Rail Industry Focus

16.01.14

Better, safer delivery: Network Rail procurement in Control Period 5

Source: Rail Technology Magazine Dec/Jan 2014

Control Period 5 starts in April, by which time Network Rail Infrastructure Projects will already have contracted out 65% of the work for the entire five year period. RTM heard from its managing director Simon Kirby and finance & commercial director David McLoughlin. 

Network Rail has worked with more than 6,000 suppliers during CP4, including 4,000 SMEs – but the way it manages these relationships has been changing rapidly.

As explained in detail in the June/July 2013 edition of RTM, there has been an overt initiative during the last 18 months to two years to transform the way Network Rail Infrastructure Projects manages its procurement and its supplier relationships, driven by the Commercial Directors Forum (CDF), new contract models, and partnership working certified BS 11000.

With Control Period 5 now just a few months away, RTM heard from Simon Kirby and David McLoughlin on the huge amount of work being done to ensure the organisation is prepared to hit the ground running (unlike at the beginning of CP4). Kirby said: “When we reflect on the last five years, we think we’ve changed a lot in terms of how we engage with the market, and how the market engages with us. We’ve been through the McNulty review, and we’re a different organisation now – more transparent and collaborative than we were five years ago.”

He said it was a “key time” for the supply chain and the market, with lots of bidding and major awards due in the coming months.

 Not just cost

But Kirby explained: “This is all about safer delivery of projects, and efficiency. It’s not about the lowest cost procurement. That’s a step shift, in the last two or three years.

“Very rarely now is cost the major determining factor in a procurement, because of the complexity and nature of what we do.”

Network Rail IP finance & commercial director David McLoughlin, who is on the front line of managing the new procurement strategy, added: “We’ve been criticised in the past, probably rightly, that price has been the key determinant. But now we see examples where it’s not the biggest element of the tender evaluation, and even if it is, it’s not just the lowest price that wins. That kind of discussion is completely different to even three years ago.”

Since December 2012, the organisation has been awarding 5% of tender points based on suppliers’ ability to meet Network Rail’s sustainability criteria, but it is increasingly focusing on issues like diversity, inclusion and legacy too. “Communities put up with a lot while we do what we do,” Kirby said. “If they’ve got Network Rail in town for six months, with road diversions and all sorts of things, working with them has to be right thing to do.”

Network Rail IP South announced the four contractors it has chosen across four enhancements, buildings and civils frameworks for CP5 for Anglia, Kent, Sussex and Wessex on 17 December. It based 25% of the evaluation criteria on collaboration, and 15% specifically on safety issues, it is reported.

McLoughlin said he has been taking a steer from things like the Social Value Act, which does not specifically apply to Network Rail, but has the right kind of aims, he said.

The percentage value given to price itself varies by the type of contract, rather than being a fixed value, but Kirby and McLoughlin said there had been examples where the lowest-cost bidder has not won a tender because of these other factors.

Kirby said: “Occasionally we’ll get a contract coming up for award where we’re going for an option where we’re going to spend a few million or even ten million pounds more than the lowest-cost option. Of course, tendered costs are one thing, but what we care about is safe delivery of projects in the most efficient way, so what we tender and what we end up paying aren’t necessarily the same thing.”

Network Rail IP has not been implementing new models and procedures haphazardly – it has been taking advice and learning lessons from other major clients and procurers, including the Highways Agency, Transport for London, BAA, the power supply industry, utilities and others. Kirby and McLoughlin have also been speaking to trade and professional associations within and without the rail
industry, including the Railway Industry Association (RIA), the Rail Industry Contractors Association (RICA), Civil Engineering Contractors Association (CECA), and the Chartered Institute of Purchasing and Supply (CIPS).

McLoughlin said: “They’re really happy to talk to us, and we’re happy to listen. We’re not doing this in a random way.”

Early involvement

A major aspect of the new strategy is ensuring suppliers and contractors have a much clearer view, and earlier, of the work pipeline and tenders to come. Major partners have already been walked through what’s coming to market.

McLoughlin explained: “Suppliers want an informed, intelligent and strong buyer. We’re issuing our intentions and our directions and the way we’re going to procure work for the whole of CP5. Any supplier can now target their business model relative to ours for the next five years.”

But linked to this is Network Rail’s ambition to have fewer but closer relationships with key tier 1 suppliers, and to work more via
major frameworks.

Explaining the rationale behind this, Kirby said: “We’re committing for long periods. Most of the frameworks we’re letting give a committed workload, rather than a zero-value commitment. We’re looking for [suppliers] to invest in training, in people, in
innovation to improve delivery.

“Most of what we do is very complicated; it’s brownfield and [often] specialised, like signalling. To get into a relationship that’s longer term where we’re looking to invest and so are they in people and skills – you don’t get that through competitive tendering of individual jobs. You’ve got to give long-term commitment, and by definition you end up with fewer partners than with an open market assessment of each bid.

“It’s about a long-term relationship to give better delivery now and in the future, rather than just getting the lowest cost now. To do that collaboratively, you end up with a smaller group of suppliers.”

But he said he was “very confident” that only the tier 1s with the right capabilities will win out. “You can’t ‘buy the work’ in this model, because cost is a very small part of it, you can only win it by demonstrating you’re going to step up and that the actual people who  are going to run the job pass the criteria. “We’re rewarding good practice. They’re all out to run businesses, they’ve got to deliver to their shareholders, and repeat business is what they want. Within all the frameworks we’ll allocate work based on performance, and that’s much broader than cost – quality, safety, handback consistency. So if they don’t perform they won’t win as much work.”

Dead wood?

Kirby blamed the lack of a long-term view in the industry for much of the inefficiency and waste found in, for example, the McNulty review – and said suppliers who lost major bids were sometimes staying in the industry “in the hope of winning something in a year or two’s time”, which drives increased costs.

“Bringing it forward brings certainty either way way – that they’re either ‘in the game’ or aren’t.  Obviously be the winner, but they’d prefer to know now.”

McLoughlin said good, competent suppliers will not just be ‘losers’, but will alter their business models, or consider bidding as a tier 2 instead of tier 1 supplier. “The work’s still there,” he said. “We’re working with fewer suppliers, but the volume is still there, and in fact there will be more.

“There will still be opportunities.”

Kirby added: “The market…is competitive, where even tier 1s may joint venture on one bid, and compete on others.

“We’re seeing consolidation in terms of plant hire suppliers, piling contractors, and we’re looking for higher standards. I expect there to be some consolidation in that space, it’s almost certain.”

McLoughlin spoke of “national strategies but local implementation”, noting that different regions had different priorities and spend profiles. He contrasted the south east’s huge amount of smaller projects, like platform extensions, with the major enhancements on the Western route, including the Reading upgrade, electrification and resignalling.

What’s good for the goose…

But longer-term commitments for major suppliers comes with expectations too – not only that they  will invest in training and in R&D, but that they will treat their own tier 2 suppliers and other contractors in a similar way.

McLoughlin said: “If it’s good for them in their relationship with us, it must be good for them to establish those same kinds of working relationships and that long-term commitment with their sub-contractors as well. We’re increasingly seeing that kind of discussion, through the CDF and the supplier forum, and getting tier 1s and 2s together in conferences.

“On the agenda at every single one of our supplier account meetings with major suppliers is ‘how are you developing strategic relationships with tier 2s’.

He suggested that collaboration has become embedded in a remarkably short amount of time – though said he didn’t want it just to become a buzzword, and said true integration of the supply chain was the next step. Of course, tier 2 suppliers will want to remain free to work with different tier 1s on different projects, and to keep a distinctive presence in the industry – but improving those relationships helps everyone, McLoughlin said.

Safety

Kirby and McLoughlin were insistent that safety lies at the core of the changes – safer, better delivery of major projects is the ambition. They said it would not be compromised to satisfy efficiency savings requirements or to keep costs down, and that there was  “no negotiation” on safety.

There is a target in the ORR’s CP5 determination for Network Rail to reach the end of the control period with no major RIDDORs (incidents reportable under the regulations on injuries, diseases and dangerous occurrences), but Kirby said there is also now
a much greater focus on close calls.

“We’re looking ‘further down the safety pyramid’ in terms of what’s driving potentially serious incidents, rather than looking at the RIDDORs themselves.

“Our standards of passenger safety are very good, we could easily say our workforce safety is as good or better than most sectors of UK construction, but it’s nowhere near, say, oil and gas. So we know there’s an opportunity to improve.”

As detailed in the October/November 2013 edition of RTM, Network Rail is in the process of overhauling its site safety procedures, streamlining and clarifying safety roles and responsibilities. One aspect of the change, Steve Hooker explained then, was that
it wants to ensure only Network Rail employees or those from tier 1 contractors have overall responsibility for safety on a site.

Kirby told us: “That’s in pilot phase, not ready to actually roll out but getting to that stage. It will consolidate safety responsibilities and supervisory responsibilities into one role; that new role will be our safety and line management role in the future.

“We’ve got to work with that person closely, so for them to be down in tier 2, tier 3 and the supply chain – that’s really hard to do.
This has come from incidents where we’ve looked at the dynamic on site, where you’ve got someone from potentially second or third tier running safety. Are they really going to feel accountable to stop the job when the person they’re trying to stop will decide whether they’ve got a job again next week?”

It also ties in with the idea of giving longer-term work commitments to fewer suppliers, Kirby said, by ensuring they can employ their own people and rely less on contingent labour.”

Sentinel 2 and an end to multi-sponsorship

Some have suggested Network Rail could also encourage this outcome, and thus safety, by relying less on zero-value contracts, which would in turn encourage employers to use fewer zero-hour contracts. 

Responding to this, Kirby told RTM: “In some of our longer term frameworks we’re looking for levels of employment, and in some areas suppliers are giving commitments, saying if we give them committed work, they’ll commit to levels of employment.”

This could be anything up to 90% of staff on a project being direct employees, Kirby said, though he acknowledged there would “always be a need for contingent labour”.

The Sentinel 2 smartcard system, which will have made the old system obsolete by 6 January, no longer allows multi-sponsorship, and combined with other changes in the industry and the work of organisations like NSARE, the National Skills Academy for Railway Engineering, there should be higher standards of labour overall. 

Kirby concluded: “We’re looking for a step change in safety. Everything we’re doing – about effectiveness, about collaboration, early involvement in design – is about driving towards better levels of safety.”

People

Network Rail is not the only organisation hunting for the best engineers and project managers – as well as the private sector, there are other major client organisations like TfL, Crossrail and HS2, plus other sectors entirely, from oil and gas to the MoD.

Network Rail obviously wants its major contractors to invest in people and attract the right people, and gave the example of signalling. Kirby said: “We’re looking to work with the three major framework suppliers [Invensys/Siemens, SSL and Atkins] who between them have recruited about 100 new people to be trained as test engineers in the last few weeks – they’ll start on the ground next September. That’s because we’ve given them commitment, and they’ve returned that by recruiting people.”

He said Network Rail IP has a “good dialogue” with HS2, although major construction will not start until the end of CP5.

Kirby explained: “It’s in everyone’s interest to make sure we come up with solutions, because these are quite long term things, and if we plan for it we should be able to come up with solutions by working with other client organisations to understand the bigger demand.

“If we don’t invest in training people, we’ll end up where we were seven or eight years ago, where because of a lack of investment
in people, costs go up because people become scarcer.

“It starts in universities and schools, encouraging people to pursue careers in engineering where there are specific shortages. It’s about long-term planning.”

RTM’s charity, the UK Rail Industry Training Trust, is seeking to address just this issue – firstly through a series of rail engagement and educational events, Gen Y Rail, beginning early next year. Visit www.ukritt.com

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