INFORMED SOURCES e-Preview August 2010.
First of all thanks to Modern Railways Editor James Abbott for finding the space to squeeze a seriously over-length Column into the August issue. As a result readers will have the first detailed analysis of the McNulty and Foster reviews, a look at Network Rail after Coucher, which the Government is vowing to reform, and a belated critique of Network Rail’s bonus culture.
Network Rail – resignation could trigger the end-game.
Network Rail bonuses – high level opprobrium.
McNulty – set to ask hard questions.
Foster Review – IEP filleted with finesse.
Iain Coucher’s resignation on 17 June came as a surprise to his colleagues in Network Rail. But what caught my eye was the claim by Rick Haythornthwaite, Network Rail’s Chairman, that it was the ideal time for Iain to go.
In retrospect, we should have seen it coming. Iain has always been project oriented, moving on when each new job was done.
At Network Rail the job was bringing Railtrack out of administration, getting things under control and stabilising the finances. All this was achieved, sort of, with the Regulatory Settlement for the current Control Period which started on
To go then, would have been ideal, well, sort of. As Iain himself has said, he doesn’t know where the 21% efficiency savings in CP4 he and Network Rail sighed up to are coming from. And the Company, no doubt assuming he was here for the duration, had no successor groomed.
Network Rail now has 44 months of CP4 left in which to find that 21% efficiency improvement. And that’s before any extra savings demanded in the autumn Comprehensive Spending Review.
Recruitment and appointment of a replacement will take at least three months. Add three to six months notice and we’ll be lucky to have the new Chief Executive by April 2011 with only three years of CP4 to run.
Even someone from an overseas railway is going to need six months or so to come to grips with the constraints of the politically driven, heavily regulated, fragmented UK railway industry in the midst of cuts and reform. Anyone lured from another industry will almost certainly assume that railways, their technology and management are behind the times and appear complex only because management is not up to what appears to be a simple task. Add another six months for reality to bite.
According to Rick Haythornthwaite none of the existing executive team is ready for the top job. It could yet be Hobson’s choice.
Bonus bashing
OK, so I was wrong not to have joined in the criticism of bonuses paid to Network Rail’s senior executives. I considered it a minor distraction compared with all the heavyweight issues to be analysed and explained month by month.
But when I put this to Office of Rail Regulation Chairman Anna Walker over lunch at the Modern Railways innovation awards at the end of June she put me right. She sees the reaction to the announcement of the Network Rail bonuses as the ‘annual humiliation’ of the railway industry. And with the strong line the new Transport Secretary is taking I had to concede that she is right.
This year ORR’s letter to the Network Rail Remuneration Committee was quite clear that moderation was expected. On efficiency ORR Chief Executive Bill Emery urged the committee to exercise’ real caution’ in awarding efficiency-related bonuses. But the RemCom declared the efficiency target beaten justifying payment of that part of the bonus.
Transport Secretary Philip Hammond had written directly to Rick Haythornthwaite urging him to be 'sensitive' to how taxpayer-funded bonuses would be viewed at a time when the government was planning severe public spending cuts. Speaking at a Conference after the bonuses had been declared Mr Hammond had another go. ‘In the week when everyone has been asked to share the burden of reducing Britain's deficit, people will rightly be asking how Network Rail 's top executives feel this is appropriate’, He added ‘Bonuses must be earned by exceptional performance: they should not be an entitlement’.
Rick washed his hands, measured against ‘a better railway with more trains on time’, the awards for the past year ‘have been earned, are a contractual right and should be paid’. But he did announce a review of ‘how we can better align executive remuneration with expectations of passengers and public’. Meanwhile the bonus scheme for 2010/11 has been ‘suspended’.
Is that ‘suspended’ as in ‘no bonuses next year’ or ‘different bonuses next year’? I recommend Salary Retention: the ‘incentive’ applied to the Romanian engineers designing the class 56 locomotive.
McNulty review
Those of us of a certain age were reminded of the 1982 Serpell Review of railway finances when Sir Roy McNulty was charged to review the value for money of today’s railway. Serpell had six months and was blown away by British Rail. Sir Roy has a year, backed by the full force of a reforming coalition Government.
But one thing Serpell got right was his conclusion that if efficiency were ‘vigorously pursued’, the existing railway could be operating in 1986 on a smaller government grant, in real terms, than that received in 1975.
And BR delivered. But what is really interesting is that Sir Roy’s scoping study has a bar chart showing rail passenger revenue and subsidy from 1986 to 2008.
I’ve used this same data several times to make the point that railway costs have gone up by a multiple since privatisation. Only to be rubbished for making a false comparison.
Now Sir Roy has given it credibility by pointing out that subsidy has doubled since 1996-97. I prefer quadrupled since 1988-89, but then I would.
Serpell reported just before an economic boom. Sir Roy is examining the railway’s value for money after a sustained period of economic growth has crashed into recession. Even scarier is the fact that in the 1980s subsidy fell as the economy flourished. The modern railway has needed more and more subsidy even as the good times rolled.
Sir Roy says the choice is between ‘changing the way we operate or else decreasing the size and quality of the network’. So just for fun the editor has dug out Serpell’s Option A, with a subsidy free ‘commercial network of under 2000 route miles.
Of course, cost reduction through cutting services is obviously ‘undesirable’. It would be considered only if there was ‘no other solution to the challenge of financial sustainability’.
Tightening collar
Sir Roy’s Scoping report is full of insights, which is why I have given it more space than other publications. For instance, he points out that the recent pause in revenue growth, plus difficult trading conditions, will increase Cap & Collar support ‘substantially’. Barring a ‘significant and rapid’ recovery in revenue growth DfT Rail’s target of transferring 70% of the cost of the railway by 2014 to the fare payer seems unlikely.
October decision on IEP
Sir Andrew Foster’s Review of the Intercity Express Programme was finally published on 6 July. And some were disappointed that the project had not been thoroughly trashed.
But fear not, Sir Andrew is a master of Civil Service speak. In this coded language, recommending a ‘pause for reflection’, really means ‘going ahead with this would not be good for your career prospects’. Read in this context the Review is highly damaging, both to the project and DfT Rail’s management of it.
Issues
Sir Andrew highlights three main areas of concern.
First there are the unresolved technical issues, especially the bi-mode, next, he is not convinced that all the potentially viable and possibly preferable alternatives to IEP have been assessed on an equal footing.
Of course, to the IEP Team there are no credible alternatives. For example, the Review notes that the original assumption that IC125 could not be life extended cost-effectively beyond 2020 was clearly ‘misplaced’.
Finally, there are issues surrounding DfT Rail’s management of the programme including communications.
My criticisms of bi-mode performance are vindicated, interestingly using DfT Rail’s own data. But Bi-mode is now seen as a ‘lesser issue’ by Transport Secretary Philip Hammond.
Sir Andrew was not convinced that all the credible alternatives to IEP hade been identified, worked up and assessed on an equal footing with IEP. So he and his team have really gone to town on evaluating the alternatives. This work occupies an annex to the Report and will be given the Informed Sources treatment next month.
Meanwhile Sir Andrew concludes that alternative solutions could provide more than half of the benefit on the East Coast route, and probably around three quarters o on the Great Western routes, for between 40% and 60% of the cost of IEP.
By his restrained standards, Sir Andrew is scathing about DfT Rail’s strategic management of IEP. While the original HST2 concept was well received Industry experienced ‘a growing sense of marginalisation, disengagement and disenchantment’ once IEP procurement started in 2007
DfT Rail depended on the advice of consultants and advisers rather than industry bodies, assuming full responsibility for the programme. Sir Andrew concludes ‘I must record here that if I had a reasonably blank sheet of paper I would not manage the programme like this’. Note the qualifying ‘reasonably’.
Six questions are posed on the management of the Project, the key one asking ‘is it possible there has been inappropriate deference, or insufficient constructive challenge, in respect of influential in-house advice’? The answer is of course ‘yes’ and I am still pondering how to explain what has been going on.
In questioning the ‘wisdom and practicality of continuing with IEP in its present form’, Sir Andrew suggests a pause of not more than six months for ‘further reflection and analysis’ including a serious comparative analysis reassessing the current IEP proposition ‘in an absolutely up-to-date Value for analysis which includes the range of credible alternatives’.
See the de-coding above. A decision on the future of IEP will be made at the same time as the Comprehensive Spending Review announcement in October.
Roger’s Blog
In last month’s blog I was looking forward to a seminar on Tram Train. One e-Preview subscriber thought it hilarious that anyone could justify spending their employer’s money to attend. In fact, there were 70 delegates.
I did my bit by asking why we needed tram train. The panel of speakers was stunned into silence. Eventually someone from Network Rail in the audience explained that we needed to know what was involved in adapting the concept to the
But new obstacles are arising, including the recent realisation that a Transport & Works Act Order will be needed for the changes to the Network Rail infrastructure. Tram Train was yet another irrational DfT Rail project and I can’t see it surviving the October spending Review cuts.
Friday that week saw the Modern Railways Innovation Awards, combined with the fourth Friday Club meeting. I was master of ceremonies, which meant that the audience were saved my usual five minute introduction. With the Thameslink train fleet bidding down to Bombardier vs Siemens I suggested that the simplest way to select the preferred bidder was on the basis of the up-coming England-Germany football match? Siemens seemed to like the idea.
Tuesday the following week was the annual Stagecoach Reception at Somerset House, with lots to talk about including SWT’s arbitration success in its dispute with DfT Rail over when the meter starts ticking for Cap & Collar Revenue support. That’s another £70-100 million on next year’s rail budget.
At the Innovation Awards I bumped into my old chum Christian Roth, ex Siemens and now SWT Engineering Director. When I teased him about letting the Class 455 EMUs fall behind the Hitachi Class 395s, he asked when I had last visited Wimbledon Depot and I now have a visit booked in August. With Wimbledon’s ugly duckling Class 458 fleet now recording a Moving Annual Average of over 40,000 Miles Per 5 Min Delay I’m looking to interesting day out.
Looking beyond the holidays, what is the significance of 8 September? You mean you don’t know?
Well, on that day in 1985 the British Rail Solid State Interlocking at
As someone who has championed this British world beating innovation from the beginning, I have been invited to speak at the lunch. But don’t let this put you off. If SSI has featured in your career and you haven’t been contacted, please get in touch with john.slinn@park-signalling.co.uk.
Now to get to grip’s with Sir Andrew’s annex. After this month’s column readers will have earned some serious traction action, not mention some rolling stock rudery, as DfT Rail continues to get its new train numbers wrong.
Roger