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Procurement: New approaches for a new control period

Fresh opportunities are on the horizon for the rail supply chain and CP6 promises to provide a teaser of them.

From the Shaw Review to the Department for Transport’s (DfT) guidelines for market-led proposals, a series of reviews and incremental policy changes over the last few years have encouraged the private sector to increase its involvement in the rail industry.

Pathfinders

Published in July 2017, the Hansford Review recommended the development of private investment in rail infrastructure – in contrast to the current delivery model of most projects – to provide a more sustainable future for rail with real market contestability.

Speaking at the Rail Procurement Roadshow in November, Nichols Group director Stephen Jones, who was part of the Hansford Review, said there are particular “pathfinder” projects that will pave the way for others to follow this approach. This includes:

  • The public-private development of Euston station;
  • East West Rail’s central section, for which the project is looking to obtain joint funding from the housing sector;
  • Projects brought forward from the DfT’s call for market-led proposals. The Windsor Link Railway, HS4Air and a new southern link to Heathrow airport were among 30 submissions made to the DfT in 2018;
  • Network Rail Routes-led third-party projects. Each route now has business development managers who will seek third-party funding for projects.
  • Encouraging more private financing and funding is not without its challenges. Stephen said that devolution has hindered this approach as it would be difficult for all eight regional routes to have the skillsets to prepare for these complex procurements.

He also highlighted three other obstacles. The first is that companies are unlikely to want to take on the risk expectations that go with these different types of procurements, particularly following the liquidation of Carillion. The second is the challenge of securing funding for heavy rail schemes that is not based on passenger revenues; and the final one is the “potential paralysis” caused by the Rail Review.

L-R: Ronald Hendrikx, Stephen Jones, Eoin O'Neil, John Drake and Joanna Dunn engage in a panel discussion.
L-R: Ronald Hendrikx, Stephen Jones, Eoin O’Neil, John Drake and Joanna Dunn engage in a panel discussion.

CP6

With CP6 a matter of months away, the CPD-accredited Rail Procurement Roadshow proved a timely event to help businesses, particularly SMEs, prepare for the next control period. Sponsored by Panasonic Business and hosted at the London offices of law firm Bird & Bird, the roadshow was split into two sessions: a conference in the morning and workshops, which guided delegates through the procurement process with advice on best practice, organised between Bird & Bird and ShineBid in the afternoon.

Network Rail’s CP6 settlement was finalised in October. Included in the package is: £3.4 billion for operations, £2.6 billion for support functions, £7.7 billion for maintenance, £16.6 billion for renewals and £4.3 billion for other areas. Altogether that amounts to almost £34.7 billion. There is also £10 billion for enhancements, but these will be procured differently.

Eoin O’Neil, the commercial director of Network Rail’s delivery arm Infrastructure Projects (IP), said the settlement is a good result for the industry, highlighting that the renewals budget is up 17 per cent on CP5.

Contractors can expect changes to their contracts, he added. Earlier in 2018, Network Rail announced it is making suppliers commit to paying their subcontractors within 28 days and to ban the use of retentions. Retentions typically equate to anything between three to five per cent of the total cost of work delivered, half of which is then released upon completion of a project and the remainder retained for around a year after completion, to protect against poor workmanship.

Network Rail is also introducing the use of project bank accounts on some of its major projects, meaning payments to subcontractors can be agreed by the client and scrutinised more closely, as touched on by Joanna Dunn, head of procurement for IP.

Joanna said a big focus for the next control period will be on sustainability. Touching on one of the key themes, employment, skills and training, she said this includes targets of one apprenticeship for every £1 million spend and for 65 per cent of spend to go to SMEs by 2021, although not all of this will be direct.

Network Rail renewals expenditure from 2000 to 2024 (Actual plotted against forecast)
Network Rail renewals expenditure from 2000 to 2024 (Actual plotted against forecast)

Returning to CP6, the Rail Industry Association’s (RIA) policy director Peter Loosley shared concerns over uneven expenditure. RIA members have said they are unable to plan properly; are reluctant to spend on staff, kit and innovation; and, if work drops off, it means letting go of people who are difficult to get back, as a result. Peter believes between 10-30 per cent of the cost base could be removed by reducing peaks and troughs.

There is no obvious pipeline of enhancements either, he added, and renewals won’t keep supply chain going, as skillsets for the two are different.

During a panel discussion, Peter, Balfour Beatty Rail’s head of procurement Adam Berwick and the Institute for Collaborative Working’s associate director Paul Greenwood all agreed that if they had one wish it would be to smoothen the pipeline of work. Other speakers included John Drake and Ronald Hendrikx, both of Bird & Bird.

Peter summed up the challenge of CP6 succinctly: “We have a very good settlement for CP6. Treasury are looking very carefully at how we spend that. No surprises that they want us to do that efficiently. But if we don’t, I believe there is a significant risk that any settlement for CP7 will be far less favourable than the good settlement we’ve got now.

“It behoves us all to work together to deliver CP6 in as an efficient way as possible and together we can and we will deliver it I am sure.”

For more information go to: www.railroadshow.com


Read more: CP6: A land of opportunity


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