Williams-Shapps Plan for Rail: A Consultation on Legislation to Implement Rail Transformation

July 2022 Williams-Shapps Plan for Rail: A Consultation on Legislation to Implement Rail Transformation 1.

INTRODUCTION

1.1.

This submission constitutes the response from the Railway Industry Association (RIA) to the Department for Transport’s (DfT) consultation on the Williams-Shapps Plan for Rail and legislative changes to implement rail reform.

2.

BACKGROUND TO RIA

2.1.

RIA is the trade association for UK-based suppliers to the UK and world-wide railways. It has over 300 companies in membership covering all aspects of rolling stock and infrastructure supply and a diverse range of products and services. As well as most of the Tier 1 contractors and large, multi-national companies, over 60% of RIA’s membership base is comprised of Small and Medium-Sized Enterprises (SMEs).

2.2.

RIA’s supplier members represent the full range of UK rail disciplines, working on renewals, enhancements, rolling stock, signalling, electrification, and retail.

2.3.

RIA provides its members with extensive services, including: • Representation of the supply industry’s interests to Government, regional and national transport bodies, rail clients – eg Network Rail (NR), HS2, TfL – and other key stakeholders; • Providing opportunities for dialogue and networking between members; • Supply chain improvement initiatives; • Supporting innovation through the Unlocking Innovation programme and UKRRIN (UK Rail Research and Innovation Network); • Provision of technical, commercial and political information every week; and • Export promotion, including organising and creating Great branded UK Pavilions at key rail exhibitions overseas.

2.4.

RIA recognises that equality, diversity and inclusion drive innovation, financial performance and success. Together with Women in Rail, RIA is promoting an ‘Equality, Diversity & Inclusion Charter’ for rail, which has the potential to support social mobility, grow UK STEM skills, create local opportunities, and increase the talent pool from which the future leadership of the rail sector will be drawn.

3.

FIVE TESTS FOR GREAT BRITISH RAILWAYS

3.1.

RIA has published Five Tests for Great British Railways, highlighting the key areas which the new organisation will need to focus on to ensure the restructure is a success (see Section 6.2 for more information on this).1 They are: • No hiatus in current work: More than 70% of Network Rail’s spend is with the private sector – and there should not be a pause in this work; • Transparency: Be clear and transparent with rail suppliers, to allow them to deliver; • Partnership: GBR needs to be an open and accessible client, and partner with the private sector for the best results;

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• •

4.

Productivity: Ensure the rail industry is able to thrive – financial sustainability will ensure rail delivers for UK plc; and Ambition: Leave a positive legacy, including in safety, decarbonisation, exports and the economy.

RIA’S KEY RECOMMENDATIONS 1. As a guiding mind, GBR should be ambitious and think strategically about the long-term by working with all major railway industry players, including the supply chain, to maximise benefits across the railway and to the wider economy.

2. GBR should drive policies on access in a way that encourages and attracts private investment, delivering benefits for both the rail user and the taxpayer. On access, ORR should act as a strong independent regulator and provide scrutiny.

3. Primary legislation should include a duty on GBR to support the resilience, capability, and productivity of the supply chain, and to recognise the value of suppliers to the UK economy and UK plc.

4. Primary legislation should include a duty on GBR to develop and maintain a 30-year plan, such as the Whole Industry Strategic Plan (WISP), and this should be done in the most transparent and collaborative way possible.

5. Primary legislation should include a duty to promote transparency and ensure a level playing field between GBR and the private sector. For the supply chain, transparency is important both in procurement (early supplier engagement and publication of indicative volumes) and strategy (sharing of long-term funding plans for all disciplines). The GBR licence should contain details on how this duty will be upheld. This is particularly important for retailing and data and can be enforced by ORR. 6. Primary legislation should include a duty on GBR to grow revenue and the customer base and manage costs. GBR should be a patient investor that optimises long-term social, economic, and environmental benefits.

7. With lines of accountability changing, the ORR should still be empowered to hold GBR to account – providing effective independent scrutiny and regulation.

5.

CONTEXT

5.1.

The Williams-Shapps Plan for Rail was published in May 2021 and includes plans for a new public body, Great British Railways (GBR), to be established. The aim is that GBR will act as a “guiding mind” and integrate track and train under one single leadership.

5.2.

Integrating track and train means that GBR will incorporate functions of NR as well as take on the responsibility from the DfT for procuring and managing passenger train services.

5.3.

As some of the proposals in the Williams-Shapps Plan for Rail will require primary legislation to implement, the DfT is consulting on what will be included in this legislation. RIA’s submission is as follows.

6.

QUESTION 1 – Does the scope of the proposed designation of Great British Railways as an integrated rail body appropriately capture what you would expect for an effective guiding mind for the railways?

6.1.

The establishment of GBR presents a major opportunity to enable an outcome-focused, whole system approach to rail. The supply chain and the private sector must remain key players in the transition to GBR. If stood up correctly, GBR will be able to unlock the full potential of the supply chain in terms of innovation, efficient delivery, decarbonisation, economic growth, and positive outcomes for passengers and freight customers and the wider economy.

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6.2.

RIA has published Five Tests for Great British Railways2, highlighting the key areas which GBR will need to focus on to ensure the restructure is a success and to fulfil its role as a guiding mind: • No hiatus in current work: More than 70% of Network Rail's spend is with the private sector – and there should not be a pause in this work. The UK railway and the economy cannot afford to see work stop whilst GBR is set up. Any hiatus in work would see skilled workers leave the industry, meaning a further lack of labour in a sector already suffering from a skills gap.

• Transparency: Be clear and transparent with rail suppliers, to allow them to deliver. The process to establish GBR needs to be an open one, with suppliers in the discussions at all stages of GBR’s development. Considering that a large amount of the Government’s spend on rail is delivered by private sector companies, with significant invested capital, it is vital that suppliers are clearly represented in forward plans. The 30-year plan should also be a public document, so all can see the shared and agreed vision for the UK railway network.

• Partnership: GBR needs to be an open and accessible client, and partner with the private sector for the best results. GBR will need to embrace the role of the private sector if it is to deliver successfully, whether in operations, infrastructure or rolling stock. GBR should aim to be a ‘thin client’, one which seeks to fully utilise the experience, expertise and innovation of rail suppliers and which does not shadow work being done by the private sector.

• Productivity: Ensure the rail industry is able to thrive. Financial sustainability will ensure rail delivers for UK plc, and rail suppliers recognise the imperative, now more than ever, for the rail industry to be efficient and cost effective. They stand ready to work with Government and clients to identify opportunities for efficiency. GBR should seek to develop long term strategic relationships with suppliers, maintaining the benefits of the five yearly, Control Period, funding settlements. The ORR should ensure there are no ‘boom and bust’ profiles in workload between and during these cycles. Government should avoid annual settlements, given the severe impact on the industry’s ability to plan and invest.

• Ambition: Leave a positive legacy, including in safety, decarbonisation, exports and the economy. Rail travel has more benefits than simply connecting people and resources. Rail delivers a safe mode of clean mass transport, supporting jobs and growth. Rail’s role as an economic asset should continue, and GBR needs to be bold and ambitious in fostering a world-leading rail sector.

6.3.

The value of the supply chain should not be underestimated. An independent 2021 Oxford Economics report commissioned by RIA shows that the rail industry generates £43 billion in economic growth, with £17.8bn of this generated by the supply sector. 710,000 jobs are supported by rail, with 317,000 sitting within the supply chain. Additionally, the supply chain represents 44% of the £14.1bn of tax revenue associated with the rail industry.3

6.4.

In order to be an effective guiding mind GBR must take a long-term, whole-system, network approach. One concern suppliers have is that the devolved nature of GBR, as inherited from NR, may have some unintended consequences if not handled correctly. Devolution is important for ensuring an effective focus on passenger and local priorities by having a local integrated transport offering. However, devolution can sometimes cause inefficiencies, and there are also strong benefits to be gained from integration.

6.5.

As a guiding mind, GBR will need to provide long-term strategic thinking and ensure rail remains an effective national network, to maximise competition and economies of scale, to avoid unnecessary costs, and to enable consistency and certainty for the supply chain across regions. This is particularly critical for safety and standards. Certainty for the supply chain will

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keep teams together supporting continuous improvement and enable investment in people, plant and process, which will increase productivity and reduce unit costs.

6.6.

RIA welcomes the 30-year WISP, as it has the potential to enable long-term strategic thinking.

However, to work as effective strategic guidance, the WISP must be ambitious, consider the whole network and system beyond infrastructure, and be an open document with input from all stakeholders, including the supply chain. As set out below, RIA proposes that primary legislation includes a stronger duty to set out a 30-year strategy. The supply chain needs certainty and clarity in order to deliver on strategic objectives and there are many benefits of the strategy (or the WISP) being a shared document. At their best mature supplier relationships help manage risk, adapt to change and ensure faster deployment of learning and innovation. Lack of engagement can add bureaucracy, duplicate work unnecessarily and stifle new ideas.

6.7.

RECOMMENDATION 1: As a guiding mind, GBR should be ambitious and think strategically about the long-term by working with all major players, including the supply chain, to maximise benefits across the railway and to the wider economy.

7.

QUESTION 2 – Are there any other factors Great British Railways should balance and consider as part of its public interest duty?

7.1.

RIA welcomes the fact that a requirement will be put in primary legislation for the scope of the licence to include duties on GBR relating to accessibility, freight, and the environment. All three areas require committed plans, and funding, to be delivered successfully, and will also generate societal benefits if delivered successfully. It is imperative that the railways become more accessible, enable more capacity for rail freight and realise environmental benefits. The duty to consider the environment must be coordinated with the Government’s Transport Decarbonisation Plan and Net-Zero targets. The supply chain stands ready to deliver decarbonisation, but clear commitments and funding are key to delivering it in a way that also maximises efficiencies and supports skills and green jobs, benefitting the whole economy.

7.2.

RIA welcomes the fact that maximising social and economic value is included in the proposed duties for GBR, as well as other key considerations such as financial sustainability, open data, collaboration, and private sector involvement. However, in order to effectively deliver the transformation envisioned by the Williams-Shapps Plan for Rail, alongside other ambitions such as decarbonisation and levelling up, the industry will need as much certainty and detail as possible. Perhaps most importantly, GBR will need to display ambition (as per RIA’s Five Tests for GBR in Section 6.2 above) and have strong commitments to its key duties.

Therefore, RIA proposes that additional duties should be included in primary legislation, and not just in the licence due to be issued by the Secretary of State for Transport. These are expanded on in the answer to Question 14, but in summary RIA recommends that: • Primary legislation should include a duty on GBR to support the resilience, capability and productivity of the supply chain and to recognise the value of the private sector to the UK economy and UK plc; • Primary legislation should include a duty on GBR to develop and maintain a 30-year plan (such as the WISP) and this should be done in the most transparent and collaborative way possible; • Primary legislation should include a duty to promote transparency and ensure a level playing field between GBR and the private sector; and • Primary legislation should include a duty on GBR to grow revenue and manage costs.

GBR should be a patient investor that optimises long-term social, economic, and environmental benefits.

7.3.

All of the proposed duties above will help GBR fulfil its public interest duty. Supply chain resilience and capability supports jobs and economic growth, enabling companies to invest in 4 / 36

their workforces and facilities. An outcome focused 30-year plan with clear strategic objectives will ensure the benefits of the railways are maximised. A level playing field unlocks innovation and progress by maintaining healthy competitive pressures, and a focus on maximising return on investment results in benefits for both the taxpayer and the rail user.

7.4.

It is also strongly in the public interest that GBR accelerates the creation of a low-carbon, cost efficient, reliable and accessible railway. RIA’s A Railway Innovation Strategy4 outlines how GBR can also support an innovation-friendly environment, delivering benefits for both customers and industry. The report highlights that for GBR, a successful innovation journey is likely to be characterised by an environment in which there is: • Ambitious radical change, led from the front by GBR, which should be outcome-focused with the 30-year plan a vehicle for this; • Client funding to kick-start innovation; • A collaborative, risk-sharing approach as well as an understood and documented pathway through to commercialisation; and • The potential of a win-win for all parties, balanced by a recognition and acceptance of an element of risk of failure.

8.

QUESTION 3 – Do you support the proposal to include a power in primary legislation to enable Scottish and Welsh Ministers to delegate their contracting authority to Great British Railways, subject to the terms of delegation being mutually acceptable to ministers in the Devolved Administration(s) and the Secretary of State?

8.1.

N/A

9.

QUESTION 4 – Do you have any views on the proposal to amend Section 25 of the Railways Act 1993 to enable appointment of a public sector operator by Great British Railways by direct award in specific circumstances?

9.1.

The private sector can often offer a pool of innovative solutions, and a direct award should only be made if all private sector options have been exhausted. Any public sector operator must also work closely with private businesses and continue to innovate and adapt.

10.

QUESTION 5 – Do you support the proposed amendments to Regulation 1370/2007, which are i) reducing the limitation period for the challenge remedy, ii) introducing a remedy of recovery to accord with the new UK subsidy regime, iii) clarifying who may bring a claim, iv) retaining the ability to make direct awards under Article 5(6), and v) clarifying the PIN notice period?

10.1. N/A 11.

QUESTION 6 – Do you support the proposed statutory duty on ORR to facilitate the furtherance of Great British Railways’ policies on matters of access and use of the railway, where these have received Secretary of State approval?

11.1. RIA welcomes the recognition of the railway as a vital national asset and that GBR policies will aim to offer certainty and clarity for the industry. If done in the right way, policies on matters of access and use of the railway have an opportunity to support private investment, such as rail freight companies investing in new depots. To enable this, however, private investors will need a guarantee on the level of service as well as transparency around investment decisions.

This relates to the proposed duty on GBR to maximise the economic and social value of the network – enabling private investment delivers benefits for both the network user as well as 4

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the taxpayer. Therefore, RIA welcomes the fact that that ORR will ensure GBR is planning and managing access in the public interest, and recommends that the opportunities for private investment are fully considered in this regard.

11.2. On access, ORR should remain an independent regulator. To this end, ORR’s role should not be to further or set policies, but rather to regulate them and provide scrutiny. To be an effective guiding mind, GBR must have the ability to set its own policies on access; and to be an effective independent regulator, ORR must be independent from the industry policies set on access.

11.3. RECOMMENDATION 2: GBR should drive policies on access in a way that encourages and attracts private investment, delivering benefits for both the rail user and the taxpayer. On access, ORR should act as a strong independent regulator and provide scrutiny.

12.

QUESTION 7 – Noting we will consult separately on the use of the power to amend the existing Access and Management Regulations, are you aware of any immediate essential changes that are needed to these Regulations to enable Great British Railways to deliver its guiding mind function? (paragraph 2.44) Please explain.

12.1. N/A 13.

QUESTION 8 – Do you agree with the proposed recasting of ORR’s competition duty to better reflect public sector funding?

13.1. RIA welcomes the role of ORR in promoting competition. Ensuring healthy competition will be a key part of achieving the goals set out in the Williams-Shapps Plan for Rail.

14.

QUESTION 9 – Do you support the proposal to include in legislation, a power for Great British Railways to issue directions to its contracted operators to collaborate with one another in circumstances where doing so could otherwise give rise to concerns under Chapter I of the Competition Act 1998, in particular, where this could lead to defined benefits to taxpayers and/or passengers?

14.1. RIA welcomes the fact that operators will be supported to work collaboratively with industry partners, including with suppliers, to improve services and performance.

15.

QUESTION 10 – Would Train Operating Companies be willing to share information and collaborate in the way envisaged without the proposed legislative provisions? What are the risks to them without the proposed legislation? Would the proposed legislative approach help to resolve these risks?

15.1. N/A 16.

QUESTION 11 – Are there any particular additional safeguards (in addition to the safeguards outlined in paragraphs 2.54 - 2.55) that you consider necessary to support the interests of third parties (including freight, open access and charter operators) or to otherwise protect passengers and/or taxpayers?

16.1. N/A 17.

QUESTION 12 – How should we ensure that Great British Railways is able to fulfil its accountability for the customer offer while also giving independent retailers confidence they will be treated fairly?

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17.1. RIA welcomes several of the items proposed in the consultation document including ambitions to make fares simpler, introducing digital ticketing and contactless payments, and reducing barriers to entry in the third-party retailing market. However, the contribution of third-party retailers in terms of innovation and improving the customer experience must not be dismissed nor stifled once GBR is established. The WISP aims to focus on outcomes – and many of the proposed strategic objectives rightly focus on the passenger experience. An improved passenger experience will help achieve other objectives, as the more people use the railways, the more benefits are generated in terms of revenue, green transport, social mobility, and economic growth.

17.2. As set out in the answer to Question 14, RIA recommends that primary legislation includes a duty to ensure a level playing field between GBR and the private sector as a way of providing independent retailers with certainty and harnessing their full potential. Any lack of certainty may risk the scaling back of the positive contributions made by independent retailers so far, which have been especially valuable in terms of improving the customer experience.

17.3. The ORR has played and will continue to play an essential role in regulating the rail sector. RIA welcomes many of the suggestions regarding the role of ORR. However, one further opportunity would be to task ORR with ensuring that there is a level playing field between GBR and the private sector – and this will be particularly important for independent retailers.

A new duty on ORR in this regard would add detail and certainty to what retailers and other suppliers can expect once GBR is established – this will allow them to plan ahead and ensure the passenger offer is the best it can be by 2024.

17.4. See Recommendation 5 below: Primary legislation should include a duty to ensure a level playing field between GBR and the private sector. This is particularly important for retailing and data and can be enforced by ORR. 18.

QUESTION 13 – Does the proposed governance framework give Great British Railways the ability to act as a guiding mind for the railways, while also ensuring appropriate accountability?

18.1. RIA welcomes the fact that the DfT will take on a more strategic role in defining the policy and strategic vision for rail and leave GBR to lead day-to-day operations. However, GBR must have enough delegation of funding and decision-making to be able carry out long-term planning and provide industry with certainty. It will also remain key that strategy is aligned with other strategies and wider Government objectives, including decarbonisation and levelling up.

18.2. Further delegation of funding for enhancements to GBR would resolve in a more efficient programme and work and would resolve current issues with the Rail Network Enhancements Pipeline (RNEP), which suffers from misalignment between funding availability and project readiness.

19.

QUESTION 14 – Do you agree with the proposal for Great British Railways’ new duties to be captured in the licence and that primary legislation should require the licence to include specific duties in relation to accessibility, freight and the environment?

19.1. RIA welcomes the fact that a requirement will be put in primary legislation for the scope of the licence to include duties on GBR relating to accessibility, freight and the environment. As set out in the answer to Question 14, RIA recommends that an additional four duties are included in primary legislation. It is RIA’s view that introducing such duties would provide significant benefits to both the railways and the wider economy. As the potential benefits are so great, there should be a strong commitment in primary legislation, embedding the duties into the DNA of GBR, rather than having them follow in the GBR Licence.

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19.2. RIA proposes that primary legislation should include a duty on GBR to support the resilience, capability and productivity of the supply chain and to recognise the value of the supply chain to the UK economy and UK plc. The UK faces a productivity crisis, along with an urgent need to deliver decarbonisation and skills. Rail suppliers, including many innovative SMEs, are strong contributors to economic growth and jobs – and this should be encouraged and enhanced. The Williams-Shapps Plan for Rail promises to “unleash the private sector’s potential” and considering the resilience and capability of the supply chain should be a key aspect of this. RIA welcomes the fact that financial sustainability is proposed as a key consideration in the GBR licence but there should be stronger commitments to supporting resilience. This is relevant for both renewals and enhancements, as well as rolling stock.

19.3. Sections 19.4 – 19.10 below outline how supply chain resilience can be supported by smoothing out investment cycles for renewals, enhancements, and rolling stock. This is further expanded on in a ‘Boom and Bust’ paper – see Annex 1.

19.4. Supporting supply chain resilience and capability means, in practice, supporting renewals resilience, smoothing investment profiles and deploying rolling programmes of work.

Historically, renewals work funded by NR has been concentrated in the middle years of Control Periods, creating a ‘boom and bust’ profile of work for suppliers. This inconsistency can cause skills and capacities to be lost, or teams to be used inefficiently, due to the inconsistent volumes of work. When work drops off companies have a choice between reducing investment and employment – or retaining skills and assets and continuing to invest despite lower volumes of work. Neither is efficient.

19.5. While this problem is now more widely recognised, it will remain important that GBR recognises the productivity and efficiency benefits of smoothing investment cycles.

Supporting supply chain capability means having a commitment to the long-term desirability of the UK, nurturing and retaining key capabilities. This ensures that the UK always has competitive access to key railway equipment and skills whilst supporting the potential for exports.

19.6. Also, rolling programmes of work enable the most efficient delivery of renewals. A rolling programme is a pipeline of work which allows resources to be continuously employed over a long period of time. An efficient delivery team sits at the core of the rolling programme. The team is fed with regular work and stays active – continuously learning, improving productivity, and delivering efficiencies. A rolling programme also fosters collaborative and strategic relationships between suppliers and clients. Projects in a rolling programme will likely be similar to each other, allowing for more of a production-line approach where it is easier to retain the same staff from project to project. Track renewals, rail electrification and digital signalling are ideal candidates for this as work is similar and efficiencies are achieved accumulatively over time.

19.7. In terms of delivering enhancements, supply chain resilience and capability can be supported by clear pipelines of work and a portfolio approach to investment. This allows suppliers to plan for efficiency and this is true for both large Tier 1 companies as well as SMEs and startups. RIA welcomed the principle behind the RNEP when first published in 2018, as it aimed to move away from short funding cycles towards a project and programme portfolio approach.

However, RNEP has not been updated in the 1,000 days since it was first published and this has created costly uncertainties for the industry.

19.8. RIA proposes that greater delegation of funding for enhancements to GBR would help align deployment of funding to project readiness, mitigating the costly stop-start nature of the

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current RNEP process. Further recommendations for improved delivery of enhancements and major projects are included in RIA’s report on Learning from Major Rail Projects.5 19.9. ‘Boom and Bust’ patterns have also been a problem for rolling stock and orders of new rolling stock. GBR presents an opportunity to increase productivity in rolling stock manufacturing by publishing the rolling stock franchise schedule and by utilising techniques such as procurements with options for follow on orders. Any procurement, including rolling stock procurement, should follow best practice as laid out in the Construction Playbook and the Sourcing Playbook.

19.10. In general, GBR procurement practices and business planning should align with existing best practice, including not only the Playbooks mentioned above, but also the Infrastructure Project Authority’s ‘Transforming Infrastructure Roadmap 2030’ and the Government’s Green Paper for Public Sector Procurement.

19.11. The above has aimed to demonstrate that by including a duty to consider supply chain resilience and capability in primary legislation, significant benefits can be unlocked.

19.12. RECOMMENDATION 3: Primary legislation should include a duty on GBR to support the resilience, capability, and productivity of the supply chain and to recognise the value of suppliers to the UK economy and UK plc.

19.13. RIA also recommends that primary legislation should include a duty for GBR to develop and maintain a 30-year plan, such as the WISP, in a transparent and collaborative way. RIA’s view is that the WISP and any future plan is important as it sets the strategic ambitions for the railway through outcome-focused objectives on i) meeting customer’s needs; ii) financial sustainability; iii) long-term economic growth; iv) levelling up and connectivity; and v) environmental sustainability. Early supplier engagement will ensure objectives are fit for purpose and maximise supply chain value, which is ultimately in the public interest as this can deliver efficiencies, jobs, and benefits for the rail user and the taxpayer. It will also ensure that GBR is viewed as a collective project with joint goals, ambitions, and commitments for the entire industry.

19.14. RECOMMENDATION 4: Primary legislation should include a duty on GBR to develop and maintain a 30-year plan, such as the WISP, and this should be done in the most transparent and collaborative way possible.

19.15. RIA welcomes several of the items proposed in the consultation document including ambitions to reduce barriers to entry in the third-party retailing market and establishing an open data system. However, commitments to a level playing field, not just in key areas such as retailing and data, must be strong as the potential benefits are high. A level playing field will unleash the potential of the private sector, as the Williams-Shapps Plan for Rail aims to do, and open up for transformative innovations. Any GBR ‘make or buy’ decisions should be made in a transparent, preferably competitive, manner with a clear value for money test. To head in the opposite direction would be a waste of the impressive investments and innovative developments made over recent years.

19.16. Therefore, RIA recommends that GBR should have a duty to ensure a level playing field between GBR and the private sector. RIA also recommends that ORR monitors and enforces this duty.

19.17. Alongside this duty, RIA recommends that more detailed licence requirements on how the duty will be upheld are set out. While the duty is key to ensuring GBR is an organisation that 5

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supports the private sector, the licence will be key to providing the certainty and detail needed for the private sector to understand how GBR will fulfil its duty in practice. A lack of detail will hinder innovation and business planning, and could lead to a costly hiatus in activity.

19.18. RECOMMENDATION 5: Primary legislation should include a duty to promote transparency and ensure a level playing field between GBR and the private sector. For the supply chain, transparency is important both in procurement (early supplier engagement and publication of indicative volumes) and strategy (sharing of long-term funding plans for all disciplines). The GBR licence should contain details on how this duty will be upheld. This is particularly important for retailing and data and can be enforced by ORR. 19.19. GBR can also unlock significant value through having a duty to seek to grow revenues and manage costs. As a patient investor, GBR should aim to optimise long-term social, economic, and environmental benefits. Otherwise, there is a risk that GBR focuses too much on costs, as compared to return on investment. A duty or licence condition to this effect would ensure a focus on growing revenue, as well as reducing costs by building on programmes such as Network Rail’s Project SPEED. 19.20. Maximising return on investment will include considering whole-life costs, creating opportunities to attract private investment, and ensure that the full potential of the private sector is unleashed. The railway, including future commitments in the Integrated Rail Plan for the North & Midlands, represent significant sunk costs and should be recognised as a significant asset. In areas such as ticketing and journey planning, private companies have helped transform how customers use the railway, and this should not be stifled under GBR. 19.21. Additionally, rail has strong export potential, with both UK SMEs and Tier 1 companies participating in export activities. According to the 2020 RIA SME Survey, 34.4% of RIA SME members export. Growing the rail industry will also mean growing UK exports, and this should be part of GBR’s ambition to support the UK economy.

19.22. RECOMMENDATION 6: Primary legislation should include a duty on GBR to grow revenue and the customer base and manage costs. GBR should be a patient investor that optimises longterm social, economic, and environmental benefits.

20.

QUESTION 15 – Do you support the proposal to amend ORR’s powers to exclude the ability to impose a financial penalty on Great British Railways for licence breach? (paragraph 3.26) Please explain.

20.1. RIA understands that the above proposal is due to the fact that GBR will ultimately be held accountable to the Secretary of State for Transport. However, it still remains crucial that ORR is able to provide independent scrutiny and recommendations. A financial penalty can be an effective enforcement tool to hold GBR to account, and if it is removed it is not clear that alternative options will be as effective.

20.2. A clear role for ORR will also provide the private sector with certainty that GBR will fulfil the commitments set out in the licence – creating and incentive for suppliers to invest in skills and assets.

20.3. RECOMMENDATION 7: With lines of accountability changing, the ORR should still be empowered to hold GBR to account – providing effective independent scrutiny and regulation.

21.

QUESTION 16 – Please provide any feedback on the proposed business planning arrangements for Great British Railways.

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21.1. RIA welcomes the continuation of five-year, Control Period, funding cycles for renewals, as in theory this type of certainty allows suppliers to plan for efficiencies. However, as set out above, previous patterns of ‘boom and bust’ should be avoided and intelligent best practice procurement practices (such as the Construction Playbook) deployed in order to maximise the value of the supply chain.

21.2. The consultation document proposes that funding for enhancements will continue to happen through fiscal events. However, as already explained above, delegation of enhancements funding to GBR may help align project readiness with funding availability – meaning that no resources are wasted as suppliers wait for funding to be confirmed. Certain schemes currently classed as enhancements, including electrification, would benefit from a rolling programme based on funding delegated to GBR. 21.3. The proposed change control process, which aims to enable GBR to respond to changing circumstances, should include a requirement to inform and consult the supply chain on any changes. Otherwise there is a risk of incurring the detrimental effects of uncertainty and changing plans set out above.

22.

QUESTION 17 – Will the proposed approach to independent scrutiny and challenge provide sufficient transparency and assurance that Great British Railways can be held to account?

22.1. As per Section 19.1. above, RIA recommends that ORR should be able to, wherever possible, provide public scrutiny and mechanisms of accountability. As also set out above, RIA recommends the ORR play a role in ensuring there is a level playing field between GBR and the private sector.

23.

QUESTION 18 – Do you support the proposal to give ORR a statutory power to levy a fee on Great British Railways to cover the costs of ORR’s functions which are currently funded through the network licence?

23.1. N/A 24.

QUESTION 19 – Will the proposed changes enable Transport Focus to effectively undertake the role of independent passenger champion in the new rail industry structure?

24.1. N/A 25.

QUESTION 20 – How can we ensure that accessibility is integral to Great British Railways’ decision making and leads to cultural change in the rail industry?

25.1. RIA welcomes the statutory duty to improve accessibility as well as the requirement for GBR to consult with key accessibility stakeholders and the Disabled Persons Transport Advisory Committee. Cultural change is necessary to become proactive rather than reactive to accessibility needs and GBR should be highly ambitious to set the tone for the decades to come. Further embedding accessibility into legislation is a positive development, and it should also be included in the 30-year plan. Consulting with suppliers will ensure that projects are delivered in the best way possible, unlocking tangible benefits and allowing more people to use the railways.

26.

QUESTION 21 – Do you support the proposal to expand DPTAC’s remit to become a statutory advisor to Great British Railways, as well as to the Secretary of State, on matters relating to disability and transport?

26.1. See the answer to Question 20.

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27.

QUESTION 22 – In addition to providing Great British Railways with powers to make “permitted information disclosures”, are there any other revisions to the Railways Act 1993 or barriers to promotion of open data that you consider need to be addressed?

27.1. RIA welcomes open data initiatives to harness the full potential of data. As recognised in the document, this can unlock innovation, efficiencies, and benefits to rail passengers and customers.

27.2. GBR needs to be committed to creating a level playing field to allow the private sector to compete and innovate. This is particularly important for to access to data. Therefore, RIA’s recommendation above, that GBR should have a duty to maintain a level playing field, should also be considered with regards to data as it has the potential to create significant benefits.

28.

QUESTION 23 – Do you support the proposal to include a power in primary legislation to enable the ratification of the Luxembourg Rail Protocol?

28.1. N/A 29.

QUESTION 24 – Are there impacts or risks of the policies proposed which have not been covered by the impact assessments? Please explain or provide evidence (see Impact Assessment)

29.1. N/A 30.

QUESTION 24 – Do you have evidence relating to the impacts and risks identified and discussed in the impact assessments? P (see Impact Assessment)

30.1. N/A _______________________ We hope this is a useful submission. RIA is happy to provide further information on any of the above issues, or to meet to discuss any matter associated with the consultation.

Please do not hesitate to get in touch with Clara Wikforss, RIA Policy Executive, if you have any further questions or would like us to arrange a meeting – please contact clara.wikforss@riagb.org.uk and 020 7201 0777 / 07399 042446.

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ANNEX 1: Ending Boom and Bust: Delivering value for Great British Railways

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Executive Summary

This paper sets out the ways in which Great British Railways can deliver value, both for the rail sector and the UK economy as a whole. The key finding is that certainty, consistent levels of spending, and effective delegation of funding present significant opportunities to improve the productivity and efficiency of the sector.

Uncertainty and boom and bust profiles of investment for renewals, enhancements, and rolling stock have limited the supply chain’s ability to deliver productivity, efficiencies, skills, and innovation. In the light of rising economic pressures and high levels of Government support throughout the pandemic, efficiency and delivering value is more important than ever for the rail supply chain.

Ending boom and bust profiles of investment can enable the following benefits for GBR and the UK as a whole: • • • • •

Efficient delivery of enhancements, renewals, rolling stock production, electrification, and digital signalling – saving money for both the tax payer and the railway user.

Green, well paid, productive, and highly skilled jobs all across the UK. The UK will be seen as an attractive market, generating inward investment. UK suppliers bring economic growth to the country through strong exporting activities.

Innovation in the rail sector creates benefits not only for rail, but also enables technological advances in other sectors as well as economic and environmental benefits for the UK overall.

The wider economic, social, and environmental benefits of rail are fully realised.

Recommendations 1. Provide certainty and clarity, and the supply chain will grow productivity. In practice, this means: o Publish clear pipelines of work. Publishing the Rail Network Enhancements Pipeline now means getting GBR right from the start. o Implement rolling programmes of work to deliver productivity, value for money, and retention of skills. o Agree a minimum level of volumes, around which suppliers can intelligently anticipate a certain level of variation. o Let frameworks run across control periods. o Publish the rolling stock franchise schedule and use techniques such as procurements with options for follow on orders. o Support competition by maintaining a level playing field between GBR and the private sector.

2. Follow best practice, and the supply chain will do the same. Best practice includes: o Follow through on HMT Green Book and Cabinet Office Procurement policy and legislative commitments to outcome-based procurement. o Follow the recommendations in the Construction Playbook. o Procurement best practice includes early supplier engagement, publishing indicative volumes, and including volume and value commitments in framework procurements.

3. Recognise the contribution of rail to UK Plc, and the supply chain will grow domestic capabilities.

The UK market can be made more attractive by: o Providing certainty and clarity (see 1 above). o Be ambitious and grow the rail sector in the UK to deliver economic, environmental, and social benefits all over the UK. o Consider opportunities for private investment in rail infrastructure.

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What is a rolling programme?

A rolling programme is a programme of work which allows resources to be continuously employed over a long period of time. An efficient delivery team sits at the core of the rolling programme. The team is fed with work and stays continuously active – continuously learning, improving productivity, and delivering efficiencies. A rolling programme also fosters collaborative and strategic relationships between suppliers and clients. These are particularly appropriate for renewals, electrification, and signalling.

Purpose and scope During the COVID-19 pandemic, rail was recognised as a key service for passenger and freight customers and benefitted from significant levels of additional public funding. The current economic environment, with the war in Ukraine and inflation adding to supply chain pressures, means that it is more important than ever that the rail industry is as efficient and productive as possible. This paper considers how the creation of Great British Railways (GBR) creates opportunities to improve the productivity of the rail sector by smoothing investment cycles, developing partnerships, and taking a whole-system and portfolio approach to investment.

The paper focusses on the traditional rail network and the opportunities presented by GBR – although many of the principles would also apply to other major rail projects such as HS2 or East West Rail and to other clients, including Transport for London. This paper focuses on funding and procurement decision making. Other important initiatives intended to improve productivity such as rail Project SPEED, Government planning reforms and rail access reform whilst welcome, are not considered in detail.

RIA Members, ranging from large Tier One companies to SMEs and start-ups, were consulted throughout the drafting of this paper and their testimonies are included throughout.

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CHAPTER 1: AN ASSESSMENT OF THE CURRENT UK RAIL MARKET AND INVESTMENT PROFILES 1. Context: Anticipating Great British Railways 2. Suppliers and business planning 2.1. Tier One companies 2.2. SMEs 3. Rail investment profiles 3.1. CP6 to CP7 transition: An end to boom and bust in funding for renewals?

3.2. Enhancements 3.3. Electrification 3.4. Rolling stock 4. Skills

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1. Context: Anticipating Great British Railways The Williams-Shapps Plan for Rail and GBR offers an opportunity to look at rail investment from a whole-system perspective. Indeed, the plan commits to “unleashing the private sector’s potential” and ensuring larger efficiencies.6 The Railway Industry Association (RIA) has set out five key ‘tests’ for the successful creation of GBR.7 By ensuring GBR achieves these objectives, the rail supply industry will be best able to support continued rail investment, delivering for the economy as we build back better from the pandemic: 1. No hiatus in current work: More than 70% of Network Rail’s spend is with the private sector8 – and there cannot be a pause in this work.

2. Transparency: Be clear and transparent with rail suppliers, to allow them to deliver.

3. Partnership: Be an open and accessible client and partner with the private sector for the best results.

4. Productivity: Ensure the rail industry is able to thrive – financial sustainability will ensure rail delivers for UK PLC. 5. Ambition: Leave a positive legacy, including in safety, decarbonisation, exports and the economy.

The Economic Contribution of UK Rail

A 2021 report published by independent researchers Oxford Economics, shows a UK railway industry powering ahead before the Coronavirus pandemic: • • • •

£43 billion GVA in economic growth, 41% of which comes from the rail supply chain.

710,000 jobs, 45% of which are supported by the rail supply chain. £14 billion in tax revenue each year.

For every £1 spent in rail, £2.50 of income was generated in the wider economy.

Additionally, RIA’s ‘Learning from Major Rail Projects’9 report demonstrates the capabilities of the supply chain to deliver major projects on the railways. The report highlights the importance of collaboration and visibility, key messages which will be particularly important as GBR moves to build on strategic relationships across the industry. The six key messages of the report are: 1. Collaboration and Leadership: Create strategic partnerships with the contractors and clients that are based on shared goals. Recruit for and reward positive team behaviours including a continuous learning and development culture and the ability to manage change effectively.

2. Visibility and long-term investment: Once committed do not look back, share pipelines and plan long-term investment to drive competition, grow supply chain capability and efficiency and give confidence to private sector to invest in skills, assets and innovation.

6

RIA’s response to the WISP call for evidence can be found here: https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/GBRTT_WISP.aspx 7 https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/Five_Tests.aspx 8 Network Rail total supplier spend in 2020-21: £7.4bn.

Source: https://www.networkrail.co.uk/wp-content/uploads/2021/08/Top-20-Network-Rail-Suppliers-bySpend-2020-21.xlsx Total Network Rail spend in 2020-21: £9.6bn Source: https://dataportal.orr.gov.uk/statistics/finance/rail-industry-finance 9 https://www.riagb.org.uk/RIA/Newsroom/Stories/Learning_from_Major_Projects.aspx

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3. Innovation and SMEs: Support innovation at earliest stages of a project, take full advantage of supply chain capability including international, SME and cross sectoral ideas and expertise.

Harness supply chain skills on system thinking and whole life value.

4. Procurement: Engage suppliers early. Publishing transparent procurement pipelines and targeted outcome-focussed procurement models, support competition, efficiency, innovation and delivery. Effective procurement enables the development of intellectual property and unlocks collaborative funding and financing models.

5. Economic, Environmental and Social Value: Recognise the full economic, environmental and social value that rail brings to the UK. 6. People Trade and Exports: Celebrate the diversity of the supply chain and its people and promote UK rail expertise and capability internationally.

Full adoption of existing government policy will support GBR in maximising the value the supply chain can deliver. For instance, both the Construction Playbook and the Procurement Green Paper recognise the need for outcome-based approaches, and the need for profit levels to reflect risk, thereby allowing the private sector to innovate and drive cost-efficient delivery under effective competition.

Additionally, publication of the National Infrastructure and Construction Pipeline by the Infrastructure and Projects Authority helps provide certainty – allowing suppliers to plan for efficiency.

Government and Industry best practice on major project development also has lessons for GBR. For example, many of the recommendations from the recent Institute for Civil Engineers report on A Systems Approach to Infrastructure Delivery10, such as thinking in terms of operations from day one, not passing unmanageable risk to the supply chain and the need to think in terms of minimum viable product and building out from there, apply just as much to GBR and the whole rail system as they do to individual projects and programmes.

2. Suppliers and business planning Rail suppliers range from global and national Tier One companies to SMEs and micro start-ups. There are a range of disciplines from consultancy and contracting to data and manufacturing – including signalling and rolling stock. This section summarises how Tier One companies and SMEs do their business planning, and what external factors may affect this.

2.1. Tier One Companies The Tier One rail supply chain includes global and national companies. They often work across multiple infrastructure and manufacturing sectors but also have specialist capabilities in for example programme integration and delivery, data, signalling, electrification, and rolling stock. Companies typically develop business plans reflecting short (3 year) medium (5 year) and long term (10 year plus) goals. In order to remain productive and profitable companies will make strategic decisions regarding how best to develop and deploy their capability, including which projects to bid for and which sectors, countries and regions to invest in.

10

https://www.ice.org.uk/engineering-resources/briefing-sheets/a-systems-approach-toinfrastructure-delivery-2/

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One way in which UK businesses, particularly Tier One companies, counteract uncertainty in the UK market is to diversify their business through export activities or activities in other sectors. On the one hand, this is positive as it means that companies build resilience against uncertainty and contribute to economic growth through exports. On the other hand, this poses a risk as the UK rail industry may lose important capabilities and skills to other markets and sectors.

The value of UK rail exports The Oxford Economics report, The Economic Contribution of UK Rail, highlighted that in 2019 measurable exports were c £400m. However, this figure is likely to be an underestimate as rail exports are difficult to measure.

The global rail market is currently seeing significant growth.

European rail trade body UNIFE’s 2020 World Rail Market Study report predicts annual rail market growth of between 1 and 2.3% until 2025, when an annual volume of approximately €204bn per annum could be expected.11 Internationally, rail is seen as a green investment, supporting the net zero agenda. Within Europe, growth in infrastructure is seen predominantly in Germany, France and the UK with growth in rolling stock in Germany, Denmark and Norway. Recent European initiatives include the Green Rail Investment Platform12 and targets for digitalisation and electrification of the TEN-T strategic rail network. Europe’s rail programme is expected to support €1.2 bn of investment in rail research and development between 2021-27. US President Biden’s Build Back Better programme has committed $66bn to rail infrastructure investment. Indian, Middle East and Chinese rail markets are also seeing significant growth.

Whilst this creates opportunities for UK suppliers it also demonstrates that the UK is competing for investment and skills a global rail market. The more confidence companies have in a market the more likely they are to invest in skills, research and development and assets in that market. As Crossrail International has recognised, UK rail consultants are highly sought after for their expertise in major project delivery on complex and ageing infrastructure. Six global rolling stock manufacturers have a presence in the UK with capacity to support growth in exports.

These international pressures are highlighted in testimonies from RIA Members: •

• •

A Tier One contractor stated that the global rail market creates a significant opportunity for exports, but also a risk. They feared that the UK might repeat previous experience of struggling to recruit electrifications engineers as when there is a hiatus in UK activity, engineers take up opportunities in other markets experiencing more rail growth.

International Tier One companies commented that their shareholders and Boards did not understand the stop start approach to rail investment.

A global Tier One manufacturer noted that their owners did not invest in R&D in the UK because the return on investment was uncertain or took too long.

The UK is currently seen as having medium certainty levels due to the stop-start nature of investment and potential for hiatus in investment due to the establishment of GBR. The exit from the European Union has also created uncertainty. This includes uncertainty around inward investment, as it is less clear that the UK can be used as a base to export to the EU, as well as uncertainty regarding long term alignment with global manufacturing standards, and access to research and development (Horizon Europe) funding. The UK is a relatively small, and bespoke, market in comparison to China, India, the US or the EU. Higher risk, specialised requirements and uncertainty can mean that suppliers choose

11

https://www.unife.org/news/global-rail-market-grows-despite-covid-19-world-rail-market-study-forecast2020-to-2025/ 12 https://www.eib.org/en/press/news/eib-launches-green-rail-investment-platform

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to invest elsewhere and/or need to charge a higher premium in the UK. In order to export successfully, companies need the basis of a reliable home market both in terms of financial sustainability and to demonstrate competence. Hence the importance of initiatives such as the Rail Supply Group export reference scheme13.

RIA Member Evidence Testimonies from Rolling Stock manufacturers emphasised that global rail specifications are different from those in the UK – this means that exports, which will require separate production lines, are likely to need UK export finance support. RIA Members have welcomed UK Export Finance support for the recent agreement on £1.7 bn export finance for the Turkish High Speed line and earlier export finance for the Cairo Monorail project.

2.2. Rail SMEs Over 60% of RIA Members are SMEs. The UK Government has a target that £1 in £3 is spent with SMEs

by March 2022 and we understand that rail client bodies (HS2, Network Rail and Transport for London) are on track to meet these targets, with the Department for Transport exceeding targets by 2019/20 with a 34.2% SME spend14 SME companies cover a range of disciplines and sizes including: • • • • • •

Consultancy and project management Specialist manufacturing Specialist and general services, e.g. cleaning and on board catering Data and software solutions, e.g. remote monitoring, and passenger data Construction (both specialist and general) Specialist labour provision e.g. electrification services

SMEs help to drive innovation and efficiency in the sector. They are agile, flexible, and often local – allowing project resources to shrink and grow according to demand. However, SMEs are also extremely vulnerable to boom and bust investment. Cash flow is critical, especially to start-up companies – hence prompt payment initiatives in the industry, including during the coronavirus period, have been essential.

13

https://railsupplygroup.com/page/export-and-inward-investment DfT Small and Medium Enterprise Action Plan https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1008497 /dft-small-and-medium-enterprise-action-plan-june-2021.pdf 14

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RIA SME survey 2020: • • • • • •

50% of RIA SME Members are micro SMEs (under £2m), 25% are small and 25% are medium sized companies.

Only 2.4% said that they found it ‘very easy’ to find the pipeline of rail work bank opportunities.

80% identified the biggest challenge as the ‘Client and Tier 1 Contractor approach to procurement’.

72% stated that they would like more information about the pipeline of work from clients and Tier 1s.

Many SMEs work across several related sectors, clients and markets in order to diversify their risk: only 24.3% of RIA SME members work solely in rail.

34.4% of respondents export, with a further 22.2% considering export opportunities.

3. Rail investment profiles This section considers what the investment profiles currently look like for renewals, enhancements, electrification, and rolling stock. We also consider how procurement feeds into these profiles. While there have been improvement in certain areas, the results show worrying levels of uncertainty, making it difficult for suppliers to remain productive.

3.1. CP6 to CP7 transition: An end to boom and bust in funding for renewals?

Historically, OMR (operations, maintenance, and renewals) work has been concentrated into the middle years of the control period creating a ‘boom and bust’ profile of work for suppliers. This inconsistency can cause skills and capacities to be lost, or teams to be used inefficiently, due to the inconsistent volumes of work. When work drops off companies have a choice between reducing investment and employment – or retaining skills and assets and continuing to invest despite lower volumes of work. Neither is efficient.

However, there are reasons to remain optimistic that this pattern will be much less pronounced as we move into CP7. Network Rail have increasingly been working collaboratively with ORR, DfT, and the supply chain to reduce this risk. Network Rail have also been publishing annual business plans and forward forecasts – all of which has helped with increasing certainty. The fact that several major frameworks, for example track renewals and some of the Scottish frameworks, run into CP7 has served to smooth out the profile of work. These are examples where rolling programmes of work are starting to happen.

How are renewals funded?

Network Rail owns and manages an extensive network of track, bridges, stations and other assets. These require ongoing operations, maintenance and renewals (OMR) which is funded in five year cycles, known as Control Periods. OMR is funded by the Department for Transport in England and Wales and by Transport Scotland in Scotland.

The Office of Rail and Road (ORR) regulates and determines funding through a periodic review. measure.

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Network Rail Renewals Expenditure 2000-2024 Actual/forecast

4300 4050 3800

3550 3300

CP2

CP3

CP4

CP5

CP6

3050 2800 2550 2300 2050

£M

1800

Network Rail is on track to deliver committed CP6 efficiencies15. The approach taken in CP6 whereby specific efficiency initiatives were identified, owned and delivered in line with regional plans has been effective and we would support a similar approach across GBR. Efficiency should be a shared objective of continuous improvement, delivered in parallel to long term outcomes and project deliverables.

Project SPEED16 builds on mature client and supplier relationships and continuous improvements.

Other positive developments include more transparency and engagement on the regional level, although this has varied between Network Rail regions. Clear forward communication and strategic alignment will be required to ensure that devolution drives competition and efficiency rather than adding complexity and cost. Several regions have moved towards longer term relationships (another feature of a rolling programme) rather than transactional contracting which will also help with forward planning and delivering efficiencies.

Procuring renewals Clear procurement pipelines are essential for efficient delivery. One concern is that as Network Rail regions adapt a variety of approaches and timescales for procurement, suppliers will be faced with challenging decisions regarding how to prioritise bids. For SMEs in particular, short time windows for bidding make it almost impossible to prioritise – and for the client this may mean competitions are less effective and may not deliver the innovation anticipated. Procurements should also make clear the value of the framework or competition and then stick to these values as far as possible. This allows suppliers to tailor bids in proportion to the expected budget, and plan resources effectively. Delay in Government and client decision-making between procurement and award can also be an issue as suppliers have to make choices between keeping bidding teams together ready to deliver projects or

15

https://www.orr.gov.uk/monitoring-regulation/rail/networks/network-rail/monitoringperformance/monitoring-network-rails-efficiency 16 https://www.networkrail.co.uk/industry-and-commercial/supply-chain/existing-suppliers/rail-speed/

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moving them on to other work. These issues can be mitigated by transparent and early communication.

A further risk is that the restructuring necessitated by the creation of GBR might lead to inefficient use of frameworks. A clear recent example of this is the current Network Rail Design Services Framework which was let by the former Network Rail Infrastructure Projects Division. Bidding costs are significant and consultant suppliers expected that the majority of Network Rail design work in CP6 to be let via this framework. Over 40 suppliers – ranging from global engineering consultants to SMEs bid for work on this framework. However, in practice regional devolution has meant that regional teams often prefer to run their own procurements, meaning that a large number of suppliers will not have recouped bid costs. A further example would be yellow plant where contractors are seeking to make decisions about strategic investments without clarity on whether NR will buy machinery themselves or procure as a service from the market.

Stop-start investment in signalling This graph shows that during CP3, 4, and 5 only around 1/3 of the predicted volumes for signalling were delivered. In the same time, unit rates approximately doubled. It seems likely that there is a correlation between the failure to procure the volumes anticipated and industry costs. Suppliers and the client resourced and invested to deliver three times the actual volume meaning that fixed costs were recovered across a much smaller volume.

In order to be efficient there should be a continuous steady programme of renewal activity. This would allow the industry to build and maintain an appropriate level of capability, to develop a continuous learning and development culture and to deploy resources efficiently with expert teams working like a factory production line. The nature of funding can also create an artificial focus on outputs rather than outcomes. For example, as OMR funding is separate from enhancement funding there is a risk that Network Rail may commit to and procure for conventional signalling upgrades rather than taking a whole life approach and using procurement to compare the relative costs of conventional versus digital approaches.

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The lessons learned from previous control periods should be carried forward into CP7 and as GBR is set up. It will remain important that the supply chain is able to take part in strategic conversations and review benchmarking and plans. This is particularly important as the Whole Industry Strategic Plan (WISP) is developed. Currently, the supply chain has still not seen any drafts of the WISP, and it is still not clear how some categories, such as design and plant will be procured by Network Rail in CP7.

Suppliers make up 42% of the GVA and 45% of the jobs in rail, however too often they are not included in Government, Network Rail and TOC planning, project reviews and lessons learned initiatives. This is getting better but there are opportunities as part of Government and GBR programmes to involve the supply chain more closely in discussion of the development of the WISP, the results of benchmarking activities, railway access improvement initiatives and the Transport Infrastructure Efficiency Strategy for example. At their best mature supplier relationships help manage risk and adapt to change and ensure faster deployment of learning and innovation.

3.2. Enhancements Suppliers welcome the Government commitment to infrastructure investment – including the National Infrastructure Commission “fiscal remit” to set public investment in economic infrastructure of 1.0 – 1.2% of GDP in each year between 2020 and 2050,17 rising to rising to 1.1 – 1.3% of GDP for 2025 – 55. The National Infrastructure Strategy and annual Infrastructure Projects Authority (IPA) funding and investment pipelines also help create certainty and inform the supply chain’s ability to develop their own business plans. These plans were developed in recognition that historically the UK had underinvested in infrastructure – hence investment now creates clear opportunities to build UK capability and capacity.

17

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/571097/ Fiscal_Remit_2016.pdf

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Rail enhancements are often seen as one-off bespoke projects. In 2018 Government announced that investments in rail enhancements in England and Wales would move away from a five-year cycle towards a project and portfolio programme approach. The Rail Network Enhancements Pipeline (RNEP) was published in 2018, in order to provide information about how Government is progressing the rail enhancements it funds.

RNEP was updated in 2019 to cover the status of existing rail network enhancement schemes in year one of CP6.18 However, it has not been updated since. The IPA pipeline includes some but not all rail enhancement projects.

The Integrated Rail Plan published in November 2021 includes over £96 bn investment in rail. This is clearly very welcome, and the supply chain stands ready to deliver. However, in the absence of RNEP there remains a high level of uncertainty regarding the status of the original RNEP pipeline and new Integrated Rail Plan (IRP) projects. Where they can, suppliers will discuss directly with clients, and this will inform significant decisions on where and when to invest – including specific skills requirements.

Changes in priorities due to the way in which COVID-19 has impacted revenues are perhaps inevitable, with a change of focus from capacity projects in the South to connectivity projects in the North.

However, the cost of pausing shovel-ready projects in preference to design work for proposed IRP schemes adds to the cost of the railway. This will impact team capability requirements and logistics as teams will be based in a different part of the country. Whilst the early phases of project design are rightly recognised as critical for project costs and outcomes, excessive optioneering, pause and rework, which are seen as a symptom of the UK approach to investment, all add cost. Suppliers were expecting delay and renegotiation of the development of the Eastern leg of HS2 and potentially NPR – cancellation was unexpected and impacts on confidence in the UK market. This was further compounded by the recent cancellation of the Goldborne Link.

There is also ongoing uncertainty regarding the status and timing of the new commitments to digital signalling on Transpennine and expectations on Phases 2 and 3 of East West Rail, for example. These changes make practical differences to how companies deploy and grow their teams and make capital investments. The status of projects recommended in the Union Connectivity Review also remains unclear.

The stop start nature of RNEP funding decisions is a further cause of potential costs as, whereas Network Rail has delegated authority to prioritise OMR spending, there is no delegated funding authority for enhancements and limited opportunity to redeploy funding linked to project readiness.

In some cases when only specific elements of a business case have been signed off, and that work is then delayed for example due to a lack of access over a bank holiday weekend, or weather, then the team cannot be deployed to other parts of the project or programme as these have not yet been

18

https://www.gov.uk/government/publications/rail-network-enhancements-pipeline-autumn-2019-update

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agreed. This impacts on team productivity and efficiency. Without greater funding delegation it is hard to see how the benefits of the RNEP programme approach will be fully realised.

The importance of long-term planning and certainty in priorities was highlighted by testimonies from RIA Members: •

•

• • • •

•

A Tier One company noted that on long-term, funded programs, such as HS2, as a company with an international parent and shareholder, they found it easier to gain commitment to investing in development of local skills. For HS2 Phase 1, they have deployed expert resources locally (in Birmingham) alongside experienced UK rail professionals and early career professionals to transfer specialist knowledge and grow talent in the UK. A Tier One company noted that it is more difficult to make a business case to invest in resources (which means prioritizing this over any number of global projects, for highly skilled, rare resources who command significant fees), without long term commitment or secured funding.

There was consensus that investors and owners are committed to investing in skills, social value, sustainability and cost efficiencies - where longer term commitment from clients is in place.

A Tier One Consultant noted that uncertainty is compounded by the continuous changes in priorities for example from digital to electrification, peak capacity to levelling up.

An SME noted that this challenge was particularly acute, and could be fatal, for single discipline companies.

Examples of short-term decisions impacting on costs included an SME investing in cranes which were then not used for over a year and a Tier One only having budget authority to rent offices on a short term lease despite the fact the project would take significantly longer once full funding decisions were in place.

There was general recognition that, within a project, “dead periods of time with no work are real costs that the industry has to pay for.”

3.3. Boom and Bust for Electrification As evidenced in the RIA Electrification Cost Challenge19 and the Why Rail Electrification20 report significant levels of electrification will be needed to decarbonise the railway and the most efficient way to deliver this would be by building up to a regular level of investment starting as soon as possible.

However, recent Office of Rail and Road (ORR) data shows that the UK is not electrifying its railways quick enough to meet Net Zero by 2050.21 The statistical release shows that in 2020-21, 179 track kilometres were electrified, less than half the 448 kilometres required each year to meet Network Rail’s target of a Net Zero railway by 2050. Whilst we recognise that the final volumes of electrification need to be informed by a full understanding of transitional and alternative traction technologies (bi and tri mode, battery and hydrogen) that does not change the fact that delivering regular consistent volumes, starting now, would be more efficient than a stop start program.

We welcome the commitment to investment in Midland Mainline and Trans Pennine Route Upgrade electrification but understand current plans may favour delaying further electrification until the start of CP8 (2029). This risks loss of capability and increasing costs – the expected volumes then needed to be delivered would be higher than the UK has delivered to date increasing levels of disruption for

19

https://www.riagb.org.uk/RIA/Newsroom/Stories/Electrification_Cost_Challenge_Report.aspx https://www.riagb.org.uk/RIA/Newsroom/Why_Rail_Electrification_Report.aspx 21 https://dataportal.orr.gov.uk/statistics/infrastructure-and-emissions/rail-infrastructure-and-assets/ 20

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passengers. At worst, delay risks missing zero carbon deadlines despite public commitments to zero carbon delivery22 and the fact that known technology solutions are available. The below graph illustrates historical patterns of boom and bust for electrification – compared to the rolling program of investment in Germany which led to lower unit costs.

RIA would favour a debate on how best to ensure cost effective electrification delivery, for example longer frameworks with guaranteed consistent levels of work would help support lower unit rates.

Efficient delivery of electrification might also be better treated as part of the renewal programme rather than under the RNEP process.

A RIA Member noted that private sector approaches to electrification such as those taken on HS1 and Heathrow Express could be better at aligning incentives to minimise the need for maintenance.

22

https://www.networkrail.co.uk/news/network-rail-sets-world-first-targets-to-combat-global-warming/ and https://www.gov.uk/government/speeches/transport-decarbonisation-plan

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Results from a RIA market sounding exercise: A recent market sounding exercise with RIA Members carried out by RIA on behalf of GBRTT came to the following conclusions regarding electrification: 1. The ramp up of electrification work must be steady – steep ramp ups have historically led to cost overruns 2. This will allow the recruitment, training and experience building for the necessarily increased workforce and for investment in plant and other equipment 3. A rolling programme will deliver continuous improvement in unit rates. A continuation of stop-start transactional contracting will have the opposite effect as it will not incentivise skills development or plant investment, which are both barriers to innovation 4. Electrification programmes should be driven by a full rail-system approach and integrated to include all rail disciplines.

3.4. Rolling stock In 2019 the global rolling stock market was valued at €69.1bn per annum with annual growth between 2017-19 at 6.8% per annum.23 In the UK, the rolling stock industry contributes £2.7bn of Gross Value added, 40,700 jobs, and £746m in tax revenue.24 The rolling stock market generally enjoys higher level of private investment than other parts of the industry, with ROSCOs buying from rolling stock manufacturers (OEMs) and investing in this market. In fact, the financing of new rolling stock is the one area of the railway industry where the use of private capital25 has been prevalent, new rolling stock investments were accompanied by significant commitments to depot investment, for example, and the supply chain is currently investing in trials of zero carbon technologies and very light rail.

How is rolling stock funded?

In England, the Department for Transport has traditionally funded and procured train franchises from private sector Owning Groups. Other devolved governments and transport bodies may also procure and run train services. The Williams-Shapps Plan for Rail delegates train service procurement to GBR – although this will require primary legislation. Once GBR is set up, the current franchising model will be replaced by Passenger Service Contracts, where GBR will contract with private companies to operate trains. In the short term, Emergency Recovery Measures Agreements and National Rail Contracts act as stepping stones towards the new system. measure.

As with other forms of rail investment, the UK market has suffered from boom and bust profiles.

Relatively short-term franchise contracts have inhibited investment in innovation and the current short-term contracting necessitated by COVID-19, combined with annual business plans and a strict focus on cost reduction, risks making this worse. One of the key benefits of privatisation - was that the multi-year investment certainty (franchise contact length and 5-year control periods which replaced the annual budgets suffered by British Rail) combined with revenue incentives led to unprecedented

23

https://www.unife.org/publication/world-rail-market-study-executive-summary-forecast-2020-to-2025/ https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/OE_2021.aspx 25 https://dataportal.orr.gov.uk/statistics/finance/rail-industry-finance/table-7290-private-sector-investmentin-the-rail-industry-excludes-network-rail-investment/ 24

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passenger growth. It is important that GBR does not lose sight of the need to incentivise return on investment and passenger revenues in addition to the focus on cost control and efficiency.

From 2012 onwards there was a significant level of new build investment in rolling stock – with 6 OEMs now based on the UK supplying both the UK and overseas markets. However, there is currently a high level of uncertainty in the market. Publication of the franchise schedule has been delayed. Some rolling stock assets are nearing the end of their natural life span and there are significant opportunities for investment in transitional technologies such as bi- and tri-mode electric and diesel, battery, and hydrogen. However, there is uncertainty regarding where and when the next significant investment may take place and whether, for example, that might be in the South East, the North East or Scotland.

There is a high risk that previous levels of stop start investment, such as the hiatus of investment in rolling stock after privatisation, when the lack of orders led to UK rail manufacturing plant closures, is repeated.26 A UK-based OEM commented: The hiatus in rolling stock manufacturing is already happening – there are no significant new refurbishment projects. The HS2 order alone is not enough to keep factories open – without new orders all the current UK rolling stock manufacturers are likely to be struggling within the next 2-3 years.

The analysis below of orders placed for mainline passenger rolling stock clearly shows a pattern of boom and bust. The graph also illustrates the peaks and troughs in jobs.27

26

https://en.wikipedia.org/wiki/Impact_of_the_privatisation_of_British_Rail Jobs 1998 – 2007: Manufacture of railway locomotives and rolling stock, including repairs and maintenance of locomotives, excluding railway-related electrical equipment, and chairs and seats for rail carriages.

Jobs 2011 – 2019: Manufacture of railway locomotives and rolling stock, excluding repair and maintenance of locomotives, including railway-related electrical equipment, and chairs and seats for rail carriages.

27

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Factory closures, for example those in 1994 and 2004 typically follow around 3-4 years after a final order. In parallel the maintenance industry is changing as recent new fleet orders require less maintenance. The supply chain is seeking to adapt to these changes for example companies like Unipart have proactively diversified into automotive, and some UK OEMs work across multiple sectors including energy, highways and automotive. However, a delay in maintenance investment has already caused factory closures and redundancies, even as the railway is growing28. Whilst it might be said that this is evidence of a competitive market working effectively – there are inevitable transitional costs which add cost to the railway both in terms of skills and efficient deployment of capital. We understand that rolling stock manufacturers, many of whom invested in the UK in anticipation of both a consistent UK market and export potential, are concerned that without new orders factories may be running below capacity or worse with the related impacts on industry cost, skills and capability.

4. Skills The above sections have highlighted the adverse consequences of uncertainty and boom and bust on the UK rail sector’s ability to retain skills. Tier One companies evidence an “international skills battle” and pressure from other sectors and industries. In order for large international companies to make the investments needed to retain skills in the UK, the market needs to be sufficiently certain. The same logic is true for the individual person choosing a career path – there needs to be a certain level of certainty that the chosen career will be easy to sustain and grow in. An international Tier One company described that there is a strong appetite from to make commitments back to clients and invest in skills and social value – but this is difficult without a certain level of committed work. Especially given the aforementioned pressures from other industries and countries.

While it is clear that “bust” periods of insufficient funding, causing teams to disband or factories to shut, is detrimental to skills, periods of “booms” in investment are also not healthy. An international Tier One company evidenced that in an overheated markets, companies will struggle to secure the right specialist resources. This will push salaries up and part of the cost will ultimately be passed on to the client – resulting in less value for money.

28

https://www.railwaygazette.com/uk/wabtec-to-close-brush-traction-plant/58966.article

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Rail is green, and ambitious programmes of infrastructure spend can create thousands of additional green jobs across the country. A Rail Delivery Group report found that decarbonising the railway would create around 6,000 new rail job opportunities, £2.2bn of economic benefits, in addition to 33m tonnes of carbon emissions saved between now and 2050.29

29

https://www.raildeliverygroup.com/about-us/publications/12853-2021-10-catalysing-a-greenrecovery/file.html

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CHAPTER 2: HOW WE CAN DELIVER VALUE FOR GREAT BRITISH RAILWAYS

5. A rolling programme of work 6. A pipeline of work 7. Whole-life whole-system outcome thinking 8. Cost control and revenue growth 9. Medium and longer-term opportunities 10. Conclusion and key recommendations

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5. A rolling programme of work Chapter 1 has demonstrated how all parts of the UK rail sector could generate more value by smoothing out investment and adopting a rolling programme approach.

What is a rolling programme?

A rolling programme is a programme of work which allows resources to be continuously employed over a long period of time. An efficient delivery team sits at the core of the rolling programme. The team is fed with work and stays continuously active – continuously learning, improving productivity, and delivering efficiencies.

Projects in a rolling programme will be similar to each other, allowing for more of a production-line approach where it is easier to retain the same staff from project to project. While this will not be appropriate for all disciplines, track renewals, rail electrification and digital signalling are ideal candidates. Work in electrification programmes is very repetitive and would benefit greatly from retaining the same core teams without having to suffer from hiatuses and the need to recruit new teams. Currently, electrification is considered as an enhancement scheme. This means that, as described above, electrification projects are procured project by project in a transactional manner.

This means that teams which have become efficient are routinely demobilised, losing the opportunity for continuous improvements as the team takes their experience and learning to the next project.

Rolling programmes also include long-term collaborative relationships between clients and suppliers.

Such relationships make planning for efficiencies easier, revealing issues with the deliverability of plans and programmes at an early stage rather than when it might be too late.

Similar arguments can be made for manufacturing capability where efficient productive factories evolve production lines over time whilst maintaining consistent levels of productivity. We understand that the aviation industry and EU rolling stock manufacturers use procurement techniques such as long-term frameworks and procurements with options for follow on orders, for example, as a means of smoothing pipelines and running factories at maximum efficiency.

Learning from international experience, RIA believes there are opportunities to use longer contract for difference models more widely and to learn from European and Japanese models where longer framework contracts attract private investment. This enables a more effective risk share with the private sector.

With regard to enhancements, efficient resource deployment and project delivery would be supported by regular publication of the RNEP programme and by better alignment of funding decisions with project life cycles. Whilst Government reviews such as those in CP5 are the prerogative of Government, they should be seen as a last resort. The cost of uncertainty and stop start decision making should not be underestimated.

6. A pipeline of work Chapter 1 has also illustrated how value can be unlocked by early and open communication with the supply chain, through a clear pipeline of work. While a rolling programme is about a continuous programme, a pipeline is about clearly communicating plans and strategies. When international companies are deciding which markets to invest in, a clear pipeline of upcoming work will make the UK stand out as an attractive market. Similarly, both Tier One companies and SMEs will be attracted

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to the rail sector, rather than other sectors, if clear pipelines for funding and procurement are available.

The RNEP has the potential to unlock efficiency for enhancements. Forward visibility of major rail projects, and early supplier engagement, creates a competitive environment where suppliers can plan for efficiency. For renewals, Network Rail procurement pipelines are already starting to unlock efficiencies, and building on that approach provides a huge opportunity for GBR to procure for best value.

7. Whole-life whole-system outcome thinking It is not clear that government decision-making is consistent with the commitment to outcome focused procurement. We understand that current Government and GBR Transition Team (GBRTT) planning is focusing on refurbishment (including bi-mode and tri-mode) rather than either electrification or new build trains. This risks perpetuating the boom and bust profile with associated loss of capability and productivity benefits. With no evidence of market or commercial strategy it is also not clear how clients know where refurbishment is the most cost-effective solution. RIA would favour wider market sounding aiming for a balanced program of refurbishment, new build and upgrade or electrification. We welcome the current dialogue with the GBRTT and Network Rail Eastern region regarding how best to maintain and grow electrification capability and reduce the costs. We also welcome the fact OEMs have now been invited to join RDG and GBRTT discussions on the development of the Whole Industry Strategic Plan.

Given the nature of traction decarbonisation it may well be the case that funding should be seen as an asset agnostic renewals programme – rather than follow the stop start RNEP enhancement process.

Regular, lower, sustained levels of investment aligned with asset lifecycles would avoid future boom and bust cycles delivering opportunities for UK led innovation with higher productivity for suppliers and the UK economy. More generally as technology advances outcome focussed rather than output or asset based procurement becomes increasingly important as suppliers are prevented from offering innovative whole system solutions when procurements are defined too narrowly or based on traditional assets.

Private Investment, Totex and Incentives GBR internalisation of profit and loss and whole system thinking will present opportunities to rethink how decisions are made. A Totex (total expenditure including capital and whole-life operation) approach to for example signalling have the potential to unlock more efficient spend.

As passengers return some routes and regions will be self-funding for OMR and this may create opportunities to consider new business models.

Although we recognise that it will usually be cheaper for Government to borrow money this assumes that public projects are always efficient, innovative, and delivered on time, and fails to recognise the benefits where private sector investment can better align incentives. RIA proposes to develop further thinking on business models for private investment and unlocking the potential of the private sector.

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8. Cost control and revenue growth GBR should plan for both cost control and revenue growth. There was strong feedback from RIA Members that boom and bust often happens when Government or clients are focusing only on the former. RIA and the supply chain recognise the need to have clear plans for cost reduction - and see the delivery of Network Rail efficiency plans in CP6 as a clear model for this, where targets had clear ownership and were seen as deliverable.

Suppliers see opportunities for GBR to apply the principles of the Construction and Outsourcing Playbooks at a whole rail system level. As recognised in these documents, a cost-only approach leads to transactional relationships and creates the risk of a race to the bottom with company and contract failure. In the context of global uncertainty and with current high inflation the risks to supply chain sustainability are potentially higher than ever.

Government should recognise the railway as a national asset with significant levels of sunk and committed future investment and seek to maximise the return on investment. One way to achieve this might be for GBR to have a statutory obligation to support a sustainable supply chain and to recognise the full economic value of investments – as proposed in RIA’s response to the consultation on rail reform legislation.

9. Medium and longer-term opportunities This paper has predominantly focused on the need to avoid hiatus in investment and to avoid immediate risks of boom and bust, arguing for consistent levels of investment. However, in the medium and longer term GBR may present further opportunities to consider new business models and opportunities for greater alignment of incentives. Questions the supply chain are asking include: •

• • • • •

How reform might support better recognition of the strategic role that could be played by rail as the backbone of the public transport system – including opportunities for investment in mobility as a service and to build on expertise from the rail sector. This includes, for example, system thinking, data and digital, potential for place-making and electrification.

Whether internalisation of profit and loss at a regional level might create opportunities for new investment business models – particularly where some regions may be fully customer funded, at least for OMR. Whether there may be opportunities to experiment on some routes – particularly where subsidies have always been high, to see whether lower fares might drive increase in revenues.

Opportunities for private funding and alternative revenue streams such as oversight development, energy and telecoms as a service30 – perhaps building on the aviation single till model31.

Linked to this, options for considering whether for some routes control periods, franchise and rolling stock contracts and funding decisions might be better aligned.

Opportunities for rail to lead innovation including significantly higher levels of UK manufacturing and exports – including new technologies such as 3D printing, zero carbon concrete, hydrogen, battery and building information management.

30

https://www.networkrail.co.uk/stories/network-rail-invites-1bn-private-sector-investment-in-telecoms/

31

https://www.iata.org/contentassets/4eae6e82b7b948b58370eb6413bd8d88/single-till.pdf

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•

Finally there are opportunities for GBR to think and behave more like a private sector business with a focus on maximising return on investment and growing revenues rather than cost efficiency alone.

10. Conclusion and key recommendations While there has been progress on mitigating the boom and bust profile, there remains a high degree of current uncertainty. Key areas of uncertainty include: • • •

Renewals: The transition towards GBR means there is a risk of a hiatus in work and a continuation of historic patterns of boom and bust. The industry knows little about the contents of the WISP. Enhancements: The absence of an updated RNEP means that suppliers are left with uncertainty. They consider other markets and sectors and resources and skills are lost as the industry waits for further announcements.

Rolling stock: The delayed publication of the franchise schedule, in combination with the fact that some rolling stock assets are nearing the end of their natural life span, means that the industry is heading for a low point in the boom and bust cycle.

This is inhibiting suppliers’ ability to plan for efficiencies and deliver value. The supply chain is ready to deliver on electrification and digital railway, and a rolling programme of work would unleash this potential.

RIA’s key recommendations are therefore: 1. Provide certainty and clarity, and the supply chain will grow productivity. In practice, this means: o Publish clear pipelines of work. Publishing the Rail Network Enhancements Pipeline now means getting GBR right from the start. o Implement rolling programmes of work to deliver productivity, value for money, and retention of skills. o Agree a minimum level of volumes, around which suppliers can intelligently anticipate a certain level of variation. o Let frameworks run across control periods. o Publish the rolling stock franchise schedule and use techniques such as procurements with options for follow on orders. o Support competition by maintaining a level playing field between GBR and the private sector.

2. Follow best practice, and the supply chain will do the same. Best practice includes: o Follow through on HMT Green Book and Cabinet Office Procurement policy and legislative commitments to outcome-based procurement. o Follow the recommendations in the Construction Playbook. o Procurement best practice includes early supplier engagement, publishing indicative volumes, and including volume and value commitments in framework procurements.

3. Recognise the contribution of rail to UK Plc, and the supply chain will grow domestic capabilities.

The UK market can be made more attractive by: o Providing certainty and clarity (see 1 above). o Be ambitious and grow the rail sector in the UK to deliver economic, environmental, and social benefits all over the UK. o Consider opportunities for private investment in rail infrastructure.

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