Network Rail regulation and performance

McLoughlin hints at true size of CP5 enhancement over-spend: £2bn

Transport secretary Patrick McLoughlin gave more insight into the scale of the problem with the CP5 enhancements programme under close questioning from the Commons transport committee yesterday – and said he does not want a repeat of the hugely late and over-budget West Coast Main Line upgrade on his hands.

Network Rail’s £38.5bn spending envelope for 2014-19 included £12bn of enhancements. McLoughlin told committee member Graham Stringer, Labour MP for Blackley & Broughton, that as of September 2014, the cost over-run on that £12bn programme looked to be £2bn.

McLoughlin went on: “However, with de-scoping – and some of these proposals had not then gone through the ECAM proposal [the enhancements cost adjustment mechanism, whereby Network Rail updates the Office of Rail & Road on its business case assumptions after CP5 projects pass the GRIP 3 stage]…those costs, it was thought at that stage, could come down to around £200m.

“So £200m, on a budget of £12bn…on that basis I was content that further work should be done. That further work, coming to me a few weeks ago, showed a substantial increase.”

Committee members pressed McLoughlin to be precise about that increase, but he said: “I’m not in a position to give the figure at the moment, partly because that was an unreliable figure, but it showed an increase between two varying points.

“There was an ECAM process being gone through and not all of the details are there, so they were not…they are not accurate figures, but they showed a substantial increase in the cost, and it’s on that basis that I took the decision to ask Peter Hendy to become chairman of Network Rail and do a proper [investigation].

“I didn’t want to repeat what happened as regards West Coast Main Line, a scheme that was originally costing £2bn and ended up costing £9bn. I didn’t want to end up in that position.”

He said the decision to pause the Midland Main Line and TransPennine electrification was based not just on the rising costs of the Great Western Main Line upgrade, but also because of delays caused by things like over-running planning permission needed for route realignment and bridge removals.

The ORR’s latest Network Rail Monitor set out the number of enhancement projects that had missed milestones and were behind schedule, but not the likely cost over-runs as outlined by McLoughlin yesterday.

The Monitor said: “In the Final Determination we gave Network Rail time to work up some early lifecycle projects requested by DfT and then make an ECAM submission including a robust scope and cost estimate for delivering defined outputs. This would enable us to assess whether this was an efficient cost that could be added to the RAB (regulated asset base, the ORR’s calculation of the value of Network Rail's assets). We have seen slippage in the dates of this project development work and significant escalations in the cost estimates since the early estimates included in the Strategic Business Plan.”

The transport committee itself, in its report in January, called ECAM “a new ORR mechanism designed to reassure the Department of the value for money, scope and delivery of the project”.

The report said: “The ECAM process appears to have added an element of uncertainty to some rail investment projects – including the electrification of vital lines in the North and North West of England.

“[DfT rail executive director] Clare Moriarty told us that if the costing of the projects was higher than the budget allocated for CP5 then, ‘the Department can decide whether to put in more money, or to have a discussion about the phasing and scope of the projects’. When asked whether the projects promised for CP5 were going to be delivered, however, Ms Moriarty replied: ‘absolutely’.”

The committee showed considerable foresight when it argued in January: “Electrification of lines in the north west, the north trans-Pennine line, and the Midland Main Line, should not be put at risk due to the projected overspend on the Great Western Main Line.”

See also our other report from yesterday’s committee hearing:

DfT ‘very concerned’ about funding IEP trains if GW electrification not ready