Rail Industry Focus

A lot at Stake

London Underground has completely overhauled its relationship with the supply chain for its station upgrades, moving to a model dominated by SMEs and ‘craft’ suppliers rather than bigger companies. RTM got insight into the change from Gary Downie, LU’s head of station upgrades.

Engaging directly with the people actually doing the work – sounds a simple enough idea, doesn’t it?

But London Underground’s new Stake delivery model has grabbed a lot of industry attention, as well as being part of an HM Treasury Infrastructure UK initiative.

The ‘main contractor’ principle has been eliminated, cutting out sub-contractor layers from the supply chain.

Gary Downie, LU’s head of station upgrades, explained: “In the past London Underground used main contractors to deliver its programmes – the tier 1s and tier 2s. We had minimum contact with the people who were actually doing the work, because you tend to find that the tier 1s and 2s don’t actually employ people to do the work, they just employ subcontractors.

“Under Stake, we’re now contracted with these tier 3 and 4 contractors – we’re engaging with the people who are actually doing the work, rather than with a third party.”

Risky business

LU is hoping to cut costs by up to 25%, and at least 12%. This is partly to do with taking on risk itself, rather than having main contractors pricing it in.

He said: “When the tier 1s and tier 2s give you a fixed price, they tend to heavily load prices with risk. [But it’s now] on a cost reimbursable basis, on a target cost, so we’ve actually taken on all of the risk.

“We’re also hoping to get a lot more input from the tier 3s and 4s into the planning of the work, and also to get some of their innovation coming into the work. We’re managing those people directly on site now.”

Culture change

It was piloted at Embankment (below), and Downie admitted there was a “culture change” for both LU as client and the contractors. LU adopted DS Consulting’s ‘Collaborative Planning’ methodology. The Embankment refurbishment shows the idea works, LU says.

“It’s a completely different model, and very much an open book and cost-free job. It’s also about longevity. We’ve got a seven-year programme, so the Stake contractors have a seven-year look ahead, which they’ve never had in their business before.

“That’s a big plus for them, so they can now look at engaging their employees by putting training in place. It’s not feast or famine, and we’ve got continuity of workforce all of the way through, so we’ve got named people working on the job – they’re not bidding for the job every time and having to hire in new people. We’ve got named people and skilled tradesmen and we’ve got them for seven years.

“It also gives employees that stability as well, because it can be a case or feast or famine for the employees as well. Like everybody, they’ve got bills to pay and it’s good that they’ve got a seven year window in front of them as well.”

LU is meeting on a quarterly basis with Infrastructure UK and the other companies involved, including Thames Water, to share knowledge on new delivery models and supply chain relationships.

Downie said it would be wrong to pretend LU had invented the principles behind Stake, and said that Tube Lines had experimented with similar models.

“It’s a hybrid idea that’s come from a lot of different places, so I wouldn’t be so arrogant to claim this as ours,” he said.

Academies

LU is also working with the successful suppliers to establish craft academies to support the aim of delivering work faster and on a larger scale.

Academies will provide craft skills training as well as frontline leadership for supervisors and construction managers on the skills and practices needed to deliver the programme efficiently.

Downie said that was still at the early stages, but that LU is talking to government department and bodies about potential funding streams, and is also having conversations with TUCA, Crossrail’s Tunnelling and Underground Construction Academy in east London.

“We’ve started on this internally first, by kicking off training courses for both our staff and the contractors’ staff.”

The initial training courses have included ones for the site ‘person in charge’, and another for frontline leadership.

Big boys

The Stake model doesn’t focus solely on small ‘craft’ companies – there are some well-known names among the 22 contractors (see box out), and three bigger companies have been appointed as multi-discipline designers: Atkins, Jacobs and Capita.

Downie explained that decision, saying: “We looked at the overall programme and the volume of work and calculated how we could evenly spread that across a certain number of companies.”

That was to avoid either overwhelming too few companies, or acting as a disincentive for too many. 

“We know the standard that [those three companies] can work to and we have sufficient design work for all three at this point in time, because of the rolling seven year programme. We’ve got an internal design programme as well, so a third of the designs are created internally and two-thirds go to these bigger companies.”

Opportunities remain for bigger contractors

Unsurprisingly, the smaller companies are delighted with Stake (see box out, left), but main contractors might feel aggrieved at being chopped out, and treated as if they never added much value in the first place.

Downie was keen to emphasise that they will still have opportunities to win work with LU. “Look at some of our capacity programmes, like Bank, like Vauxhall – they’re still involved with us. They’re not cut out completely, we’re just in a different marketplace.

“On the Stake programme, we’re upgrading the stations to what we term a ‘fair for 10 years’ condition, we’re not doing a wholesale refurbishment of them, or a capacity upgrade. That’s where tier 1s and tier 2s will come in.”

Monitoring

Stake will face annual reviews to ensure it’s performing as expected. Since it covers only 70 stations, by the time the seven-year programme is up LU will be on to the next tranche of stations needing upgrades.

At the outset, the upgrades budget was cut by 12% – so Stake has to achieve at least that level of savings to ‘break even’, effectively. “But there’s an aspiration to get to between 20 and 25%,” Downie said. “That’s why we’re having the annual reviews.

“We’re actually seeing some good results coming out just now. But it’s very early stages because we’ve not finished any stations yet.

“We’re confident we can achieve a minimum of 12% if not higher.”

LU is on site at six stations currently as part of the Stake upgrades, with another six to follow later this calendar year. Next year is likely to be similar – about 12 to 15 being upgraded.

‘A breath of fresh air which values our skill and knowledge’

LU’s programme director for stations, Miles Ashley, said: “Construction supply chains have become multi-tiered and fragmented, and it could be said that the industry has lost sight of the importance of craft skills in delivering efficiently.

“Great craftsmanship is the key to the success of any infrastructure project, and our Stake approach allows long-term engagement with the people at the workface and recognises that they are the most valuable part of our team.”

One supplier, Alex Morrissey, director of tiling contractor DMC, said: “Stake is opening up opportunities to value engineer and innovate in ways that weren’t possible under conventional sub-contracting arrangements. It’s a breath of fresh air which values our skill and knowledge.”

The key principles of Stake are: engaging with the SME contractors who actually do the work on-site; simplified contract arrangements with LU taking the majority of the risk; giving a long-term commitment to suppliers; having competent and capable resources; creating a ‘one team’ approach; and ‘production leads, everything else enables’.

The suppliers

LU has picked 22 contractors and three multi-discipline designers (Atkins, Jacobs and Capita)

The contractors are:

•  Wingate

•  Delatim

•  Giffin Group

•  Atkins

•  Fourway

•  Magnolia

•  Emerald

•  Close Brothers

•  Livis

•  DMC

•  Excel

•  K&M McLoughlin

•  JNG

•  HA Marks

•  AGS

•  Community Clean

•  UKDN Waterflow

•  Lanes Group

•  Hillmore Fire Protection

•  Young & Young Security

•  TRAD Scaffolding

•  Millcroft

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