see this as a problem in a sane world.

Of course the real damage is political, where Richard Bowker is in hock to Tony Blair who is looking for a shiny new 125mile/h tilting West Coast Main Line as proof of improving public services in the next election manifesto. Richard bravely straddled two diverging steeds, saying that while the Regulator was ‘rightly challenging' the industry to deliver the WCRM for the most efficient and economic price, ‘there will be no delay in delivering the strategy and its benefits for passengers and freight customers'.

For once, the SRA's forthright Communications Director disappointed. The delay was a ‘strange recommendation' and the ‘rather nebulous notion' that £1billion could be saved did not take account of the changes SRA had been making during the last six to eight months.

This muted response undoubtedly reflected the SRA's recent plea to the Department of Transport for additional funding for the WCRM. And if you read Richard's press statement carefully there was caveat. It said ‘the recently published SRA strategy for the West Coast is a carefully developed plan and has wide support. The Rail Regulator's consultation document makes clear that, in terms of outputs beyond 2004, the SRA shall be as well informed as possible before making its final decision as to the overall long term funding it is prepared to provide'.

Note that ‘final decision'. I reckon that the Treasury will look at the Regulator's cold numbers and go for Radical Restructuring, subject to a more emollient title – I suggest Structured Enhancement Policy.

Continues.........

Return to Archive -by date - by topic.