Rail Industry Focus

Engaging the Tier 2s

Network Rail held the latest in its series of conferences with key players in the supply chain on December 7 at its Westwood centre in Coventry. The Tier 2 Supplier Conference explored a number of burning issues, including the Fair Payment Charter, Network Rail’s new focus on sustainability when procuring, and supply chain optimisation. RTM’s Adam Hewitt reports from the conference.

Sustainable procurement

Network Rail has long had a sustainability strategy and a focus on the environment, but from 1 December 2012 this was strengthened following the implementation of specific sustainability requirements into the tender assessment process.

Katie Ferrier, Network Rail’s head of supplier engagement, told the conference that the intention is ultimately to create value for money. She added: “We will not compromise the wellbeing of our business, the environment, or the communities that we serve.”

The new ‘Sustainable Procurement Pledge’ will be issued with the other tender documentation, and tenderers will have to explain in two A4 pages how they will contribute to those objectives – in a clear and measurable way. They will be scored in the Tender Evaluation Model, with the best getting 5% and the rest scored from 0% to 4%.

Ferrier said: “If you think about the value of some of our projects, that’s quite a significant amount. Things are so competitive in this market that 5% could win or lose you a tender.”

The conference also heard more about social enterprises and Business In The Community, which seeks to link such companies up with bigger companies like Network Rail. It also heard from Paul Ruddick of Reds10, a construction industry social enterprise helping apprentices get the training and jobs they need and taking the paperwork burden off the employers.

Track delivery

In a session on supplier engagement in track delivery, Eoin O’Neill, head of route contracts and procurement, explained Network Rail’s “direction of travel” towards working with a smaller number of suppliers overall. He added: “We need to get smarter about materials procurement between Network Rail and suppliers,” perhaps making greater use of Network Rail’s hefty buying power. There was discussion about the issues around Tier 1 contractors creating more powerful competition for themselves if they gave too much work to individual Tier 2 contractors.

The main track delivery contracts expire in March 2014, and in CP5 there is the huge task of finding 20% cost savings. “It’s a massive challenge that we’ve got to prepare ourselves for,” O’Neill said.

Supply Chain Optimisation

Guy Stratford, head of contracts and commercial at Network Rail – after making a plea for charitable donations on behalf of Action for Children – explained more about the recent Supply Chain Optimisation project, done with help from procurement consultancy Efficio.

This was aimed at understanding Infrastructure Project’s opportunities for maximising supply chain related opportunities, in the context of its new place in the wider Network Rail business, new staff and the new emphasis on ‘robust commercial behaviours’ in line with the wider DIME project.

The analysis found many areas for improvement – from the goals of DIME not being clearly understood, to complex and inefficient processes, to inconsistent behaviours.

It highlighted eight opportunities for improvement:
• Aggregate demand into committed programmes
• Simplify and standardise processes
• Consistency across project teams and regions
• Empower innovation within the business and supply chain
• Actively manage the extended supply chain
• Clarify roles and responsibilities
• Define new roles
• Enable resources with right skills to execute processes

Alongside the detailed recommendations, a pilot project was launched to put them into action and quantify the benefits. The project selected was the National Level Crossing replacement (footbridge) programme, led by Rob Offord with support from Efficio and IP.

There are estimated capital savings of 17-24% (£12.6m to £17.8m) for that project, which can be extrapolated to £220m-400m in CP5 across Central region as a whole.

A key recommendation is explained by Network Rail like this: “For lower value/complexity works, move away from project level tenders to aggregate demand at program level, tendering committed long-term work programmes and with fewer/optimum mix of T1 suppliers (or full service JVs) with the right capability/fit to deliver the CP4/CP5 work bank – in a strategic procurement exercise – ‘win big, lose long’, to maximise competition.”

Network Rail said that “at full potential”, there are also 20-30% operational savings possible.

Fair payment?

There was animated discussion on the Fair Payment Charter, the voluntary pledge signed at the November 2011 Commercial Directors Forum by Network Rail, 30 tier 1 suppliers, REA and CECA to shorten the time it takes to pay suppliers from 56 days to 21. It also committed suppliers to make payment to their first-tier subcontractors within seven days of receiving payment.

As it is voluntary and not retrospective, some tier 2 suppliers at the conference complained that not all tier 1 suppliers were sticking to the spirit of the charter and that many payments down the supply chain were still taking months, not days.

Stephen Blakey, head of cost planning and bid management at Network Rail – who calls the Fair Payment Charter the proudest moment of his career – listened to the concerns, and gave advice to the tier 2 companies on how to handle the issues.

This was the last of the Tier 2 Supplier Conferences in its current format: it will in future be held twice a year with a different sort of agenda, with attendees split into groups addressing specific issues and actively trying to solve them. There was also consideration of a new mixed Tier 1/Tier 2 forum.

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