Select Committee on Crossrail Bill Minutes of Evidence


Examination of Witnesses (Questions 20320 - 20339)

  20320. Then there is the question of the £X and that, when costed out initially, came to £45 million, which we can see at the bottom of column 2, and therefore gives rise to a total figure of £117.4 million.
  (Mr Smith) That is correct.

  20321. It was because you were aware that that was rather a large sum and because you knew of constraints on Crossrail that there was a further scoping exercise done, which is column 3, to see if the costs at North Pole could be reduced while still rendering it suitable for your occupation?
  (Mr Smith) Yes, we met the Promoters and discussed these costs with them and the Promoters said, "This is expensive. We still believe we ought to move you to North Pole, but to do that we need to see whether the costs can be reduced", so, as we did before, we jointly retained consultants to review the costs and the scope of the work. Our consultants did take a view that perhaps some of the estimates prepared by EC Harris and Mott MacDonald were a little full-side, but we concentrated our efforts on descoping what we had previously assumed, and the Promoters had assumed, would be the necessary works on the site. What we did was we went through each of the items, looking in particular at the connections of the Great Western mainline facing London. The original work had two connections, one facing London and one facing away from London. We consulted our depot manager and our local operations people and they advised us that they felt that North Pole could operate functionally for EWS with the connection facing the country end away from London. That is because the layout of the railway at that part of the world means you can leave there, run past Acton, go round the loop and come back into London, so you do not really need a connection. Therefore, we descoped all the works associated with the connection and, because the connection broke into some of the buildings on the North Pole site, by not having the connection we also did not have to knock down those buildings. Our advisers came up with a revised scope and with a revised pricing, but based on the principles that were in the original pricing work by Messrs Harris and Messrs Mott MacDonald, and they came up with the revised sums which you see in column 3. Because those sums were reduced, for example, the depot costs estimated by Messrs Harris went down from £6.3 million to £2.9 million, their project management costs, which are a standard percentage uplift, and the contingency, which is also a standard percentage uplift, came down as well. Then we applied the same philosophy to the signalling work which had been estimated by Messrs Mott MacDonald and came up with the lower numbers there. As far as the small numbers that we had worked on were concerned, we kept those the same because they were not affected by the fact that we were taking out the connection to the Great Western mainline and they were not affected by the fact that we were no longer having to do things with the fuel point and crane siding.

  20322. That is how we come down to the £58.7 million which plays against the previous figure of £72.3 million or the £73 million?
  (Mr Smith) Yes, I suppose I am not surprised because we are the one who have got to actually operate and use the site, so yes, I suppose Crossrail's estimate of £73 million was being done, as it were, on a slightly theoretical basis, and we went in and said, "No, you work the site this way", and that enabled us to bring the construction costs down from roundly £73 million to roundly £59 million.

  20323. These are still using this 50% contingency, and the Department want a high contingency built in, so it is built in, but would you hope to be able to deliver at a lower figure than the £58.7 million?
  (Mr Smith) I believe that is possible, looking at the way in which Network Rail have costed it, and a lot of these costs would be incurred by Network Rail in building the connection and mending the signalling. The unit costs of Network Rail`s schemes are reducing and the regulator's review of Network Rail's costs and charges for the next control period from 2009 to 2014, I think, anticipate a significant improvement in Network Rail's efficiency, including its major project work, so I would suggest that these figures are rather full compared with what would actually happen in practice.

  20324. Then could we just look at the ongoing costs. You have managed to reduce the previous estimate of £45 million down to £24 million and again can you comment on how that has been done?
  (Mr Smith) Yes, there are two mechanisms that are available to us, and let me deal with the issue of rates first. I referred earlier to the fact that at Old Oak Common the rates are paid by Network Rail as part of something called the `cumulo' rate where the entirety of Network Rail's landholding is assessed for rates and is paid centrally. On the other hand, North Pole sits outside of that arrangement. In discussions with Network Rail, we believe that the site at North Pole could be brought into those arrangements, and clearly there is more discussion to go, and Network Rail would require a rent from us to offset their increased exposure to rates, but the net effect would be to reduce the rates liability that would be incurred by EWS by around about 50 %. In addition, we had another look at the operating costs, given the descoping and given the Promoters' views to us that this was a high number and that, if we were to go to North Pole, it would be extremely helpful if we could see ways of reducing those costs. This we did and, through our advisers working through the operating costs that we had previously assumed, we were able to make reductions to their estimates of the consumption of water, the amount of electricity we would use and the amount of gas, the maintenance of the site and the track within the site, the maintenance of plant and signalling, the net effect being that, whereas we had previously assumed around about £1.5 million a year for these operating costs, we now came to the view that it would amount to about £829,000. Therefore, we were able to make a significant reduction in the utility costs that we believe would be necessary for North Pole to be an operational depot.

  20325. As far as these ongoing costs are concerned, you are looking at a 30-year period and then they have been discounted back to 2002, so they are on a common base with the other figures?
  (Mr Smith) They are absolutely on the same base.

  20326. Mr George: And capitalised. Sir, would that be a convenient point?

  20327. Chairman: We will break now until 11.45.

After a short break

  20328. Mr George: Could we have back up on the screen please the tab we were on which was tab 7 of EWS/47.[30] You have been dealing with the reduction of the ongoing costs, Mr Smith, so finally we have got the cumulative figure, the £83.2 million which, as it were, `plays' the original deposited Bill estimate of £73 million, but which does now allow for the £X for ongoing costs?

  (Mr Smith) That is correct.

  20329. What is your comment then about the position, that is, if you are able to justify to the Crossrail team the figures in column 3?
  (Mr Smith) Well, it seems to me that there is an awful lot of contingency still in these numbers and, therefore, if one compares the £83.2 million with the original £73 million, that is an increase of around about 14 %. If we think that within that £83.2 million we have still got a contingency of the 50 % which contains contingencies, such as 53.7 % for the service works, 47.7 % for systems, as well as this uplift of 27 % for project management costs, it seems to me that it is actually only the £X that Mr George referred to which is the difference between us. We are well within the contingency and, if one were to take a different view of the contingency when the work was actually carried out, then I think we are pretty near to Crossrail's original estimate that was contained in the £105 million benefit of the revised Depot Strategy.

  20330. Leaving that matter altogether, can we turn to the subject of safeguarding and could we please have on the overhead AP3-43 04-034, the one which Mr Elvin put up.[31] In the bundle it is page 34 of 64. That, as we can see from the bottom right-hand corner, has a date of February 2005 and that, therefore, is related to the time of the deposit of the Bill, or around about then, and that shows that now a very large part of the site is safeguarded. If we can just identify the turntable, is that the sort of St Catherine's wheel which we can see in the middle of the plan?

  (Mr Smith) That is correct.

  20331. We need to keep our attention on that because, if we could now please look at 04-029 of the Promoters' exhibits, which is about six pages before it, I cannot scrub my eyes and see the date, but I believe it is 1990, is it not, in the bottom right—I do not know whether that is confirmed by everyone—and we can there see what was the original safeguarding.[32] If we look at the St Catherine's wheel, the turntable, can we see there that the only bit that was then safeguarded was the area north of the turntable?

  (Mr Smith) That is correct, a very thin site, the safeguarded area, which was that shape and size really to accommodate railway lines because my understanding is that the safeguarding in 1990 which took a very small sliver of the northern part of the Old Oak Common site was to allow for the possibility of the Crossrail project having lines connected with the Chiltern lines which are sort of top left, way beyond the screen here, and that back in the 1990s the idea was that the connection to the Chiltern lines would run through this part of the very top sliver of the Old Oak site, perhaps with the lines actually coming out of the tunnel somewhere on the site we are looking at at the moment, so it was just for railway lines rather than anything else. Yes, we were aware upon privatisation that this part of the site was safeguarded, but it was a sliver which did not affect the integrity of the operation of the site.

  20332. And it was put in the Promoters' response to our Petition and by Mr Elvin this morning in opening that, because of the safeguarding, you knew in effect that you were going to be displaced from the site, but, given the smaller safeguarding, the 1990 safeguarding, is there any validity in that statement?

   (Mr Smith) Not really because the only part of the site that this would have eliminated was the factory where we do the heavy lifting which, with the rest of the site remaining in our ownership, could have been relocated, but really a very small effect on the overall operation of the Old Oak Common site, from our perspective.

  20333. Could we turn to the pie chart which Mr Elvin referred to, and that is 04A-027.[33] What he said there is that, so far as EWS are concerned, it does not really show up at all because it is simply a single line, and I think that you have an observation about that pie chart.

  (Mr Smith) I think this relates to the anticipated movements on and off the Old Oak site at some point in the future of Crossrail's operation, and I think the implication is that the busyness of a site is measured by the number of trains which move on and off that site. Now, that might be relevant if it was a railway station or if it was a freight marshalling yard, but, as I said earlier on, our primary use of Old Oak Common is stabling, marshalling, maintenance, and the locomotive that the Committee saw last week will be on Old Oak Common for three days, which is the length of time it takes to inspect and change the bogeys underneath a Class 66 locomotive, and clearly that would register as one movement on a Monday and then a movement off on the Thursday. Now, if we had more rail freight activity on the Old Oak Common site, then I think this pie chart would be different, but I can understand that the Promoters have so far dismissed this on the basis of the data they have gathered from Network Rail. I am really not convinced that this is completely relevant for measuring the busyness of a site which is primarily used for maintenance and servicing.

  20334. Can we now turn to the question of alternative sites because, in some correspondence, the Promoters suggested that EWS should look at the possibility of relocating some, or all, of their activities to other alternative sites. Have you looked at some alternative sites?

   (Mr Smith) We did look at alternative sites, ones that the Promoters had suggested, and they were found not to be suitable. They did not have the connectivity or we would not be able to fit our activities on to those sites, and one of the sites we looked at was subsequently found to have been earmarked for another use and, therefore, we have not progressed any further other sites. As I said earlier on, the number of sites in and around London that give the functionality that Old Oak Common or North Pole could provide are very thin on the ground indeed.

  20335. Are you aware of any other site to which you could relocate in the first place all of your activities?
  (Mr Smith) There is no other site to which we could relocate all of our activities.

  20336. Or which is available if you were to relocate all the passenger train activities?

   (Mr Smith) There is no other site.

  20337. Can we then turn to the question of extinguishment and we can recall the undertaking which in effect says they will only relocate you if that is a cheaper cost than extinguishing you. I think you have some observations on that matter?

   (Mr Smith) I suppose, as the Committee will have heard, if there is a small business that cannot be relocated then it will be extinguished but, as I tried to draw out, there are really two issues for EWS: one is that to continue with the activities we do and anticipate doing at Old Oak Common we need to be close to the railway line, next to the railway line; and we need to be in a part of London where you have the connectivity that we demonstrated earlier on. Both Old Oak Common and North Pole Depot fit the bill, so to speak; other sites do not exist. Really a rail freight facility, whether at Old Oak or North Pole, is of great importance to us. The Committee heard evidence in July 2006 from ourselves and other rail freight operators and representatives of our customers about the importance of rail freight facilities, rail facilities and network capacity towards achieving the Government's rail freight growth policies and since that time, as I mentioned earlier on, the arrival of Eddington and the Stern Report reinforce that. Extinguishment really fails to deliver public policy and would prevent us from playing our part in meeting the Government's objectives and our own objectives on rail. We believe the Promoter did recognise this, both the wider public benefit and the strategic importance, by providing for Old Oak Common's replacement by North Pole in AP3, but we recognise there are budgetary constraints, and we have responded, we think, actively and with a lot of commitment of resource and our time to the Promoter's concerns about the original cost estimates, including £X, the original operating costs. What we have produced is a lower cost within the contingency margin. By moving to North Pole we can continue all the activities we have talked about today. So we really do not want the Promoter going back on his word to relocate us to North Pole; that is not ideal but it is at least in the right part of the railway network; it does have the connectivity; we have worked with the Promoters to identify how we can make it work for us at a cost within the estimates that were previously assumed. The loss of Old Oak Common really within a guarantee for replacement should not be contemplated. It would not be in our interests but I think, even more importantly, it would not be in the public interest either.

  20338. Can we then turn to the final tab, tab 8, which is the undertaking which you seek, and which you asked the Committee to obtain from the Promoters that, "Before permanently displacing EWS from the land it owns at Old Oak Common Depot, the Promoter shall, unless otherwise agreed with EWS: 1. transfer to EWS the Promoter's freehold interest in the North Pole Depot".[34] That is at present owned by the Department for Transport, is it not?

  (Mr Smith) That is correct.

  20339. Is there any significant difference between the value of a freehold and a long leasehold?

   (Mr Smith) By the all standard valuation methods the value is very similar.


30   Committee Ref: A231, Comparison of Costs for Old Oak Common Relocation to North Pole Depot (LINEWD-AP3-43-05-016). Back

31   Committee Ref: P144, Crossrail Safeguarding Directions Sheet No. 304 (LINEWD-AP3-43-04-034). Back

32   Committee Ref: P144, Crossrail Safeguarding Directions Sheet 2 (LINEWD-AP3-43-04-029). Back

33   Committee Ref: P144, Comparative usage of Old Oak Common/North Pole between EWS and Crossrail activity (LINEWD-AP3-43-04A-027). Back

34   Committee Ref: P144, Proposed Undertaking by the Promoter to the Committee or to EWS (LINEWD-AP3-43-05-017). Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 14 November 2007