1 COST AND EFFICIENCY
1. Network Rail took over responsibility for the
West Coast Main Line modernisation from Railtrack, and under Network
Rail's direction the project has met revised key infrastructure
delivery and performance milestones. The long-distance passenger
franchise operator, Virgin West Coast, has been able to take more
passengers, obtain faster train speeds and hence reduce journey
times. The new fleet of Pendolino tilting trains, however, has
yet to achieve the journey speeds envisaged by Railtrack of 140
miles per hour, and there have been substantial abortive costs
to the programme.[4]
2. Railtrack's programme for the West Coast upgrade
was overly ambitious and over-optimistic. No formal delivery strategy
was in place with too much reliance on innovative but complex
new signalling technology. The lack of clear project management
and direction meant that the project ran into difficulty quickly,
costs were out of control with the likely final cost increasing
rapidly until it reached a peak in 2002, when it was estimated
at £14.5 billion (Figure 1). The Department suggested
that if a more accurate estimate of the final costs had been available
at the outset, approval would have been unlikely for the project
as originally scoped.[5]
Figure 1: By May 2002, the final cost
of the modernisation of the West Coast Main Line was estimated
at £14.5 billion
Notes: Under Railtrack, the final cost was estimated
in May 2002 as being £14.5 billion. Network Rail got costs
back under control and the estimated cost is now £8.6 billion.
[These expected costs relate to different scopes/expected outputs.]
Source: National Audit Office analysis of cost estimates across
the course of the programme
3. The benchmarking of rail renewal and enhancement
costs within Network Rail across projects and regions was underdeveloped,
in part due to the mix and difficulty of the work. The benchmarking
of programme management costs both within and outside Network
Rail remains underdeveloped, with no agreed definitions of project
management costs. With the development of its Cost Analysis Framework
in recent years, Network Rail has begun to capture and analyse
systematically unit costs for key elements of renewals expenditure.
This information is improving the quality and usefulness of unit
cost data and has increased Network Rail's ability to compare
West Coast Main Line unit costs with those for the wider network.[6]
4. Network Rail has tightened its control of costs
in recent years, but still needs to maintain a proactive and robust
stance in negotiations and in its ongoing management of contractors
and suppliers. In 2005-06, West Coast Main Line track renewal
unit costs were some 16% higher than Network Rail's target and
14% higher than the network average (Figure 2). This higher
cost was due in part to a high design specification, the narrow
spacing between tracks, the need to isolate the overhead line
system, and limited opportunities for working due to the heavy
volume of traffic on the line. Further track renewal efficiencies
might still be possible. For example, Network Rail has demonstrated
that it can reduce the cost of renewing signals, having secured
a reduction from £400 for the average unit cost of such work
across the network several years ago to between £190 to £250
today, depending on the nature of the renewals scheme.[7]
Figure 2 - West Coast Main Line track
renewal costs are still higher than the network average
Source: National Audit Office analysis of Network
Rail data
5. To secure value for money, best practice suggests
that contractors should be appointed after a competitive exercise
and that prices obtained are tested by regular market competition
thereafter. In early 2002, Railtrack-in-Administration (Railtrack)
appointed Bechtel as project managers to drive forward programme
delivery. Railtrack did not hold a competition to test whether
the £40 million a year paid to Bechtel was a competitive
price. Instead Railtrack relied on market testing carried out
some years previously and on Bechtel's reputation and performance
on other contracts. There was concern that testing the market
would have delayed the start of work by some two and a half months.[8]
6. Relatively few firms provide specialist services,
such as signalling. For some projects on the West Coast upgrade
only one signalling contractor had tendered and tenders were substantially
higher than Network Rail's expectations. It is for the Office
of Rail Regulation to review the extent of competition in the
market. There might be scope for the Office of Rail Regulation
to review whether the market could be opened up to other suppliers,
so as to increase competition and drive down prices.[9]
7. Network Rail needs to improve its forecasting
of signalling equipment lifespan, and to become more adept at
managing the risk that systems may need replacing sooner than
anticipated if critical key components cannot be obtained. Unavailability
of spare parts installed in the 1970s had already necessitated
replacement of some systems, and Network Rail considered that
modern signalling systems might be largely outdated in just 20
years. Network Rail accepted the importance of arranging access
to the spares and compatible components needed to extend the operating
life of its systems.[10]
8. Network Rail used 92% of its booked track access
(known as possessions) time in 2005-06. Track possessions were
needed to enable staff to access tracks for repair work for example.
By deploying different contractors and carrying out different
activities on the same stretch of track at the same time, Network
Rail's contractors had achieved up to six separate work streams
working at the same time in some locations, compared with one
or two work streams in each possession three or four years ago.
Network Rail acknowledged that making best use of track access
was one of the biggest challenges facing the railway, not only
on the West Coast Main Line but across the network, over the next
few years. Network Rail anticipated, however, that it would take
several more years for contractors, the train operators, and others
to achieve maximum efficiency from track access.[11]
9. Network Rail operated two track access compensation
systems for train operating companies. Each scheme had different
rates and requirements. If the track was required for renewals,
compensation was payable under the passenger train operators'
track agreement, in accordance with an agreed formula. Access
required for improvements or enhancements was compensated for
under the Network Code and was less prescriptive, being based
on a train operator's claim for reasonable costs and losses, taking
account of likely future revenue gains and losses. The Office
of Rail Regulation had looked at these arrangements, and had proposed
that the industry considered a single compensation regime starting
in 2009. A revised system should make rates paid more predictable
and transparent, and more closely aligned to a train operating
company's true costs and losses.[12]
4 Q 13 Back
5
Qq 48-49 Back
6
Qq 72, 79 Back
7
Q 104 Back
8
Qq 130-137 Back
9
Q 112 Back
10
Q 111 Back
11
Q 11 Back
12
Q 44 Back
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