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INFORMED SOURCES November 2005

Signalling – how fast can Network Rail spend?

Engineering and design resources, not money, are the real issue.

Having underspent in the first two years of the current Control Period (CP3) Network Rail has proposed a massive catch up in the remaining three years

As usual, we need a bit of history to understand what is going on. In his 2003 Access Charge Review (ACR2003) which set Network Rail's income for the five years from 1 April 2004 , the Rail Regulator allowed just over £1.7 billion for signslling with expenditure peaking in 2005-06.

Table 1

ORR's proposed signalling spend allowance for CP3

1) After efficiency savings

2) Actual spend

Source: ORR/Network Rail Medium Term submission

With Network Rail still getting to grips with the business and its assets, and with signalling a disaster area (this column passim), you could argue that it was prudent for the company not to commit itself to major contracts until it knew what it needed to buy. Recognising this, the Regulator provided for an Interim Signalling Review which would revise the ACR2003 figures when Network Rail had got its signalling renewals under control.

This Interim Review is in two parts, medium term (covering CP3) and long term (CP4 and beyond). Table 1 shows where the short term review has got.

Network Rail's medium term submission to the review showed that, partly because of the initial underspend, instead of the cost of renewals peaking this year, expenditure would continue to rise, giving a total for CP3 of £2 billion, some £300 million over the regulatory settlement.

Savings

In September the Office of Rail Regulation (ORR) published its draft conclusions on the medium term signalling review. Apart from some minor cuts in the proposed spending, there was good news and not so good news.

ORR is confident that the supply industry can deliver the volumes of work proposed by Network Rail ‘efficiently'. The not so good news is that there is a ‘significant risk' that Network Rail's in-house design, scheme development and authorisation processes will not be able to process the schemes covered by the budget and put them out to tender.

There are numbers to back up this concern. When Network Rail set up the Signalling & Telecom Programme Engineering (STPE) department in May 2004 it had an authorised workforce of 511. This was increased to 574 in June this year. But, according to ORR, only 418 positions were filled in June , which was an increase of only 35 since January.

ORR also cautions that while recruitment for STPE is continuing, there remains a ‘considerable vacancy gap'. This is before Network Rail's expected creation of a further 50 posts ‘over the next year'.

SEU costs

ORR has cut Network Rail's submission by £122 million. This represents £107 million of further savings plus £15 million becaue of double counting in Network Rail's indexing of the cost of Signalling Equivalent Units (SEU).

An SEU is a piece of a signalling scheme, such as a point end, a signal head or an axle counter. Network Rail has calculated its cost per SEU from an analysis of 11 signalling schemes between 1996 and 2003.

When these costs were indexed to 2003-04 prices the cost per SEU came out at £271,000. ORR spotted an error in the indexation and has cut the starting cost £267,000/SEU.

Network Rail reckons it can reduce the starting cost by 30% by the end of CP3. At £189,000 this takes the cost below the symbolic magic £200,000.

But pulling together data in the ORR's draft conclusions I get Table 2. Ignoring 2005-06, which is clearly an anomaly, it does show costs falling, but not by 30%.

Table 2

Project cost per SEU on major works

Source: ORR

Table 3

Breakdown of Network Rail's proposed signalling expenditure for CP3

False economies

There is also some weaseling we need to watch. In its Draft Conclusions ORR says that it is prepared to consider ‘scope reduction' as a means of reducing the cost of signalling renewals.

I don't like the sound of that, since, given the title of this magazine, we are all for increasing the scope of a railway carrying increasing volumes of passenger and freight. It reminds me of the neoligism coined during the East Coast Main Line electification ‘dequadrification' which means reducing four tracks to three.

To be fair, under what is termed its ‘underspend framework', ORR says that the ‘burden of proof' would be on Network Rail to demonstrate that any scope reduction would not have adverse impacts on the network's long term serviceability or required capability. Customers will also have to be consulted on any related network changes.

But ‘Scope reduction' still needs watching. ORR defines it as reducing costs through using fewer SEUs than initially predicted, while still delivering the required capacity and functionality.

ORR's independent reporters will examine service delivery of individual projects for which scope reductions have been identified. Should they conclude that the reductions would compromise long term outputs, ORR would either be hit in its pocket through a reduction in the Regulatory asset Base (RAB), and hence future income, or the funding could be rolled forward to be spent in CP4. That's all very well, but isn't allowing scope reduction to go ahead and then fining Network Rail, a case of closing the stable door after the horse has been dequadrupeded?

Continues.........