Comment

11.09.17

Questions remain

Source: RTM Aug/Sep 17

Peter Loosley, policy director of the Railway Industry Association (RIA), says that the government’s acceptance of increased renewals volumes in CP6 is welcome – but significant questions remain over funding and CP5 renewals.

The recent government announcements on the High Level Output Specification (HLOS) and the interim Statement of Funds Available (SoFA) for CP6 – which starts in April 2019, following the completion of CP5 – provide some welcome messages, but still leave some uncertainties. 

The broad acceptance of the need for increased renewals volumes in CP6 and the government’s commitment to creating certainty for suppliers are both warmly welcomed. However, the deferral of the substantive SoFA until later in the year and the current marked drop-off in renewals volumes for the remainder of CP5 leaves uncertainty, and in the latter case serious concern, within the rail supply industry. 

Impact on the supply chain 

Firstly, on the positives. Transport secretary Chris Grayling said that an increased volume of renewals activity would be needed throughout CP6 to maintain safety and improve on current levels of reliability and punctuality. The RIA absolutely agrees, and the railway supply industry is ready to rise to the challenge of efficiently delivering an increased volume of renewals during CP6. 

Grayling also wants to ensure that the regulatory framework creates “certainty for the supply chain and investors and fosters investment”. We’re likely to see a greater level of private investment, with third-party investors given appropriate protection through the regulatory framework. Again, RIA strongly welcomes this move. 

The number of rail journeys is expected to double over roughly the next 25 years. An efficient and properly resourced supply chain, with a stable and predictable forward workload, is vital if the industry is to deliver what is required of it not only by the economy and by government, but also by passengers and freight customers. RIA has offered its full backing to the DfT’s plans for the supply chain to have good visibility of Network Rail’s project pipelines and for the sector to be properly supported to invest in skills, technology and innovation and contribute to the delivery of the Rail Technical Strategy. This is encouraging news, and we will continue to work with Network Rail and government to help translate this into reality. 

But Grayling stopped short of confirming the funding allocation for CP6, instead saying that more assurances were needed over efficiencies (reducing the unit cost of renewals). This is something the industry takes incredibly seriously. Clearly there is an issue around renewals costs, and further work is being done to help inform what will be the substantive SoFA announcement later this year. RIA, especially through its Renewals Unit Cost Working Group – in collaboration with its members, Network Rail and the ORR – remains committed to contributing to this work. 

CP5 funding shortfall 

However, there still remains the issue of the current CP5 shortfall, leaving the industry with some immediate, short-term challenges which, if unaddressed, will persist throughout the remainder of CP5 and also the beginning of CP6 where a significant ramp-up of renewals is expected. 

Grayling said that he expects the ORR to take a rigorous and robust approach to hold Network Rail to account for improving cost-effectiveness, securing deliverability and reducing unit costs during the remainder of CP5. This is proving a significant challenge and, as the government has identified, there needs to be supply chain certainty and visibility to avoid the perennial issue of workload peaks and troughs, which adds to cost and creates uncertainty – a huge disincentive for supply chain companies to invest in innovative plant, people and processes. 

RIA’s own research has found that suppliers in track (particularly plain line), signalling and consultancy disciplines are reporting falls in renewals demand of between 20-45% for the remainder of CP5. It’s resulting in redundancies at firms like Carillion and Babcock, short-time working, and reduced – or in some cases frozen – graduate and apprenticeship recruitment. What’s more, the GRIP 1-3 development work is not being carried out for CP6 projects. This is critical if continuity of project work between CP5 and CP6 is to be maintained. 

The likely impacts of not addressing this are volatile workload profiles which will potentially continue to add up to 30% to rail industry costs – the exact opposite of what the government and industry want. Where supply chain capacity is reduced, it will need to be significantly ramped up once volumes increase in CP6. This is likely to be both difficult and expensive, particularly in specialist areas where resource is already constrained. There is a particular danger that the significant momentum and investment in key areas, such as signalling, will be lost if funding is not maintained.

Enhancements 

On enhancements – which the DfT will deal with separately – Grayling said that government will look to enable better planning, cost control and alignment with the needs of users of the railway. Of course, we look forward to hearing more on this front and responding to the government’s consultation on the treatment of enhancements, expected later this year. 

In conclusion, HLOS and the DfT Guidance to the ORR look set to instigate changes that will benefit passengers, HMRC and the rail supply sector, but we must not lose sight of the current challenges around CP5 renewals. 

RIA will continue to make the case to government and the ORR for the advancement of renewals funding from CP6 to smooth the transition between control periods and to ensure that we have a vibrant supply chain with which to start CP6. For the reasons outlined above, the consequences of not doing so will be significant.

For more information

W: www.riagb.org.uk

Comments

Sonning Cutting   11/09/2017 at 12:12

I do hope that the pursuit of more efficiencies, whilst obviously welcome, do not result in more work over-runs. These appear all too frequently on Monday mornings in particular, and reduced manning-levels arising from cost savings could be to blame. Continuity of a steady work-stream is a key to the efficient operation of any organisation.

Lutz   11/09/2017 at 18:57

One of the problems with CP5 was that the ORR did not get to the root of why key costs for UK rail are significantly high than for it's contemporaries; The DfT and ORR need to double down on this going forward.

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